In Byrne v Revenue Commissioners, the High Court upheld a Tax Appeals Commission (“TAC”) finding that a taxpayer (Mr. Byrne) should have known that there was a VAT fraud in the supply chain on the purchase of fuel for his filling stations. Mr. Byrne could not therefore set off the VAT paid by him for the fuel supplies. Mr. Byrne had appealed the TAC finding to the High Court by a case stated, which Revenue successfully contested.
On the basis that Revenue had won, Revenue claimed its costs for the Court case against Mr. Byrne. However, the Court reduced the legal costs awarded to Revenue to 60% on the basis that Revenue had ‘thrown the kitchen sink’ at the case, including two tenuous and unreasonable arguments.
What arguments were tenuous and unreasonable?
There were four Revenue arguments in the case; the primary argument and three secondary arguments. Revenue won the primary argument and one secondary argument but lost two of the secondary arguments. Revenue’s inclusion of the losing arguments increased the duration of the litigation and the Court concluded that this behaviour was unreasonable, as follows:
- Revenue argued that there was no point of law in the appeal and that the Court lacked jurisdiction. However, precedent made it clear that conclusions drawn from primary findings of fact are mixed questions of fact and law and fall “full square” within the Court’s jurisdiction.
- Revenue argued that the Court should not review the transcript of the TAC hearing. However, as the Court was asked to conclude that there was sufficient evidence to support the findings on primary fact it would have “defied logic” for the Court to be deprived of the best record available (ie, the transcript).
Cost Orders and Unreasonable Behaviour
The Court gave some guidance on the review process in making adverse costs orders, including:
- the traditional rule that ‘costs follow the event’ is subject to the Legal Services Regulation Act 2015 which requires the Courts to consider whether it was reasonable for the winning litigant to raise all the issues;
- if it was unreasonable for the winning party to pursue certain issues, the Court may withhold some of the winning party’s costs or award certain costs to the unsuccessful party;
- when examining reasonableness, the Court should consider all issues raised, investigating whether the case could have been pursued in a more timely and focused manner;
- litigants may be penalised in costs awards for adopting a “scattergun” or “kitchen sink” type approach;
- a litigant that pursues a legal argument which has no reasonable prospects of success (eg, by virtue of being inconsistent with existing precedent) may be deemed to be unreasonable;
- the benefit of hindsight can be taken into account when determining reasonableness; and
- Revenue should be viewed as a “cost conscious” litigant and should not be regarded as having unlimited resources.
Advice for Clients
This case demonstrates the importance of careful case management from the outset of a dispute in order to be best placed in the event of an award of costs for or against a taxpayer.