BAILII
British and Irish Legal Information Institute


Freely Available British and Irish Public Legal Information

[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

United Kingdom VAT & Duties Tribunals Decisions

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Capital One Bank (Europe) PLC v Revenue & Customs [2006] UKVAT V19556 (21 April 2006)
URL: http://www.bailii.org/uk/cases/UKVAT/2006/V19556.html
Cite as: [2006] UKVAT V19556
[New search] [Printable RTF version] [Help]
Capital One Bank (Europe) PLC v Revenue & Customs [2006] UKVAT V19556 (21 April 2006)

    2. COSTS — Commissioners succeeding on principal issue but failing on others — whether costs should simply follow event or success or failure on each issue should dictate incidence — costs to follow event

    MANCHESTER TRIBUNAL CENTRE

    CAPITAL ONE BANK (EUROPE) PLC

    Appellant

    - and -
    THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS

    Respondents

    Tribunal: Colin Bishopp (Chairman)

    Sitting in public in Manchester on 14 February 2006

    Mark Smith, counsel, instructed by PricewaterhouseCoopers, for the Appellant

    Peter Mantle, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

    © CROWN COPYRIGHT 2006

     
    DECISION
  2. The appeal of Capital One Bank (Europe) plc ("COBE") against the Respondents' rejection of its claim for the refund of input tax of a little over £11 million was heard in May 2005. The decision of the tribunal, of which I was the chairman, was released on 9 September 2005. Although we concluded by saying, in respect of costs, that it was "a case in which it would be appropriate for us to make a direction in the Respondents' favour", we had not been addressed on the subject, and did not make a formal direction. The Respondents now seek such a direction, wholly in their favour. COBE accepts that this is one of those exceptional cases in which the Commissioners are not bound by the normal rule that they do not seek costs, and that a direction should be made in accordance with the usual practice in the High Court; but, it contends, the Respondents should not have all of their costs and, moreover, should meet COBE's own costs in part. I am, therefore, now asked to make a direction, in principle, about the costs which each might recover from the other. Although the tribunal which determined the appeal consisted of Mr Kenneth Goddard and myself, the parties agreed that I should hear this application sitting alone.

  3. At the hearing, for convenience, the dispute between the parties was broken down into six, not entirely discrete, issues. The first issue, which was determinative, was resolved in the Respondents' favour. We (the tribunal) then proceeded to decide the remaining five issues, in case the matter should go further (as it has, although the parties nevertheless require the present direction) and because we had heard evidence and argument about them. The second issue was decided in COBE's favour, as were the fourth and fifth, while the Respondents succeeded on the sixth. The third issue (which related to the value of the consideration) was decided in COBE's favour, in that the Respondents were unsuccessful in resisting their argument altogether, but we determined that, if there was consideration at all, its value was £700 million rather than the £2 billion and more for which COBE had argued.

  4. For the Commissioners, Peter Mantle based his argument that they should have their costs throughout primarily upon the fact that the outcome of the appeal was entirely in their favour. He relied on Part 44.3(2)(a) of the Civil Procedure Rules, which provides that "the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party". That rule, he said, should be set aside only for good reason, and there was no such reason in this case. There was no warrant for the issue-by-issue approach advocated by COBE: although six issues had been identified, that had been done as a means by which the core issue, namely whether COBE was entitled to the repayment of the input tax which it had claimed, could more easily be determined. The Commissioners had been required to resist COBE's appeal and they could not be criticised for disputing all six issues. The first was the principal issue; if it had not been necessary to deal with that issue, the next four would not have arisen—none of those issues stood alone, but were related to and dependent upon the first—while the last, which had also been decided in the Commissioners' favour, was the only one which could be said to have an independent existence. Moreover, those issues on which COBE had won were all determined upon the hypothesis that the tribunal was wrong in its conclusion on the first issue, since they could only arise as effective issues if the first had been determined in COBE's favour; thus such success as COBE had achieved was theoretical rather than real and that limited success did not alter the fact that, in substance, it was the Respondents who had succeeded.

  5. It could not be said that the Commissioners had acted unreasonably in contesting those issues which they had hypothetically lost, since it was COBE's challenge to their ruling (that its input tax claim should not be met) which had drawn them into doing so: it was because, and only because, COBE had incorrectly claimed that it made a supply that the second to fifth issues arose at all. And even though six issues had been identified, they were not wholly discrete in evidential or legal terms: there was a good deal of overlap between them and it could not be said that the Respondents' contesting those it had lost had significantly lengthened the hearing.

  6. For COBE, Mark Smith argued that the four issues on which it had succeeded were substantial matters in their own right, raising significant issues of fact and law, and it could not be said they were merely incidental. The appeal could have been decided on the first issue alone, and if the Respondents had not raised the second to fifth issues, the tribunal need not have heard evidence and argument relating to them. While COBE must concede the costs of the first and sixth issues, it was appropriate that the Respondents should pay their costs of the second to fifth. He relied on what was said by the Court of Appeal in Summit Property Ltd v Pitmans [2001] EWCA Civ 2020, particularly by Chadwick LJ at [27]:

    7. "… An issue based approach requires a judge to consider, issue by issue in relation to those issues to which that approach is to be applied, where the costs on each distinct or discrete issue should fall. If, in relation to any issue in the case before it the court considers that it should adopt an issue based approach to costs, the court must ask itself which party has been successful on that issue. Then, if the costs are to follow the event on that issue, the party who has been unsuccessful on that issue must expect to pay the costs of that issue to the party who has succeeded on that issue. That is the effect of applying the genera! principle on an issue by issue based approach to costs. Further, there will be cases (of which this is not one) where, on an issue by issue approach, a party who has been successful on an issue may still be denied his costs of that issue because, in the view of the court, he has pursued it unreasonably …"
  7. Mr Smith also drew my attention to passages in the judgment of Longmore LJ in the same case, in which he analysed the changes in the approach to the making of orders for costs which followed upon the (then) recent introduction of the Civil Procedure Rules. He cited what Lord Woolf MR had said in Phonographic Performance Ltd v AIE Rediffusion Music Ltd [1999] 1 WLR 1507, which in turn drew on dicta of Nourse LJ in Re Elgindata Ltd (No 2) [1993] 1 All ER 232, and then said:

    8. "[16] In my judgment, it is … no longer necessary for a party to have acted unreasonably or improperly before he can be required to pay the costs of the other party of a particular issue on which he (the first party) has failed …
    [17] It is thus a matter of ordinary common sense that if it is appropriate to consider costs on an issue basis at all, it may be appropriate, in a suitably exceptional case, to make an order which not only deprives a successful party of his costs of a particular issue but also an order which requires him to pay the otherwise unsuccessful party's costs of that issue, without it being necessary for the court to decide that allegations have been made improperly or unreasonably."
  8. My making a direction of that kind, however, is dependent on my being persuaded that an issue-based approach is appropriate. On that point, Mr Mantle relied on the remark of Nourse LJ in Re Elgindata Ltd (No 2) that "The general rule [ie that costs follow the event] does not cease to apply simply because the successful party raises issues or makes allegations on which he fails …", and upon the proposition expounded by Potter LJ (and with which Mance and Jacob LJJ agreed) in Fleming v Chief Constable of Sussex [2004] EWCA Civ 643:

    9. "[35] … The rationale in the more flexible deployment of the 'issues' approach which has been encouraged to develop since introduction of the CPR is the necessity to discourage litigation in respect of inessential issues, which are either bound to fail, or are irrelevant to the central and essential issues necessary to be decided between the parties in the resolution of the dispute. The 'issues' approach may be reflected in an order for costs in respect of particular issues for identification and quantification upon later detailed assessment, or in the preferable course of making an order for recovery of a percentage of the award of costs of the successful party based on the judge's overall estimate of the time wasted upon unnecessary issues. It is based upon the perceived need for a quasi-disciplinary measure in respect of the fair and expeditious conduct of the litigation. Nonetheless the starting point is still an order for costs in favour of the successful party: see CPR 44.3(2). Put more generally, the successful party is the party who has really won at trial by establishing the essentials of his case and his rights to a particular remedy or remedies sought, the time spent on the issues being broadly that reasonably necessary for the exploration and determination of the dispute."
  9. He referred me also to the judgment of the Court of Appeal in Spice Girls Ltd v Aprilia World Service BV [2002] EWCA Civ 15:

    10. "[162] … When the court decides to make an order about costs … the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party: see CPR 44.3(2)(a). The court may make a different order—see sub-rule (2)(b)—but, it should not do so unless there is reason to depart from the general rule. That, as it seems to us, is a constraint which follows necessarily from the existence of a 'general rule'."
  10. I am not persuaded that this is a case in which there is sufficient reason for me to depart from the general rule, and deal with the costs of each issue separately. As I have already said, the first issue, on which the Commissioners were entirely successful, was determinative, but if we had instead decided it in COBE's favour, we would have had to continue to deal with the second and third issues—whether there was consideration, and if so of what value. The Commissioners could not know until our decision was released what conclusion we had reached on that issue and they were effectively compelled to deal with those two issues even though, in the event, they were decided on the hypothetical basis that our conclusion on the first issue was wrong. Such success as COBE achieved in respect of those issues was largely academic. I see little difference of substance, so far as the incidence of costs is concerned, between those and the fourth and fifth issues—whether the putative supply was incidental and whether Castle "belonged" in Jersey. These issues, too, arose only on the hypothesis that there was a supply to which such considerations were relevant. It could perhaps be said that the Commissioners should have conceded both, and have relied on their defence of the first and second issues, but in my view that is a harsh judgment and I am unable to agree that their approach to those issues should lead to their being deprived of any part of their costs. COBE's claim depended for its validity upon its being able to satisfy the requirements of the legislation. The fourth and fifth issues were entirely relevant to those requirements. This was not a case in which the Commissioners raised quite separate matters, as an alternative line of defence; they were all features of the same defence. To paraphrase what was said in Fleming, they were not inessential issues, bound to fail, or irrelevant to the central and essential issue between the parties.

  11. I am accordingly satisfied that the proper direction is that COBE should pay the Commissioners' costs of and incidental to and consequent upon the appeal which, if not agreed, are to be the subject of detailed assessment by a costs judge of the High Court. However, as the parties requested, I add the rider that the question whether the Commissioners' costs relating to Mr Bonsall's involvement, or some of them, should be paid by COBE, if not resolved between them, is to be the subject of a further application to this tribunal, reserved to myself.

    12. COLIN BISHOPP
    CHAIRMAN
    Release date:21 April 2006

    MAN/03/0628

About BAILII - FAQ - Copyright Policy - Disclaimers - Privacy Policy amended on 25/11/2010