Icebreaker litigation: partial award of costs upheld as HMRC recognised as the "substantial victor"

06 December 2016

In Bastionspark LLP and others v HMRC [2016] UKUT 425 (TCC), the Upper Tribunal (UT) has held that the First-tier Tribunal (FTT) was entitled to find that HMRC had been the "substantial victor" and to make a partial award of costs in favour of HMRC notwithstanding that each party had been partially successful in an appeal against HMRC's decision regarding allowable expenditure.


This case is the latest round in the long-running and widely-reported litigation between the 'Icebreaker' partnerships and HMRC.

Four LLPs (the LLPs) were created to exploit various forms of intellectual property rights for tax purposes. The LLPs completed self-assessment tax returns for their first years of operation, in which they claimed that certain expenditure by them was deductible in the calculation of trading losses. HMRC in each case opened an enquiry and in due course issued closure notices which amended the losses to exclude these deductibles. The LLPs' appealed to the FTT against the closure notices.

FTT's decision

On 7 May 2014, in Acornwood LLP v HMRC [2014] UKFTT 416 (TC), the FTT allowed the appeals of all four LLPs to a limited extent, but rejected the most significant of the claims made by them. The LLPs succeeded in establishing that part of the fee paid to a company for exploitation services, and the whole of an administrative services fee, was deductible. However, they failed to establish that the main amount paid (and financially the most significant aspect of the claim) was deductible, as it had been paid for the acquisition of a guaranteed income stream.

In November 2014, the FTT ordered the LLPs to pay two-thirds of the costs of HMRC, which was intended to reflect the fact that although each party had been partially successful, HMRC was the "substantial victor".

The LLPs appealed against the costs decision of the FTT.  

UT's decision

The LLPs contended that the FTT had erred in:

(1) holding that the outcome was substantially in HMRC's favour; and

(2) netting off the costs of the LLPs and HMRC to produce a single figure of two-thirds instead of awarding each party a proportion of its costs.

Issue 1: which party was the "successful" party?

The UT considered that in these circumstances it would be an "inadequate account of what happened to say that one or other party was the successful party". As the main amount had not been deductible, the arrangements had not produced a net benefit for the members of the LLPs. However, although it was true that the payment by each LLP was a single payment (and that the appeal by each LLP against the disallowance of it constituted a single appeal), it was also true that the arguments put forward in relation to the two components of the payments differed considerably and in the view of the UT, the FTT had been correct to treat them as two distinct issues.

The UT observed that in litigation of any complexity, the factors which go into an assessment of which party is the overall winner are "multifarious", and the reality was that both parties were in part successful, and in part unsuccessful. On that basis, the UT concluded that it was not erroneous in principle for the FTT to have concluded that HMRC were in substance the successful party.

Issue 2: had the FTT been wrong to make a composite order?

As both parties had succeeded in part, the LLPs argued that the FTT should have awarded HMRC a proportion of its costs, and the LLPs a proportion of theirs, rather than netting the two off to produce a single figure of two-thirds.

The UT said that there was nothing to suggest that the FTT had taken a strictly mathematical approach to reflect the parties' relative successes measured simply in monetary terms. Instead, having taken the view that HMRC was the substantial victor but had not succeeded on every point, it had assessed a fair and just outcome to be that HMRC should receive two-thirds of its costs. The FTT had taken a range of factors and arrived at a single overall figure which it considered a fair reflection of the outcome of the proceedings. The actual figure selected was within the general ambit of the FTT's discretion.

The appeal was dismissed.


Decisions on costs are of course fact sensitive. Although the FTT may look for guidance to cases decided under the Civil Procedure Rules, which tend to suggest that one or other party should be identified as the successful party, this decision confirms that the FTT only has to decide on a 'fair and just' outcome, in accordance with the overriding objective contained in Rule 2 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009[1].

A copy of the decision can be found here


[1]SI 2009/273.

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