Viridor Waste Management Ltd & Ors, R (on the application of) v HM Revenue and Customs

On 25 July 2016 I handed down judgment dismissing this application for judicial review: see R (Veolia ES Landfill Ltd) v Revenue & Customs Commissioners [2016] EWHC 1880 (Admin). The application had been brought by a number of companies in the Viridor group (“Viridor”) against Her Majesty’s Commissioners for Revenue and Customs (“HMRC”). I now have to deal with the costs of the application, for which purpose I have received written submissions from the parties. This application for costs only concerns the application brought by Viridor, and not the similar application brought by companies in the Veolia group which I heard at the same time and which I also dismissed for the reasons given in my judgment, as in the latter case the parties have reached agreement on costs. I will assume for the purposes of this judgment that anyone reading it will have read the substantive judgment.

By CPR r 44.2(2)(a) the general rule, if the Court decides to make an order as to costs, is that the unsuccessful party will be ordered to pay the costs of the successful party. The claim having failed, there is no doubt that HMRC are the successful party, and HMRC ask for an order that Viridor pay their costs in accordance with the general rule.

By CPR r 44.2(2)(b) the Court may however make a different order, and Viridor submit that this is an appropriate case for the Court to make a different order. As appears from my judgment, one of the defences pleaded and argued by HMRC was that Viridor had failed to place its cards face up on the table. I rejected this defence for the reasons given in my judgment at [146]-[150]. Viridor says that the appropriate order for costs is one which requires HMRC to bear both sides’ costs of this issue, that is both that they bear their own costs, and that they pay Viridor’s costs. Viridor suggest two ways of doing that, either by an order which in terms provides for Viridor to pay HMRC’s costs other than the costs of the cards face up issue and for HMRC to pay Viridor’s costs of that issue; or by a variant which provides for Viridor to pay HMRC’s costs incurred prior to 17 July 2015, and 50% of HMRC’s costs thereafter, with HMRC to pay 50% of Viridor’s costs incurred thereafter. This variant is designed to achieve broadly the same overall effect but without requiring the costs attributable to the issue to be specifically identified.

I was referred by both parties to some of the many authorities on costs which have accumulated since the introduction of the CPR. Mr Fitzpatrick QC, for Viridor, referred me to the oft-cited summary of the principles by Jackson J in Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC) (“Multiplex”) at [72], recently cited by Henderson J in Flanagan v Liontrust Investment Partners LLP [2016] EWHC 446 (Ch) (“Liontrust”). Mrs Hall QC, for HMRC, referred me to Budgen v Andrew Gardner Partnership [2002] EWCA Civ 1125 (“Budgen”), Kastor Navigation v Axa Global Risks [2004] 2 Ll Rep 119 (“Kastor”), HLB Kidsons v Lloyds Underwriters [2007] EWHC 2699 (Comm) (“Kidsons”) and Fox v Foundation Piling Ltd [2011] EWCA Civ 790 (“Fox”).

I have read (or re-read) each of these authorities. They contain much valuable guidance, but it is noticeable that none of them were similar to the present case. Cases vary infinitely in their facts and costs have been said to be peculiarly fact sensitive, so it is important to read any statement of principle in the context of the facts of the particular case. Multiplex was a case where many claims and counterclaims were brought, some of which succeeded and some of which failed; Liontrust was a case where the claimant’s main claim failed, but he succeeded on an alternative (and much smaller) claim; Budgen, Kidsons and Fox were also each cases where the claimant recovered something but much less than he was claiming. In Kastor by contrast the claimants succeeded to the full extent of their claim, but only on one of the two alternative ways in which they put the claim. These cases are therefore mostly concerned with the difficult questions that can arise where neither party has been wholly successful, the claimant achieving something but losing on certain aspects of his case, and the defendant defeating parts of the claim but not all of it. That can lead both to questions as to which party is really to be regarded as the successful party (something which has been described as often in itself a contentious enquiry, and a surprisingly elusive process) and how to reflect in an order for costs the fact that both parties have had some measure of success.

But the present case is not like that. It is one where the claimants have brought a claim which the defendants have succeeded in having dismissed. So far as the result is concerned, therefore, the defendants have been wholly successful and the claimants have achieved nothing – it is not a case of partial success for both sides but of complete success for the defendants. But although entirely successful in the result, the defendants in the course of resisting the claim have relied on a ground which the Court has rejected.

In such a case the questions which arise seem to me to be these. First, is it an appropriate case for the Court to depart from the general rule at all? Second, if so, should the Court stop at depriving HMRC of part of their costs (to reflect their failure on the cards face up issue), or should it go further and make HMRC pay Viridor a part of their costs (to reflect the costs incurred by Viridor on that issue)? Third, if either of these courses is appropriate how should it be done – by reference to the costs of the issue or by reference to a proportion of the costs?

On the first question, there is undoubtedly power for the Court to depart from the general rule and make an order reflecting the fact that HMRC have failed on the cards face up issue. But as so often on a discretionary question, it is possible to point to material both in support of and against doing so. Mr Fitzpatrick can point to the statement of the policy objective underlying the development of the issue-based approach to costs to be found in the White Book (Civil Procedure 2016) at §44.2.7, namely to discourage a “kitchen sink” approach to litigation, and the statements there cited from the Access to Justice Interim and Final Reports, and from the judgment of Lord Woolf MR in AEI Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507, to the effect that the previous adherence of English courts to the principles that costs should be treated as a whole and that costs should follow the event discouraged parties from being selective as to the points they took and encouraged them to assume that if they won they would recover all their costs, which had the effect of increasing costs overall.

Mrs Hall however can point to statements that it is not every case where the successful party has lost on an issue that merits departing from the general rule: see Kidsons at [11] where Gloster J says that there is no automatic rule requiring reduction of a successful party’s costs if he loses on one or more issues, citing Budgen at [35] per Simon Brown LJ (“the court can properly have regard to the fact that in almost every case even the winner is likely to fail on some issues”) and Travellers’ Casualty v Sun Life [2006] EWHC 2885 (Comm) at [12] per Clarke J (“if the successful Claimant has lost out on a number of issues it may be inappropriate to make separate orders for costs in respect of issues on which he has failed, unless the points were unreasonably taken. It is a fortunate litigant who wins on every point.”). See also Fox at [62] per Jackson LJ (“there has been a growing and unwelcome tendency for first instance courts and, dare I say it, this Court as well, to depart from the starting point set out in rule 44.3(2)(a) too far and too often”).

So far as the second question is concerned, it is apparent from the material put before me that this is to be separately considered. See for example Aspin v Metric Group Ltd [2007] EWCA Civ 922 at [22] per Chadwick LJ to the effect that the Court may decide, in relation to an issue which the party successful overall has lost, that that party should be deprived of his costs of the issue “or even, in a suitable case, that that party should pay the costs of the otherwise unsuccessful party on that issue” (cited in Multiplex at [62]). That makes it clear that the Court may conclude that the case merits depriving the successful party of his costs of an issue, but does not merit taking the further step of making him pay the unsuccessful party’s costs of that issue.

What I have not found so easy to discern from the authorities cited to me is any clear guidance as to when it is appropriate for the Court to exercise one or both of these powers. There are of course some relevant provisions in the CPR themselves. CPR r 44.2(4) requires the Court to have regard to all the circumstances, including specifically (a) the conduct of the parties, (b) whether a party has succeeded on part of its case even if that party has not been wholly successful and (c) admissible offers to settle. In the present case (c) has no application – it is not suggested there were any admissible offers to settle – nor I consider does (b): I read this as referring to a case where a party has achieved something but not everything he sought, and as not applying to a case such as the present where although the claimant has won on certain points along the way, the claim itself has wholly failed. So far as (a) conduct is concerned, this is amplified by CPR r 44.2(5) as including specific matters, namely (a) conduct before as well as during the proceedings; (b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; (c) the manner in which a party has pursued or defended its case or a particular allegation or issue; and (d) whether a successful claimant has exaggerated its claim. Of these (d) plainly does not apply, nor does (a) (as the cards face up issue was only brought in in the course of proceedings), nor does (c) – it is not suggested that the manner in which HMRC ran the point was anything out of the ordinary.

That leaves (b) which is whether it was reasonable for HMRC to pursue the particular allegation. Mr Fitzpatrick’s submissions list the reasons why in his submission a departure from the general rule is required. They can be summarised as follows: (i) the cards face up issue was a discrete issue, comprising a distinct group of factual allegations; (ii) HMRC’s allegations were of exaggeration, wrongful allegations that fluff was an engineering requirement, and misrepresentation that it was a regulatory requirement; (iii) HMRC’s allegation that Viridor falsely stated that the Environment Agency required a fluff layer was one of nomenclature and not substance; (iv) the allegation that Viridor misled HMRC was a prejudicial allegation wrongly impugning Viridor’s reputation which it was imperative to rebut, necessitating detailed factual evidence in response, thereby turning a case otherwise concerned with issues of law into one with a large area of factual dispute; (v) that led to Viridor adducing five further witness statements, thereby (vi) incurring significant additional costs; (vii) the cards face up issue was a:

I have considered whether this catalogue of reasons raises the question whether it was reasonable of HMRC to pursue the cards face up issue within the meaning of CPR r 44.2(5)(b). I recognise both that the rules are not in fact drafted on the basis of whether it was unreasonable to raise an issue, but whether it was reasonable to do so (which might be said to put the onus here on HMRC to say it was reasonable rather than on Viridor to say it was not); and that in the end the Court is enjoined to have regard to all the circumstances. But nevertheless I consider it is good practice, if a party is going to suggest on an application for costs that the other party has not behaved reasonably in pursuing a particular allegation, that they should say so in clear terms. Here Viridor do not in terms say that it was unreasonable for HMRC to pursue the issue, and the closest that they come to it is in the passage in (vii) which I have quoted, where they describe the issue as one with no substantive basis. That I think falls somewhat short of asserting that the issue was one that it was not reasonable for HMRC to pursue.

That does not mean that the Court cannot make HMRC bear their own, or pay Viridor’s costs, of the issue, as unreasonableness is not a pre-condition to making such orders: see Summit Property Ltd v Pitmans [2001] EWCA Civ 2020 (“Summit”) per Longmore LJ at [16]-[17], cited in Multiplex at [53]. But it is clearly a relevant factor: see for example Budgen at [26] per Simon Brown LJ, drawing a distinction between the case where the losing party has to pay the costs of an issue properly before the Court, and being asked to pay also for fighting issues which were “hopeless and ought never to have been pursued.”

I do not regard this as a case where the cards face up on the table issue was so hopeless that it should never have been pursued. With hindsight, and in the light of my judgment (if upheld on any appeal) it can be seen that it was not well–founded but there is a well understood difference between a hopeless point and one which merely fails at trial. I regard the cards face up issue as of the latter type, and as I have said, I do not read Mr Fitzpatrick’s submissions as in fact alleging that it should never have been pursued.

I can now state my conclusions. On the first question – that is whether I should depart from the general rule at all – I accept Mr Fitzpatrick’s submission that it is appropriate to do so. I accept (as stated in Fox) that courts should not depart too readily from the general rule, and that the mere fact that the winning party, like most winning parties, has lost some issues along the way does not by itself automatically justify departing from the general rule. Thus, for example, HMRC ultimately lost on the question whether there was a clear and unambiguous representation, but it is not suggested – and if it had been I would not have accepted – that this should be reflected in any reduction in HMRC’s entitlement to costs. But the cards face up issue was not just an issue that HMRC lost along the way – it was a distinct issue that HMRC initiated and chose to pursue and which inevitably involved a wider inquiry into the facts than would otherwise have been necessary.

Mrs Hall submitted that the issue whether Viridor had been frank with HMRC was not a freestanding point but was an essential element of their claim that they had a legitimate expectation, and therefore something that Viridor had to demonstrate to make good their claim in any event. That may be technically right; it depends I think on whether the onus is on a claimant relying on a legitimate expectation to show that he has been candid, or whether lack of candour is a defence to be raised by the public body. This is something which was touched on in argument at the hearing, but I did not need, and do not intend now, to resolve. Wherever the onus lies as a matter of strict theory, in practice it was HMRC who chose to bring the issue of lack of candour into the proceedings, and to make specific allegations against Viridor, and who had to make good the running on the point. That seems to me to be the type of issue which engages the principle that parties should be discouraged from taking every point (the “kitchen sink” approach), and that if they choose to raise and pursue a distinct issue which will lead to separate costs, they may well run a costs risk in relation to it, even if otherwise wholly successful. Put another way, I do not see why Viridor should have to pay HMRC the extra costs that HMRC incurred of pursuing allegations (of some seriousness as I accept) that were, as I found, ultimately without substance.

I will therefore depart from the general rule to the extent of making an order which is intended to relieve Viridor from having to pay HMRC’s costs of the cards face up issue. I should make it clear that this is only intended to apply to the extra costs which HMRC incurred over and above those which would have been incurred in any event: since HMRC are the overall winners, they should have their general costs of the action, and should only suffer a deduction to the extent that their costs have been increased by the taking of the cards face up issue. That seems to me to be right as a matter of general principle (cf Liverpool City Council v Rosemary Chavasse Ltd (18.8.99) per Neuberger J, as cited in Multiplex at [48]). Suppose for example a case where a defendant has defeated the claim but is to be deprived of the costs of one of two issues, each of which took up an equal time to prepare and argue. I do not think an order depriving the successful defendant of the costs of one of those issues would necessarily, or even probably, amount to a 50% reduction in its costs. If for example 70% of the defendant’s costs were common to both issues, the effect of disallowing the extra costs of the issue on which it had failed would be more likely to be a reduction of only 15% in its costs (being 50% of the costs that were not common). I come back below to how this is to be given effect to in the present case.

The second question is whether I should go further and order HMRC to pay Viridor’s costs of the cards face up issue. I have decided not to do so. I have not found that HMRC acted unreasonably in raising the issue. That, as I have said, does not preclude the Court from going further, but in Summit Longmore LJ said at [17] that it may be appropriate “in a suitably exceptional case” to make an order which not only deprives a successful party of his costs of a particular issue but also an order which requires him to pay the otherwise unsuccessful party’s costs of that issue. That suggests that to make such an order is to be regarded as far from routine, and this case is not in my judgment a suitably exceptional one.

There are two further considerations. First, I have said that none of the authorities cited to me were similar to the present case, as none of them concerned a defendant who succeeded in wholly defeating a claim. But the closest on the facts is Kastor. Here the claimant owners claimed against insurers for the loss of their ship, putting the case both on the basis of an actual total loss, and in the alternative on the basis of a constructive total loss. The actual total loss claim failed, but the constructive total loss claim succeeded: since the quantum of the claim was the same under either way of putting it, the claimants were in fact wholly successful in the result, recovering everything that they claimed, although they had failed on their primary way of putting the case. It is thus the converse of the present case where the defendants have been wholly successful in the result, although failing on the cards face up issue. One of the points made by Rix LJ, giving the judgment of the court, at [151] was as follows:

Applying that to the present case, the cards face up issue (on which HMRC lost) would not have been litigated at all if Viridor had not brought the claim. The general rule that costs follow the event is I think based on causation principles: a claimant who has a good claim which the defendant denies is obliged to sue, and hence incur costs, in order to make good his claim and the defendant therefore ought to pay for the costs which he has caused the claimant to incur; similarly a defendant who is sued by a claimant who in fact has no claim is obliged to defend himself, and hence incur costs, in order to see off the invalid claim, and the claimant therefore ought to pay for the costs which he has caused the defendant to incur. But as the passage from Rix LJ’s judgment indicates, causation is more mixed in a case like Kastor or the present. It is true that Viridor would not have incurred the costs of the cards face up issue if HMRC had not taken the point; but is equally true that Viridor would not have incurred those costs if it had accepted that it did not have a claim and not sued at all. That does not of course mean that a defendant has carte blanche to run any defence it likes without a costs risk; but it does seem to me to be a factor pointing towards not making a defendant, who has been wholly successful and should therefore not have been sued at all, pay costs to a claimant who has been wholly unsuccessful and should therefore not have sued.

The second consideration is this. It is suggested by Mrs Hall that an order in the form sought by Viridor would in fact mean that HMRC would end up paying a net amount to Viridor due to the differential rates between those representing Viridor and those representing HMRC. I do not think I have costs schedules from the parties (or at any rate I have not been referred to them if I do) and I am not therefore able to make a meaningful comparison between the parties’ respective rates or overall costs, but I can readily accept that those acting for HMRC may very well be charging lower rates than those acting for Viridor. One of the considerations which judges are urged to have in mind is to stand back from the mathematical result and ask whether the overall result is the right result: see Kastor at [153]. If I stand back from the detail and ask whether an order which has, or might have, the practical effect that HMRC has to pay a net sum to Viridor in circumstances where Viridor did not (on my judgment) have a claim at all, is the right result, it seems to me that it is not. (In fact it may be, given what I say below about the appropriate percentages, that it would not have this effect, but the point remains that this is what Viridor is asking for).

In other words, although I do not consider that Viridor should pay HMRC for their costs incurred on the cards face up issue, I also do not consider that it would be just to make HMRC pay Viridor for their costs of this issue, costs which as I have already said would never have been incurred at all if Viridor had not sued.

That leaves the third question as to what form of order to make to reflect my decision that Viridor should not have to pay HMRC’s costs of the cards face up issue but should bear its own costs of that as well as of the other issues. By CPR r 44.2(7) the Court is required, before making an order under paragraph (6)(f) (that is an order relating only to a distinct part of the proceedings) to consider whether it is practicable to make an order under paragraph (6)(a) or (c) (that is an order for payment of a proportion of a party’s costs, or from or until a certain date) instead. It appears that an order to pay the costs of an issue is an order under paragraph (6)(f) relating to a distinct part of the proceedings: see eg Budgen at [27]. I should therefore consider if it is practicable to make an order under paragraph (6)(a) or (6)(c) instead.

Mr Fitzpatrick in fact suggested (admittedly as a fallback to his primary submission that there should be an issue-based order) an order combining both sub-paragraphs. He said that the cards face up issue was first raised by HMRC in an additional skeleton argument served in the course of an interlocutory appeal to the Court of Appeal, and hence that HMRC should have (all) their costs up to 17 July 2015. That seems to me to be sensible. Mr Fitzpatrick points out that that should not affect the existing order of the Court of Appeal, which awarded Viridor their costs of the appeal; again, that seems to me obviously right, but I do not think causes any difficulties as an order for the costs of these proceedings down to 17 July 2015 would as a matter of general principle have no impact on the existing order for the costs of the appeal (the appeal being separate proceedings in a separate court, and in any event clearly a matter for the Court of Appeal). I doubt anything needs to be said for the avoidance of doubt, but if it does I have said it.

Thereafter Mr Fitzpatrick suggests that Viridor should only pay a proportion of HMRC’s costs, a proportion which he puts at 50%. Again this seems to me in principle to be a practicable way of giving effect to the desired result, but I have serious doubts as to whether 50% is the right figure. Mrs Hall has not put forward any rival figure of her own, her submissions being focussed on whether there should be a departure from the general rule at all, but I consider that I should form my own view as best I can on the material I have. On that, although I readily accept that Viridor did go to considerable lengths to answer the allegations, the extra costs incurred by HMRC on the cards face up issue (over and above those that would have been incurred anyway) appear to me to be likely to have been much more limited, not least because HMRC’s case on various different issues had a tendency to overlap so that much of the material was common to more than one issue; certainly judging by the time taken up at the hearing by the issue, it formed only a relatively small part of HMRC’s overall case as deployed before me. Doing the best I can on the material I have, I consider that a discount of 15% on HMRC’s costs for the period post 17 July 2015 would adequately reflect the extra costs incurred by HMRC.