Revenue and Customs v Blue Sphere Global Ltd

Following the success of Blue Sphere Global Limited (BSG) in resisting the Commissioners for Her Majesty’s Revenue and Customs’ (HMRC) appeal, there remains an issue as to the effect of a Part 36 offer made by BSG in a letter dated 2 July 2009. BSG seeks orders under CPR 36.14 for costs on an indemnity basis from 23 July 2009, enhanced interest on those costs, and enhanced interest on the sums due from 23 July 2009, the date when the time for acceptance of the offer expired, until payment.

HMRC resist the claim on two bases: first, that Part 36 does not apply to an appeal begun under the Tribunal Rules and second, if that be wrong, that it would be unjust within the meaning of Rule 36.14(3) when HMRC was acting in the public interest in resisting the trader’s claims for repayment of input tax in the context of its fight against MTIC fraud.

BSG’s Part 36 offer dated 2 July 2009 read, in part:-

“We have our client’s instructions to make an offer to settle this appeal. This offer is intended to have the consequences of Part 36 of the Civil Procedure Rules and is open for acceptance for 21 days.

Our client is willing to accept the sum of £1,200,000 in respect of its claim. This sum is inclusive of Repayment Supplement and interest but excludes costs, which are to be paid by your client and to be the subject of detailed assessment, if not agreed.

The acceptance of this offer would, in our submission, represent a considerable saving to your client. If this offer is not accepted, then we reserve the right to draw this letter to the attention of the Court on the question of costs and interest. In doing so, we shall seek penalty interest and indemnity costs in accordance with Part 36 of the Civil Procedure Rules.”

Part 36.3(2) provides:-

“(2)

A Part 36 offer –

(a)

may be made at any time, including before the commencement of proceedings and

(b)

may be made in appeal proceedings.”

CPR 36.14 provides:-

“(1)

This rule applies where upon judgment being entered

(a)

a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer;

(b)

judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer.

…..

(3)

Subject to paragraph (6) where rule 36.14(1)(b) applies, the court will, unless it considers it unjust to do so, order that the claimant is entitled to –

(a)

interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all [of] the period starting with the date on which the relevant period expired;

(b)

his costs on the indemnity basis from the date on which the relevant period expired; and

(c)

interest on those costs at a rate not exceeding 10% above base rate.

(4)

In considering whether it would be unjust to make an order referred to in paragraphs (2) and (3) above, the court will take into account all the circumstances of the case including –

(a)

the terms of any Part 36 offer;

(b)

the stage in the proceedings when any Part 36 offer was made including in particular how long before the trial started the offer was made;

(c)

the information available to the parties at the time when the Part 36 offer was made; and

(d)

the conduct of the parties with regard to the giving or refusing to give information for the purpose of enabling the offer to be made or evaluated.”

The submission advanced on behalf of HMRC, that Part 36 has no application to an appeal which started in the VAT and Duties Tribunal, must be considered in the context of Rule 2.1 of the Civil Procedure Rules 1998. By 2.1:-

“(1)

Subject to paragraph (2), these Rules apply to all proceedings in

(a)

County Courts;

(b)

The High Court; and

(c)

The Civil Division of the Court of Appeal.

(2)

These Rules do not apply to proceedings of the kind specified in the first column of the following table (proceedings for which Rules may be made under the enactment specified in the second column) except to the extent that they apply to those proceedings by another enactment - …”.

Proceedings which started in the VAT and Duties Tribunal in statutory appeals from that Tribunal are not identified in the table under 2.1(2).

Part 52 includes provisions in relation to statutory rights of appeal. Paragraph 20.1 of the Practice Direction to Part 52, printed at 52PD.95 of Civil Procedure, contains provision in relation to appeals to the Court of Appeal directly and appeals to the High Court from the VAT and Duties Tribunal. None of these provisions exclude, as they might have done, the provisions of Part 36 in relation to appeals either directly to the Court of Appeal from the Tribunal or in appeal proceedings to the High Court. There is nothing whatever within the Rules that suggests that Part 36.3(2) has no application to appeals from the VAT Tribunal. Had that been the intention of the Rules there would have been no difficulty in making provision for exclusion of such appeals.

In my view, the wording of Rule 36.3(2) expressly permits an offer to be made in appeal proceedings and there is nothing in the context of that provision within the Rules suggesting that appeals from a VAT Tribunal either to the High Court or to the Court of Appeal directly or from the High Court are excluded from the application of Part 36.

Mr Drabble QC, on behalf of HMRC, suggested that since Part 36(2)(a) refers to a time before the commencement of the proceeding and during the first instance proceedings, 36(2)(b) only applies to offers made in appeals to which 36(2)(a) could apply. It would be anomalous if Part 36 can be invoked for the first time on appeals to the High Court or to the Court of Appeal. He supports that submission by contending that HMRC, in common with other public bodies, will only be concerned to pursue appeals in cases where it was in the public interest to do so. It is not open to them to act upon a simple, uncomplicated commercial basis.

In my view, the plain wording of Part 36 and its place within the Rules as a whole do not permit any such construction. As I have sought to emphasise, if it was intended to exclude such appeals from the application of Part 36 then the Rules could and should have said so.

I turn then to the second issue, namely, whether it would be unjust to make one or more of the orders specified following the failure of HMRC to accept BSG’s Part 36 offer. I reject straight away the suggestion that BSG only beat the offer by a small margin and that that affords a basis for reaching the conclusion that it would be unjust to give effect to 36.14. It is of note that Rule 36.14(1) draws a contrast between the failure of a claimant to obtain a judgment more advantageous than a defendant’s Part 36 offer (36.14(1)(a)) and a judgment obtained against a defendant which “is at least as advantageous” to the claimant as proposals contained in a claimant’s Part 36 offer (36.14(1)(b)). It should not be forgotten that where a claimant’s Part 36 offer is refused the claimant is compelled to continue in order to recover at least the sum for which the claimant is prepared to settle. In those circumstances it is to be expected that the Rule would acknowledge the predicament of a claimant whose only choice is either to abandon the appeal or to press on. In Carver v BAA PLC [2008] EWCA Civ 412 [2009] 1 WLR 113 the Court of Appeal upheld the judge’s decision that a claimant who only beat the defendant’s Part 36 offer by £51 should not obtain the benefits of the Rule. That decision has been criticised, particularly in Sir Rupert Jackson’s Review of Civil Litigation Costs, chapter 41, paragraph 2. But in any event, Carver was concerned with a defendant’s offer and not a claimant’s offer and accordingly the relevant Rule was the differently worded 36.14(1)(a) and not 36.14(1)(b). Moreover, BSG won by a significant margin, whether one accepts HMRC’s figures or those advanced by BSG.

Of greater substance is the reliance HMRC places upon its position as a public authority defending the public purse. There can be no doubt but that the issues involved in the appeals were of significance to the public at large; HMRC was pursuing, on behalf of every citizen, all legitimate means available to combat MTIC fraud. As I observed in the main judgment, the existence of the BSG case added to the range of factual circumstances available for the court to consider. But the fact that HMRC was pursuing the appeal for the public good does not mean that BSG, having maintained its success both before the Chancellor and this Court, should be regarded as an appropriate sacrificial lamb. If anyone should suffer as a result of HMRC’s laudable persistence, it is the taxpayer at large, on whose behalf HMRC fought this particular appeal. It lost, and it is difficult to see why, in those circumstances, a particular trader which vindicated its rights to repayment of input tax should be deprived of the effect of its Part 36 offer. If the Crown wishes its particular position to be acknowledged in the Rules, then they should seek amendment. The fact that the litigation was being pursued by HMRC in the public interest does not render it unjust to give effect to BSG’s Part 36 offer.

It should not be forgotten that the purpose of awarding costs on an indemnity basis and interest at an enhanced rate is not in order to penalise the claimant but is part of the culture of the CPR to encourage parties to avoid proceedings unless it is unreasonable for them to do otherwise. The power contained in Part 36 is a means of achieving a fairer result for a claimant:-

“If a defendant involves a claimant in proceedings after an offer has been made, and in the event, the result is no more favourable to the defendant than that which would have been achieved if the claimant’s offer had been accepted without the need for those proceedings, the message of Part 36.21 is that prima facie it is just to make an indemnity order for costs and for interest at an enhanced rate to be awarded.” (Petrotrade v Texaco [2002] 1 WLR 947, at [64]; see also paragraph 63 of Petrotrade and McPhilemy v Times Newspapers [2001] EWCA Civ 933, paragraph 28.)

In those circumstances I would give full effect to the offer pursuant to 36.14(2) and (3) and award BSG:-

I agree.