Spc00702

COSTS – last-minute withdrawal – whether the Appellant acted wholly unreasonably – yes 

THE SPECIAL COMMISSIONERS

	BUSINESSMAN	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		Special Commissioner: 	DR JOHN F. AVERY JONES CBE 

Sitting in private in London on 16 June 2008

John Walters QC and Nicola Shaw, counsel, instructed by BDO Stoy Hayward LLP, for the Appellant

Ingrid Simler QC and Akash Nawbatt, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2008

ANONYMISED DECISION

1.	This is a decision on the Respondent’s application for costs.  The reason it is anonymised is because it was agreed that the hearing would be in private on the basis that the taxpayer was a wealthy man who said that threats had been made against his wife and children and he was concerned about the increased security risks if details of his life were given at a public hearing.  The Appellant was represented by Mr John Walters QC and Miss Nicola Shaw, and the Respondent by Miss Ingrid Simler QC and Mr Akash Nawbatt.
2.	The circumstances in which the application was made is that I was listed to hear an appeal lasting for 10 days starting on 16 June 2008 (and on the Friday before the parties were enquiring whether I was available after that in case it overran) in which the issues were first, the Appellant’s residence and ordinary residence for the years 1996-97 to 2000-01, and secondly (if he were resident) whether his returns made as a non-resident were made negligently (since if they were not, the discovery assessments for the years under appeal except for the last one were out of time).  On arriving at the start of the appeal Mr Walters told me that he was withdrawing the appeal as a result of discussions with the Appellant over the weekend, having told Miss Simler only a minute before.  Miss Simler applied for costs on the basis that the Appellant had acted wholly unreasonably.  
3.	Mr Walters had complained about the Respondent filing further documents 10 days ago when the directions said they were to be served approximately by the end of 2007.  Miss Simler explained that many of the documents were known to the Appellant and the rest went to the credulity of the Appellant’s evidence.  In particular she drew my attention to two invoices (which I believe was a sample out of other possible examples) of which one version showed the names of Mr and Mrs Businessman travelling together and staying in a hotel, and the other version had apparently been altered by erasing the reference to Mrs Businessman.  The relevance of this is that the Appellant’s case was that he became non-resident following his separation from his wife.  The invoices are dated after the alleged separation.  Since the purpose of the Respondents’ additional documents is to cast doubt on the validity of some of the Appellant’s documents it seems to me that it is not surprising that they were served out of time.  Miss Simler also referred to the Appellant amending his schedule of days in various countries and some changes to his witness statements.
4.	Regulation 21 of the Special Commissioners (Jurisdiction and Procedure) Regulations 1994 provides:
“(1) Subject to paragraph (2) below, a Tribunal may make an order awarding the costs of, or incidental to, the hearing of any proceedings by it against any party to those proceedings (including a party who has withdrawn his appeal or application) if it is of the opinion that the party has acted wholly unreasonably in connection with the hearing in question.
(2) No order shall be made under paragraph (1) above against a party without first giving that party an opportunity of making representations against the making of the order.
(3) An order under paragraph (1) above may require the party against whom it is made to pay to the other party or parties the whole or part of the costs incurred by the other party or parties of, or incidental to, the hearing of the proceedings, such costs to be taxed if not otherwise agreed.
(4) Any costs required to be taxed pursuant to an order under this regulation shall be taxed in the county court according to such of the scales prescribed by rules of court for proceedings in the county court as may be directed by the order or, in the absence of any such direction, by the county court….”
5.	My jurisdiction is limited to costs “of, or incidental to, the hearing of any proceedings,” which includes a party who has withdrawn his appeal.  On the meaning of this expression the Special Commissioners said in Carvill v Frost [2005] STC (SCD) 208:
“11. What that explanation shows is that the draftsman has, by using the expression ‘the costs of and incidental to the hearing of the proceedings’, been careful to confine costs to those incurred while the Special Commissioners have jurisdiction over the appeal. Cost incurred in the earlier stages of the appeal proceedings, ie while the appeal is being dealt with by the officer of the Board cannot qualify for an award. The expression ‘costs of, or and incidental to, the hearing of any proceedings’ imposes a further qualification. It will not, as Park J observed in Gamble v Rowe (Inspector of Taxes) [1998] STC 1247 at 1257, cover any costs that in some way arise during the period when the Special Commissioners have jurisdiction. They have to be costs incurred while the matter is before the Special Commissioners and the matter is being heard or prepared for a hearing. It follows that if, as here, the appeal hearing has not taken place, the costs will nonetheless qualify for an award (always so long as they satisfy both the Gamble v Rowe test and the ‘wholly unreasonable’ test). That construction makes sense of the words in brackets in reg 21(1).”
The proceedings were registered before the Special Commissioners on 5 April 2007 and I had a preliminary hearing on 31 May 2007 at which the Appellant had asked for the issue of the validity of the assessments to be dealt with as a preliminary issue, which I declined to do.  The costs which I have power to award relating to the preparation for the hearing include the preparation for the preliminary hearing.
6.	The next condition is that I am of the opinion that the party has acted wholly unreasonably in connection with the hearing in question.  As was pointed out by Park J in Gamble v Rowe [1998] STC 1247 at 1257:
“It will be a very rare case where a tribunal can say that a party had acted wholly unreasonably.  It is not enough to be able to say that from time to time there has been unreasonableness.  The party must act wholly unreasonably—a very exacting standard.”
7.	Necessarily I have limited information about the Appellant’s conduct and I have heard only limited argument because the Respondents were no doubt not expecting the withdrawal of the appeal.  Mr Walters contends that there is nothing unreasonable in a party withdrawing when he realises that he will lose.  Without having heard any evidence I am not in a position to make a finding that the invoices referred to by Miss Simler had been deliberately doctored to mislead the Respondent and the Tribunal, but I consider that for the purpose of this application I should proceed on the basis that on the balance of probabilities they were because there seems to be no other explanation.  The Appellant was therefore putting forward misleading evidence (I am not in any way suggesting that this was known to his advisers).  On that basis it is more a question that the Appellant was withdrawing because he realised that the Respondents are likely to prove that his evidence did not stand up.  Accordingly, even though the standard of acting wholly unreasonably is an exacting one, I am of the opinion that the Appellant has acted wholly unreasonably in connection with the hearing.
8.	Accordingly I award the Respondents the whole of the costs of and incidental to the hearing, including the preliminary hearing.  The costs are to be taxed if not agreed in accordance with reg 21(4).

JOHN F. AVERY JONES

SPECIAL COMMISSIONER
RELEASE DATE: 19 June 2008

SC 3084/07