First-tier Tribunal (Tax)

Neutral Citation: [2025] UKFTT 497 (TC)

Case Number: TC09506

FIRST-TIER TRIBUNAL

TAX CHAMBER

Location: Decided on the papers

 

Appeal reference: TC/2023/08714

 

COSTS - complex case - permission to make a late application to opt out - permission refused

 

 

Judgment date: 28 April 2025

 

 

Decided by:

 

TRIBUNAL JUDGE NIGEL POPPLEWELL

 

 

Between

 

ROHIT KOTECHA

Appellant

and

 

THE COMMISSIONERS FOR HIS MAJESTY'S REVENUE AND CUSTOMS

Respondents

 

 

 

The Tribunal determined the application on 24 April 2025 on the papers and without a hearing.

 

 

 

 

 

 

DECISION

INTRODUCTION

1.             This decision deals with an application dated 8 April 2025 by the appellant that he be permitted to opt out of the complex case costs regime (the "opt out application"). The appeal has been categorised as a complex case and thus the appellant had 28 days from the date of receiving notice to that effect, to ask that he be excluded from potential liability for costs pursuant to Rule 10 of the First-tier Tribunal (Tax Chamber) Rules 2009 (as amended) ("the Rules").

2.             The appellant made no such application within that 28 day period.

3.             The underlying appeal concerns a notice of determination for inheritance tax against which the appellant appealed on 25 June 2023. However, the appellant then failed to comply with an unless order with the result that his appeal was automatically struck out on 25 March 2024.

4.             The appellant applied for reinstatement of his appeal and permission to bring that application out of time (together "the reinstatement application"). I heard the reinstatement application on 21 February 2025, and in a decision dated 14 March 2025, I allowed it ("the reinstatement decision").

5.             Following that decision, the appellant has now made his opt out application.

THE LAW

The legislation

6.             Under Rule 2:

Overriding objective and parties' obligation to co-operate with the Tribunal

(1)     The overriding objective of these Rules is to enable the Tribunal to deal with cases fairly and justly.

(2)     Dealing with a case fairly and justly includes—

(a)     dealing with the case in ways which are proportionate to the importance of the case, the complexity of the issues, the anticipated costs and the resources of the parties;

(b)     avoiding unnecessary formality and seeking flexibility in the proceedings;

(c)     ensuring, so far as practicable, that the parties are able to participate fully in the proceedings;

(d)     using any special expertise of the Tribunal effectively; and

(e)     avoiding delay, so far as compatible with proper consideration of the issues.

(3)     The Tribunal must seek to give effect to the overriding objective when it—

(a)     exercises any power under these Rules; or

(b)     interprets any rule or practice direction.

(4)     Parties must—

(a)     help the Tribunal to further the overriding objective; and

(b)     co-operate with the Tribunal generally.

7.             Under Rule 10:

Orders for costs

10(1)      The Tribunal may only make an order in respect of costs (or, in Scotland expenses) –

(a)          under section 29(4) of the 2007 Act (wasted costs) and costs incurred in applying for such costs;

(b)         if the Tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings;

(c)          if -

(i)            the proceedings have been allocated as a Complex case under rule 23 (allocation of cases to categories); and

(ii)         the taxpayer (or, where more than one party is a taxpayer, one of them) has not sent or delivered a written request to the Tribunal, within 28 days of receiving notice that the case had been allocated as a Complex case, that the proceedings be excluded from potential liability for costs or expenses under this sub- paragraph; ...

Case law

8.             When deciding whether to give permission for the appellant to make a late opt out application, the tribunal is exercising judicial discretion, and the principles which I should follow when considering that discretion are set out in Martland v HMRC [2018] UKUT 178 (TCC), ("Martland") in which the Upper Tribunal considered an appellant's appeal against the FTT's decision to refuse his application to bring a late appeal against an assessment of excise duty and a penalty. The Upper Tribunal said:

"44.   When the FTT is considering applications for permission to appeal out of time, therefore, it must be remembered that the starting point is that permission should not be granted unless the FTT is satisfied on balance that it should be. In considering that question, we consider the FTT can usefully follow the three-stage process set out in Denton:

(1)     Establish the length of the delay. If it was very short (which would, in the absence of unusual circumstances, equate to the breach being "neither serious nor significant"), then the FTT "is unlikely to need to spend much time on the second and third stages" - though this should not be taken to mean that applications can be granted for very short delays without even moving on to a consideration of those stages.

          (2)     The reason (or reasons) why the default occurred should be established.

(3)     The FTT can then move onto its evaluation of "all the circumstances of the case". This will involve a balancing exercise which will essentially assess the merits of the reason(s) given for the delay and the prejudice which would be caused to both parties by granting or refusing permission.

45.     That balancing exercise should take into account the particular importance of the need for litigation to be conducted efficiently and at proportionate cost, and for statutory time limits to be respected. By approaching matters in this way, it can readily be seen that, to the extent they are relevant in the circumstances of the particular case, all the factors raised in Aberdeen and Data Select will be covered, without the need to refer back explicitly to those cases and attempt to structure the FTT's deliberations artificially by reference to those factors. The FTT's role is to exercise judicial discretion taking account of all relevant factors, not to follow a checklist.

46.     In doing so, the FTT can have regard to any obvious strength or weakness of the applicant's case; this goes to the question of prejudice - there is obviously much greater prejudice for an applicant to lose the opportunity of putting forward a really strong case than a very weak one. It is important however that this should not descend into a detailed analysis of the underlying merits of the appeal".

9.             Also relevant to this decision are the principles set out in In HMRC v Katib [2019] UKUT 189 ("Katib") where the Upper Tribunal had to consider the extent to which reliance on an agent was a justifiable reason for failing to make a timely appeal. I set those out, at length, in the reinstatement decision and, once again, I do not propose to rehearse them in this decision. However, the important point is that in Katib, the Upper Tribunal concluded that failings by an agent are deemed to be failings by the taxpayer and so failings to meet a time limit, by that agent, could not be a "good" reason when considering the second part of the Martland evaluation.

FACTS

10.         Once again, the background facts and my findings in respect of certain relevant matters are set out in the reinstatement decision. But those of particular relevance to my consideration of the opt out application are set out below:

(1)          Mr Ved of Sterling Associates has acted for the appellant for over 20 years. During that time, the appellant has had no reason to doubt Mr Ved's competence. Whenever the appellant has received correspondence from HMRC, during that time, he has had a cursory look at it and then sent it to Mr Ved for the latter to deal with. This is the case with the correspondence relating to the notice of determination.

(2)          Mr Ved has considerable experience with disputes with HMRC and the tribunal process. He gave me three such examples, one of which, involving an MTIC appeal, which he ran with a VAT consultant and which collapsed the day before the hearing. He accepted in oral evidence that he was aware of the importance of compliance with statutory deadlines and with tribunal directions.

(3)          Sterling Associates were instructed by the appellant to deal with the IHT filings following Mrs Kotecha's death in July 2014. In 2015 HMRC raised a number of queries regarding the IHT return and continued their enquiry until May 2023 when HMRC issued a statutory review conclusion letter upholding their determination.

(4)          Mr Ved was instructed by the appellant to appeal against that notice of determination which he did on 25 June 2023.

(5)          The tribunal allocated the appeal to the complex track on 17 August 2023, notifying the appellant of this. At this stage neither Mr Ved nor Sterling Associates had completed the appropriate authorised representative form, so correspondence was sent to the appellant.

(6)          The letter dated 17 August 2023 sets out, amongst other things, the position regarding costs. In the first paragraph of the letter, the "...Tribunal acknowledges receipt of your Notice of Appeal dated 25 June 2023 which has been assigned to proceed under the Complex category".

(7)          It then goes on to deal with costs in the following terms:

"Costs: In an appeal which has been categorised as "complex" the Tribunal has a general power to award costs and is likely to award costs against the unsuccessful party. If you wish to opt out of this costs regime, you must apply to the Tribunal within 28 days from the date of this letter". (Emphasis in the original letter).

(8)          In a letter dated 22 September 2023, from HMRC to the appellant, HMRC told the appellant that they could not correspond with Mr Ved until he had submitted the appropriate form of authority; notified the appellant that he could apply for alternative dispute resolution (and Mr Thompson-Jones, the author of that letter and HMRC's representative at the hearing indicated that he thought the matter might be suitable for mediation); explained to the appellant the consequences of the tribunal having categorised the appeal as complex: and asking him to confirm, by 2 October 2023, whether he wished to apply for ADR and whether he had appointed a representative.

(9)          In particular, having identified that the Tribunal had assigned the proceedings to the complex category, the letter said "This also means that Rule 10(1)(c) applies, namely costs in complex cases. If a taxpayer wishes to be excluded from potential liability, they will need to deliver a written request to the Tribunal within 28 days of receiving the notice the case had been allocated to the complex category. You should be aware of this and seek advice from those representing you".

(10)      The appellant asserts that he passed this letter over to Mr Ved without any real consideration of it. I accept this and find it as a fact. I also find as a fact that Mr Ved received this letter. That this is so is evidenced by an email from Mr Ved to Mr Thompson-Jones dated 2 October 2023 which refers to the 22 September 2023 letter. In that email Mr Ved states that he had passed all the documents relating to this case to "tax experts who are currently reviewing the documents and will advise us on the matter" and that "we will be in touch as soon as we hear from a tax expert".

(11)      In cross examination in the hearing of the reinstatement application, Mr Ved accepted that he had not advised the appellant about the possibility of opting out of the cost regime. He thought he had advised the appellant about ADR. He also accepted that he had not diarised to follow up receipt or otherwise of the statement of case.

Further findings of fact

11.         In the reinstatement decision, and as reflected above, I found as a fact that the appellant had passed on HMRC's letter of 22 September 2023 to Mr Ved who was fully aware of its contents.

12.         For the purposes of this decision, I also find as a fact, that the appellant also passed on to Mr Ved, the tribunal's letter of 17 August 2023. I base this finding on two things. Firstly, the appellant's evidence in the reinstatement application, and as set out above, that anything he received from HMRC he briefly scrutinised but then passed on to Mr Ved. I think it is inconceivable that he did not adopt the same approach towards this letter from the tribunal. Secondly, in the opt out application, the appellant's agent states that "Following receipt of the complex case categorisation notice, the Appellant provided the notice to Mr Ved for him to deal with as one would reasonably expect from their adviser".

DISCUSSION

The opt out application

13.         The grounds for the opt out application are as follows:

(1)          Whilst the application is being made outside the 28 day limit, now that the appeal has been reinstated, it is being made at an early stage in the proceedings and will have no impact on the litigation timetable nor on any future hearing dates.

(2)          HMRC will not suffer any material prejudice if the application is granted. They will need to do no further work in respect of preparing their case.

(3)          The appellant relied on Mr Ved to make the appropriate application to opt out of the cost regime, but he failed to do so. It was reasonable for the appellant to rely on Mr Ved, as he had always done in relation to his tax affairs.

(4)          Reinstatement of the appeal should reset the time when the 28 day period to opt out starts as it presents the appellant with an opportunity to approach this as a new appeal with new advisers.

(5)          It is in the interests of justice and fairness, and is within the overriding objective of the tribunal, to grant the opt out application.

HMRC's submissions

14.         In summary HMRC submit as follows:

(1)          The delay in applying to opt out is serious and significant. The letter issued to the appellant confirming that the case had been allocated to the complex track was issued to him on 17 August 2023. The deadline to opt out was 14 September 2023. The opt out application therefore is approximately one year and seven months late.

(2)          Both the tribunal's letter of 17 August 2023 and HMRC's letter to the appellant of 22 September 2023 deal with the costs position, and the appellant's right to opt out of the cost regime, clearly and in detail. These letters were given to Mr Ved who failed to act on them. This failure is attributed to the appellant.

(3)          The appellant's underlying case is a weak one. It would not be fair and just to prevent HMRC recovering their costs in the event that they were successful simply because the appellant had failed to exercise his right to opt out of the cost regime within the specified time limit. The purpose of the cost regime is to provide certainty at an early stage in proceedings and not to allow a taxpayer to see how their case progresses.

My view

15.         The first stage of the Martland process requires me to establish the length of the delay. As submitted by HMRC, the opt out application has been made very late. This delay is both serious and significant, and I need therefore to proceed to consider the next two stages of the process.

16.         The reason given by the appellant for failing to comply with the time limit focusses on the delegation of the conduct of the appeal to Mr Ved. In the appellant's view, he had provided the relevant information to Mr Ved who had let him down. He should not therefore be penalised for this.

17.         Having identified this reason, I now need to conduct an evaluation of all the circumstances of the case which involves a balancing exercise assessing the merits of the reasons given for the delay with the prejudice which would be caused to both parties by granting or refusing permission. When conducting this balancing exercise I must give particular weight to the importance of litigation being conducted efficiently and at proportionate cost and of directions and time limits being respected. I can also have regard to any obvious strengths or weaknesses in the appellant's case.

18.         The appellant submits that he has a good reason for failing to meet the opt out deadline, namely putting the conduct of the appeal in the hands of Mr Ved. This is a very poor reason. It is clear on the authority of Katib that the failings by an agent are attributed to an appellant. If that agent had misled, for example, the appellant, then that might be a factor which could be taken into account at this final evaluation stage. But there is no submission that this is the case here.

19.         The evidence is that:

(1)          Both the letter from the tribunal to the appellant of 17 August 2023 and HMRC's letter to the appellant of 22 September 2023, clearly set out that the appeal had been categorised as complex, and that the appellant had right to opt out of the cost regime within a 28 day period (see [10 (7) and (9)] above).

(2)          These letters were given to Mr Ved by the appellant.

(3)          Mr Ved has had considerable experience in tax litigation and would have known of the costs opt out regime by dint of that experience.

20.         Mr Ved, therefore, knew that in order to safeguard his client from exposure to costs should he lose his appeal, he needed to opt out of the cost regime. He failed to do this. This was long before there were any issues arising from incoming emails being received in his junk email box.

21.         This clearly reflects a disrespect for directions and time limits. It also reflects inefficiency.

22.         The fact that the appeal was reinstated does not restart the 28 day clock. The time limit for opting out of the cost regime was back in September 2023. The delay in failing to opt out is in no way ameliorated by the reason for it. Indeed, it is exacerbated by it. I do not have a handle on the respective merits of the parties' technical arguments in the underlying appeal, but as far as prejudice is concerned, the only prejudice to the appellant is that if he loses, he will not be protected from an application for costs by HMRC. Unlike the strikeout application he does not lose his right to continue with his appeal.

23.         The appellant submits that if I grant permission, then HMRC will not be prejudiced. I disagree. HMRC will be prejudiced because should they succeed in the appeal, they will be unable to recover their costs (unless, shortly stated, the appellant has behaved wholly unreasonably).

24.         My view is that contrary to the submission made by the appellant, rejecting this application is consistent with the overriding objective of dealing with this case fairly and justly.

DISPOSITION

25.         For the foregoing reasons, I reject the opt out application and refuse permission for the appellant to opt out of the costs regime.

RIGHT TO APPLY FOR PERMISSION TO APPEAL

26.         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.

 

 

Release date: 28^th APRIL 2025