[2011] UKFTT 64 (TC)

TC00942

Appeal number: LON/2008/2399 and 2400

Costs – application by appellants for indemnity costs – rule 29, VAT Tribunals Rules 1986 to apply – whether conduct of HMRC out of the norm or unreasonable to a high degree

FIRST-TIER TRIBUNAL

TAX 

	THE BOWCOMBE SHOOT
	THE UPCERNE SHOOT	Appellants

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

			TRIBUNAL: 	JUDGE ROGER BERNER									
												
Sitting in public at 45 Bedford Square, London WC1 on 17 November 2010 and 6 January 2011

The Rt Hon The Viscount Dilhorne, instructed by Rothman Pantall LLP, Chartered Accountants, for the Appellant

Michael Bacon, Costs Lawyer, A & M Bacon Limited, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.	This is an application by the Appellants for a direction that HMRC pay the Appellants’ costs of these appeals on an indemnity basis.
Background and facts
2.	The Appellants are shooting syndicates, whose object in each case was to run as a non-profit shoot for the benefit of members and their friends.  The story commenced in April 2006 with arrangements for a routine inspection visit to the VAT-registered partnership of Mr and Mrs A Ball.  Mr Ball is a land agent and retired partner of Strutt and Parker, who was the club organiser for both of the shoots.  Prior to the visit Mr John Flynn, a higher assurance officer of HMRC, wrote to Mr and Mrs Ball to request that all business records, accounts and documents, dating back three years from the start of  their trading, be made available.  A checklist of the required records was enclosed with that letter, which did not refer to the shoots.  But in a subsequent letter dated 27 April 2006 Mr Flynn explained that there were in fact two purposes to the proposed visit: one was to conduct a routine inspection in relation to the partnership of Mr and Mrs Ball; the other was to discuss the operation of the shoots, which were not registered for VAT.  The letter referred to the fact that HMRC was examining sporting clubs generally to determine whether those clubs were non-profit-making bodies for the purposes of VAT exemption in item 3, Group 10, Sch 9 to the Value Added Tax Act 1994.  A list of required information in relation to the shoots was attached to this letter.
3.	The meeting was arranged for 16 May 2006.  Before that, on 8 May 2006, Mr Ball wrote to Mr Flynn providing some of the information that had been requested, and noting that the remaining information would be available for inspection at the meeting.  Following the meeting Mr Flynn took away, and later returned, certain documents relating to the shoots.  Mr Flynn then wrote to Mr Ball on 31 May 2006 in relation to the Bowcombe Shoot setting out his understanding of how the shoot operated, asking for confirmation of this from Mr Ball, or any observations.  At the same time Mr Flynn requested certain additional information.  Mr Ball responded on 15 June 2006 largely confirming Mr Flynn’s understanding, but making a number of comments.  His letter also summarised reasons why the Bowcombe Shoot did not consider that it was carrying on a business for VAT purposes.  Although it was not in the bundle of documents before me, I infer that there was similar correspondence in relation to the Upcerne Shoot, as there is an acknowledgement by Mr Flynn of a letter from Mr Ball in that regard dated 15 June 2006.  On 7 June 2006, Mr Flynn requested further information regarding the game book entries for both shoots.  This was provided by Mr Flynn on 10 July 2006.  Mr Flynn then requested, by letter dated 21 July 2006, further information regarding temporary membership of the Bowcombe syndicate (and, I infer, the Upcerne syndicate), to which Mr Ball responded on 24 July 2006.
4.	Mr Flynn wrote to Mr Ball on 28 July 2006.  In that letter Mr Flynn said that, whilst he appreciated the frustration which Mr Ball had expressed in his letter of 24 July, he made the point that it had been necessary for HMRC to be in possession of all the relevant information and documentation to enable an “accurate and considered decision” to be made.  He set out the legal issues under consideration, namely whether the shoots were carrying on a business and the sporting exemption issue.  In this letter Mr Flynn makes the suggestion that the shoots might provisionally allow for a charge for VAT on invoices issued for shooting, but without showing the additional charge as VAT.  This was in response to Mr Ball’s comment that, as the issue had not been resolved, invoices were to be issued to temporary members on the basis that VAT was not chargeable.  In Lord Dilhorne’s skeleton argument he had submitted that this amounted to an invitation to Mr Ball to commit an act bordering on illegality and was little short of inviting a fraud to be committed by proposing an act that would conceal the true nature of the transaction in the accounts.  However, quite properly in my view, at the hearing Lord Dilhorne withdrew this criticism.  Mr Flynn’s suggestion was merely designed to enable the financial position of the shoots to be protected were it determined that the supplies were taxable for VAT purposes; it had been accepted as “constructive and helpful”, albeit impracticable, by Mr Ball, as is evidenced from a letter from Rothman Pantall & Co, accountants (the predecessor firm to the Shoots’ representatives in this appeal) to Mr Flynn of 31 July 2006.
5.	In the same letter of 28 July 2006 Mr Flynn, having referred to the two issues I have described, informed Mr Ball that these aspects had to be referred to two separate Policy Branches of HMRC in order to obtain their views before the matter could proceed further.  Following some chasing letters from Rothman Pantall, and a response from Mr Flynn that he was awaiting the response of Policy Branch, Mr Ball wrote to Mr Flynn to complain of the delay, in the light of what Mr Ball described as the “straightforward” principles in the case, and that the shoots were being unfairly forced to remain in limbo.  Mr Flynn’s reply of 29 September 2006 stated that he appreciated Mr Ball’s “frustration at the fact that it appears to be taking a disproportionate amount of time to provide you with a decision on the VAT position relative to the Bowcombe Shoot.”  He was hopeful, having spoken to both persons in Policy Branch, that a decision would be provided by the close of the working week ending 13 October 2006.
6.	On 17 October 2006, in the absence of Mr Flynn, Mrs J Chapman, HMRC Higher Officer, wrote to Mr Ball in relation to the Upcerne Shoot to say the Policy Branch had decided that the shoot could be considered to be carrying on its activities in the course or furtherance of a business for VAT purposes, but that no satisfactory reply had yet been received from Policy Branch in relation to the VAT liability of the supplies made by the shoot to its members.  Mr Ball replied on 23 October 2006 expressing his astonishment at this outcome, which he submits “flies in the face of all the evidence produced to date …”
7.	This was followed up by two letters from Mr Flynn dated 10 November 2006, in relation to each shoot, to confirm that the question of the treatment of the supplies had been referred back to Policy Branch, that the clarification had not been received, but that in view of the conclusion on the business issue, VAT registration packs would be sent to Mr Ball.  In the Upcerne Shoot letter he apologised for the additional delay in supplying a full decision but stressed that HMRC were anxious to ensure that when they wrote to Mr Ball it would be with a full and considered ruling.  Mr Ball in turn replied on 15 November 2006 in relation to the Bowcombe Shoot requesting the arguments on which the decision on the business issue had been taken; at the same time Rothman Pantall made a similar request (I infer for both shoots) regarding the decision that the shoots register for VAT.
8.	Mr Flynn wrote two letters to Mr Ball on 20 November 2006, on in relation to the Bowcombe Shoot and the other the Upcerne Shoot.  In the Bowcombe Shoot letter Mr Flynn referred to the Upcerne Shoot letter, details from which were reproduced in the Bowcombe Shoot letter.  It is apparent from this that both shoots are be treated the same.  The documents provided to me were a little confusing on this, as there was a detailed explanation in the Bowcombe Shoot letter of the view taken by HMRC that the Upcerne Shoot was carrying on a business for VAT purposes, but that explanation was not in the Upcerne Shoot letter itself.  However, on closer examination, it appears that some pages from the Upcerne Shoot letter were simply omitted in copying, and I am satisfied that the same explanation was given in both letters.  In both letters it was also explained that the sporting exemption question was “still under consideration”.
9.	Following further letters from Rothman Pantall and from Mr Ball complaining of the apparent requirement, having regard to the issue of the VAT registration forms, that the shoots register for VAT, when the sporting exemption question remained unresolved, Mr Flynn wrote to Rothman Pantall on 23 February 2007 to say that an interim reply had been received from Policy in respect of whether the Upcerne Shoot was an eligible body for the sporting exemption.  The nature of that interim reply was not disclosed; instead Mr Flynn advised that certain further information was needed.  Whilst regretting the delay in progressing the matter, further specific information and documents were requested.
10.	This information was received by HMRC on 12 March 2007.  On 28 March 2007 Mr Flynn again wrote to Rothman Pantall in relation to the Upcerne Shoot asking for copies of “sales invoices issued to all tenants and non founder members for the shoot season ending 31 January 2007”, and “an analysis of the subscriptions paid by founder members for the same shoot season and copies of any sales invoices issued to them”.  This information was received by HMRC only on 26 June 2007 by fax from Mr Ball.  It was suggested by Mr Bacon that this delay on the part of the shoots should be taken into account as a factor where the conduct of the shoots had fallen short of what was reasonable.  However, it seems to me apparent from the correspondence I have seen that an earlier reply had been prepared on 23 April 2007, and I infer from the earlier prompt replies of the shoots that such a reply was sent and unfortunately not received by HMRC.  The upshot is that this period of delay can be ignored in considering both the conduct of HMRC and that of the shoots.
11.	Subsequently, HMRC issued a decision in respect of the Upcerne Shoot on 16 August 2007 that, following a reply from Policy and based on their opinion, the Upcerne Shoot could not be treated as an eligible body for the sporting exemption, and that this, combined with the earlier decision that the shoot was carrying on a business meant that the Upcerne Shoot was required to register for VAT.  Detailed reasons for the decision on the sporting exemption were given in this letter.  A letter was sent in relation to the Bowcombe Shoot on 17 August 2007, but as the Policy opinion had made specific reference to the Upcerne Shoot, Mr Flynn said that the final decision on the Bowcombe Shoot would be reserved.  Further correspondence then ensued on the restructuring and merger of the Bowcombe Shoot with the existing farming LLP at Bowcombe and this was followed on 12 October 2007 by a detailed decision in respect of the Bowcombe Shoot that it was carrying on its activities in the course or furtherance of a business and that it could not be treated as an eligible body for the sporting exemption.  On this basis the Bowcombe Shoot was also required to register for VAT.
12.	Rothman Pantall wrote to HMRC on 12 October 2007 in relation to both the Upcerne Shoot and the Bowcombe Shoot, and then on 13 November 2007 in relation to the Bowcombe Shoot, in each case putting forward arguments why the decisions reached by HMRC were considered to be wrong.  The issue for both shoots was then referred to HMRC’s Appeals and Reconsiderations team for review
13.	The decisions in principle regarding the requirement to register were followed, in the case of the Upcerne Shoot on 6 December 2007, and for the Bowcombe Shoot on 18 December 2007, by letters notifying that the Upcerne Shoot was required to be registered for the period from 1 May 2002 to 31 January 2007 and that the Bowcombe Shoot was required to be registered from 1 June 1987 to 31 January 2007.  In each case assessments to VAT and penalties were also made, in the case of the Upcerne Shoot for £128,803.77 VAT and £19,320 penalty, and for the Bowcombe Shoot for £376,292.85 VAT and £56,443 penalty.  In both cases these assessments were made on Mr Ball.
14.	On 21 December 2007 Mr Braeger of HMRC’s Local Compliance South Appeals Unit wrote to the Rothman Pantall, in respect of both shoots to the effect that he had been instructed to carry out a reconsideration of the decision that the shoots were liable to be registered.  There followed a discussion with Mr Shaw of Rothman Pantall  on 10 January 2008 as a result of which Mr Braeger wrote to Mr Shaw on 19 March 2008 seeking clarification on the legal status of the Bowcombe Shoot and the view of the Appellants’ counsel, which it had been agreed would be provided.  Shortly thereafter, in that month, counsel instructed by Rothman Pantall, Lord Dilhorne, submitted an extensive and detailed submission to Mr Braeger.  The submission itself ran to 47 pages, and was supplemented by 13 appendices totalling a further 48 pages.  It reiterated and developed the arguments that had throughout been advanced by the shoots that the shoots did not carry on a business for VAT purposes and were in each case an eligible body within the sporting exemption.
15.	There followed further correspondence, including a long letter from Mr Ball to Mr Braeger of 30 April 2008 setting out some background information, both personal and in relation to the shoots, and other correspondence largely centred upon the implications of s 94(2) VATA as regards the question whether the shoots should be regarded as carrying on a business.  In response to this Lord Dilhorne sent a further lengthy submission to Mr Braeger.  In the event, on 28 October 2008 Mr Braeger wrote to Lord Dilhorne in relation to each shoot to say that it had been concluded that there were no grounds to amend the previous decisions that the shoots were in business for VAT purposes and that the supplies made were liable to VAT at the standard rate.  On 3 November 2008 further assessments were issued to the Appellants themselves replacing the earlier assessments on Mr Ball.  The amounts of the assessments were also reduced to some extent.  The penalty assessment on the Upcerne Shoot was mitigated to £4,830, and for the Bowcombe Shoot the VAT assessment was reduced to £371,400.50 and the penalty mitigated to £13,927.
16.	On 12 November 2010 each of the Appellants made their appeals to the former VAT and Duties Tribunal.  Following that HMRC made two successive applications, on 19 December 2008 and 14 January 2009, both of which were allowed without objection from the Appellants, for extensions of time in relation to both appeals.  The grounds in each case were that HMRC required further time to consider the review and prepare the statement of case and lists of documents.
17.	On 13 February 2009 Mr Braeger wrote to Mr Shaw, and copied the letters to Lord Dilhorne, that HMRC had decided not to defend the appeals.  These letters stated that, although HMRC remained of the view that the shoots were in business for VAT purposes, they now accepted that the supplies to club members did qualify for exemption under Group 10, Sch 9 VATA.  The assessments were withdrawn.
18.	In response to my questions Mr Bacon informed the tribunal that HMRC’s decision to withdraw the assessments was the result of the advice of counsel, which had been taken, in the context of the litigation that had been brought on foot by the making of the appeal to the tribunal, by the HMRC team that was responsible for the carriage of the litigation.  Considerations at that stage included the litigation risk.  Counsel’s advice itself was (quite properly) not disclosed, but Mr Bacon told me that, whilst affirming the view that the shoots were carrying on a business, counsel had advised that, taking account of the non-profit-making provisions of the Articles, the non-distribution clauses in the Articles, the absence of evidence of commercial influence and the nature of the temporary membership provisions, HMRC should be advised not to defend the proceedings.
19.	On 20 February 2009, in letters to the tribunal, Rothman Pantall formally withdrew the appeals, subject in each case to reservation of the Appellants’ position regarding costs.  The applications for costs, including an application that such costs be directed on the indemnity basis, were made on 5 June 2009.
The applicable rules
20.	It was common ground that the issue of costs on this appeal should be governed by rule 29 of the Value Added Tax Tribunals Rules 1986 (“the 1986 Rules”).  These proceedings are “current proceedings” within the meaning of para 1(2) of the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (“TTF”) and accordingly continued after 1 April 2009 before this tribunal.  In order to qualify as current proceedings it is necessary that the VAT and Duties Tribunal had not, before 1 April 2009, concluded proceedings.  That condition is met, as the question of costs had been expressly reserved prior to that date, and remained for determination by the tribunal.
21.	With effect from 1 April 2009 the 1986 Rules ceased to apply as a general matter and were replaced by the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the 2009 Rules”).  Those rules include more restricted powers on the tribunal to award costs.  Nevertheless, under para 7(3), Sch 3 TTF, the tribunal has the power to give any direction to ensure that proceedings are dealt with fairly and justly, in particular to apply any provision of, in this case, the 1986 Rules and to disapply any provision of the 2009 Rules.  By a direction released on 10 June 2009, Judge Wallace directed that rule 29 of the 1986 Rules applies.
22.	The 1986 Rules also contain express provision, in rule 16(2), regarding the maintenance of the right to apply for costs under rule 29 on withdrawal of an appeal.  Although in a case where HMRC has withdrawn its decision and/or an assessment the proper course is not for an appellant to withdraw the appeal, but instead for the appeal to be allowed, in this case the Appellants did formally withdraw, subject to the costs reservation.  To make matters entirely clear therefore, I direct that, as well as rule 29, rule 16(2) of the 1986 Rules shall apply to these proceedings.
23.	Under rule 29, the tribunal may direct that a party shall pay to the other party to the appeal, either a determined sum on account of the costs of the other party, or the costs of that other party to be assessed by way of detailed assessment by a costs judge on such basis as the tribunal may specify.  In respect of such assessment Part 47 of the Civil Procedure Rules 1998 (“CPR”) and any practice directions supplementing that Part apply with any necessary modifications.  There was no dispute but that rule 29 gives the tribunal, in appropriate circumstances, the power to specify that costs be paid on the indemnity basis.
The legal principles
24.	As described by Lord Woolf in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Apsden & Johnson [2002] EWCA Civ 879 (at para 15), there are two differences between a standard order for costs and one on the indemnity basis.  First, where indemnity costs are ordered there is a shift in the onus on a party to establish that the costs are reasonable.  Whereas in a standard costs case that onus is on the party in whose favour the costs direction has been made, where indemnity costs are directed the onus is on the party ordered to pay the costs.  Secondly, there is no requirement that the costs are proportionate, that is to the importance of the case, the amount at stake, the complexity of the issues and the financial positions of the parties.  As Lord Woolf also said in Petrotrade Inc v Texaco Ltd [2002] 1 WLR 947:
“… the power to order indemnity costs … is a means of achieving a fairer result for a claimant.”
25.	In the course of his submissions Mr Bacon put forward the proposition that, despite what Lord Woolf said in Excelsior, there was nothing in the Civil Procedure Rules dealing with indemnity costs that supported a shift in the onus from the receiving party to the paying party.  CPR 44.4(3) provides that where the court has doubt whether costs were reasonably incurred and were reasonable in amount it will resolve that doubt, when assessing costs on the indemnity basis, in favour of the receiving party.  This can be contrasted with CPR 44.4(2) which, in a standard basis assessment, resolution of doubt is to be in favour of the paying party.  Mr Bacon submitted that in neither case will costs be allowed if they are unreasonable.  On his argument it is up to the paying party on either basis to show that the costs are unreasonable and it is up to the receiving party to show that the costs are not unreasonable.  The burden of proof remains the same on whichever basis the assessment takes place.
26.	It is not for me, on this application, to come to any definitive decision on the question of the burden of proof.  That is something that would be an issue for a costs judge on assessment.  I have to say, however, that it seems to me that Mr Bacon’s arguments cannot be sustained in the face of Lord Woolf’s comments.  Indeed, on Mr Bacon’s submission he would appear to be saying that in costs assessments there is in every case an equal burden of proof on the paying and receiving party.  That is not, in my view, a correct reading of the CPR provisions, and there is nothing in Mr Bacon’s arguments in this respect to cast any doubt on the clear judgment of Lord Woolf .
27.	At the same time as explaining the differences between the standard and indemnity costs bases, Lord Woolf also drew attention in Excelsior to the fact that according to both bases costs which are to be ordered to be paid must not be unreasonably incurred or unreasonable in amount (see para 14).
28.	In Reid Minty (a firm) v Taylor [2001] EWCA Civ 1723, in the context of an application for indemnity costs of a libel action on the grounds of the unreasonable conduct of the losing party, and where at first instance the judge had refused an application for costs on the indemnity basis on the footing that such costs should only be awarded if there had been some sort of moral lack of probity or conduct deserving of moral condemnation, May L J said (at para 28):
“If costs are awarded on an indemnity basis, in many cases there will be some implicit expression of disapproval of the way in which the litigation has been conducted, but I do not think that this will necessarily be so in every case. What is, however, relevant to the present appeal is that litigation can readily be conducted in a way which is unreasonable and which justifies an award of costs on an indemnity basis, where the conduct could not properly be regarded as lacking moral probity or deserving moral condemnation.”
29.	Nevertheless some stigma does attach to an indemnity costs order, and accordingly the threshold test for unreasonableness that would justify such an order is a high one.  As Simon Brown L J said in Kiam v MGN Ltd (No 2) [2002] EWCA Civ 66, after reviewing the passage from May L J’s judgment in Reid Minty to which I have just referred (at para 12):
“I for my part understand the court there to have been deciding no more than that conduct, albeit falling short of misconduct deserving of moral condemnation, can be so unreasonable as to justify an order for indemnity costs. With that I respectfully agree. To my mind, however, such conduct would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight. An indemnity costs order … does, I think, carry at least some stigma. It is of its nature penal rather than exhortatory.”
30.	The basic test has been explained most succinctly by Lord Woolf in Excelsior.  He counselled against the court attempting to add to the requirements set out in the Civil Procedure Rules, instead simply drawing attention to the width of the discretion of the trial judge.  He emphasised the point that (at para 32):
“… before an indemnity order can be made, there must be some conduct or some circumstance which takes the case out of the norm.  That is the critical requirement.”
31.	In so saying Lord Woolf was also emphasising that the conduct of the parties is not the only criterion on which an indemnity costs order might be based.  Having commented that Kiam was concerned with non-acceptance of payments into court, Lord Woolf continued (at para 31);
“An indemnity order may be justified not only because of the conduct of the parties, but also because of other particular circumstances of the litigation. I give as an example a situation where a party is involved in proceedings as a test case although, so far as that party is concerned, he has no other interest than the issue that arises in that case, but is drawn into expensive litigation. If he is successful, a court may well say that an indemnity order was appropriate, although it could not be suggested that anyone's conduct in the case had been unreasonable. Equally there may be situations where the nature of the litigation means that the parties could not be expected to conduct the litigation in a proportionate manner. Again the conduct would not be unreasonable and it seems to me that the court would be entitled to take into account that sort of situation in deciding that an indemnity order was appropriate.”
32.	As far as conduct is concerned, it is necessary to have regard to the whole course of a party’s conduct, both before the appeal is made and during the proceedings themselves.  As Sir Anthony Colman said in National Westminster Bank PLC v Rabobank Nederland [2007] EWHC 1742 (Comm) (at [28]):
“Where one is dealing with the losing party's conduct, the minimum nature of that conduct required to engage the court's discretion would seem, except in very rare cases, to be a significant level of unreasonableness or otherwise inappropriate conduct in its widest sense in relation to that party's pre-litigation dealings with the winning party or in relation to the commencement or conduct of the litigation itself. … in each case in which the costs of the whole litigation are under consideration, the conduct adversely criticised must be looked at in the context of the entire litigation and a view taken as to whether the level of unreasonableness or inappropriateness is in all the circumstances high enough to engage such an order.”
33.	Furthermore, as Sir Anthony Colman went on in that case to observe (at [30]), it is important not to lose sight of the essential requirement of unreasonable or inappropriate conduct and not to treat examples which may amount to such conduct as necessarily constituting it.  Although I was referred to a number of judgments and tribunal decisions which provide examples of conduct that, in the circumstances of those particular cases, was held either to justify, or not to merit, an indemnity costs award, I approach this case according to its own circumstances, and on the basis of the principles that I consider ought to be applied.
34.	In Catalyst Investment Group Limited and others v Lewinsohn and others [2009] EWHC 3501 (Ch), applications were made for indemnity costs in a case where declaratory proceedings had been brought in the High Court in respect of claims that were, as described by Barling J, more or less the mirror image of certain fraud-based proceedings brought by the defendants in the Utah courts.  The defendants had, shortly before defences were due to be lodged in the High Court proceedings, conceded liability.  Mr Bacon referred me to the comments of the learned judge (at [32]) that indemnity cost awards are typically, though not universally, made in circumstances where there has been a trial and the judge has had an opportunity to gauge the conduct of the parties over the course of the litigation.  At [34] the judge went on:
“I remind myself that all other things being equal, I should be rather wary of placing much weight on the mere fact of capitulation by the defendants.  To rely upon such capitulation as a factor pointing to a less favourable basis of assessment of costs for the party capitulating could be seen as non-conducive to achieving early resolution of litigation, and inconsistent with the overriding objective.  One must also bear in mind that there can be many reasons for abandoning proceedings.”
35.	The Bank of Tokyo- Mitsubishi UFJ Limited and another v Baskam Gida Sanayi VE Pazarlama AS and others [2009] EWHC 1696 (Ch), to which Mr Bacon also referred me, concerned a costs application, including for indemnity costs, where certain of the defendants had been entirely successful in defending the bank’s claims against them, including allegations – of fraudulent conspiracy – of the utmost seriousness.  After reviewing the authorities, Briggs J said (at [26] and [27]):
“[26] In my judgment those cases, together with the others summarised in the notes to CPR 44.4(3) on pages 1194 and following of Volume 1 of the 2009 White Book establish the following principles: 
i) The court's discretion to grant indemnity costs is not limited by any hard rules of exclusion. 
ii) Nonetheless the primary considerations relevant to the award of indemnity costs are first, whether the conduct of the party against whom the order is sought is such as to take the case out of the norm, and secondly, whether that party's conduct can properly be categorised as either deliberate misconduct, or conduct which is unreasonable to a serious degree. 
iii) The bringing of a case alleging serious dishonesty may qualify for indemnity costs if on the material it can properly be categorised as speculative, weak, opportunistic or thin, if it is advanced on the basis of a constantly changing case, and if it is pursued on a very large scale without apology to the bitter end, including by hostile cross-examination, without constant regard to its merits. Some combination of those factors may justify the view that the litigation has been unreasonably pursued.
[27] It follows in my judgment that it is not enough for a party to assert simply that it has successfully fought allegations of the utmost gravity, regardless of the circumstances in which those allegations came to be made. Although a case in which such allegations are made may for that reason alone be out of the norm, especially a case of the present size and complexity, that is unlikely in itself to constitute a good reason for the award of indemnity costs.”
36.	This is not a case where there is any allegation of serious dishonesty.  Penalty assessments were made, but were substantially mitigated.  In this context, Bank of Tokyo merely reinforces the principles established in the earlier cases.
37.	Mr Bacon also referred me to the recent case of Digicel (St Lucia) Limited and others v Cable and Wireless Plc and others [2010] EWHC 888 (Ch) in the High Court, which was also a case where allegations of serious wrongdoing were made, and in particular to the comments of Morgan J (at [18]) that the fact that a case is complex (and involves a long trial) does not of itself take the case out of the norm, and (at [19]) to the need to consider, in relation to conduct, the effect of an order of indemnity costs. 
38.	In summary, the basic question is whether there is some conduct or circumstance in this case which takes it out of the norm.  As regards the conduct of HMRC, against whom the indemnity costs order is sought, I must consider, taking account of the whole course of conduct from the inception of the enquiry into the VAT status of the Appellants to notification of HMRC’s decision not to defend the appeals, whether that conduct is unreasonable to such a high degree as to justify an order for indemnity costs as a means of achieving a fairer result for the Appellants.  This does not require that the conduct should be deserving of moral condemnation, but it should be such as to justify an order that does carry some stigma.  Conduct that consists in a party being merely wrong or misguided in hindsight is not unreasonable enough in this context.  Outside of conduct I must also consider if there are any other circumstances that would justify a direction that costs in this case should be directed on an indemnity basis.  I should also place little weight, in the absence of some aggravating factor, on the mere fact of the decision of HMRC, shortly after the appeal was made, not to defend the proceedings.
Discussion
39.	In the course of the hearing there was a certain amount of rationalisation of the Appellants’ arguments.  I have referred to the withdrawal of the complaint concerning Mr Flynn’s suggestion that the price charged for shooting might be increased as a contingency against a possible liability to VAT.  Similarly, Lord Dilhorne accepted that he could not maintain any complaint that HMRC officers had been deliberately misleading or close to dishonest, nor that the conduct of HMRC had involved any malice or had amounted to, as his skeleton argument had put it, a “blatant attempt to frighten and to bamboozle the Appellants into paying substantial sums of money that were never owing.”
40.	Taking those concessions into account, Lord Dilhorne’s arguments resolve themselves into the following:
(1)	There was a considerable delay in the investigation by HMRC into a matter which was not complex.  That delay was inordinate, abnormal and unreasonable to a high degree.  There was a lack of competence in the decision-making process.  All the relevant material on which the decision not to defend the proceedings was ultimately taken, after the formal appeals were made, had been available in the course of 2006.  If that material had been properly considered, the decision that was in the end taken could have been reached very much earlier in the process.
(2)	There was no justification for the assessment on Mr Ball personally.  The assessments were substantial in amount, and had not unnaturally caused Mr Ball considerable anxiety.  This was oppressive conduct on the part of HMRC.
(3)	HMRC failed to give adequate explanations of their reasoning, in particular in relation to Policy decisions, in the course of the investigation.
(4)	The case was a “test case”, as it had arisen as a result of HMRC looking closely at commercial shoots generally.
41.	In brief, Mr Bacon’s submissions on the matters in issue were:
(1)	Whilst accepting that there were regrettable delays in the investigation and review process, and that the process had taken longer than it should, the case was neither factually simple nor simple as a matter of law.  It was both complex and substantial.  The delay was not unreasonable in the context.  HMRC is not an organisation with infinite resources, and the needs of one taxpayer must be balanced against the needs and priorities of others.  Full factual evidence and full consideration of the issues by a number of teams, including specialists, was necessary to ensure that HMRC discharged its duty of ensuring that the correct amount of tax was collected and to protect the revenue in the interests of taxpayers generally.  The correspondence demonstrates that the officers diligently pursued their duties for the purpose of achieving that aim.  HMRC accepted that the decisions reached by their officers, and confirmed on review, were wrong, and in consequence the assessments were withdrawn
(2)	The assessment on Mr Ball personally had been an error, but this had been remedied before the final assessments were made, and any appeal had commenced.
(3)	There had been extensive explanations given in correspondence as to HMRC’s reasons for their decisions both on the business issue and the sporting exemption question.  It had not been appropriate for detailed reasons to be given prior to fully-informed decisions having been reached.
(4)	The case had not been a “test case”; there was no evidence to suggest that it had been.
42.	The primary submission of Lord Dilhorne is that the conduct of HMRC in its inordinately lengthy investigation, in its failure to reach the correct decision despite relevant materials having been made available as early as 2006 and lengthy deliberation leading to the Appellants having to make formal appeals only for the assessments to be withdrawn, and in the assessments originally having been made on Mr Ball personally, was outside the norm and unreasonable to a high degree such as to merit an award of costs on the indemnity basis.
43.	In order to determine if conduct, or a circumstance, is outside the norm it is first necessary to consider what constitutes the norm.  That will depend upon the nature of the case and the particular circumstances.  There can be no single criterion or set of criteria that defines the norm in a given case.  There is likely to be a range of circumstances and conduct and behaviour all of which can be regarded as within the norm in a particular case, some of which may be closer to the unreasonable than others, but none of which is unreasonable to such a high degree as to merit the stigma that attaches to an award of indemnity costs.
44.	Mr Bacon has properly conceded that in certain elements of the HMRC investigation, particularly in the period when Policy Branch was involved, matters could have progressed more speedily.  However, I accept his submissions as to the need for HMRC to exercise great care in reaching its conclusions on issues of this nature, both in the interests of the individual taxpayer and the body of taxpayers generally.  I do not accept the arguments of Lord Dilhorne that this can be regarded as a straightforward case.  There was, as evidenced by Lord Dilhorne’s own extensive submissions, some degree of complexity both as to the legal issues and in the assembly of all the relevant facts.  Thus, in my view it was not unreasonable for HMRC to have adopted the course that it did in seeking detailed information and documents at various stages in the process, and in referring matters to specialists in Policy Branch.
45.	That there were some avoidable delays in the process I have no doubt.  But delay cannot in my view of itself take a case out of the norm.  For that to be so there would in my judgement have to be some aggravating feature, such as malice, or a wilful failure to address issues with a view to unfairly disadvantaging the taxpayer.  In my view there are no aggravating features present in this case.
46.	The course adopted by HMRC was to instruct its specialists to come to a decision, which was then upheld on review.  That gave rise to the appeals, and to the referral of the case to counsel, on the basis of whose advice HMRC withdrew the assessments.  With hindsight it can be seen that this process might have been short-circuited, and a different decision reached at a much earlier stage, if the matter had been referred to counsel sooner.  But there is no indication that the decision that was made, and the conclusion of the review, were reached otherwise that in good faith, and by persons qualified within HMRC to do so.  Part, at least, of that decision was ultimately concluded, in the light of the appeals and the litigation process that then required to be considered, to be wrong, but that in my view is an example of what Simon Brown LJ had in mind in Kiam when he referred to a party being wrong or misguided in hindsight.  Once the appeals had been made HMRC quite properly instructed counsel at the outset of the proceedings, before a statement of case had been served, and acted promptly on that advice.  The result was an early resolution to these proceedings and, like Barling J in Catalyst, I am mindful of the need not to discourage such abandonment of proceedings by relying upon that fact as a reason for awarding indemnity costs.
47.	It was regrettable that, when the initial decision was made and the original assessments were issued, they were issued to Mr Ball personally.  I have no doubt that this possible personal exposure was a cause of great concern to Mr Ball, and I express the hope that he has received an appropriate apology from HMRC.  It was not reasonable for such assessments to have been made in the context of the information available to HMRC at the relevant time, but it was an error that was rectified as part of the review process.  This cannot therefore in my view be sufficient to take the case out of the norm, nor is the unreasonableness of such a degree as to warrant indemnity costs.
48.	I do not accept that there was any material failure on the part of HMRC to give the Appellants adequate explanations of their reasoning.  I agree with Mr Bacon that it would not have been appropriate for there effectively to have been a running commentary on HMRC’s thought processes during the decision-making process and before the actual decisions had been made.  Once decisions had been taken, I am satisfied from my review of the correspondence that full detailed reasons for the decisions were provided to the Appellants.
49.	Finally, I do not accept that this case was a test case.  There is no evidence to suggest that was so.  The focus of HMRC at the time of the original enquiry on commercial shoots generally no doubt means that there were other taxpayers whose affairs were being investigated, but there is no suggestion in any of the documentation I have seen that the Appellants were in any way representative of such a group.  The investigation and the decisions depended very much on the particular facts of the structure and conduct of the shoots themselves.
50.	Taking all these factors into account, and having regard to the whole conduct of the case, for which I am grateful to both Lord Dilhorne and Mr Bacon for such a thorough exploration, I have concluded that neither the conduct of HMRC nor any other circumstances of this case takes it out of the norm.  There were flaws on HMRC’s part, but nothing in HMRC’s conduct both before the taking of proceedings nor during the proceedings in my judgement was unreasonable to a degree high enough to merit an award of costs on the indemnity basis.  In my view fairness is satisfied in this case by a direction that HMRC pay the Appellants’ costs of these appeals (apart from this application) on the standard basis.
Decision
51.	For these reasons I dismiss the application of the Appellants for an order for costs on the indemnity basis, and I direct that the Respondents shall pay the Appellants’ costs of these appeals (apart from this application) on the standard basis, such costs to be assessed by a costs judge if not agreed.
Costs of this application
52.	The Respondents having succeeded on this application, I direct that the Respondents’ costs of this application on the standard basis be paid by the Appellants in any event, such costs to be assessed by a costs judge if not agreed.
   
This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

ROGER BERNER

TRIBUNAL JUDGE
RELEASE DATE: 18 January 2011