New Judgment: Eclipse Film Partners No 35 LLP v Commissioners for Her Majesty’s Revenue and Customs  UKSC 24
11 Wednesday May 2016
On appeal from:  EWCA Civ 184.
The Supreme Court has dismissed the appeal of Eclipse Film Partners No 35 LLP, in a case concerning the powers of the First-tier Tribunal in awarding costs for bundle preparation.
The case concerned the proper construction of the First-tier Tribunal (Tax Chamber) Rules, governing the practice and procedure to be followed by the FTT, in particular where power to make orders in respect of costs were at issue, as in rules 2, 5 and 10.
Eclipse 35 wished to challenge a closure notice issued by the HMRC determining that it had not been carrying on a trade or trade for the tax year ended April 2007. Its appeal was allocated as a Complex case under the FTT Rules, and Eclipse served a request under r 10(3) that proceedings would be excluded from potential liability for costs or expenses.
The FTT made directions regarding the preparation of bundles, including the direction that parties should try and agree an appropriate bundle of documents, which Eclipse were to prepare and serve. If no agreement could be made, each party was to prepare its own bundle and serve three copies on the other party and the FTT. As no agreement was reached, oral directions were given that Eclipse would prepare the bundle, with the costs to be shared.
Eclipse lost the appeal, and following the hearing sent an invoice to HMRC representing half the cost of preparing the bundle. HMRC applied to the FTT to have this oral direction set aside, on the grounds that it had no jurisdiction to give such a direction. While the FTT dismissed the application, the UT allowed the appeal. Permission was sought by Eclipse to appeal to the Supreme Court, having been rejected by the Court of Appeal.
Lord Neuberger gave the only judgment. He acknowledged, as HMRC had argued, that the FTT should have a broad jurisdiction as to costs, unless the exception provided for in rule 10(1)(c) of the FTT Rules applies. One of the exceptions is that the taxpayer has requested that there should be no potential liability. In this case, Eclipse had made such a request.
Lord Neuberger rejected the contention that the oral direction could be treated differently as it was an order for the sharing of costs, rather than the paying of costs, as in reality it would result in HMRC paying costs if the order did stand. He also dismissed Eclipse’s contention that the FTT had inherent powers to make provision under r 5(3) (dealing with bundle preparation as part of case management) including terms as to costs, given that various other provisions dictated how costs were to be awarded.
To watch the hearing, please visit: Supreme Court website (13 Apr 2016 morning session (permission to appeal)), (13 Apr 2016 afternoon session).