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Monthly Tax Review by Matthew Hutton, MA, CTA (Fellow), AIIT, TEP

Matthew Hutton MA, CTA (fellow), AIIT, TEP author and presenter of Monthly Tax Review, comments on a potential problem when claiming professional costs in successful cases against HMRC.

Context

The issue on this case was whether professional costs incurred by a successful appellant could be recovered from HMRC, not having been billed by a firm of solicitors.

Agassi v Robinson: the facts

The appellant was a well-known professional tennis player who at all material times was resident in the United States. A question arose as to whether he could be assessed to income tax under TA 1988 s 556 in respect of payments connected with his activities in the UK as a sportsman. The Special Commissioners and the High Court held that he was, but the Court of Appeal allowed his appeal (see MTR 12/04 Item 4.3). Tenon Media (‘TM’), who were experts in the field of tax law, had acted for the appellant for many years. M, of TM, was a member of the Chartered Institute of Taxation (‘CIOT’). In that capacity he was licensed to instruct counsel under the Bar’s Licensed Access Scheme (formerly called BarDIRECT), and he had done so in the present case for the purposes of the appeals to the High Court and the Court of Appeal. Mr Agassi wished to recover the costs he had incurred in retaining TM’s services, but HMRC disputed his entitlement to do so.

The principal issues raised were: (1) whether Mr Agassi was a litigant in person within the meaning of CPR 48.6; (2) whether TM’s fees were irrecoverable by him because they were in respect of services supplied in breach of ss 20 or 22 of the Solicitors Act 1974 or s 70(1) of the Courts and Legal Services Act 1990; and (3) whether the fees recoverable in principle by Mr Agassi were (a) as costs under s51 of the Supreme Court Act 1981 and CPR 44.3(1), or (b) as a disbursement under CPR 48.6.

The decision (CA): Brooke, Dyson and Carnwath LJJ

The professional costs incurred by Tenon, not being solicitors, were not recoverable (except to the extent that they could be classed as disbursements)

(1) Unless a member of the CIOT was also a solicitor, any litigation had to be commenced on the basis that the litigant was a litigant in person. There was no reason why a party should not be a litigant in person for the purpose of conducting litigation under s28(1)(d) of the 1990 Act, even if rights of audience on his behalf were exercised by an authorised advocate under s27.

Where a member of the CIOT instructed a barrister under the Licensed Access Scheme, the presence of the barrister did not prevent the party on whose behalf the barrister had been instructed from being a litigant in person. After the BarDIRECT committee had informed the CIOT that members of that body were now permitted to instruct a barrister on an appeal to the High Court and Court of Appeal, it issued Guidance Notes which made it clear in para 8 that ‘…any litigation will have to be conducted on the basis that the litigant is a litigant in person’.

(2) A person who was not an authorised litigator might not exercise the right to conduct litigation within the meaning of the 1990 Act; might not act as a solicitor within the meaning of s20(1) the 1974 Act; and might not draw or prepare an instrument contrary to s22(1) of the 1974 Act. If he purported to do any of those things, he would not be entitled to recover his costs for doing so. A person who did not have a current practising certificate and who was not an authorised litigator within the meaning of the 1990 Act acted as a solicitor in breach of s20(1) of the 1974 Act at least if he (a) issued proceedings; (b) performed any ancillary functions in relation to proceedings; or (c) drew or prepared an instrument relating to legal proceedings contrary to s22(1) of the 1974 Act.

In the present case, there was no reason to believe that any of the items of work had involved any breach by TM of ss20(1), 22(1) or 25 of the 1974 Act or s70(1) of the 1990 Act.

(3) Mr Agassi was not entitled to recover costs as a disbursement in respect of work done by TM which would normally have been done by a solicitor who had been instructed to conduct the appeal. That meant that Mr Agassi was not entitled to recover for the cost of TM providing general assistance to counsel in the conduct of the appeals. However, it did not necessarily follow that he was not entitled to recover costs in respect of the ancillary assistance provided by TM in the appeals. It might be appropriate to allow Mr Agassi at least part of TM’s fees as a disbursement.

It might be possible to argue that the cost of discussing the issues with counsel, assisting with the preparation of the skeleton argument etc was allowable as a disbursement, because the provision of that kind of assistance in a specialist esoteric area was not the kind of work that would normally be done by the solicitor instructed to conduct the appeals. Another way of making the same point was that it might be possible to characterise those specialist services as those of an expert, and to say for that reason that the fees for those services were in principle recoverable as a disbursement. The dividing line between legal services and the provision of expert advice in this area was a matter of some difficulty. Specialist accountants might well have far greater expertise in esoteric areas of tax law and practice than solicitors.

(Agassi v Robinson [2005] EWCA Civ 1507 reported at [2005] STI Issue 50)

Concluding comment

In a nutshell, HMRC won the appeal on the grounds that TM are not solicitors, so their fees cannot be considered a disbursement. This is because it is work which must be carried out by solicitors, according to statutory case law which takes precedence over the Licensed Access Scheme.

Julian Headley, Office Managing Director of Tenon Media, said that ‘Tenon has been a great advocate of the Licensed Access Scheme and fully supported the principle it stood for in terms of more cost-effective access to barristers, particularly for small and medium sized business.’ He said that the appellant was being ‘penalised’ because TM has recommended the ‘supposedly more cost-effective option with regards to a dispute that was never sorted and came about through the Inland Revenue unilaterally changing its approach to the assessment of endorsement income’.

As a result, the Licensed Access Scheme was in danger of not being used by future taxpayers due to fear of not being able to recover their costs upon victories. A senior costs judge is to make a detailed assessment of TM’s costs and decide whether any of them can be allowed as a disbursement. Julian added that the decision ‘has left a cloud over what should have been a shining example of legal reform’.

(Taxation 15.12.05 p302)

January 2006

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