§ LORD HARRIS rose to draw attention to the hardship imposed on taxpayers by the practice of the Crown of appealing against decisions of the Commissioners of Income Tax and making the taxpayer liable for costs both in the High Court and Court of Appeal, and to a statement by the Chancellor of the Exchequer on the subject. The noble Lord said: My Lords, I should not pre- 99 sume to detain your Lordships at any great length upon this subject, though it is undeniably important and has attracted a good deal of attention, but I wish to bring before your notice a particular case which I think illustrates as clearly as possible the very great hardship which some taxpayers suffer in consequence of the action of the Government in taking cases from Court to Court. It is unnecessary for me to detain your Lordships at any length, because on March 12 Mr. Winston Churchill received a deputation representing a number of bodies, including the Income Tax Payers Protection Society, who appealed to him that the Crown should be liable for costs when it was necessary to interpret the law—that is to say, when the Crown appealed to the higher Courts for a wider decision where the Commissioners had in the first instance decided in favour of the taxpayer.
§ I will take leave to detain your Lordships a few moments while I tell you what. Mr. Churchill said on that occasion. He rather deprecated the Crown undertaking to pay the costs because, for one thing, he was afraid that it would encourage litigation. At the conclusion of the interview he said that he was unable to accept the contention that the Crown should pay the costs in Revenue cases when the Crown's view of the law was upheld by the Courts, and where accordingly its appeal from the decision of the Commissioners had been justified. At the same time he pointed out that in exceptional cases, where a new and important principle was at stake, the practice of the Crown was already to pay, as a matter of grace, the costs of both sides, and he was prepared to consider whether there were in this practice the elements of an arrangement which would meet the wishes of the deputation. I think I shall be able to show your Lordships that the promise made by Mr. Winston Churchill has not been carried out in the case that I shall use as an illustration.
§ The case is that of a very worthy man not in a very high grade of society—a professional cricketer. It is the practice amongst the higher grades in that profession that they should receive once in a lifetime—almost invariably it is only once—a benefit provided from the donations of admirers and friends, and more 100 particularly from the gate-money received at some match which is played for the benefit of a particular cricketer. In this case the cricketer to whom I am referring received from the gate-money, after paying the costs, a net amount of £935. You will understand that this is the reward for a lifetime of service in first-class cricket. It may be after ten years, or twenty years, or even longer, but it is as a rule the one substantial sum which he receives over and beyond his ordinary three days' pay. This particular cricketer received about £935.
§ The Crown endeavoured to tax it. He appealed to the Commissioners and the Commissioners discharged the assessment. At the request of the Crown a case was stated to the High Court—it was heard by Mr. Justice Rowlatt—as to whether this sum was a profit derived from his profession within the meaning of Rule 1 of the Rules applicable to Schedule E or, alternatively, whether it should be regarded as a profit or gain within the meaning of Schedule D (1) (b). Mr. Justice Rowlatt upheld the Commissioners—so that the taxpayer had won in two Courts; before the Commissioners and before the High Court—and dismissed the appeal with costs. Then the Crown proceeded to appeal to the Court of Appeal. It is not the taxpayer who is the litigant in this case; it is the Crown that is the litigant. The appeal was tried before three Judges, two of whom were against the taxpayer, while one was of the same opinion as Mr. Justice Rowlatt. So that up to that point the taxpayer had won his case in two Courts and before two High Court Judges, and lost it in one Court.
§ Surely if ever there was a case where it is necessary to get a clear interpretation of what the words of the Act really mean it is this case, and I submit to your Lordships that in a case of that kind it is rather for the State to prove what is the law, than compel the unfortunate taxpayer to go on from Court to Court, in order to get a final decision, which may possibly be against him. In this particular case that is the position. This man is now waiting for an opinion from counsel as to whether or not it will be wise to go to the House of Lords. If the advice is that he should not go to the House of Lords, the costs and counsel's 101 fees will come to very nearly half of the capital sum which he has received from his benefit—the capital sum which the Crown is endeavouring to tax. Having won in two Courts out of three, the costs are all given against him—both sides' costs. Mr. Churchill says that in exceptional cases, where a new and important principle is at stake—and this is the first case of the kind attempted by the Income Tax authorities—the practice of the Crown was already, as a matter of grace, to pay the costs of both sides. The Crown have been asked whether they will pay the costs in this case, and they have refused. They have been asked whether they will pay their own costs, and have refused. Therefore the whole of the costs have been thrown upon this unfortunate man.
§ Supposing he goes to the House of Lords, and supposing he loses there. Practically the whole of the capital sum which they are endeavouring to tax will go in costs. I venture to submit to your Lordships that that is a very grievous case, and that it is not fair that the obligation should be thrown upon the taxpayer of endeavouring to prove what the law means by the words that are used. The Courts are all at loggerheads about it, and it is for the House of Lords to decide what is the meaning of the words. Why should it he thrown upon this unfortunate man to prove what they do mean, at the risk of losing the whole of the capital sum which he has earned after a lifetime of industry and success at his particular profession. I have concluded with no Motion. That would probably be a breach of privilege. I have not put down any Question, because it is a matter which is sub judice to some extent, but what I ask the noble Lord who is charged with the duty of replying to my Notice, is to say whether the Government will be so good as to call the attention of Mr. Winston Churchill to this case, and to submit my prayer that he may consider whether this is not legitimately one of those cases which he describes in his reply to the deputation which I have quoted.
§ LORD OLIVIER
, who had given Notice to draw attention to the uncompensated labour and expense imposed on taxpayers by the perverse prosecution of unjustifiable and disproved claims for 102 Income Tax subsequently abandoned without litigation, said: My Lords, I have a Notice on the Paper of a somewhat similar character, although it does not cover quite the same ground. I had intended to develop that Notice at some length, but I think at this late hour it would be rather trespassing upon your Lordships' patience if I attempted to do so, and in view of that fact I propose not to proceed further in the matter.
§ THE LORD CHANCELLOR
My Lords, I have to reply to the Question put by the noble Lord, Lord Harris. I notice he puts his Question in this form: "To draw attention to the hardship imposed on taxpayers by the practice of the Crown of appealing against decisions of the Commissioners of Income Tax and making the taxpayer liable for costs both in the High Court and Court of Appeal." I do not think the noble Lord really means to complain of the Crown for appealing against decisions which they think are wrong. It is, of course, their duty to appeal. The decision in a particular case may be a small matter, but it is taken as a precedent and applies not only to the particular taxpayer but to many hundreds or thousands of other people, and in order to protect the general interest of the public the Crown must appeal against a decision which they believe to be wrong.
I think what the noble Lord really complains of is that when the Commissioners of Inland Revenue appeal, and win their appeal, they usually ask for costs against the unsuccessful party, and the Court, in its discretion, usually makes an order for those costs against the unsuccessful party. The suggestion of the noble Lord is that where the Inland Revenue appeals they shall pay the costs of both sides, whether they win or lose. Now, of course, that does not apply to other litigants. It is a very useful check on litigation that people who go to Court and lose their case pay the costs of both sides, and therefore it would not be wise to adopt a different rule as regards appeals by the Inland Revenue. The charges upon other taxpayers would, of course, be exceedingly heavy, and if a taxpayer knew that whatever happened, win or lose, he would get his costs, he would not be likely to be very economical in the way in which he 103 conducted his case. So on general principles I think the noble Lord will not disagree with what I have said.
As to the particular case, of course I know what case it is he refers to, and equally, of course, I am not going to say a word about the merits of the case, because I might have the painful duty of deciding upon those merits in another capacity. I do not hesitate to say that I regret that a charge of this kind should fall upon a professional cricketer. I think, however, that what the Chancellor of the Exchequer said to the deputation was this—that where there was a new case, and a doubtful point, then the Inland Revenue did very often agree to pay the cost of both sides, whatever happened to the appeal, and he said that that practice would be maintained, but, of course, it must be for him or for his advisers to say whether a particular case falls within that rule. What I am told in this case is that the point was really an old one—that it is not a new case, but a mere question of fact, as to whether a particular benefit came within the definition of "income" on which tax was payable, and the Inland Revenue did not think they could remit the order for costs in this case.
There is this further observation, that if a taxpayer against whom an appeal is lodged desires to have the mitigation referred to be ought to ask for it before the appeal comes on, and before large expense is incurred. He ought to say to the Revenue: "Well, you have appealed against a decision of the Commission in which I have an interest. It is a new and doubtful point. Will you pay the costs of both sides whatever the event of the appeal?" And he will get an answer then and there, and know whether he goes on at his own risk.
§ THE LORD CHANCELLOR
No, he made no application, I understand, until after the decision against him. He ought to have made it before the matter came on for hearing, and he would then have been told whether his costs would be paid or not. These are observations which I think are justified, and which the noble Lord ought to take into account. I will conclude by saying that I will most willingly bring to the notice of my right hon. friend what he has said, and, of course, he will give his decision.
§ VISCOUNT HALDANE
My Lords, I cannot think that the answer given by the noble and learned Viscount on the Woolsack is a wholly satisfactory one. It happens in a large number of cases that an important question like this arises on a very small amount, and then perhaps the Crown wins in this House, and the respondent has to pay the whole of the costs here and in the Courts below. There are cases in which the respondent ought to pay, where he has wilfully withheld something, his liability to which raises no question of principle. There are other cases in which very clearly the Crown ought to pay, and that is when the Crown is seeking to have decided some great question of principle affecting the Revenue, arising in a particular case.
But, unfortunately, there has arisen a custom in the Courts and among the Judges of saying "Vae victis"—those conquered must pay the costs. Far better than leaving the matter in the discretion of the Chancellor of the Exchequer and the Revenue authorities would be to call on the Judges to deal with these cases, and to deal with these cases in the way of either not awarding costs, or directing that they should be paid in proper cases by the victorious party. In the Judicial Committee of the Privy Council where we have another large class of public, cases of this kind, when questions arise between a Dominion and one of its Provinces, or between the Crown and a subject, there is a constant practice of saying: "This raises an important question of law, and there certainly should be no costs." I have known cases where we have only given leave to appeal on the footing that the Crown should pay the costs of the person who is complaining against it, because a real question was being raised.
I think the root of the whole difficulty here is the somewhat insufficient and unmodern view taken by the authorities about costs, and I should like to see the law so altered that the Judges would be able to deal with this matter with a very much larger discretion. I have known cases in this House, too, in which, if the Judges had been free, even when the Crown was successful, they would have said the Crown ought to bear the costs because there was a real question of principle, and the case was brought not for the small amount of £100 or so, but 105 in order to get the law settled and the question of principle determined by the Judges, who can best judge the particular circumstances of the case. I cannot pronounce on the example which the noble Lord, Lord Harris, has given; it sounds a very hard case, but I should require to know what were the circumstances and what was urged before the Commissioners.
§ VISCOUNT HALDANE
The noble Lord will permit me. I dare say there was no case in which a cricket association had collected £935 for the benefit of a meritorious player—
§ VISCOUNT HALDANE
—and given it to him, and the question arose whether it was income or not; but whether it was part of his income or not may have been a very difficult question, and it may have been highly desirable that the Crown should get it settled. But the whole matter wants looking into, and whether by empowering the Judges to exercise a wider discretion and, if necessary, ordering the Crown to pay the costs, even where successful, or whether by introducing some intermediate practice, by which the question of liability for costs would be determined at a very much earlier stage, as it is sometimes done on questions of leave to appeal to the Privy Council, I do not wish to commit myself. But I am sure that we shall not get any satisfactory solution of this matter merely by making representations to the Chancellor of the Exchequer or the authorities. They follow tradition and precedent, and they are very reluctant to depart from them.
§ LORD BANBURY OF SOUTHAM
My Lords, I think the noble and learned Viscount is perfectly right. The Chancellor of the Exchequer is an interested party. It should be left to the discretion of someone who is not an interested party, and who can give a fair decision. I should like to point out again the difficulty in which the ordinary person is. I am an Income Tax Commissioner, and certain cases have constantly come before 106 me. I do not say that in any one of the cases which have come before me what I am going to state now has occurred—I do not think it has—but undoubtedly there are surveyors of Income Tax who do say to a man who is not very well off, or to a man who is fairly well off: "If you do not agree to what we have done we shall go to the Court of Appeal, and it, will cost you more to go to the Court than to pay the particular sum we are now asking you to pay." That ought not to be. There ought to be in this case some protection for the Income Tax payer, so that if he desires to decide an intricate point of law, which has not been settled before, he shall have the opportunity of doing it without being put to the vast expense which is entailed by going first to an ordinary court of law, then to the Court of Appeal, and finally to the House of Lords. There can be no doubt, I think, that the fear of the expense to which he would be put, if he does that, does in a certain number of cases compel a man to pay what, if he went to law, he probably would not be compelled to pay.
I am much obliged to the noble and learned Viscount on the Woolsack for his promise to speak to the Chancellor of the Exchequer on the subject.
§ [From Minutes of July 19.]