The First-tier Tribunal has refused to grant HM Revenue & Customs (HMRC) a wasted costs order despite its opponents instructing their QC on the wrong issue.
Tax chamber judge Christopher Staker said the burden was on HMRC to show that Irish accountants PKF-FPM had acted unreasonably, but the “only basis” for their application was that the accountants’ QC “was not given correct instructions at the outset”.
Judge Staker went on: “The jurisdiction to order wasted costs is a compensatory jurisdiction, not a punitive or regulatory jurisdiction.
“The applicant for wasted costs can recover only such costs as are established by the applicant on a balance of probability to have been incurred as a result of the improper, unreasonable or negligent conduct in question.”
The judge said farmers Samuel and Helen Moore applied for permission to bring a late appeal to the tribunal against a decision of the HMRC regarding their VAT status in August 2018.
There was then a stay while another “substantially similar case” was heard and a dispute arose over whether to continue the stay while the first case was appealed.
However, the outline skeleton argument sent by PKF-FPM to HMRC ahead of a hearing on extending the stay only dealt with the issue of whether the late appeal should be granted – even though a few days later, the accountants told HMRC that their “common understanding” was that “the only issue at the hearing” would be the the stay application.
Two days later HMRC received further submissions from PKF-FPM on why the late appeal should be allowed.
Judge Staker said: “At the hearing on 25 July 2019, when the tribunal clarified at the outset that the purpose of the hearing was to determine the HMRC stay application, [Mark] Orr QC explained that he had been instructed to attend the hearing in order to seek permission for a late appeal.
“After the hearing was adjourned briefly for him to take instructions, Mr Orr QC confirmed to the tribunal that the appellants no longer maintained their objection to HMRC’s application for a stay.” The stay was granted.
Delivering judgment in Moore and Moore v HMRC  UKFTT 0279 (TC), Judge Staker said a wasted costs could only be imposed where a party or their representative had “acted unreasonably in bringing, defending or conducting the proceedings”.
The judge said that before the stay hearing, the Moores had “articulated reasons for opposing the HMRC application for a stay”, although they may not have been “very well articulated or developed”.
However, the tribunal was satisfied that, up until the date of the hearing, these arguments were “advanced in good faith” and found that the HMRC had not established that the appellants had acted unreasonably.