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OUTER HOUSE, COURT OF SESSION
[2007] CSOH 61
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P1724/06
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OPINION OF LORD MACPHAIL
in the petition of
MOHAMED ABDOUR ROUF
TRADING AS
THE NEW BALAKA
RESTAURANT
Petitioner;
for
JUDICIAL REVIEW OF
A DECISION OF THE
GENERAL
COMMISSIONERS OF INCOME TAX FOR
THE DIVISION OF DUNDEE
ญญญญญญญญญญญญญญญญญ________________
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Petitioner: Tyre, Q.C.;
Brechin Tindal Oatts
General Commissioners of Income Tax for
the Division of Dundee:
J G Thomson, D Hamilton; Thorntons Law LLP
The Scottish Ministers: E G Mackenzie; Office of the Solicitor to the
Scottish Executive
23 March 2007
Introduction
[1] This
is a motion for expenses which follows upon my interlocutor dated 14 December 2006 whereby I sustained the
pleas-in-law for the petitioner, ordered the Clerk to the General Commissioners
to issue a draft stated case, and reserved the question of expenses. I refer to my Opinion of that date.
[2] The
petitioner thereafter enrolled a motion in the following terms:
"On behalf of the petitioner
to find the General Commissioners of Income Tax for the Division of Dundee
liable to the petitioner in the expenses of and incidental to the petition upon
the agent and client, client paying scale; failing which for an order in terms
of section 2A(3) of the Taxes Management Act 1970 (as amended) ordering the
Scottish Ministers to pay the expenses of the petitioner in the petition; to
award the petitioner such amount as will compensate him for expenses reasonably
incurred by the petitioner in the petition; to have regard, in determining the
appropriate amount, to (a) the nature of the work; (b) the complexity or
difficulty of the work; (c) the time expended on the work; and (d) the importance
of the work to the petitioner; and to make such order as will place the
petitioner in the same position, had the order been made in terms of Chapter 42
of the Rules of the Court of Session, as (i) a finding of expenses made upon
the agent and client, client paying, scale; with (ii) additional fee uplifts
under each of heads (a) - (d) aforesaid; and with (iii) certification of
Crawford Herald Esq of Messrs Jeffrey Crawford & Co, Chartered Accountants,
Edinburgh as an expert for the petitioner who assisted with the preparation and
conduct of the petition."
It is convenient to notice now that at the hearing of
the motion senior counsel for the petitioner did not move his primary motion
for an award of expenses against the General Commissioners but moved for an
order against the Scottish Ministers in terms of the motion, except that he
limited the motion for additional fee uplifts to head (d) only.
[3] The
motion was opposed by the General Commissioners and by the Scottish Ministers. In the forms of opposition to the motion the
basis of opposition by the General Commissioners was that in terms of section
2A of the Taxes Management Act 1970 the General Commissioners may not be found
liable in expenses. The Scottish
Ministers' basis of opposition was that any award of expenses should be made
(a) against the General Commissioners and (b) on a party and party basis.
[4] At the
hearing of the motion on 27 February 2007 I heard submissions both as
to the competency of the Scottish Ministers' motion that expenses should be
awarded against the General Commissioners, and as to the merits of the
petitioner's motion. After making
avizandum I issued a note inviting parties to make further submissions. I heard
these submissions on 14 March 2007.
Competency
Legislation
[5] The
material terms of the Taxes Management Act 1970, as amended ("the 1970
Act") are as follows:
"2. (1) For the purposes of exercising such power
relating to appeals and other matters as are conferred on them by the Taxes
Acts [. . .] there shall be 'Commissioners for the General Purposes of the
Income Tax' (in the Taxes Acts referred to as 'General Commissioners') who
shall act for the same separate areas in Great Britain as heretofore or for the
separate areas in Northern Ireland defined by an order made by the Lord
Chancellor (in the Taxes Acts referred to as 'divisions').
[ . . . ]
(3) General Commissioners for divisions in Scotland shall be appointed by, and
shall hold office during the pleasure of, the Secretary of State.
[ . . . ]
2A. (1) A court may not order a General Commissioner
to pay costs or (in Scotland) expenses in any proceedings in respect of any act
or omission of his in the execution (or purported execution) of his duty as a
General Commissioner.
(2) Subsection (1) above does not apply in
relation to -
(a) any proceedings in which
a General Commissioner is being tried for an offence or is appealing against a
conviction; or
(b) any proceedings in which
it is proved that a General Commissioner acted in bad faith in respect of the
matters giving rise to the proceedings.
(3) Where a court is prevented by subsection (1)
above from ordering a General Commissioner to pay costs or expenses in any
proceedings, the court may instead order the making by the relevant Minister of
a payment in respect of the costs or expenses of a person in the proceedings.
(4) The relevant Minister may by regulations made
by statutory instrument make provision specifying -
(a) circumstances when a
court shall or shall not exercise the power conferred on it by subsection (3)
above; and
(b) how the amount of any
payment ordered under that subsection is to be determined.
[ . . . ]
(6) In this section 'relevant Minister' means the
Lord Chancellor or, in Scotland, the Secretary of State."
[6] Section
2A was added by section 102 of the Access to Justice Act 1999 ("the 1999
Act") and came into force in England and Wales on 1 April 2001 (Access to
Justice Act 1999 (Commencement No 7, Transitional Provisions and Savings) Order
2001 (SI 2001 No 916), article 2(b)(ii)) and in Scotland on 31 March 2003
(Access to Justice Act 1999 (Commencement No 9 and Transitional Provisions)
(Scotland) Order 2003 (SSI 2003 No 207), article 2(b)). The functions conferred on the Secretary of
State by section 2A are exercisable by the Scottish Ministers by virtue of the
Scotland Act 1998 (Transfer of Functions to the Scottish Ministers etc) Order
2003 (SI 2003 No 415), article 2 and Schedule. No question was raised before me as to the
transfer of these functions to the Scottish Ministers notwithstanding that they
appear to relate to a reserved matter (Scotland Act 1998, Schedule 5, Part II,
Head A).
[7] The
Scottish Ministers, in the exercise of the powers conferred by section 2A(4),
made the General Commissioners of Income Tax (Expenses) (Scotland) Regulations 2003 (SSI
2003, No 233) ("the 2003 Regulations"). The
Regulations provide, so far as material:
"2. In these Regulations -
'order' means an order of
the court under section 2A(3) of the Taxes Management Act 1970 that the
Scottish Ministers make a payment in respect of the expenses of a person in
proceedings; and
'proceedings' means
proceedings in respect of any act or omission of a General Commissioner in the
execution (or purported execution) of a duty as such General Commissioner.
3. Where the court makes an order, the amount of
expenses to be paid under an order shall be determined in accordance with these
Regulations.
4. (1) When making an order the court shall -
(a) award such amount as
will compensate the party in whose favour the order is made for expenses
reasonably incurred by that party in the proceedings; and
(b) have regard, when
determining the expenses reasonably incurred, to the factors specified in
paragraph (2).
(2) The factors specified
are -
(a) the nature of the work;
(b) the complexity or
difficulty of the work;
(c) the time expended on the
work; and
(d) the importance of the
work to the party in whose favour an order is made."
Submissions
[8] Senior
counsel for the petitioner submitted at the first hearing of the motion that an
award of expenses against the General Commissioners would be incompetent. They were not a legal entity: they were simply
individuals who had been appointed as General Commissioners for the Division of
Dundee. Section 2A had laid down a very
straightforward scheme. It provided that
in future General Commissioners should have immunity from being ordered to pay
another party's costs in any legal proceedings arising out of the exercise of
their functions except where it was proved that they had acted in bad faith, or
they themselves were subject to criminal proceedings. Where the court could have made an order for
expenses but was prevented from doing so, it could instead order the expenses
of a party to be paid by the Scottish Ministers. Counsel referred to the
Explanatory Notes on Part VI of the 1999 Act.
[9] Counsel
for the Scottish Ministers submitted at the first hearing that it would be
competent to make an award of expenses against the General Commissioners. The provisions of the 1970 Act as to indemnity
related to the liability of a General Commissioner as an individual rather than
as the holder of an office. References
in sections 2(9) and (10), 2A(2) and 3A(1) were to "a General Commissioner" in
the singular. Counsel invited me to examine
speeches by Ministers, reported in Hansard, during the Parliamentary progress
of the Access to Justice Bill, upon the view that the terms of section 2A were
not clear. Counsel also referred to R (Coombes) v General Commissioner of Income Tax (Guildford & Wotton Division) [2006]
EWHC 1483 (Admin) at paragraph [18] where an order that the defendant pay the
claimant's costs had been made without any discussion of section 2A. Counsel proposed that an award of expenses
could competently be made against the General Commissioners of Income Tax for
the Division of Dundee, and they could then seek indemnification from the
Scottish Ministers.
[10] At the
second hearing of the motion, counsel for the Scottish Ministers submitted that
no award of expenses should be made against the General Commissioners because
they, quite properly, had not entered the process to contest the petitioner's
application for judicial review of their decision. That submission was founded on R (Davies) v
Birmingham Deputy Coroner [2004] EWCA Civ 207, [2004] 1 WLR 2739, a
decision which I shall notice later. Counsel
submitted that it was implicit in section 2A(3) that the court should only make
an award of expenses if it would have been appropriate to do so. Section 2A(3) preserved the court's power to
award expenses in favour of successful litigants in certain circumstances where
a General Commissioner had acted in good faith. It was unlikely, however, that Parliament had
intended by section 2A(3) to change the principles upon which the courts
exercised their discretion to award expenses against inferior courts and
tribunals. Parliament had taken away the
court's power to make an award against General Commissioners and had provided
an alternative party who should pay the expenses of a successful litigant in a
case where it would have been appropriate for the court to make an award
against the General Commissioners.
[11] In reply to
these further submissions, counsel for the petitioner submitted that Davies was of no assistance and should
not be followed. The present case was
closer to R (Touche) v Inner London North Coroner [2001] EWCA Civ 383, [2001] 1 QB 1206. In any event
an award of expenses was justified because the General Commissioners'
refusal to state a case had been a flagrant instance of improper behaviour.
[12] Counsel
for the General Commissioners submitted that an award of expenses against them
was incompetent by virtue of section 2A. The petitioner had sought an order, by virtue
of section 45(b) of the Court of Session Act 1988, for the specific performance
of the statutory duty to state a case which was required of the General Commissioners
by regulation 20 of the General Commissioners (Jurisdiction and Procedure)
Regulations 1994. Their failure to state
a case had been an "omission" in the execution of their duty in the sense of
that word in section 2A. The draft case
had now been signed by four General Commissioners, and not by a corporate body
with a distinct legal personality. The
Commissioners were unpaid volunteers who had no access to the resources of a
Government department. Since the date of
coming into force of the 2003 Regulations they had had immunity from expenses
orders in respect of any act or omission arising from the execution of their
duties, provided they had acted in good faith: counsel referred to the Guidance Notes for General Commissioners of
Income Tax (Scottish Version) (June 2003), paragraph 6.14.3, which, he
said, could only relate to section 2A(3).
Decision
[13] It will
be convenient to begin by considering the submissions for the Scottish
Ministers at the second hearing. In my
opinion Davies is not apposite to the
issue before this Court. It contains a
discussion of the practice of the High Court as to the making of an order for
costs against an inferior court or tribunal. The discussion is summarised in paragraph 47. Suffice it to say that it appears that
differing rules apply, first, according as the inferior court or tribunal does
or does not appear before the court: that distinction was described as an
anomaly by Simon Brown LJ (as he then was) in Touche at paragraph 56. Secondly,
where the inferior court or tribunal does appear, differing rules apply
according as it appears to resist the application actively or to assist the
court neutrally; but in the latter case, the court may tend to make an award in
favour of a successful applicant where the inferior tribunal has gone wrong in
law and there is no other very obvious candidate available to pay his costs.
Brooke LJ observed (in Davies at
paragraph 48):
"48 I do not regard this
outcome as at all satisfactory, but it stems from Parliament's unwillingness to
allow a successful applicant to be reimbursed from central funds for the
expense to which he has been put when there is no other potential source of
public funds available for this purpose."
[14] No
authority has been cited in the present case for the proposition that rules on
these lines are part of the law and practice of the Scottish courts in awarding
expenses. The observations of Simon
Brown LJ and Brooke LJ provide good reason for not adopting such rules in Scotland now. Indeed the 2003 Regulations appear to be
designed to enable a successful applicant to be reimbursed in the circumstances
to which Brooke LJ refers.
[15] In my
opinion, accordingly, there is no support in the law of Scotland for the view that before
the coming into effect of section 2A the General Commissioners could not have
been ordered to pay the expenses of the petitioner in a petition such as the
present. In any event counsel for the
Scottish Ministers did not challenge the submission of the petitioner's counsel
that an award of expenses could be made where there had been a flagrant
instance of improper behaviour on the part of the General Commissioners.
[16] I now
consider the effect of section 2A in the present case. In my opinion it is evident from its terms
that an award of expenses against the General Commissioners would be
incompetent. The present petition for
judicial review may properly be described, in the language of section 2A(1), as
proceedings in respect of an omission by the General Commissioners in the execution
of their duty as General Commissioners.
It is not brought against the General Commissioners directly, but it
arises from their decision to refuse to state a case. As I have noted, before the coming into force
of section 2A they could have been ordered to pay the expenses of the
petitioner in such a petition. The
effect of section 2A(1) and (2), however, is that the Court is prevented from
ordering them to pay expenses in the present proceedings if it is not proved
that they acted in bad faith. There is
no suggestion of bad faith here. The
effect of section 2A(3) is that the Court, being so prevented, may instead
order the making by the Scottish Ministers of a payment in respect of the
petitioner's expenses. There is not in
my opinion any ambiguity which requires to be resolved by a resort to Hansard. The argument for the Scottish Ministers at the
first hearing and the proposed roundabout procedure of an award followed by an
application for indemnification appear to me to be wholly unrealistic. It is significant that although section 2A
came into effect in England and Wales in 2001 and in Scotland in 2003, it appears from
the researches of counsel that no such submissions have hitherto been attempted
by the relevant Minister or Ministers. It seems clear that the award of costs in Coombes was made per incuriam.
[17] In my
opinion, accordingly, the petitioner's motion for an order against the Scottish
Ministers is competent. It appears to me
that in a case like the present the object of section 2A(3) is, if I may adapt
the language of Brooke LJ, that a successful applicant such as the petitioner,
who has to finance his own litigation without external funding, may be fairly
compensated out of a source of public funds and not be put to irrecoverable
expense in asserting his rights after General Commissioners have acted or
failed to act to his prejudice in a manner which is subject to judicial review.
Merits
Submissions
[18] At the
first hearing of the motion, senior
counsel for the petitioner moved me to order, in terms of section 2A(3), the
making by the Scottish Ministers of a payment in respect of the petitioner's
expenses, and to remit to the Auditor to determine the amount. Counsel further moved that the mode of
taxation should be agent and client, client paying. That was the only way in which the petitioner
could be properly compensated, as regulation 4(1)(a) of the 2003 Regulations
required. The refusal of the General
Commissioners to state a case had been wholly inexcusable and obviously wrong. The petitioner had been deprived of his right
of appeal. It was unreasonable that he
should have to bear the expense of rectifying the error and restoring himself
to the position he would have been in if the General Commissioners had
performed their duty. The Court should
remit to the Auditor to have regard to the factors specified in regulation 4(2)
of the 2003 Regulations.
[19] At the
second hearing of the motion counsel for the petitioners discussed the General
Commissioners of Income Tax (Costs) Regulations 2001 (SI 2001 No 1304) ("the
English Regulations") which are the regulations made in England in the exercise of the
powers conferred by section 2A(4). Counsel
pointed out that the 2003 Regulations had not copied the English Regulations. He noted, however, the distinction between the
standard basis and the indemnity basis for the assessment of costs referred to
in rule 44.4 of the Civil Procedure Rules 1998, and he submitted that
regulation 5(1)(a) of the English Regulations, which requires the court when
making an order to "determine such an amount as it considers sufficient
reasonably to compensate the receiving party for any costs properly incurred by
him in the proceedings", had in view the indemnity basis, which was equivalent
to the Scottish scale of agent and client, client paying. Assessment on the standard basis included a
criterion of proportionality which was not present in assessment on the
indemnity basis (rule 44.4(2)(a), (3)). The
2003 Regulations echoed the description of the Scottish scale of agent and
client, client paying, in Maclaren on Expenses
at page 509 and steered the Court towards that scale. The Court should direct the Auditor to have
regard to that scale when applying regulation 4 of the 2003 Regulations.
[20] As to
the petitioner's motion for an additional fee, senior counsel submitted that
rule 42.14 of the Rules of the Court
of Session was in entirely general terms and was not excluded by the 2003
Regulations. An uplift was sought only
in respect of the importance of the work to the petitioner. The very large sums demanded would have put
him out of business. Being deprived of
his right of appeal had been a matter of extreme importance to him.
[21] Finally,
counsel moved for the certification of Mr Crawford Herald as an expert for the
petitioner. He was a tax specialist in
the firm of Jeffrey Crawford & Co. The
petitioner had consulted him after receiving the letter from the Clerk to the
General Commissioners which is referred to in paragraph [3] of my Opinion of 14 December 2006. He had endeavoured to persuade the General
Commissioners to state a case.
[22] Counsel
for the Scottish Ministers submitted that if it was competent to make an award
against the Scottish Ministers, no such award should be made. Section 2A(3) of the 1970 Act conferred
on the Court a discretion whether to make an award. The 2003 Regulations did not offer any guidance
as to when an award should be made. The
General Commissioners acted in a quasi-judicial capacity: they had no executive
or administrative functions. They were
appointed to adjudicate on disputes between the taxpayer and HM Revenue and
Customs. For public policy reasons they
were not liable for damages or expenses arising out of the exercise of their
powers unless malice or bad faith was present. They had not been parties to the cause. An award against them should only be made in
exceptional cases, as where their conduct had been so unreasonable, misguided
or inept that an award should be made. Whether
their conduct could be so described was a matter of degree: it could be so
described if, for example, they had defended the present proceedings and thereby
caused additional expense. General
Commissioners normally took no part in such proceedings: reference was made to
paragraph 6.14.2 of the Guidance Notes.
In the present case the General
Commissioners had made an honest mistake in good faith, and no award should be
made. Judicial bodies made mistakes, and
it did not follow that the taxpayers should pay the expenses of those aggrieved
by them.
[23] If,
however, the Court were minded to make an award, it should be taxed on a party
and party basis. That was the normal
mode of taxation. Regulation 7(3) of the English regulations, which directed
the costs judge to resolve against the receiving party any doubts he might have
as to whether the costs were reasonably incurred or were reasonable in amount,
was inconsistent with the indemnity basis of assessment. If the General Commissioners had entered
appearance, no doubt expenses would have been awarded against them on a party
and party basis. That would have been
the basis of taxation before the coming into effect of section 2A. Taxation on the basis of agent and client,
client paying, normally reflected the Court's displeasure at the party's
conduct, and should only be ordered sparingly.
[24] As to
the allowance of an additional fee, it was not disputed that the matter had
been of importance to the petitioner. However,
the certification of Mr Herald should be refused. The preparation and conduct of the petition
had been in the hands of senior counsel, and there had not been any need for
expert assistance. It was clear from the
petition that Messrs Jeffrey Crawford had been in correspondence with the Clerk
to the General Commissioners after the hearing and prior to the presentation of
the petition. Counsel agreed that if an order were made, there should be a
remit to the Auditor for taxation in terms of rule 42.1 of the Rules of the
Court of Session.
[25] Counsel
for the General Commissioners adopted the submissions of counsel for the
Scottish Ministers as to the merits.
Decision
[26] As to
the mode of taxation, regulation 4(1)(a) of the 2003 Regulations provides that
when making an order the court must "award such amount as will compensate the
party in whose favour the order is made for expenses reasonably incurred by
that party in the proceedings". Expenses
on a party and party basis do not fully compensate a party for such expenses,
but where expenses are taxed on the basis of agent and client, client paying,
"the rule is that the client is liable for all expenses reasonably incurred by
the agent for the protection of his client's interest in the suit, even
although such expenses cannot be recovered from the opposite party" (Mackay, Practice, ii, 585; Maclaren, Expenses, p 509). The expression "expenses reasonably incurred"
in the regulation appears to echo the statement in Mackay. The English Regulations seem to be broadly
similar in effect. In any event it is
sufficiently clear that in Scotland the 2003 Regulations do not contemplate the
rigours of a party and party taxation and that the Auditor should rather have
regard to the scale of agent and client, client paying, in order to fulfil the
objective of section 2A(3) which I have sought to identify above.
[27] Even if
I were wrong about that, I would in any event conclude that in this case I
should apply the general rule that an order for taxation as between agent and
client, client paying, may be made in exceptional circumstances. The decision of the General Commissioners not
to state a case is open to serious criticism. As I have pointed out in my Opinion of 14 December 2006, the questions of law which the petitioner sought to
state are familiar and conventional in form, appear in the General Commissioners'
own Guidance Notes and are supported
by a long-established decision of the highest authority. No attempt has been made to justify or explain
the General Commissioners' refusal to state a case, and I regret to say that
their refusal must be described as obviously wrong and wholly unreasonable. As a result the petitioner has had to suffer
the vexation, delay and expense of vindicating his right to appeal by bringing
the present petition. In my opinion the
Court should mark its disapproval of the General Commissioners' conduct by
making an order for taxation on the basis of agent and client, client paying.
[28] The
competence of allowing an additional fee was not challenged. I agree with counsel that the importance of
the work to the petitioner was so great that an additional fee should be fixed
taking that factor into account.
[29] I do
not agree, however, that there should be certification of Mr Herald. He appears to have carried out the normal
duties of a chartered accountant and not to have made any special
investigations or report for any purpose connected with the preparation and
presentation of the petition.
Result
[30] I shall
accordingly dispose of the petitioner's motion in the following way. I shall make an order in terms of section
2A(3) of the Taxes Management Act 1970, as amended, ordering the Scottish
Ministers to pay the expenses of the petitioner in these proceedings as they
may be taxed by the Auditor upon the agent and client, client paying, scale,
directing the Auditor to have regard to the factors specified in paragraph (2)
of regulation 4 of the General Commissioners of Income Tax (Expenses)
(Scotland) Regulations 2003, and allowing an additional fee in terms of rule
42.14(3)(e) of the Rules of the Court of Session 1994 in respect of the
importance of the work to the petitioner. Quoad
ultra I shall refuse the motion.
