Case No: CH/2004/APP/0438
Neutral Citation No: [2004] EWHC 2804 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE VAT & DUTIES TRIBUNAL (MANCHESTER)
(CHAIRMAN MR J D DEMACK)

Royal Courts of Justice
Strand
London WC2A 2LL

December 1, 2004

Before
MR JUSTICE LAWRENCE COLLINS
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Between

SUMMER PALACE LIMITED
Appellant
and

THE COMMISSIONERS OF CUSTOMS AND EXCISE
Respondents

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Miss Sadiya Choudhury (instructed by Kangs Solicitors) for the Appellant
Mr Nicholas M Smith (instructed by the Solicitor for Customs and Excise) for the Respondents

Hearing:  December 1, 2004
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JUDGMENT
Mr Justice Lawrence Collins:
I	Introduction
1.	This appeal is brought by Summer Palace Ltd (“the Appellant”) under section 11 of the Tribunals and Inquiries Act 1992 against a decision of the Manchester VAT & Duties Tribunal (Mr J D Demack, Chairman, and Mr P Whitehead) released on May 27, 2004 (“the Decision”) in relation to the issue of the Appellant’s costs.
2.	The Appellant  trades as a Chinese restaurant and takeaway in Stockport and has been registered for VAT since 1985.  On May 17, 1999 the Appellant was notified by HM Customs and Excise (“Customs”) of assessments to tax of £34,483 raised against it for the period between February 1, 1996 and January 31, 1999 consisting of allegedly undeclared output tax. 
3.	The Appellant appealed against the assessment by a notice of appeal dated April 14, 2000. The grounds of appeal were that the assessment was not made to best judgment and that Customs were seeking an unacceptably high degree of proof from the taxpayer which the average trader could not reasonably be expected to provide.
4.	The appeal was heard between March 22 and 24,  2004.  In the course of the hearing Mr Yewdall, who appeared for the Appellant, asked that the Appellant be awarded its costs.  In accordance with their normal practice, Customs did not ask for costs. At the conclusion of the hearing the Tribunal indicated that it would reduce the assessment to £17,918, and that it would make no direction as to costs.  The reasoned Decision was released on May 27, 2004.  No reasons for the decision on costs were given.
5.	The Appellant submits that the decision not to allow any of its costs is so unreasonable and perverse as to amount to an error of law and that it should be entitled to, at the very least, half of its costs, which would be equivalent to the proportion by which the assessment was reduced.
II	The Decision
6.	The appeal to the Tribunal was originally listed for hearing on May 6, 2003.  At the start of the hearing the Appellant asked to amend the grounds of appeal.  This was allowed and the new ground of appeal related to quantum only, and was on the basis that to the best of the Appellant’s knowledge all VAT returns had been correct. The appeal was adjourned. The Appellant was ordered to serve by May 30, 2003 a defence to Customs’ Statement of Case and particularise objections to any of the raw data assembled (i.e. the observations), and the methodology employed by the assessing officer. In the defence it was argued that any under-declaration began between February 1997 and June 1998 and the values were less than those claimed by Customs. 
7.	In the course of the appeal, the Appellant conceded that there had been some under-declarations of VAT.  The appeal therefore only concerned the issue of quantum.  A large part of the hearing was taken up with evidence from Customs officers in relation to the visits they had paid and the test purchases they had made during those visits to determine the extent of suppression of takings by the Appellant. 
8.	The Tribunal considered six occasions on which test purchases were made. The Tribunal criticised the evidence of Customs. It found that all the test meals taken by Customs officers on one of these occasions (February 28, 1997) had been declared.  In relation to four of the other five visits paid, the Tribunal held that Customs’ evidence was “unsatisfactory”. In particular, the observation evidence for June 11, 1998 was unsatisfactory and no contemporaneous notes were made.  The Tribunal was not satisfied of the correctness of information shown on the questionnaire for the visit on November 25, 1998. The rough notes for the visit on November 27, 1998 were not easy to interpret. Contemporaneous notes were not kept for January 30, 1999, and reliance on memory alone was unacceptable. There was selective use of evidential material which operated to the detriment of the Appellant. 
9.	Although the Tribunal found that the records of the book-keeper were meticulous, nevertheless the Tribunal did find that bills had been suppressed by the Appellant. The Tribunal directed that the suppression rates be reduced from 10.16% to 6.47% for eat-in meals and from 25.46% to 12.05% for take-away meals.  The appeal was accordingly allowed in part and the assessment was consequently reduced to £17,198.
III	The Appellant’s argument
10.	According to Rule 29 of the VAT Tribunal Rules 1986:
“(1) A tribunal may direct that a party or applicant shall pay to the other party to the appeal or application—
(a)	within such 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 taxed by a Taxing Master of the Supreme Court or a district judge of the High Court of Justice of England and Wales……”
11.	It is common ground that the VAT & Duties Tribunal normally applies, in favour of the taxpayer, the general rule that costs follow the event.  It is also common ground that while the Civil Procedure Rules are not directly applicable to proceedings in the Tribunal, the factors which the court takes into account in exercising the discretion as to costs reflect modern practice, and may, and should, also be taken into account in the exercise of discretion by the Tribunal under rule 29. In particular, under CPR r 44.3(4), the court is required to have regard to all the circumstances of the case and especially the conduct of the parties, whether a party has been partly successful and whether attempts to settle the matter were made.     
12.	The Appellant accepts that it was not wholly successful and that it would be unrealistic for it to expect to be awarded all of its costs. Miss Choudhury, who appeared before me (but not before the Tribunal) on behalf of the Appellant, cited a number of Tribunal decisions on costs, although she accepted that their relevance to the present appeal was marginal at best.  In EA Kilburn v CCE MAN/87/277 (Decision No 4866), the appellant had succeeded on one issue but not the other and was awarded half his costs. Miss Choudhury accepted that there have been cases where an appellant has not been sufficiently successful to justify an award for costs: for example in BH Bright v CCE LON/88/393 (Decision No 5022), the appellant’s costs were disallowed where she had been only successful in respect of 33.5% of her claim.  
13.	Miss Choudhury submitted that, in the present case, the assessment raised against the Appellant was reduced by almost half and it would only be fair for the Appellant to be awarded half of its costs. Miss Choudhury submitted that it was wholly unreasonable and perverse of the Tribunal to refuse its application for costs in its entirety. She submitted that the Tribunal decisions in which an appellant has been partly successful but has been denied all of its costs are generally those where the appellant has been considered to have acted unreasonably: e.g. where they have failed to keep adequate record (J & J Brown (t/a Shaw’s Bar) v CCE [1977] VATTR 253); or failed to provide adequate information and records until a very late stage (Nathoo (t/a Kamona Enterprises) v CCE LON/91/1692 (Decision No 6551)); or where they have failed to co-operate with Customs to bring the proceedings to an end (Salina Ltd v CCE (LON/89/1823Y) (Decision No 6287)); or where the case had been unduly prolonged by the behaviour of its accountant.
14.	It was submitted that none of the reasons for which the Appellant’s costs could reasonably have been disallowed has any application to the current case.  In the present case one of the Customs officers himself described the records kept by the Appellant’s book-keeper, Mr Howarth, as “meticulous”.  The Tribunal stated that Mr Howarth’s evidence had considerably assisted them in reaching their conclusion.  The Appellant attempted to settle the matter during the course of the hearing. Customs refused to take into account the fact that the take away meals declared on January 30, 1999 were actually more than Customs had recorded.  Customs also failed to revise their records even when these did not accord with their observations.  In those circumstances, the intransigence of Customs meant that it was not possible for the Appellant to reach a settlement with them.
15.	The assessment was reduced from £34,483 to £17,918, a reduction of 49.99%.  The Tribunal’s refusal to award the Appellant its costs was a decision so perverse as to amount to an error of law.  Miss Choudhury submits that the proportion of costs that it should be awarded should at the very least be equivalent to the proportion by which the assessment was reduced.  Since the assessment was reduced by half, it would be appropriate for the Appellant to be awarded half of its costs. 
IV	Conclusions
16.	Mr Yewdall, who appeared for the Appellant before the Tribunal, submitted to the Tribunal, in the course of his argument on the merits of the appeal, that the Appellant should be awarded its costs. I understand from Mr Smith, who appeared before me for Customs and who also appeared before the Tribunal, that Mr Yewdall was not asked by the Tribunal to elaborate on that submission, and he did not ask to be heard further on the costs issue when the Tribunal announced its decision on March 24, 2004.
17.	When the written Decision was released the Tribunal gave no reasons for its refusal to make any direction for costs. Until recently the practice (reflected in Eagil Trust Co Ltd v Pigott-Brown [1985] 3 All ER 119) was that the exercise of a judge's discretion on costs was a well-established exception to general rule that reasons should be given by a professional judge. But it is now clear that, having regard to Article 6 of the European Convention on Human Rights and the Human Rights Act 1998, and the jurisprudence of the European Court of Human Rights, all courts must give reasons for their decisions, however brief.  
18.	In English v Emery Reimbold & Strick Ltd [2002] EWCA Civ 605, [2002] 1 WLR 2409 it was held that a  practice of not giving reasons can only comply with Article 6 if the reason for decision in respect of costs is clearly implicit from the circumstances in which the award is made. Where the reason for an order as to costs is not obvious, the judge should explain why he or she has made the order: para [14], p 2427.   Where no express explanation is given for a costs order, an appellate court will approach the material facts on the assumption that the judge will have had good reason for the award made. The appellate court will seldom be as well placed as the trial judge to exercise a discretion in relation to costs. Where it is apparent that there is a perfectly rational explanation for the order made, the court is likely to draw the inference that this is what motivated the judge in making the order: para [30], p 2420. 
19.	It is regrettable that no reasons, even very brief ones, were given. In the absence of any reasons, my task is to consider whether there is a rational explanation for the Decision. The Tribunal had in mind the history of the appeal, and the reasons for the adjournment of the original hearing in May 2003 to enable the Appellant to put forward a wholly different case. The Tribunal heard evidence over a period of 3 days.  The essence of the Decision is that the Appellant had been guilty of suppression, but that there were flaws in Customs’ evidence such that Customs could not maintain the whole of the assessment. The Tribunal found that there had been under-declarations of meals on June 11, 1998, November 25, 1998, November 27, 1998, January 18, 1999 and  January 30, 1999.  It also found that the evidence of Customs as to quantum was unsatisfactory in important respects and that the assessment should therefore be reduced by half. 
20.	In my judgment, the situation which presented itself to the Tribunal was one in which it could have decided to award the Appellant the whole or  part of its costs or to make no order as to costs. I am satisfied in the light of (a) the history of the matter, (b) the findings of suppression by the Appellant, and (c) the allowing of the appeal to what it described as a “limited extent,” that there was an entirely rational basis for the decision not to award the Appellant part of its costs. The details of the abortive attempts at settlement were not before the Tribunal, and could have had no role to play in its decision on costs.  It is plain from the Decision that the Tribunal had in mind the criticisms of Customs’ evidence.  The fact that the work of the Appellant’s book-keeper was meticulous does not detract from the fact the Appellant was guilty of suppression. The Tribunal made a decision which was within its discretion, and to make no order as to costs was neither unreasonable not perverse.  Accordingly on general principles there is no basis for interference with the exercise of its discretion
21.	It is disturbing to me to find from this Decision that the evidence of Customs was unsatisfactory and that contemporary notes were not made, or not adequately made, and that evidence was used selectively. Customs officers are law enforcement officers, and must be free from suspicion of abuse.  I trust that Customs will investigate whether there are any deficiencies in its systems or in the application of its systems to ensure that there is no re-occurrence.  A copy of this judgment should be made available by the Solicitor for Customs and Excise to those who are responsible for the setting and maintenance of standards of conduct by Customs officials and for disciplinary matters.
22.	The appeal will be dismissed.