HM Revenue & Customs will not have to pay the £6,245 costs of a wine wholesaler who successfully appealed a decision notice, a tribunal has ruled. 

Judge Greg Sinfield, sitting in the First Tier Tribunal (Tax) in Hare Wines Ltd v Revenue & Customs (COSTS - application by Appellant for costs), made the distinction between a case with merits and one which was obviously meritorious. He concluded that a paying party could not be penalised simply because their opponents have a case with merits. 

Hare Wines had challenged HMRC’s refusal to allow it to carry on the wholesale of alcohol, saying the decision letter did not make clear the reasons for the decision and merely said that ‘key points’ had been taken into account. 

The case came before the Court of Appeal after HMRC had challenged a case management decision. Giving judgment on that issue, Lady Justice Rose also made wider comments in relation to Hare Wines’ appeal, describing HMRC’s original decision letter as ‘inadequate and incomplete’ and indicative of a ‘chaotic decision-making process which is almost bound to generate appeals’.  

HMRC subsequently withdrew the decision letter, but said the decision would be remade after reconsideration of the evidence. It was not until six weeks later that Hare Wines’ appeal was allowed by consent. 

The now-successful appellant submitted that it should be awarded the appeal costs, saying HMRC acted unreasonably in proceedings. Hare Wines told the first-tier tax tribunal that HMRC’s position was ‘indefensible’ because of obvious flaws in the decision-making and reasoning process. 

Judge Sinfield noted that defending an appeal which was clearly indefensible was likely to be regarded as unreasonable conduct. But equally a meritorious case ‘did not mean merely "having some merit",’ said the judge. Otherwise, it was concluded, HMRC could be prevented defending any appeal deemed to have even a small chance of success. 

‘It could not be said that Hare Wines’ appeal was obviously meritorious in the sense that it was obvious that it would succeed,’ he added. ‘Nor, in my view, could it be said that HMRC’s position was clearly indefensible.’