Taxpayers who are dissatisfied with a decision or assessment of the Irish Revenue Commissioners (Revenue) have the right to appeal to the Tax Appeals Commission (TAC), which is the statutory body that has the power to set aside, vary or uphold a decision of Revenue (see our TAC process insight), or seek judicial review of the relevant Revenue decision directly to the High Court. Parties in receipt of a TAC determination have a right of further appeal on a point of law to the High Court, and thereafter to the Court of Appeal or potentially the Supreme Court (see our High Court process insight). The purpose of this insight is to outline the position as regards costs at the various stages of appeal.
Scope of litigation costs
Litigation costs are legal costs paid by a party to lawyers and third parties during or in connection with litigation and can include certain pre-action legal costs. The Legal Services Regulation Act 2015 (LSRA) and relevant Orders of the Rules of the Superior Courts SI 1986/15 (RSC) set out the basis upon which orders as to costs are to be made, underpinned by the requirement for lawyers to issue by way of an appropriate LSRA Section 150 letter an indicative view as to costs.
Costs in tax litigation processes
The general rule as regards litigation costs in a TAC proceeding is that each party covers its own litigation costs. Each party prepares its case for hearing before the TAC and is not ‘on risk’ for the costs incurred by the other party.
The position as regards litigation costs at the High Court and thereafter on further appeal is different. The Taxes Consolidation Act (TCA) provides that the High Court shall hear and determine any question of law arising in a case stated and, amongst other determinations, make such order as to costs as it thinks fit. The general rule in Superior Court proceedings however, as provided for in section 169(1) LSRA, is that costs follow the event albeit with the courts having discretion to award depending on the circumstances of each case and the conduct of the parties. That section outlines certain relevant factors to be considered when adjudicating on costs, including amongst others:
conduct before and during the proceedings
whether it was reasonable for a party to raise, pursue or contest one or more issues in the proceedings
manner in which the parties conducted all or any part of their cases
whether a successful party exaggerated his or her claim
whether a party made an offer to settle the matter the subject of the proceedings, and if so, the date, terms and circumstances of that offer
In Byrne v Revenue1, while Revenue were successful on appeal by the taxpayer by way of case stated to the High Court, the court had specific regard to item (2) above in limiting the costs award for Revenue. In considering the issues brought forward by Revenue for determination, the court concluded that had a more disciplined approach to the litigation been applied then two of the issues – which in the court’s view were highly unlikely to be successful at hearing – should not have been raised. With the ultimate aim of ensuring litigation is pursued in a timely and focussed manner and avoiding situations involving parties taking an un-measured approach to litigation, the court sought to limit the costs award with a proportional reduction on costs awarded by reference to the time taken to adjudicate on those two issues.
In O’Sullivan v Revenue2, upholding the TAC’s determination on appeal by the taxpayer by way of case stated to the High Court, the court re-iterated the role of the LSRA framework in determining matters as to costs. Rejecting the taxpayer’s assertion of full discretion on the part of the court as to any costs order (as in principle provided for in the TCA) and having regard to section 169(1) LSRA the court awarded full costs to Revenue. In its view none of the factors provided for in section 169(1) LSRA were sufficiently engaged to justify a departure from the overarching principle that costs follow the successful party.
In Lee v Revenue3, the Court of Appeal, whilst predominantly concerned with questions as to the jurisdictional basis of the TAC, in a subsequent costs judgment determined that an order for costs in favour of Revenue (as the successful litigant) should not be made. Regard was had to the public and systemic importance of the case as a sufficient basis to move away from the presumption under section 169(1) LSRA that costs follow the successful party.
These cases are demonstrative of the certain discretion the courts have as regards orders as to costs and the extent to which the courts are willing to deviate from the standard presumption of costs following the successful party in tax cases.
Process for order as to costs
In terms of the process, the High Court (or other Superior Courts) will as part of the determination process (or follow-on costs judgment) make an order as to costs. The court generally invites submissions as to costs either orally from counsel or may give a preliminary view to costs and invite submissions on the issue from both parties which may then be dealt with at a short oral hearing.
The Office of the Legal Costs Adjudicators is the party with jurisdiction to provide an independent assessment of legal costs incurred in relation to an order as to costs made by the Superior Courts. In the first instance, the successful party will prepare and issue to the other party a Bill of Costs setting out the relevant litigation costs which should qualify for award (with appropriate documentation) with a view to reaching agreement on the quantum of costs to be awarded. In the event the quantum / scope of costs cannot be agreed in full, either party to the litigation can apply to the Legal Costs Adjudicators for adjudication. Order 99 RSC sets out the documentation to accompany a notice for application which includes:
Bill of Costs in the prescribed form
vouchers, invoices and / or receipts in respect of any disbursement which has not been agreed
any other records on which the applicant relies in support of the costs claimed
where the applicant relies on time records in support of costs claimed, those time records showing each legal practitioner, hourly rates and hours / time spent
copy of the Court Costs Order
The general rule on adjudication is that costs can be recovered where reasonably incurred and for a reasonable amount with the burden of proof resting with the applicant to support the reasonable nature of the work completed and the charges incurred. Depending on the circumstances of the case the Legal Costs Adjudicator may adjudicate on the first return date assigned to the accepted application (with the application appropriately served on the other party within 14 days of the return date), or issue particular directions to ensure the efficient determination of the matter. Ultimately the Legal Costs Adjudicator will seek to apply the costs order in a fair and reasonable way supported by appropriate evidence and documentation.
In considering whether to take an appeal on case stated to the High Court and on further appeal thereafter, it is clear therefore that taxpayers should be cognisant of the risk of an order for costs being made against them if unsuccessful and also the scope of issues and evidence to be led during the running of the original appeal before the TAC and on appeal. Appropriate regard to the potential implications for an award of costs should be paid at as early a stage of the tax litigation process as possible.