P12: Costs: amount
Costs of and incidental to the proceedings
“(1) The costs of and incidental to—
(a) all proceedings in the First-tier Tribunal, and
(b) all proceedings in the Upper Tribunal, shall be in the discretion of the Tribunal in which the proceedings take place.
(2) The relevant Tribunal shall have full power to determine by whom and to what extent the costs are to be paid.
(3) Subsections (1) and (2) have effect subject to Tribunal Procedure Rules.” (TCEA 2007 s.29)
Unnecessary for a hearing to have taken place
“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…”(Carvill v. Frost  STC (SCD) 208, §11).
- Can include costs incurred prior to proceedings commencing
" The use of the "costs of and incidental to" wording in section 29 cannot be accidental and must have been intended to mean that, subject to any relevant difference in the FTT Rules compared with the Civil Procedure Rules, the same costs are in general recoverable once rule 10(1)(b) comes into play as are recoverable on an assessment of costs following civil proceedings covered by section 51 SCA. Those costs do include some pre-action costs. In In re Gibson's Settlement Trusts  Ch 179, Sir Robert Megarry V-C considered an appeal from the taxation of costs of an originating summons issued by trustees of a settlement trust. One issue raised was whether the taxing officer had been right to allow recovery of costs incurred before the summons was issued. The Vice-Chancellor held:
i) on an order for taxation of costs, costs that would otherwise be recoverable are not to be disallowed by reason only that they were incurred before the action was brought;
ii) where the costs order is for costs of and incidental to proceedings, the words "incidental to" extend rather than reduce the ambit of the order;
iii) it is important to identify the proceedings, in the sense not only of the correct stage of the proceedings but also by determining the nature of those proceedings: "Only when it is seen what is being claimed can it be seen what the proceedings are to which the costs relate": page 186B.
 The Vice-Chancellor cited the judgment of Lord Hanworth MR in Pêcheries Ostendaise (Soc. Anon) v Merchant's Marine Insurance Co  1 KB 750 which referred to costs for "materials ultimately proving of use and service in the action" and commented that it would be "most unfortunate if the costs of obtaining evidence while it was fresh after an accident could not be allowed, even if litigation seemed probable, merely because no writ had then been issued": page 186D. He went on to say at page 187B-E:
"(5) Obviously the test cannot be simply whether the materials in question proved in fact to be of use in the action, for otherwise when a case is settled before trial … it would often not be possible to say with any certainty which materials had been or would have been of use in the action. Nor would it be right to penalise the successful litigant for obtaining materials which appeared likely to be of use in the action but which, in the event, were never used because the other party did not contest the point. … Neither the fact that at the time when the costs were incurred no writ or originating summons had been issued, nor the fact that the immediate object in incurring the costs was to ascertain the prospective litigant's chances of success, will per se suffice to exclude the costs from being regarded as part of the costs of the litigation that ensues. Of course, if there is no litigation there are no costs of litigation. But if the dispute ripens into litigation, the question then arises how far the ambit of the costs is affected by the shape that the litigation takes."
 Although there is no equivalent in the FTT Rules to the express provision in CPR 44.2(6)(d), I consider that the power in rule 10(1)(b) to award costs of and incidental to the proceedings can include costs incurred before the appeal was notified to the FTT. Which costs are properly recovered is a matter for the costs officer who is experienced in these matters to decide. I would, however, say this as regards the costs incurred by the parties in steps taken before the FTT appeal is lodged. The ability of the applicant to recover the costs of notifying the appeal to HMRC does not, in my view, turn on whether the taxpayer chooses the option of internal review or decides to bring the appeal straight to the tribunal. I agree with the UT's comment that defining the scope of a possible order for costs by reference to the subjective intentions of a potential appellant at a particular stage is "hedged around with too many difficulties and uncertainties to form a reliable basis for decision": .
 I also disagree with the implication of Judge Mosedale's test that the costs of the internal review itself can never be incidental to the appeal because they are incurred to bring the dispute to an end without litigation. It is the nature of the work done and the scope of the ultimate appeal that determine whether those costs are incidental to the appeal, not the subjective intention of the party when incurring the costs. For example, materials gathered or produced for the purpose of the internal review may then be recycled in the appeal before the FTT. Those costs are clearly of and incidental to the appeal even though they were largely incurred at the earlier stage." (Distinctive Care Ltd v. HMRC  EWCA Civ 1010, Rose, Lewison, Floyd LJJJ)
Appeal ends before hardship granted (query whether there are any proceedings)
" By reference to the Notices of Appeal, the Appellants had applied for hardship but their applications had not been determined by HMRC. As such the Tribunal was not seized of any proceedings. As s29 TECA and rule 10 prescribe the circumstances in which costs of or incidental to “the proceedings” there must be proceedings on foot for the costs rules to be invoked.
 Therefore, had the Tribunal concluded that the schedule of costs were sufficient, the claim would nevertheless have failed as there were no proceedings pursuant to which the claim could be made." (Wincanton Holdings Limited v. HMRC  UKFTT 446 (TC), Judge Brown KC)
Only costs the applicant is liable for (indemnity principle)
“In the light of the fee arrangements the respondents submitted that the indemnity principle prevents any recovery of costs. In particular they submitted that as between the appellants, EDF Tax and counsel, the appellants have no liability for costs. Mr Gordon accepted that the arrangements between the appellants and EDF Tax did fall foul of the indemnity principle and as a result the appellants could not recover any costs in relation to work done by EDF Tax.” (Gardiner v. HMRC  UKFTT 115 (TC), §§19 – 20).
Tribunal questioning whether taxpayer liable for full costs in case of wider pool of appellants
" My understanding was that the costs of these lead appeals had been funded by insurance and/or by contributions from the wider pool of appellants. It would be particularly extraordinary for Mr Fox to have volunteered to be an informal lead case if as a consequence he became personally liable for costs of £87,768.30, as RPC say is the position, given that:
(1) he entered into an IVA in 2019; and
(2) the total amount he was due to pay HMRC was only £9,512.62, around 11% of the costs which RPC now say he is liable to pay.
 As the Costs Application has been refused it is not necessary to explore these points. Had HMRC acted unreasonably, and had RPC complied with the Tribunal Rules in making the Costs Application, it might have been necessary to consider the funding position, see for example the issues raised by Cook on Costs in Part 2 and Chapter 37." (Fox v. HMRC  UKFTT 138 (TC), Judge Redston)
Litigant in person
" I considered that I should be guided, when making a summary assessment, by the costs rules of the courts set out in the Civil Procedure Rules (“CPR”) and in particular in CPR Part 44 – General Rules about Costs – and Part 46 – Costs Special Cases – and the associated Practice Directions.
 Rule 44.2 CPR says:
“(2) Where the amount of costs is to be assessed on the standard basis, the court will –
(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and
(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.
 Rule 46.5(3) CPR (Litigants in Person) provides that:
“(3) The litigant in person shall be allowed –
(a) costs for the same categories of –
(i) work; and
which would have been allowed if the work had been done or the disbursements had been made by a legal representative on the litigant in person’s behalf;
(4) The amount of costs to be allowed to the litigant in person for any item of work claimed will be –
(a) where the litigant can prove financial loss, the amount that the litigant can prove to have been lost for time reasonably spent on doing the work; or
(b) where the litigant cannot prove financial loss, an amount for the time reasonably spent on doing the work at the rate set out in Practice Direction 46.”
 Practice Direction 46 at paragraph 3.4 says:
“3.4 The amount, which may be allowed to a self represented litigant under rule 45.39(5)(b) and rule 46.5(4)(b), is £19 per hour.”
£19 per hour is therefore the rate I award." (Swales v. HMRC  UKFTT 619 (TC), Judge Richard Thomas)
Unless financial loss proven
" First, I should note that the CPR do not, strictly speaking, apply to this Tribunal. Nonetheless, they provide useful guidance which I should follow unless required to do otherwise. I am satisfied on the evidence put forward by Mr Green that his claim for £1,900, representing loss of earnings, accurately represented his financial loss. His rate per hour seemed consistent with what he would charge to third parties. On that basis, Part 46.5(4)(b) CPR has no application." (Green v. HMRC [2018 UKFTT 669 (TC), Judge Brannan)
Success fees and ATE insurance premiums generally not recoverable
" Some of the principal changes to the 1999 Act regime effected by LASPO did not apply to defamation and privacy claims - see article 4 of the LASPO (Commencement No 5 and Saving Provision) Order 2013 (SI 2013/77). Thus, such claims are now an exception to the general rule which excludes the recoverability of success fees and ATE premiums by successful claimants. (The only other current exception is mesothelioma claims). This was justified by the fact that such claims would be covered by other legislation. Another recommendation made by Sir Rupert, namely qualified one-way costs shifting, has also been introduced, but only to a limited extent, in that it only extends to personal injury claims, and therefore does not apply to defamation or privacy claims." (Times Newspaper Limited v. Flood  UKSC 33)
Pre-appeal costs may be incidental to the proceedings
" Although there is no equivalent in the FTT Rules to the express provision in CPR 44.2(6)(d), I consider that the power in rule 10(1)(b) to award costs of and incidental to the proceedings can include costs incurred before the appeal was notified to the FTT. Which costs are properly recovered is a matter for the costs officer who is experienced in these matters to decide. I would, however, say this as regards the costs incurred by the parties in steps taken before the FTT appeal is lodged. The ability of the applicant to recover the costs of notifying the appeal to HMRC does not, in my view, turn on whether the taxpayer chooses the option of internal review or decides to bring the appeal straight to the tribunal. I agree with the UT's comment that defining the scope of a possible order for costs by reference to the subjective intentions of a potential appellant at a particular stage is "hedged around with too many difficulties and uncertainties to form a reliable basis for decision": .
 I also disagree with the implication of Judge Mosedale's test that the costs of the internal review itself can never be incidental to the appeal because they are incurred to bring the dispute to an end without litigation. It is the nature of the work done and the scope of the ultimate appeal that determine whether those costs are incidental to the appeal, not the subjective intention of the party when incurring the costs. For example, materials gathered or produced for the purpose of the internal review may then be recycled in the appeal before the FTT. Those costs are clearly of and incidental to the appeal even though they were largely incurred at the earlier stage." (Distinctive Care Ltd v. HMRC  EWCA Civ 1010, Rose LJ)
“My conclusion on the law is that there is no reason why ‘incidental’ in the Tribunals, Courts and Enforcement Act should be read any differently to the meaning it is given elsewhere in costs legislation and rules, irrespective of how the old Special Commissioner rules should have been constructed. ‘Incidental’ therefore extends the scope of the costs which may be awarded beyond those merely ‘of’ the litigation. Nevertheless, ‘incidental’ will require the costs to be of use and service in the subsequent litigation.” (Distinctive Care Ltd v. HMRC  UKFTT 764 (TC), §77, Judge Mosedale).
“It must be remembered that this statement was made in the context of a claim by Mr Catana to recover all his costs incurred in connection with the lengthy investigation that had preceded his appeal. I do not think the Upper Tribunal intended its above comment to mean that there should be a “hard cut-off” which prevented all costs incurred before the date of commencement of the appeal to be excluded from any costs order, for example the costs of preparing the notice of appeal itself. The First-tier Tribunal (Judge Kempster) has considered the point in detail (see G Wilson (Glaziers) Limited  UKFTT 387 (TC) at  to ) and reached a similar conclusion. For my part, I would consider that the costs of preparing a notice of appeal should be capable of inclusion within any costs order – such costs would certainly seem to me to be properly described as being “of or incidental to” the proceedings (as contemplated in s 29 of the Tribunals, Courts and Enforcement Act 2007, which provides the statutory origin for any costs application). Of course, in the Courts analogous costs can be recovered.” (R A Drinks v. HMRC  UKFTT 304 (TC), §20, Judge Poole).
“On the authority of Gibson's Settlement Trusts costs incurred before commencement of proceedings can be “incidental to” those proceedings, and thus come within the ambit of s 29 TCEA 2007 and Tribunal Procedure Rule 10 . The matters in dispute in the Applicant's appeal (several VAT default surcharges) were sufficiently well defined so that all the costs incurred before commencement of the appeal proceedings do constitute costs incidental to the appeal proceedings.” (G Wilson (Glaziers) Limited v. HMRC  UKFTT 387 (TC), §12, Judge Kempster).
“Mr Rice, who contends that Catana is of no application in this case because it concerned an application under Rule 10 (1) (b) rather than is the case with Stomgrove’s application here, Rule 10 (1) (c), relies on McGlinn v Waltham Contractors  EWHC 1419 (TCC) where Judge Peter Coulson QC, sitting in the Technology and Construction Court , held at  that as a matter of principle the costs incurred in complying with a Pre-Action Protocol may be recoverable as costs “incidental to “ any subsequent proceedings. I do not, however see a correct analogy between costs of this nature, which relate to a process that a party is bound to follow before issuing civil proceedings and the costs in relation to the disputing of a notice of assessment to tax.” (Stomgrove Ltd v. HMRC  UKFTT 169 (TC), §32, Judge Herrington).
“There is nothing in the decision in Cataña to suggest that the judge was referred to G Wilson or to Gibson's Settlement Trusts and in any event neither of the decisions are binding authority on the interpretation of the particular legislation relevant here. I think I must proceed on the basis that Cataña as an Upper Tribunal decision is binding authority for the proposition that I cannot make an order in relation to costs incurred before the proceedings before the First-tier Tribunal were brought.” (Southwest Communications Group Ltd v. HMRC  UKFTT 701 (TC), §15).
“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.” (Carvill v. Frost  STC (SCD) 208, §11).
Cost of investigation not recoverable
“Costs incurred in dealing with a tax investigation are not, however, incidental to the proceedings, as they are not necessarily incidental to the proceedings: they are incurred to bring the dispute to an end without litigation.” (Distinctive Care Ltd v. HMRC  UKFTT 764 (TC), §79, Judge Mosedale).
Costs of preparing appeal notice recoverable
“The costs of and incidental to the proceedings cover only those costs incurred in preparing and pursuing the appeal” (Tarafdar v. HMRC  UKUT 362 (TCC), §19).
“So it seems to me that a necessary step in bringing an appeal, such as preparing the notice of appeal to the Tribunal, will be an ‘incidental’ cost to the proceedings; moreover, preparation for the proceedings which is actually used in the proceedings even though it takes place before proceedings are commenced, will also be an ‘incidental’ cost.” (Distinctive Care Ltd v. HMRC  UKFTT 764 (TC), §78, Judge Mosedale).
“The Appellant also refers to the decision in Stomgrove Limited v Revenue and Customs Commissioners ( UKFTT 169 (TC)) in which it was common ground that the costs of preparing a notice of appeal were within the ambit of Rule 10.” (Archer v. HMRC  UKFTT 141 (TC), §17).
Pre-hardship grant costs are recoverable
" I therefore find that, whilst the Tribunal was not able to entertain or proceed with this appeal until hardship had been determined, the appeal had nonetheless been started. I therefore disagree with HMRC's submission that there was no valid appeal prior to 27 April 2022. I find that I am not prevented from making an award in respect of costs incurred prior to the determination of hardship." (Patel v. HMRC  UKFTT 128 (TC), Judge Aleksander)
ADR costs during tribunal proceedings are recoverable
" Had, or to the extent that, legal costs have been incurred in connection with the ADR process itself, as distinct from the progression of the Tribunal proceedings they are recoverable (see Chantrey Vellacott v The Convergence Group Plc and others  EWHC 1774)." (Ruddle Group Limited v. HMRC  UKFTT 10 (TC), Judge Amanda Brown QC)
- Difference to standard basis (reverse onus of reasonableness, no proportionality test)
"...In practical terms the difference between standard costs and indemnity costs is described in Part 44 and may be summarised as follows:
(1) Where costs are assessed on the standard basis, the court will disallow any costs which are unreasonably incurred, unreasonable in amount, are disproportionately incurred or are disproportionate in amount. Any doubt as to whether costs are reasonable or proportionate is to be resolved in favour of the paying party, in this case the respondents.
(2) Where costs are assessed on the indemnity basis it is only costs which are unreasonably incurred or unreasonable in amount which will be disallowed. There is no reference to whether the costs are proportionate to the importance of the case, the amount at stake, the complexity of the issues or the financial position of the parties. Further, any doubt as to whether costs are reasonable is to be resolved in favour of the receiving party, in this case the appellant." (Ad Hoc Property Management Limited v. HMRC  UKFTT 315 (TC), Judge Cannan)
“As described by Lord Woolf in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Apsden & Johnson  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.” (Bowcombe Shoot v. HMRC  UKFTT 64 (TC), §24, Judge Berner).
- Conduct must take the case out of the norm
" CCIL maintains that any costs order made should be made on the indemnity basis as referred to in Rule 10(7) of FTT Rules. The relevant threshold for an award of costs on such basis was considered by the Court of Appeal in two cases I was referred to. In Kiam II v MGN Ltd.(2)  EWCA Civ 66 the necessary standard of conduct was expressed as having to be “unreasonable to a high degree” (at  per Simon Brown LJ). In Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson  EWCA Civ 879 Lord Woolf subsequently explained the standard thus: “there must be some conduct or some circumstance which takes the case out of the norm” (at )...
 ... Both the above explanations in Kiam and Excelsior make it clear in my view that it is not enough that the conduct is unreasonable and the difficulty with CCIL’s stance is that it seems to me to equate conduct which is unreasonable with conduct which is outside the norm..." (HMRC v. Cheshire Centre for Independent Living  UKUT 275 (TCC), Judge Raghavan)
“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.” (The Bank of Tokyo- Mitsubishi UFJ Limited v Baskam Gida Sanayi VE Pazarlama AS  EWHC 1696 (Ch), §26(ii), Briggs J).
“[Bowcombe Shoot] also demonstrates that for indemnity costs to be awarded the conduct concerned must “take it out of the norm” by being unreasonable to a high degree.” (Stomgrove Ltd v. HMRC  UKFTT 169 (TC), §37, Judge Herrington).
“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.” (Bowcombe Shoot v. HMRC  UKFTT 64 (TC), §43, Judge Berner adopted in (Ad Hoc Property Management Limited v. HMRC  UKFTT 315 (TC), Judge Cannan, §14).
- Litigation conducted in a way which is unreasonable to a high degree
" Costs may be awarded on an indemnity basis where the litigation has been conducted in a way which is “unreasonable to a high degree” which takes the case “out of the norm”. Both parties were content to rely on the description of the conduct which will justify indemnity costs in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden, & Johnson  EWCA Civ 879 endorsing what was said by Simon Brown LJ in Kiam v MGN (No 2)  EWCA Civ 66 at : “12. … [The] 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 made under Rule 44 (unlike one made under Rule 36) does, I think, carry at least some stigma. It is of its nature penal rather than exhortatory.”" (Ad Hoc Property Management Limited v. HMRC  UKFTT 315 (TC), Judge Cannan)
“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.” (Bowcombe Shoot v. HMRC  UKFTT 64 (TC), §29, Judge Berner).
- Wary of placing too much reliance on capitulation (which would discourage settlement)
" It is clear from the principles I have referred to that I should be wary of placing much weight on the mere fact of HMRC’s capitulation and I am therefore not satisfied that there was unreasonableness to a high degree or that the conduct, in respect of this ground, was outside the norm." (Worldpay (UK) Limited v. HMRC  UKFTT 162 (TC), Judge Sukul)
" Further, in considering whether there has been unreasonable conduct to a high degree I should be wary of placing too much weight on the fact that the respondents effectively capitulated. The reason for this was given by Barling J in Catalyst Investment Group v Lewinsohn  EWHC 3501 (Ch):
“34. … 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.”" (Ad Hoc Property Management Limited v. HMRC  UKFTT 315 (TC), Judge Cannan)
- Weakness of legal argument not usually sufficient
" Further, Worldpay’s submissions that HMRC’s case was unmeritorious and based on submission alone concerns the weakness of HMRC’s legal argument, which is not, without more, justification for an indemnity basis of costs (see Arcadia Group Brands Ltd v Visa Inc  EWCA Civ 883 at ). Having considered the relevant principles and the findings of the UT and the FTT, I am not satisfied that HMRC’s case on Halifax abuse was unreasonably advanced in the course of the litigation or that the conduct was outside the norm." (Worldpay (UK) Limited v. HMRC  UKFTT 162 (TC), Judge Sukul)
" Similarly, in Arcadia Group Brands Ltd v Visa Inc  EWCA Civ 883 a judge had ordered the claimants to pay indemnity costs on the basis that their claims were bound to fail. That order was overturned by the Court of Appeal where the Chancellor stated:
“83. The Judge had a wide discretion as to costs but I consider that, in awarding costs on the indemnity basis rather than the standard basis, the Judge made an error in principle. The weakness of a legal argument is not, without more, justification for an indemnity basis of costs, which is in its nature penal. The position might be different if proceedings or steps taken within them are not only based on a plainly hopeless case but are motivated by some ulterior commercial or personal purpose or otherwise for purely tactical reasons unconnected with any real belief in their merit.”" (Ad Hoc Property Management Limited v. HMRC  UKFTT 315 (TC), Judge Cannan)
- Does not require lack of moral probity
“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.” (Reid Minty (a firm) v Taylor  EWCA Civ 1723, §28, May LJ)
- Look at behaviour before proceedings as well
" I was also referred to what was said by Sir Anthony Colman in National Westminster Bank plc v Rabobank Nederland  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.”
18. The reference to “pre-litigation dealings” would doubtless encompass compliance in civil procedure with any pre-action protocols which have no equivalent in tax tribunal procedure. However, I accept that the respondents conduct prior to an appeal to the tribunal is relevant in the context of the present application (see Judge Berner in Curran v HM Revenue & Customs  UKFTT 655 (TC) at . I must consider all the circumstances." (Ad Hoc Property Management Limited v. HMRC  UKFTT 315 (TC), Judge Cannan)
“As far as the claim for costs on an indemnity basis is concerned, I accept, as Bowcombe Shoot demonstrates, behaviour before the proceedings are commenced can be taken into account.” (Stomgrove Ltd v. HMRC  UKFTT 169 (TC), §32, Judge Herrington).
“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.” (Bowcombe Shoot v. HMRC  UKFTT 64 (TC), §32, Judge Berner).
Examples relating to indemnity costs
" Worldpay made reference to the comments of Briggs J in The Bank of Tokyo-Mitsubishi UFJ Limited and another v Baskam Gida Sanayi VE Pazarlama AS and others  EWHC 1696 (Ch) where, after reviewing the authorities, he said (at ):
“…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.”
 Worldpay also referred to the judgment of Tomlinson J in Three Rivers DC v. Bank of England  EWHC 816 (Comm)  5 Costs L.R. 714, which states at :
The following circumstances take a case out of the norm and justify an order for indemnity costs, particularly when taken in combination with the fact that a defendant has discontinued only at a very late stage in proceedings;
(a) Where the claimant advances and aggressively pursues serious and wide ranging allegations of dishonesty or impropriety over an extended period of time;
(b) Where the claimant advances and aggressively pursues such allegations, despite the lack of any foundation in the documentary evidence for those allegations, and maintains the allegations, without apology, to the bitter end;
(c) Where the claimant actively seeks to court publicity for its serious allegations both before and during the trial in the international, national and local media;
(d) Where the claimant, by its conduct, turns a case into an unprecedented factual enquiry by the pursuit of an unjustified case;
(e) Where the claimant pursues a claim which is, to put it most charitably, thin and, in some respects, far-fetched;
(f) Where the claimant pursues a claim which is irreconcilable with the contemporaneous documents;
(g) Where a claimant commences and pursues large-scale and expensive litigation in circumstances calculated to exert commercial pressure on a defendant, and during the course of the trial of the action, the claimant resorts to advancing a constantly changing case in order to justify the allegations which it has made, only then to suffer a resounding defeat.”" (Worldpay (UK) Limited v. HMRC  UKFTT 162 (TC), Judge Sukul)
- Delay does not take case out of the norm without wilful failure
“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.” (Bowcombe Shoot v. HMRC  UKFTT 64 (TC), §45, Judge Berner).
- No indemnity costs simply for defending FTT judgment that may be wrong in light of subsequent authority
“[HMRC] argued that I should instead make a direction for indemnity costs in HMRC’s favour, since it should have been apparent to BPP, once the judgment in Denton and my own decision in Leeds City Council were released, that it should have agreed to the lifting of the bar. I do not think there is any merit in this argument. First, it does not seem to me that a party can be lightly criticised for defending a position in which it finds itself. Second, this was not a case of an inadvertent slip quickly corrected, or of an error, even if not quickly corrected, which was innocent and of little real consequence.” (HMRC v. BPP Holdings Ltd  UKUT 496 (TCC), §64).
- Pursuing speculative case involving serious allegations
“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.” (The Bank of Tokyo- Mitsubishi UFJ Limited v Baskam Gida Sanayi VE Pazarlama AS  EWHC 1696 (Ch), §26(iii), Briggs J).
- Alleging abuse of law not sufficiently serious
" I agree with Worldpay’s submission that HMRC’s capitulation very shortly before trial is an aggravating factor which supports an application for costs on an indemnity basis. However, although HMRC’s case on Halifax abuse amounted to a serious allegation, it was not a fraud case and I do not consider it to have met the level of “a case alleging serious dishonesty” or “serious and wide ranging allegations of dishonesty or impropriety over an extended period of time”. Further, whilst there was some change in HMRC’s position throughout the course of the proceedings, I do not consider their case, based on the amendment permitted by the FTT, was pursued “despite lack of any foundation”. I therefore find the overall circumstances in this case, when taken in combination with the fact that HMRC withdrew only at a very late stage in proceedings, do not take this case out of the norm or demonstrate unreasonableness to a high degree sufficient to justify an order for indemnity costs." (Worldpay (UK) Limited v. HMRC  UKFTT 162 (TC), Judge Sukul)
- Person used as a test case
“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.” (Kiam v. MGN Ltd (No.2)  EWCA Civ 66, §31, Lord Woolf MR).
- Reasonable to defend assessment until witness evidence seen
" [HMRC] did not accept that HMRC should have withdrawn the decisions even before the appeal was lodged. In particular, he submitted that when it came to the crunch the appellant may not have been able to make good the factual assertions in the PwC correspondence. In this respect the witness statements were crucial and HMRC were entitled to defend the appeal until they had sight of the witness statements. I accept that submission. In this case the witness evidence would have been crucial. In my view HMRC were reasonably entitled to maintain their defence of the appeal at least until they had sight of the appellant’s witness statements. It might even be argued that they would be entitled to defend the appeal to a final hearing to satisfy themselves that the witnesses came up to proof. I do not consider that the respondents were unreasonable, and certainly not to the necessary high degree, to maintain the Assessments until sight of the appellant’s witness statements." (Ad Hoc Property Management Limited v. HMRC  UKFTT 315 (TC), Judge Cannan)
- Badly managed litigation not sufficient to take case outside norm
" HMRC’s conduct in the appeal was certainly not ideal. However, they did not breach any direction of the Tribunal. They did make a series of contested applications which were refused but the Appellant did not apply for the costs of those applications to be granted in any event.
 The litigation was not well managed, but (sadly) it certainly was not “out of the norm” either for HMRC or for many litigants.
 Further, the rationale for HMRC’s concession in the appeal was stated to be further disclosure by the Appellant of material/facts in April 2022. I do not propose to engage in an evaluation as to the nature and extent of additional disclosure made but it is clear that the disclosure was considered by HMRC to be sufficient to at least influence their position. They determined not to defend the appeal within a relatively short period thereafter.
 Indemnity costs are not appropriate. It is not therefore necessary for the Tribunal to invite HMRC to make submissions on the basis on which the costs be awarded. The costs are awarded on the standard basis." (Harris v. HMRC  UKFTT 447 (TC), Judge Brown KC)
Unreasonable behaviour costs may be limited to costs caused by unreasonable behaviour
“In a related submission Ms McCafferty argued that the discretion could not be properly exercised to punish Mr McPherson for unreasonable conduct. That is undoubtedly correct, if it means that the indemnity principle must apply to the award of costs. It is not, however, punitive and impermissible for a tribunal to order costs without confining them to the costs attributable to the unreasonable conduct. As I have explained, the unreasonable conduct is a precondition of the existence of the power to order costs and it is also a relevant factor to be taken in to account in deciding whether to make an order for costs and the form of the order.” (McPherson v. BNP Paribas  EWCA Civ 569, §41, noted in Ritchie v. HMRC  UKFTT 509 (TC), §138).)
“….it seems to me that, in exercising my discretion as to whether or not to award costs to the Respondents, I need to focus solely on the conduct of the Appellant that led to the relevant costs and not to the conduct of the Appellant before that time. So it would be inappropriate for me to ask myself whether the Appellant or its representative acted unreasonably in the course of the original appeal. Instead, my sole consideration should be whether the Appellant or its representative has acted unreasonably in making the application for reinstatement – i.e. in making the application for reinstatement and putting the Respondents to the cost of resisting the application.” (Infocom IT(UK)Ltd v. HMRC  UKFTT 319 (TC), §26).
But not less
“The point does not fall for decision on this appeal (and I express no concluded view upon it); but I should not be taken as supporting the view that, in a case where the tribunal has decided under sub-rule (1) to make an order for costs, it can use the power under sub-rule (3)(a) to award an amount which is less than a proper compensation for the costs incurred by the receiving party by reason of the culpable conduct which has led to the decision under sub-rule (1).” (Kovacs v. Queen Mary & Westfield College  EWCA Civ 352, §35; noted as obiter in Ritchie v. HMRC  UKFTT 509 (TC), §139)
Costs relating to parts of HMRC’s case effectively abandoned awarded
“In my judgment, it does not, however, follow that Rokit can recover all of its costs under Rule 10(1)(b) as a result of HMRC’s unreasonable conduct of the proceedings. That is because the issue of the agreement which Rokit said they had made with HMRC – and which the Tribunal found had been made – would have fallen to be determined by the Tribunal regardless of HMRC’s change of tack…My decision is therefore that HMRC shall pay such of Rokit’s costs under Rule 10(1)(b) as are not attributable to the evidence of Mr Shackleton, namely costs attributable to the preparation of his witness statement and his evidence in the proceedings.” (Rokit Ltd v. HMRC  UKFTT 618 (TC), §§38…40, Judge Thomas Scott).
Costs would have been limited to those caused by the unreasonable objection to extension of time
" Also, having made it clear that, but for the need to make directions and consider the interim amendment application, I would have vacated this hearing, I should add that had I concluded otherwise and decided to award costs to HMRC, I would have restricted these to the costs incurred in relation to the preparation for the extension of time application and not for the hearing itself." (Redevco Properties UK 1 Ltd v. HMRC  UKFTT 102 (TC), Judge Brooks)
- Unreasonable behaviour causing no additional costs
" Just as “no specific or additional work was undertaken in respect of the two appeals which HMRC did not concede”, it must also be the case that “no specific or additional work was undertaken in respect of the three appeals which HMRC did concede”. In other words RPC would have incurred the same costs irrespective of whether the dispute concerned (a) only the surcharges; (b) only the penalties or (c) both the penalties and the surcharges.
 Even if I were to be wrong, and HMRC had acted unreasonably by withdrawing Mr Fox’s surcharges, it must follow from the above that there are no related costs. RPC and the barristers would have had to write the same letters and carry out the same work even if the surcharges had not been in issue. This is the second reason for refusing the Costs Application." (Fox v. HMRC  UKFTT 138 (TC), Judge Redston)
- Unreasonable behaviour by HMRC but taxpayer benefiting from tax windfall: £1
"[61(4)] the tax planning engaged in by the Appellants has, through procedural failure, resulted in a tax benefit of £1,275,113 in the case of the Field Appellants and £58,750 in the case of the Shaw Appellants to which they acknowledge they were not entitled;
 Taking all these factors into account the Tribunal considers that it is just and fair to make an award of costs. This Tribunal sees very many costs applications from HMRC made pursuant to rule 10(1)(b). In the vast majority of instances it is the Appellant which bears the burden of proof and HMRC, rightly, puts Appellants to strict proof, particularly where an Appellant makes allegations against assessing officers. It is wrong that taxpayers are held to a different standard to that expected of HMRC when it is HMRC which bears the burden of proof.
 However, these Appellants have benefited from a lucky strike. Relief to which they know they were not entitled has been secured. An award of substantive costs in such a situation would be to compound their luck and to doubly jeopardise the general body of taxpayers for HMRC’s failure.
 The application is therefore allowed, and quantum assessed at £1." (GC Field & Son Ltd v. HMRC  UKFTT 314 (TC), Judge Brown QC)
Summary assessment or detailed assessment
“(6) The amount of costs (or, in Scotland, expenses) to be paid under an order under paragraph (1) may be ascertained by--
(a) summary assessment by the Tribunal;
(b) agreement of a specified sum by the paying person and the person entitled to receive the costs or expenses (the "receiving person"); or
(c) assessment of the whole or a specified part of the costs or expenses, including the costs or expenses of the assessment, incurred by the receiving person, if not agreed.
(7) Following an order for assessment under paragraph (6)(c) the paying person or the receiving person may apply--
(a) in England and Wales, to a county court, the High Court or the Costs Office of the Supreme Court (as specified in the order) for a detailed assessment of the costs on the standard basis or, if specified in the order, on the indemnity basis; and the Civil Procedure Rules 1998 shall apply, with necessary modifications, to that application and assessment as if the proceedings in the tribunal had been proceedings in a court to which the Civil Procedure Rules 1998 apply;
(b) in Scotland, to the Auditor of the Sheriff Court or the Court of Session (as specified in the order) for the taxation of the expenses according to the fees payable in that court; or
(c) in Northern Ireland, to the Taxing Office of the High Court of Northern Ireland for taxation on the standard basis or, if specified in the order, on the indemnity basis.” (FTT Rules, r.10(6) – (7)).
Disputes referred to a costs judge
“It is clear that there is a dispute between the parties as to the calculation of such costs. In default of the parties agreeing the amount of this award, I direct that the costs be determined by a Costs Judge.” (Barrell Booze Ltd v. HMRC  UKFTT 0347 (TC), §52)
- Nature of summary assessment
" By reference to rule 44.1(1) CPR, summary assessment is the procedure by which a court may, having made an order for a party to pay costs of a case, determine the amount of such costs. It is usually carried out by the judge hearing the matter. It is not intended to involve a lengthy consideration of each item of costs claimed but, rather, represents a proportionate means of justly, fairly and swiftly resolving the question of costs without the need for further costly proceedings regarding the costs themselves. In colloquial terms it is a somewhat rough and ready means of dealing with costs; its roughness is justified on the grounds of proportionality.
[54(1)] The nature and purpose of summary assessment is that it is a task performed by a judge familiar with the case, it is an exercise which proportionately deals with an ancillary matter in the case where there is little controversy as to the determination of the extent (or quantum) of the claimant’s claim." (Harris v. HMRC  UKFTT 447 (TC), Judge Brown KC)
- Assumption that there must be a judge with sufficient familiarity to undertake summary assessment
" The Tribunal considers that it is therefore apparent that the CPR essentially assumes that summary assessment is an exercise which will be carried out only where there is a judge with a sufficient familiarity with the proceedings to undertake the task." (Harris v. HMRC  UKFTT 447 (TC), Judge Brown KC)
- Substantial grounds for disputing sum claimed may be good reason to refuse summary assessment
" Good reason to refuse summary assessment may include, inter alia, the paying party showing substantial grounds for disputing the sum claimed. This may include a challenge to charge out rates, the proportionality of the claim, uncertainty as to whether VAT was included and/or whether the recipient was VAT registered, and a claim to 100% of costs paid (see TMO Renewables Ltd v Reeves and another  EWHC 789 (Ch))." (Harris v. HMRC  UKFTT 447 (TC), Judge Brown KC)
- Genuine doubt re compliance with indemnity principle may be good reason to refuse summary assessment
" Summary assessment, by its very nature, does not permit of a detailed consideration of the application of the indemnity principle and where there is a genuine argument as to breach of the principle detailed assessment will be required (Bailey v IBC Vehicles Ltd  EWCA 566 Civ)." (Harris v. HMRC  UKFTT 447 (TC), Judge Brown KC)
Challenging the amount
In civil litigation, one first establishes the base amount of costs incurred by the receiving party and then the paying party may challenge on three grounds:
(1) The total sum is disproportionate;
(2) The total sum includes items which it was not reasonable to have incurred at all;
(3) The sums incurred in connection with those items which were reasonably incurred were themselves unreasonable.
“Mr McCracken QC was understandably anxious to make it clear on their behalf that they would anticipate strongly challenging the appellants' right to recover that sum, on the sort of grounds on which a paying party is always entitled to seek to challenge the receiving party's bill of costs when assessed on the standard basis. Those grounds would be that the total sum is disproportionate, and in any event that the total sum includes items which it was not reasonable to have incurred at all, and that the sums incurred in connection with those items which were reasonably incurred were themselves unreasonable.” (Coventry v. Lawrence  UKSC 50, §7).
"In modern litigation, with the emphasis on proportionality, there is a requirement for parties to make an assessment at the outset of the likely value of the claim and its importance and complexity, and then to plan in advance the necessary work, the appropriate level of person to carry out the work, the overall time which would be necessary and appropriate spend on the various stages in bringing the action to trial and the likely overall cost. While it was not unusual for costs to exceed the amount in issue, it was, in the context of modest litigation such as the present case, one reason for seeking to curb the amount of work done, and the cost by reference to the need for proportionality." (Home Office v. Lownds  EWCA Civ 365, §23, approved in Coventry v. Lawrence  UKSC 50, §33).
- Proportionality considers importance to parties, not just quantum
" The total costs were £31,147.28. In considering whether these were proportionate, I took into account that the Assessment was for £1,126 and the Penalty for £957; the costs were thus many times greater than that amount. However, in considering proportionality, the quantum of the assessment is not the only relevant factor. HWL operates an alcohol warehouse, and that activity requires that the operator be “fit and proper”, see the Alcohol Liquor Duties Act 1979, s 88C; HMRC’s approval process is known as the Alcohol Wholesaler Registration Scheme (“AWRS”).
 HWL’s appeal concerned (a) whether it had provided HMRC with an invoice for the Beer which was not genuine, and if so, (b) whether that failure had been both deliberate and concealed . Given the statutory approval requirements reflected in the AWRS, these were very important issues, particularly in relation to the Penalty. However, it was a precondition for the Penalty that HWL was liable for the duty charged by the Assessment. As HWL did not accept that it was so liable, evidence and submissions were also required on the Disputed Invoice.
 The parties recognised the significance of HWL’s appeal: both sides instructed counsel and provided formal witness statements. Mr Hare, from the witness box, said that HWL’s own costs were significantly in excess of the amounts at stake. Taking into account the importance of the issues in dispute, I find that the costs were proportionate." (Hare Wines Limited v. HMRC  UKFTT 536 (TC), Judge Redston)
- Hourly rate in excess of guidelines require justification
" As the appellant, Samsung, points out, these are well above the guideline hourly rates set out in Appendix 2 to the "Summary Assessment of Costs" guide published in the White Book. Those guideline rates for London 1, which applies to "very heavy commercial and corporate work by centrally based London firms", are £512 for Grade A (solicitors and legal executives with over eight years' experience) and £270 for Grade C (solicitors and legal executives with less than four years' experience and other fee earners of equivalent experience). In some cases, therefore, the rates claimed are more than double the guideline rates.
 The guide recognises that in substantial and complex litigation an hourly rate in excess of the guideline figures may sometimes be appropriate, giving as examples "the value of the litigation, the level of the complexity, the urgency or importance of the matter, as well as any international element". However, it is important to have in mind that the guideline rates for London 1 already assume that the litigation in question qualifies as "very heavy commercial work".
 LG has not attempted to justify its solicitors charging at rates substantially in excess of the guideline rates. It observes merely "that its hourly rates are above the guideline rates, but that is almost always the case in competition litigation".
 I regard that as no justification at all. If a rate in excess of the guideline rate is to be charged to the paying party, a clear and compelling justification must be provided. It is not enough to say that the case is a commercial case, or a competition case, or that it has an international element, unless there is something about these factors in the case in question which justifies exceeding the guideline rate." (Samsung Electronics Co. Ltd v. LG Display Co. Ltd  EWCA Civ 466, Males LJ)
"...HMRC’s time was included at the Guideline Hourly Rates. In Samsung v LG Display  EWCA Civ 466, the Court of Appeal held that these Rates were appropriate to costs awards on the standard basis under the CPR, and there is no reason for this Tribunal to diverge from that approach. Mr Millington’s time was claimed at the rate paid by the Attorney General’s regional B panel, and that is an appropriate basis on which to claim counsel’s costs on the standard basis." (Hare Wines Limited v. HMRC  UKFTT 536 (TC), Judge Redston)
Barrister guideline rates are the AG Panel rates
" The costs claimed are the full charge out rates of the staff involved, plus the actual costs of both Mr McDonnell and Mr Brodsky, his junior. There is no acknowledgement that when assessing standard costs claimed on a summary basis, the Tribunal normally takes the rates set out in the Guideline Hourly Rates for solicitors as a starting position for solicitors, and that for barristers the starting point is normally the fees paid by the Attorney General’s Panel. It is for the party claiming costs to explain and justify any claimed increases above those rates." (Fox v. HMRC  UKFTT 138 (TC), Judge Redston)
" The costs are proportionate. The solicitors' rates are the then-standard rates, and Counsel's fees, being at the set hourly rates, are a fraction of the rates ordinarily payable for privately-paying specialist Revenue work. The costs are reasonable in amount and were reasonably incurred." (Ulster Metal Refiners Ltd v. HMRC  UKFTT 125 (TC), Judge McNall)
- Failure to explain proportionality
" The Costs Application also does not seek to explain:
(1) why it was proportionate for the Schedule to include the costs of both an RPC partner and a staff member attending the hearing of the appeal each day, noting that the daily costs were £7,000 (of which 50% was claimed);
(2) why the third day of the hearing was included in the claim when the three appeals in question were withdrawn in the second day; or
(3) why it was necessary and proportionate to include 50% of junior counsel’s costs of £19,000 in addition to 50% of the £45,157 charged by Mr McDonnell.  Finally, the Costs Application does not itemise any of the work carried out by either Counsel by date, or in relation to the work carried out." (Fox v. HMRC  UKFTT 138 (TC), Judge Redston)
- Costs incurred unreasonably: failure to notify lawyer that case accepted for ADR
" The failure of the HMRC client to notify their legal advisor that they had accepted the case into ADR renders costs incurred from 6 January 2021 as unreasonable and premature." (Ruddle Group Limited v. HMRC  UKFTT 10 (TC), Judge Amanda Brown QC)
- Excessive costs relating to instructing counsel and preparing for the hearing
“I am, however, going to reduce the amounts claimed in respect of HMRC’s in-house solicitors’ time. An amount of £226.80 is claimed for the costs of instructing counsel and £189 for the costs of preparing for the hearing (that sum not including the costs of producing hearing bundles which are itemised separately). Those sums seems excessive given that Counsel was able to prepare a comprehensive skeleton argument, attend the hearing and conduct the advocacy at the hearing for £600 plus VAT and that HMRC’s in-house solicitors were not required to do anything at the hearing beyond attending it and making a note of it (both of which tasks have been claimed for separately). I therefore will reduce the figures of £189 and £226.80 by half.” (Tor View Self Storage Ltd v. HMRC  UKFTT 564 (TC), §41).