Sylvia Hook (trading as Sylmis Puppies also known as Sylml Puppies) & Anor v The Commissioners for HMRC

A paper hearing of the Appellant’s application for costs was listed before me on 10 October 2023, and a summary decision issued to the parties on 20 October 2023. Following receipt of that summary decision, the Appellants made an in-time application for full written findings and reasons under Rule 35(4) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the “Tribunal Rules”).

This decision sets out the full written findings and reasons for refusing the Appellants’ application, dated 26 June 2023, for costs totalling £6,596.60 which they say were incurred as a result of the Respondents’ unreasonable conduct in relation to the preparation of bundles for a hearing listed to take place in November 2022.

The substantive hearing of the five appeals filed by the Appellants were listed to be heard by the Tribunal on 23-25 November 2022.

On 22 July 2022, the Respondents filed and served three bundles for use at the substantive hearing.

On 8 November 2022, the Respondents filed replacements for two of the three bundles. On 10 November 2022, the Tribunal required further revisions to be made to the bundles that had been filed on 8 November 2022.

On 18 November 2022, updated versions of the three bundles were filed with the Tribunal and a set of the bundles was posted to the Appellants’ representative, Mr Kendrick.

On 21 November 2022, the Respondents contacted the Appellants to ask them to consent to an adjournment application. The basis of this application was the Respondents’ concern that some documents had been omitted from the bundles filed on 18 November 2022. While a further bundle could be prepared, if it was sent through the post then it would not arrive at the Appellants representative’s address before the hearing.

The Appellants agreed to the adjournment of the hearing listed for 23-25 November 2022.

On 23 November 2023, Judge Poole presided over a video case management hearing which he had directed take place instead of the substantive hearing. On 25 November 2023, Directions were issued by Judge Poole, requiring the Respondents to prepare a revised bundle, and to serve that on the Appellants. Both parties were required to file and serve updated skeleton arguments no later than 21 days before the hearing.

On 30 November 2022, the Appellants emailed the Respondents to ask for their costs to be paid. In a response sent on 15 December 2022, the Respondents asked the Appellants to explain the basis on which they contended that the Respondents behaviour was unreasonable, and also to provide a detailed breakdown of the quantum:

In their response, sent to HMRC on 20 December 2022, the Appellants asked HMRC to pay the costs they believed they had incurred as a result of the postponement of the November 2022 hearing. Mr Kendrick, on behalf of the Appellants, stated:

In response, the Respondents stated that they did not consider their behaviour to be unreasonable, and they provided Mr Kendrick with a link to make an online complaint. At the conclusion of that email, the Respondents stated:

A hard copy of the revised bundle was posted to the Appellants on 6 January 2023, with an electronic copy sent on 11 January 2023.

Rather than making an online complaint following the link provided, Mr Kendrick (as he explained to the Tribunal in an email dated 21 July 2023) “picked up the address from the HMRC website” and on 13 January 2023, he sent a letter of complaint to the Respondents. Unfortunately, that was an incorrect address for complaints. In that letter, Mr Kendrick described the additional work that had been, or would be, undertaken as follows:

Mr Kendrick wrote again to the incorrect address in February and March to try to progress the complaint.

The substantive hearing was re-listed for 12-14 June 2023.

Prior to the re-listed substantive hearing, the Appellants emailed the Tribunal seeking an order for their costs, and asking that this costs application be determined at the substantive hearing. That application did not comply with Rule 10 of the Tribunal Rules because it was not accompanied by a schedule of the costs claimed, as required by Rule 10(3)(b).

I was part of the panel that heard the substantive hearing in June 2023. At the beginning of that hearing, I advised the Appellants that the application that they had submitted at that time did not comply with Rule 10 of the Tribunal Rules and so, if they wished to pursue that application at the substantive hearing in June 2023, then the application would be rejected because it was deficient. I reminded the Appellants that if they chose to withdraw that deficient application then a further application could be submitted, and that any fresh application must comply with every part of Tribunal Rule 10.

On 26 June 2023, the Appellant filed the current application. The covering email to the Tribunal refers to seeking a “direction under Rule 10”. However, despite being advised on 12 June 2023 that their application must comply with all of Rule 10, the Appellants did not include a schedule with their claim. In the complaint to HMRC, the Appellants had sought £4,315, including VAT, in costs; however, the current application seeks £6,595.60, including VAT. There is no explanation for the increase.

In their application the Appellants state:

With this application the Appellants included a copy of the order made following the case management hearing on 23 November 2022, and the email and postal correspondence between the parties about the complaint. The Appellants included an invoice from Mr Millett, which referred to a meeting Mr Millett had attended. Two invoices were provided from Mr Kendrick. Neither of those two invoices itemised the work undertaken by Mr Kendrick.

The work undertaken by Mr Millett was broken down in the invoice he provided to the Appellants as:

That amount totalled £595.60. Had Mr Millet calculated the refund of his rail fare correctly then the claim would have been £601.60. No VAT was charged on the fees charged by Mr Millett.

As there is no schedule supporting the Appellants’ application, and there is no itemisation is the invoices produced by Mr Kendrick it is not possible to make any findings about the time Mr Kendrick spent on any particular aspect of his preparation. However, I note that the 17.5 hours that Mr Kendrick mentioned in his complaint to HMRC does not match the 15.5 hours invoiced by Mr Kendrick in the first invoice of the two invoices accompanying the Appellants application. This first invoice was sent by Mr Kendrick to the Appellants shortly after the November postponement. The total claimed in that invoice was £3,720, including VAT. That was said to be for “assistance with tax enquiry”. It is impossible to know, from that description, what work was undertaken by Mr Kendrick in those 15.5 hours.

The second invoice sent by Mr Kendrick and included with the application, was for 9.5 hours taken by Mr Kendrick to “review revised documentation provided”. This was undertaken prior to the June 2023 hearing but there are no dates for when the work was undertaken and no more detailed breakdown of what work was completed.

The relevant parts of Rule 10 of the Tribunal Rules provide:

As the Respondents have noted in their objection to this application, an award of costs should be the exception rather than the norm. In part this is because in order for an award of costs to be considered, the person applying for costs – the Appellants in this case – must demonstrate that the other party has behaved:

If that cannot be demonstrated then (unless the appeals have been allocated to the Complex category, which is not the case here) the Tribunal does not have the power to consider an award of costs.

Therefore, the first issue to be decided is whether the Appellants have shown that the Respondents behaved unreasonably in their defence or conduct of these appeals. The standard of proof is the balance of probabilities. If the Respondents did not behave unreasonably then no award of costs can be made, however much was expended by the Appellants.

As the Respondents have correctly identified, the test for the Tribunal to apply has been considered by the Upper Tribunal in Mori v HMRC [2015] UKUT 0012 and Distinctive Care Limited v HMRC [2018] UKUT 155, with the latter approved by the Court of Appeal (see [2019] EWCA Civ 1010). In Distinctive Care the Upper Tribunal quoted with approval the approach set out in paragraph 49 of Mori:

Therefore, the test I should apply is what a reasonable person would reasonably have done, or not done, in the circumstances of this appeal.

As set out above, the circumstances of this appeal are that the Respondents contacted the Appellants on 21 November 2022, and asked them to agree to the adjournment of the hearing due to start just two days later, on 23 November 2022.

The reason for this postponement was that the Respondents presenting officer had identified that the bundles (which must be the 18 November version) did not include all the documents on the parties lists of documents. It seems that some of the missing documents had been put forward by the Appellants and some had been put forward by the Respondents. It also seems that while an electronic copy (possibly) could have been complied in time for a hearing on 23-25 November, there was not enough time for a paper copy to be sent to the Appellants.

It is unclear whether the errors were present in the original bundles, sent to the Appellants on 22 July 2022, or whether they first appeared in either the version filed on 8 November 2022 or in the version filed on 18 November 2022. It seems unlikely that the omissions appeared in the July version of the bundles because, if documents had been missed from the July version of the bundles, that omission would have been picked up either by the Respondents when they prepared the 8 November version, or by the Appellants during the course of their preparations for the substantive hearing. Having had regard to the fact that the Appellants held a meeting on 18 November 2022 with Mr Millett, with what must have been the 8 November bundles (as a paper copy of the 18 November bundles could not have been received in time) and the Appellants did not identify that documents were missing from those bundles, I find on the balance of probabilities that the Respondents’ omission of documents first occurred in the 18 November version when attempting to correct the formatting errors that appeared in the 8 November version.

The test I should apply is what a reasonable person would reasonably have done or not done in the circumstances of this appeal. The circumstances of this appeal are that the Respondents accidentally omitted documents from the hearing bundles on the second occasion that they had revised those bundles in the fortnight before the appeal. I have not ignored the fact that it seems that there were other issues with the 8 November version of the bundles, including poor numbering and a lack of hyperlinks that Judge Poole directed be corrected. However, it seems that no relevant documents had been omitted from the 8 November bundles. I have not been shown any complaint about the bundles from the Appellants to the Respondents prior to 21 November 2022, and so I find that both parties would have been willing to proceed with the substantive hearing using the 8 November version of the bundles, despite the formatting issues identified by Judge Poole. Therefore, the hearing would have proceeded on 23-25 November 2022 with the 18 November bundles (which corrected the formatting issues) had it not been for the omission of relevant documents from those bundles. It was the omission of documents that caused there to be an adjournment.

Given that, on 21 November 2022, the bundles were unsuitable for use at the hearing because relevant material was not included, I do not consider that the Respondents acted unreasonably in seeking an adjournment. On the contrary, if the adjournment had not been sought, the omission of the missing documents would have had to be revealed at the commencement of the hearing, or would have come to light during the course of the substantive hearing, resulting in the hearing either being adjourned on 23 November or going part-heard (depending on when the omissions were revealed). This would have resulted in greater expense to both parties, and possibly longer delay in the long run. It is unlikely that a hearing that was part-heard in November 2022 would have resumed prior to June 2023. Not to disclose the discovery of the omitted material would have been unreasonable.

I have moved on to consider why it was that the bundles filed on 18 November did not contain the missing documents. The Respondents have stated that this was a “genuine error” but not explained further. It was open to the Appellants to challenge this explanation or to seek further information from the Respondents but they have not done so. That is perhaps surprising as the Appellants bear the onus of demonstrating that the Respondents behaviour was unreasonable. However, given that lack of challenge, and bearing in mind that some of the missing documents were ones that the Respondents wished to rely upon, I accept the Respondents’ explanation and I find that the omission of documents was a genuine error (and not deliberate).

I have considered whether a genuine error in omitting documents from a hearing bundle could constitute unreasonable conduct; I have concluded it is not. There is a difference between making a mistake, and conduct that is unreasonable. It is implicit in the latter that the conduct is either a result of some thought or consideration, a chosen way of proceeding, or it is behaviour that is so wholly careless or neglectful that it crosses a line. For example, if the Respondents had deliberately left documents out of the bundle because they did not want to have to address them, then that would be very likely to be considered unreasonable conduct. Here the Respondents did not mean to make a mistake with the bundles, it was simply human error. It is clearly not ideal, particularly not when there were formatting issues with the previous version of the bundles, but that does not make the accidental omission of documents from the 18 November version of the bundles unreasonable.

Given the short period of time between the bundles being filed on 18 November and the omission coming to light on 21 November, I also do not consider the Respondents were unreasonable in not noticing the omission at an earlier date. It took the Respondents three days to notice that some documents were not present in document bundles that together exceeded 1,800 pages. I have concluded that the Respondents did not act unreasonably in not noticing the omission any sooner.

I have concluded that in the circumstances of these proceedings, the Appellants have not demonstrated, on the balance of probabilities, that the Respondents acted unreasonably in their defence or conduct of these proceedings.

Therefore, the application for costs is refused.

Given my conclusion that the Appellants have not shown that the Respondents behaved unreasonably in their defence or conduct of these appeals, it is not necessary to go on to consider the other issues raised by this application, i.e., whether the application complies with Rule 10(3)(b) and how to proceed in light of the omission of a schedule. However, as the Appellants have now sought full findings and reasons, I will touch upon those points.

I explained to the Appellants at the June 2023 hearing that any application for costs must comply with each aspect of Rule 10. This explanation was given in the context of the Appellants being informed that if they did not withdraw an earlier application for costs that was not accompanied by a schedule, then that application would be rejected. In the correspondence with the Respondents, the Appellants were informed twice that they should provide a detailed breakdown of the hours they spent that they considered had been thrown away by the adjournment and the production of revised bundles.

Despite those warnings, the Appellants chose not to file a schedule with their 26 June 2023 application. The invoice submitted by Mr Millett shows that he attended a meeting on 18 November 2023. However, there is not even that very limited amount of information in either of the two invoices submitted by Mr Kendrick. In the Appellants’ request for full written findings and reasons, Mr Kendrick says he is not aware of any requirement on him to provide a detailed summary on the invoices he issues to his clients. Irrespective of how Mr Kendrick chooses to invoice his clients, Rule 10(3)(b) is clear that an application to the Tribunal for costs must be accompanied by a schedule of the costs claimed.

In Patel v HMRC [2023] UKFTT 00128, a decision involving a case allocated to the Complex category, Judge Alexsander commented as follows:

It is clear that the application filed by the Appellants on 26 June 2023, with no schedule at all, does not meet the requirements of Rule 10(3)(b).

As discussed in Patel, where a schedule is insufficient (or not provided at all) the Tribunal has the power to decide whether to require the breach to be remedied, whether to waive the breach or whether to make such order as it considers appropriate in the circumstances.

Here, I have concluded that HMRC did not act unreasonably so no order for costs is required. However, if I had concluded that HMRC did act unreasonably then – taking into account the three previous occasions when it had already been suggested to the Appellants that they should provide a breakdown of the amount they claimed (twice by the Respondents in correspondence, and once again when I noted to the Appellants at the substantive hearing that any application must conform with Rule 10) – I would have concluded that requiring the Appellants to remedy their breach was unlikely to be productive. The Appellants were already aware that the onus was on them with regard to an application for costs, and they were already aware that any application they made must comply with Rule 10.

Against that background, I would have gone on to conclude that there was so little information about the time taken by Mr Kendrick on each aspect claimed that it would have been impossible to make any kind of assessment of the time claimed. For example, with no breakdown of how the time spent by Mr Kendrick was allocated, it would be impossible to make an assessment on whether the time spent on each aspect was reasonably incurred or even whether it related to the appeal at all (rather than the complaint, which is outside of the Tribunal proceedings). There is also no explanation of why it was appropriate for the hourly rate claimed by the Appellants in respect of Mr Kendrick’s work to exceed the October 2021 guideline rate for a National 1 fee earner of his grade.

Unfortunately, there are also difficulties with the claim made in respect of the time taken by Mr Millett. I accept that Mr Millett spent three hours in a meeting with the Appellants on 18 November 2022, and that there were associated costs such as preparation for that meeting and the costs of attending the meeting. However, there is no description of the purpose of, or what occurred at, this meeting, so it is not possible to assess whether work undertaken by Mr Millett at, or for, this meeting was wasted or whether that work provided value to the Appellants that subsisted to the substantive hearing in June 2023.

In the circumstances, I would have gone on to refuse all costs that were not appropriately itemised. That is in line with the approach outlined by Judge Redston in Fox v HMRC [2022] UKFTT 00138 where insufficient detail was provided in a schedule.

The only element itemised in sufficient detail is the claim for £20.20 that Mr Millett was unable to recover when he sought a refund of the train ticket he no longer required due to the postponement of the substantive hearing. Therefore, if I had considered that the Respondents behaviour was unreasonable, in the circumstances of this case I would have made an order for costs in the sum of £20.20. However, as I did not consider the Respondents behaviour to be unreasonable, for the reasons set out above, no order for costs is made.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.