18969
COSTS – Application

LONDON TRIBUNAL CENTRE

	FP WHIFFEN OPTICIANS (No.2)	Appellant

-	and –

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	STEPHEN OLIVER QC (Chairman)

Sitting in chambers in London on 1 March 2005

Alan Rashleigh, of Alan Rashleigh & Co, consultants, for the Appellant 

Philippa Whipple, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1.	On 5 November 2004 I decided what I saw as the underlying principles in issue in the main appeal.  These are reported in (2004) VAT Dec 18981.  In particular I decided that:

(i)	the trading profit of the Appellant’s business for the year ended 31 March 2000 (£72,935) was sufficiently reliable a figure to reflect  the cost of the Appellant’s time given to the whole business;

(ii)	80% of that amount could cover on the evidence, fairly be regarded as the cost of his time so far as it was dedicated to the exempt side of the business, i.e. the dispensing optician’s activities and 

(iii)	the result was a taxable element of the Appellant’s supplies of roughly 51% as compared with the 50% used by the Appellant in the calculations provided in the original Voluntary Disclosure.  

The result, if those principles are applied in finalizing the matter, is for an original assessment of £44,000, subsequently reduced in March 2004 to £5,114, to be reduced to a small amount.  

2.	In paragraph 20 of the Decision I offered this provisional view on costs :

“Finally, I see no compelling reason why any award of costs should not follow the event; which is that an assessment for £44,000 plus tax has, in the course of the appeal proceedings, been reduced to a small amount.”

The matter is still before the Tribunal : see paragraph 18 of the decision.  On 18 November 2004 the Commissioners applied to the Tribunal by letter with their submissions on costs.  Mr A Rashleigh, of Alan Rashleigh & Co, responded on 24 November.

3.	There are two opening points to make.  First, the costs that the Tribunal has power to award are the costs of and incidental and consequent upon the appeal : see regulation 29(1) of the Value Added Tax Tribunals Rules 1986.  There was no proper argument about costs at the hearing.  In paragraph 20 of the decision I offered the parties the opportunity to call for a further hearing. I have been asked to deal with this matter in writing, which I am content to do.  The second point is that costs will usually follow the event.  With those in mind I now address the points taken by the Commissioners.  The Commissioners, essentially, question the assertion made by me in paragraph 20 of the Decision that in the circumstances the Appellant should get his costs.  

4.	The first point taken by the Commissioners is that the original assessment of £44,000 was initially challenged on best judgment grounds and that this challenge was dropped by the Appellant at the first hearing.  That is so.  Very little time was spent on the best of judgment issue as a separate issue.  I cannot see that it materially affects my decision on costs.

5.	The second point taken by the Commissioners is, they say, that they never held out the original assessment to be the final word on the matter.  Their attempts, throughout the proceedings, had been to obtain sufficient material upon which to reduce the assessment to take account of the Appellant’s exempt activity.  The response for the Appellant is that the Commissioners did indeed have sufficient material in which to proceed with reducing the assessment.  Documents had been submitted in November 2001 and, had the Tribunal been satisfied with these, there would have been more than sufficient evidence to enable a realistic assessment to have been made by the Commissioners.

6.	The problem behind these proceedings, as I saw it, was that the Commissioners had never publicly addressed the question of how to “cost” the time of a self-employed optician.  There are no guidelines and consequently the optician in the Appellant’s position can do little more than use the figure for his trading profit as the cost of his services.  The Appellant did that and stuck with it.  The Commissioners were exasperated by his and his adviser’s tenacity because they wanted figures from him that would enable them to produce what they saw to be a more acceptable amount for such costs.  Rightly or wrongly I concluded that the trading profit for the year in question was the right starting point in determining the costs attributable to the Appellant’s activities in the exempt side of the business.  Having said that, it seems to me from my review of the correspondence that the cost of the time spent in writing to the Commissioners cannot be regarded as cost of and incidental to the appeal.  The parties were attempting to clarify their respective positions.  The letters all read as exchanges of views between tax consultant and the Commissioners.  They were not formal steps in the litigation process, such as requisitions or responses to demands for further and better particulars.  The costs of the correspondence were certainly not costs of the hearing; nor, in my view, were they incidental to it.  

7.	The Commissioners went on to observe that while the Tribunal had rejected their “comparator” evidence, this had followed from the evidence given by the Appellant for the first time at the Tribunal hearing.  Much of that evidence, the Commissioners observe, could and should have been communicated to the Commissioners a long time back in which case matters might well have been agreed and disposed of without the need to resort to the Tribunal.  Mr Whiffen’s advisers say that the evidence given by him was simply confirming information which had been given to the Commissioners.  Both sides may be right.  Nonetheless, in my view the two and fro of correspondence about the comparator business was no more than an effort to settle the appeal without having to return to the Tribunal for the second day’s hearing.  The Appellant’s costs of correspondence dealing with this were not costs falling within regulation 29(1).

8.	The Commissioners then observe that the Tribunal did in fact support what they describe as their essential position, namely that 100% of Mr Whiffen’s time could not be exempt.  In that respect, they say, they succeeded.  As I see it, the Commissioners were 20% successful in that respect.

9.	The real thrust of the Commissioners’ case is to complain that the way in which the appeal has been conducted on behalf of the Appellant “has led to a horrendous waste of time and costs for both side”.  The Commissioners say that they should not be held liable for this as it cannot in all fairness be said that they were to blame for the time wasted and consequent costs accruing.  I have already alluded to the difficulty in the present case, namely that the guidance in the Information Sheet (8/99) does not touch on the question of how a self-employed optician’s time and effort are to be costed.  To an extent, therefore, the parties were navigating without clear charts.  All the same, litigation demands a focused and disciplined approach by both parties.  This is not evident from the correspondence originating from the Appellant’s adviser.  A well organized presentation of the Appellant’s case would have involved:

(i)	the identification of the issues between the parties before the notice of appeal was lodged, 

(ii)	the selection of the documentary evidence from a relatively small number of prime materials; by “prime materials” I am not referring to correspondence;

(iii)	the preparation of Mr Whiffen’s witness statement and 

(iv)	one day in Court at the outside.

10.	Taking all the above considerations into account, I think that the Appellant is entitled to an amount in respect of  his costs.  He was 80% successful on the main point at issue. The costs will, however, be restricted to the costs attributable to two days in court, the cost of the time spent agreeing and preparing the bundle, the cost of Mr Whiffen’s attendance and the costs of complying with any directions given by this Tribunal. As already indicated, I do not consider that the costs incurred in corresponding with the Commissioners can properly be described as costs of and incidental to and consequent on the hearing.

11.	The message in the last paragraph of this decision should be treated as my direction on costs.  If the parties are unable to agree the correct amount, the matter will have to be referred back to me for a further hearing.

STEPHEN OLIVER QC
CHAIRMAN

RELEASED: 8 March 2005

LON/01/1351