A special commissioner dismissed an application by the Revenue for an award of costs against a taxpayer following its withdrawal of an appeal against the refusal of its claim for repayment of withholding tax. The conduct in question was not ‘wholly unreasonable’.

Facts

The taxpayer sought to reclaim withholding tax in respect of royalties paid. A directions hearing was called when the Revenue suggested that a preliminary issue should be decided whether the claim had been properly made, which could have disposed of the whole appeal. The taxpayer's representative strongly resisted the hearing of any preliminary issue. Having considered documents produced by the Revenue, the special commissioner conducting the hearing concluded that there was a question as to whether the claim was properly made and gave directions for a hearing of preliminary issues if the parties were unable to agree.

The taxpayer subsequently withdrew its appeal but the Revenue applied for costs, arguing that, although they were not alleging that the taxpayer or its adviser had acted in bad faith, the behaviour of the taxpayer in relation to its appeal was wholly unreasonable. They contended that the taxpayer's representative continued to press the appeal even though it was clear it was hopeless and had failed to engage with the Revenue's legal argument.

The taxpayer's representative contended that she knew the law and was entitled to have her case decided by the appropriate tribunal. It was her right to do so. Accordingly, her behaviour in relation to the hearing was clearly not wholly unreasonable so as to make it appropriate to make an award of costs pursuant to reg. 21 of the Special Commissioners (Jurisdiction and Procedure) Regulations 1994.

Issue

Whether the taxpayer's conduct was wholly unreasonable in connection with the hearing.

Decision

The special commissioner (Adrian Shipwright) (dismissing the application) said that if it had been possible to award costs in accordance with the Revenue's application he would have done so. However, the commissioners only had jurisdiction where the conduct in relation to the hearing was ‘wholly unreasonable’.

Whilst the behaviour of the taxpayer's representative was not sensible, essentially reasonable or necessarily in the best interest of her clients, in the absence of bad faith in the particular circumstances of this case, her behaviour was not ‘wholly unreasonable’. It was not what a paying client might be entitled to expect but that was a matter for them, not for the commissioners. While it was fully accepted that the taxpayer was not bound to accept the Revenue's views and arguments and had the right to have the matter decided by the appropriate authority, that had to be done in a sensible and reasonable manner. In most jurisdictions there was a power to award costs, among other things, to control that, but there was no such jurisdiction here nor any wasted costs order jurisdiction. It was strongly to be hoped that new rules would be introduced to deal properly with that important aspect and give a wide discretionary power to deal with costs for the benefit of both the Revenue and the taxpayer.

(2007) SpC 651.
Decision released 19 December 2007.