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You are here: BAILII >> Databases >> United Kingdom Supreme Court >> Airtours Holidays Transport Ltd v Revenue and Customs (Rev 1) [2016] UKSC 21 (11 May 2016) URL: https://www.bailii.org/uk/cases/UKSC/2016/21.html Cite as: [2016] 4 All ER 1, [2016] BVC 17, [2016] STC 1509, [2016] UKSC 21, [2016] 4 WLR 87, [2016] STI 1529 |
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[2016] UKSC 21
On appeal from: [2014] EWCA Civ 1033
JUDGMENT
Airtours
Holidays
Transport
Limited (Appellant) v
Commissioners for Her Majesty’s Revenue and Customs (Respondent)
before
Lord Neuberger, President
Lord Mance
Lord Clarke
Lord Carnwath
Lord Hodge
JUDGMENT GIVEN ON
11 May 2016
Heard on 25 February 2016
Appellant David Scorey QC Jonathan Bremner (Instructed by Forbes Hall LLP) |
|
Respondent Owain Thomas QC Matthew Donmall (Instructed by HMRC Solicitor’s Office) |
LORD NEUBERGER: (with whom Lord Mance and Lord Hodge agree)
1.
The issue on this appeal is whether the appellant, Airtours
Holidays
Transport
Ltd (formerly MyTravel Group plc), is entitled to recover, by way of
input tax, Value Added Tax (“VAT”) charged by PricewaterhouseCoopers LLP in
respect of services provided by PwC and paid for by
Airtours.
The factual and procedural background
2.
In October 2002, Airtours,
which had borrowed money from around 80
financial institutions, and had further liabilities, was in serious financial
difficulties, and sought refinancing from the Institutions to enable it to
restructure. It was suggested to
Airtours
that it should commission an
accountants’ report to satisfy the Banks that its restructuring proposals were
viable. The Institutions were agreeable to this, and two firms were approached,
and, pursuant to a decision in which both the Institutions and
Airtours
were
involved, PwC were appointed to produce a report (“the Report”).
3.
The original terms under which PwC were appointed were contained in a
letter dated 5 November 2002 (“the Letter”), which was addressed “To the
Engaging Institutions”, and headed “Silver Group plc [a code name for Airtours]
and its subsidiaries …”. The Letter contained a number of provisions, including
the following:
Para 1, which confirmed that PwC had “been retained by the Institutions as defined in para [4] to provide … ‘the Services’”, which were set out in an Appendix to the Letter, and as I shall refer to them. They included items such as “Current trading position”, “historic cash utilisation”, “Review of accounting policies and issues”, and “Budget for year to 30 September 2003”.
Para 4, which stated that the Report was “for the sole use of the Institutions who have expressly agreed to this letter … by countersigning below”, and that the information and advice given by PwC could be passed to the Institutions, to whom PwC were prepared to “assume a duty of care” if they countersigned the letter.
Para 6, which recorded a
request “you” had made that PwC “assist in providing information to the
institutions providing facilities to [Airtours]”.
Para 7, which referred to the
work being carried out in phases, and referred to Airtours’
“likely requests
for facility extensions”
Para 8, which stated that
“Information and advice produced from this engagement is to be addressed to the
Engaging Institutions with a copy to the directors of [Airtours],
with the
exception of any part of the report prepared exclusively or confidentially for
the Engaging Institutions”.
Paras 9, under which PwC accepted that they had “a duty of care to the Engaging Institutions”.
Para 10, under which “[y]ou
accept that the aggregate limit referred to in paragraph 9 of our Terms and
Conditions applies to our liability to [Airtours]
and the Engaging
Institutions”.
Para 12, which provided that
“[y]ou have requested us to undertake a review of [Airtours]
as set out below.
Our work is required by the Institutions in considering the level of facilities
granted to [
Airtours]”.
Paras 13-18, which described the “scope” of these Services, including the phasing, the limitations, and the extent of the work to be done.
Para 19, which provided that “a draft of our findings will be available for discussion with management” by a specified date, and on a subsequent date “with the Engaging Institutions”.
Para 22, which stated that
“[Airtours]
will be responsible for our fees, expenses and disbursements
incurred in carrying out our work ...”.
Para 25, which provided that “…
[o]ur terms are that a retainer of £200,000 be payable on the commencement of
our work and that weekly invoices will be rendered to [Airtours
and] … are
payable on submission”.
Para 26, which stated that “[t]he attached terms and conditions (‘the Terms and Conditions’) … set out the duties of each party in respect of the Services. The Terms and Conditions provide that among other matters:
i)
[Airtours]
will indemnify us against claims brought by any third party.
For the avoidance of doubt, the reference to “you” in clause 10 of the Terms
and Conditions (and only in that clause) refers to [
Airtours]
and not the
Engaging Institutions …
ii)
our aggregate liability to [Airtours],
the Engaging Institutions and any
other third party … will be limited in accordance with clause 9.4 of the Terms
and Conditions …
iii)
… the Engaging Institutions and [Airtours]
both agree to all the terms
contained in the Contract.
4.
The Letter included countersigning pages for “the Engaging
Institutions”, which, inter alia, confirmed (i) “that the foregoing properly
sets out the arrangements agreed between us, and we agree to the terms
contained in this Letter … and the attached Terms and Conditions” and (ii)
“that [Airtours]
has authorised the Engaging Institutions to disclose to you
all relevant matters concerning [its] affairs and its bank accounts”. The
Letter also contained a countersigning page for
Airtours
which, inter alia,
contained a confirmation in the same form as (i), and also confirmed that PwC
would have full access to its books, and that PwC could disclose all aspects of
[
Airtours’]
affairs to the Engaging Institutions.
Clause 2, which required “you” to ensure that all information provided is accurate, that any reports will be based on “information provided by you”, and states that “we will not be required to direct your affairs”.
Clause 3, under which “you agree to pay our fees promptly …”.
Clause 9.4, which limited PwC’s liability for “loss or damage … suffered by you”, and 9.5, where the Letter is signed by more than one party, this limit will “be allocated” between them.
Clause 10, which provided that “[y]ou agree to indemnify us to the fullest extent permitted by law against all liabilities, losses, claims, demands and expenses arising out of or in connection with your breach of any of the terms of the Contract …”.
Clause 12, subclause 1 of which provided that “either of us may terminate the Contract … upon the expiry of 30 days’ notice”; the clause contained other provisions for determination, including in subclause 5 a right for PwC to terminate “if we do not receive payment from you of any invoice within 30 days of the due date”.
6.
PwC carried out work pursuant to the Contract, ie they provided the
Services pursuant to the Letter and the Terms, and carried out further,
similar, work pursuant to similarly worded contracts, which for present
purposes can conveniently be treated as part of the Contract. That work was,
according to the First-tier Tribunal “wide ranging and highly technical” and
involved “liaising with and making representations to” various parties, and
“carrying out a strategic review of [Airtours’]
business and … creating what
was termed an entity priority model” [2009] UKFTT 256 (TC), para 2. In due course,
PwC produced a Report, which satisfied the Institutions.
7.
In accordance with para 25 of the Letter, Airtours
paid PwC a retainer
of £200,000 when the work began, and thereafter PwC invoiced
Airtours
for their
fees, which
Airtours
then paid. In addition,
Airtours
paid PwC VAT in the form
of output tax on these sums.
8.
Airtours
then sought to deduct that VAT as input tax in its VAT returns
for the relevant periods. The respondents, the Commissioners of HM Revenue and
Customs, challenged
Airtours’
right to do so. While they accepted that the
Contract was of commercial benefit to
Airtours,
they contended
that PwC’s services under the Contract were not “supplied to”
Airtours,
and, as
a result,
Airtours
was not entitled to deduct the VAT on PwC’s fees as input tax.
9.
The First-tier Tribunal found for Airtours,
in very summary terms on the
basis that all that was required to establish its case was that it had
“obtained anything at all that was used for the purpose of his business” and “a
supply of a service may consist of a right to have the service supplied to a
third party” - [2009] UKFTT 256 (TC), para 26. The Upper Tribunal allowed the
Commissioners’ appeal, holding that the Contract was one “in which the Engaging
Institutions contracted with PwC to supply services which they needed for the
purposes of their own businesses, and
Airtours
contracted with PwC to pay its
fees, rather than one in which
Airtours
received something of value from PwC to
be used for the purpose of its business in return for its payment” - [2010] UKUT 404 (TCC), para 24.
10.
By a majority, the Court of Appeal dismissed Airtours’
appeal - [2015] STC 61. All members of the Court of Appeal agreed that the issue turned on the
interpretation of the Contract. In agreement with the Upper Tribunal, Moore-Bick
and Vos LJJ held that the effect of the Contract was that PwC’s services
thereunder were provided to the Engaging Institutions, and not to
Airtours.
Dissenting, Gloster LJ concluded at para 46 that “as a matter of
construction of the Contract, and on analysis of the economic realities of the
surrounding commercial arrangements, the appellant had a contractual right to
require that the Services as described in the [Letter]” were
provided.
The statutory provisions
“The principle of the common system of VAT entails the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, however many transactions take place in the production and distribution process before the stage at which the tax is charged. On each transaction, VAT, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of VAT borne directly by the various cost components. The common system of VAT shall be applied up to and including the retail trade stage.”
“‘Supply of goods’ shall mean the transfer of the right to dispose of tangible property as owner.”
“‘Supply of services’ shall mean any transaction which does not constitute a supply of goods.”
“in respect of the supply of goods or services … everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, …”
The issues on this appeal in summary
19.
In order for the VAT charged by PWC and paid by Airtours
to be
reclaimable as input tax, it must be “VAT on the supply to [
Airtours]
of any
goods or services”. There is no doubt that there was in this case a supply of
services (and no supply of goods), namely the provision by PwC of the Services
as defined in the Letter. The issue is whether the supply of such services was
to
Airtours.
20.
The concept of a “supply” is not only fundamental to the VAT system; it
is an autonomous concept of the EU-wide VAT system. In the present appeal, the
issue whether there has been a supply of services by PwC to Airtours
gives rise
to two principal questions.
21.
The first question is whether, under the terms of the Contract, PwC
agreed with Airtours
that it would supply services, and in particular to
provide the Report. If the answer to that question is yes, then the
Commissioners accept that there has been a supply of services to
Airtours,
and
that this appeal must be allowed, subject to a question of apportionment. On
the other hand, if the answer to that first question is no, then the
Commissioners contend that this appeal must be dismissed, but
Airtours
contends
that its appeal should still succeed, subject, again to a question of
apportionment. In effect, on this second point,
Airtours
argues that, in order
to show that it received a supply of services from PwC for the purposes of VAT,
it does not have to show that it had a contractual right to require the
Services to be provided to the Institutions by PwC.
The first question: was there a contractual obligation to supply?
22.
The first question, then, is whether, on the true construction of the
Contract, PwC contracted to supply services to Airtours.
There is no doubt that
the Contract imposes an obligation on PwC to supply services to the
Institutions. The issue is whether PwC agreed, in addition, with
Airtours
that
they would supply those services. Thus, it is enough for
Airtours’
purposes if
it can establish that PwC were under a contractual obligation to
Airtours
to
supply services, such as providing the Report, to the Institutions.
Airtours
does not have to show that PwC were under a contractual obligation to supply
any services directly to
Airtours.
23.
Not least because the Terms are in a standard form, which has been
poorly adapted, and whose provisions are inconsistently drafted, the issue
whether PwC had a contractual obligation to Airtours
to provide the Services to
the Institutions is not entirely easy. Nonetheless, I have reached the clear
conclusion that PwC’s commitment to provide the services as described in the
Contract was a contractual commitment to the “Engaging Institutions”, and not
to
Airtours.
24.
First, the Letter is addressed “To the Engaging Institutions”, and not
to Airtours.
Secondly, para 1 states in terms that it is those Institutions who
have retained PwC: there is no suggestion that
Airtours
had done so, or that
there was some residual contractual duty to
Airtours.
Thirdly, para 4 provides
that any reports are “for the sole use of [those] institutions” which had
countersigned, and again there is nothing about
Airtours.
Fourthly, para 7,
with its reference to “[
Airtours’]
likely requests for facility extensions” is
also more consistent with the Commissioners’ case. The reference also
highlights the risk of conflict if PwC were contracting with
Airtours
as well
as the Banks, but this point is weakened by the evidence before the FTT to the
effect that the current practice of PwC would be to contract with both borrower
and lender.
25.
Fifthly, para 8 of the Letter states that the Report is to be provided
to the Institutions, and not only is Airtours
merely to be provided with “a
copy”, but that copy can be redacted. While none of that is logically
inconsistent with PwC’s contract being with
Airtours,
its thrust is more
consistent with the opposite. The obligation to provide a copy of any Report to
the directors of
Airtours
is perfectly consistent with PwC’s contractual
obligations being to the Institutions alone, as they would want to discuss any
Report with
Airtours,
and would therefore not want
Airtours
to be excluded from
seeing the Report pursuant to the terms of para 4.
26.
Sixthly, paras 9 and 10 of the Letter recognise a duty of care on the
part of PwC to the Institutions, but does not acknowledge one to Airtours,
but
it is fair to say that the weight to be given to this point is weakened by the
terms of para 26(ii). Seventhly, para 11 reinforces this point as it excludes
any duty of care or liability to “any other party”. If that excludes any duty
of care to
Airtours,
it lies uneasily with the notion that PwC has a
contractual obligation to
Airtours;
if it does not exclude any duty of care to
Airtours,
then it reinforces the point made in respect of paras 9 and 10.
Eighthly, para 12 refers to PwC’s work being “required by the Institutions”,
and no suggestion that it was required by
Airtours;
while that is not
inconsistent with the notion that there is also a contractual obligation to
Airtours,
it is rather an odd provision if there was.
27.
It is true that in para 19 of the Letter PwC agreed to discuss any draft
report with Airtours’
management, but that is quite consistent with the
Contract being with the Institutions alone: a discussion with
Airtours
before a
discussion with the Institutions would obviously be desirable from the
Institutions’ perspective. Para 22 records the fact that
Airtours
would pay for
PwC’s work, but, in so far as such a provision is included in the Letter, it
was needed to protect the Institutions as much as PwC, and the same applies to
para 26(i) which records that
Airtours
would indemnify PwC against third party
claims. Para 26(ii) referred to PwC’s “liability to”
Airtours,
but there could
clearly be tortious liability. Para 26(iii) was plainly not concerned with
imposing any liability on PwC beyond what was in the preceding provisions.
28.
As for the fact that Airtours
countersigned the Letter in the terms that
it did, it appears to me that
Airtours
had to sign in order to be bound by
paras 22 (payment of PwC’s fees) and 26 (indemnity and limitation of
liability), as well as clauses 2, 3, 9 and 10 of the Terms. In any event, I
find it hard to accept the suggestion that the fact that
Airtours
countersigned, and was required by PwC to countersign, the Letter in the terms
that it did had the effect of imposing on PwC obligations to
Airtours
which
would not otherwise have arisen from the provisions of the Letter.
29.
Turning to the Terms, they were on a standard printed form, and it is
therefore unsurprising that they are not always easy to apply to the provisions
contained in the Letter. The statement in the opening part of the Terms that
“‘you’ … refers to the entity or entities on whose behalf the Letter … was
acknowledged and accepted” is neutral, because, as just explained, by
countersigning the Letter, Airtours
had agreed to pay PwC’s fees and to give
PwC an indemnity, and it had also agreed to a cap on any potential liability to
it which PwC might have, as set out in the Letter.
30.
The provisions of clause 2 of the Terms are such that the reference to
“you” more naturally refers to Airtours
probably as well as the Institutions.
In the light of the provisions of paras 22, 25 and 26(i) of the Letter, there
can be no doubt but that the references to “you” in clauses 3 and 10 of the
Terms (concerned with the payment of PwC’s fees and with an indemnity to PwC)
are reference to
Airtours
alone. The “you” in clause 9 appears to apply to the
Institutions and
Airtours.
Clause 12 of the Terms, which applies to determination
and refers to “either of us” being able to determine, appears to envisage two
parties to the Contract, and, if that is right, they must be the Institutions
and PwC, although “payment from you” in clause 12.5 must mean payment from
Airtours.
31.
Confining myself for the moment to the express words of the Contract, it
appears to me that the Commissioners are correct, and there is no obligation on
PwC, as a matter of contract, to Airtours
to provide the Services whether to
the Institutions or to
Airtours.
The position appears pretty clear if one
confines oneself to the Letter: PwC’s obligation to provide the Services set
out in the Appendix is owed solely to the Institutions, and
Airtours
is only a
party for the purpose of agreeing to pay PwC’s fees, to provide PwC with an
indemnity, and to acknowledge the cap on any damages for which PwC may be
liable. The Terms are, without doubt, less clear, but there is nothing in them
which supports the notion that they were intended to widen PwC’s duties beyond
what was in the Letter. In any event, the notion that the Terms can give the
meaning of “you” in the Letter any different meaning from that which it
naturally has on the face of the Letter is fatally undermined by the fact that
the Terms are contained in a standard form, and, even more, by the fact that
“you” in the Terms clearly has different meanings in different places.
32.
Looking at the matter more broadly, Airtours
argues that when one
considers the commercial background, it should be accepted that PwC had a contractual
duty to
Airtours
to provide the Institutions with the Services (and in
particular the Report). In that connection,
Airtours
points to the facts that
(i) it was plainly in
Airtours’
interest that the Services were provided, (ii)
Airtours
was to pay for the Services, (iii)
Airtours
initiated the idea of
having the Report and were involved in the selection of PwC, (iv)
Airtours
was
a party to the Letter through countersigning it, and (v)
Airtours
took on liabilities
to PwC in the Letter.
33.
This argument has obvious attraction, but I cannot accept it. I do not
consider that these five factors can be successfully invoked either in order to
interpret the Contract so as to impose a contractual duty on PwC to Airtours
to
supply the information to the Institutions, or in order to imply such a duty on
PwC.
34.
Factors (iv), and (v) are plain from the face of the Letter, and I do
not see that they can carry things further, once one has analysed the
provisions of the Letter and the Terms. Factor (iii) takes matters little
further at least on its own, although it could fairly be said to be supportive
of Airtours’
case in a general sort of way.
35.
By contrast, factor (ii), the fact that Airtours,
rather than the
Institutions, was to pay PwC for the services, can fairly be said to raise a
prima facie expectation in a reader of the Letter that PwC would owe a duty to
Airtours
to provide those services. However, it is not, at least of itself, a
particularly powerful point. So long as the Institutions wanted the services, PwC
would have been obliged to them to provide them. And, if the Institutions no
longer wanted the services, there is no reason to think that
Airtours
would
still have wanted them, especially as it would have had to pay for them. And it
is not as if
Airtours
was agreeing to pay for work which would not be done:
payment was to be in arrears except for the £200,000 “retainer”.
36.
Lord Carnwath, whose judgment I have seen in draft form, relies in
particular on the retainer of £200,000 which Airtours
agreed to pay under para
25 of the Letter. While I see how the liability to pay this retainer can be
said to be the high point of
Airtours’
case, it does not cause me to change my
view. The liability to pay the initial £200,000 does not seem to me to be
different in principle for present purposes from any other payment which
Airtours
agreed to pay under para 25. Apart from that, the parties would have
appreciated that it was very unlikely that PwC would not carry out £200,000’s
worth of work before any possibility of their ceasing work arose. The Report
was being prepared under considerable time pressure, as is clear from the
background facts and from para 19, under which the interim report had to be
available for the engaging institutions six days after signature, and indeed
the Letter was signed three days after it had taken effect. In addition, the
termination provisions in clause 12 of the Terms limited the circumstances in
which PwC could cease their work.
37.
As for factor (i), Airtours’
interest in having a Report produced for
the Institutions, I accept that it means that one would not be at all surprised
if PwC’s contractual obligation to supply the Services to the Institutions
extended to
Airtours,
but it does not in any way compel such a conclusion as a
matter of commercial sense, logic or law. Like factor (ii), it does no more
than raise a prima facie expectation in the reader of the Contract.
38.
In these circumstances, I do not consider that the five factors
mentioned in para 32 above assist Airtours.
So far as interpretation of the
Contract is concerned, there is the initial difficulty that it is hard to see
how the wording of the Letter and the Terms can give rise to an express
contractual duty on the part of PwC to
Airtours
in the light of the analysis in
paras 24 to 31 above. As to the possibility of implying such a duty, I cannot
see how the proposed implied term can fairly be said to satisfy either of the
two tests recently affirmed in Marks and Spencer plc v BNP Paribas
Securities Services Trust Co (Jersey) Ltd [2015] 3 WLR 1843, paras 18 and
21, namely that it is necessary for business efficacy or that it is so obvious
that it went without saying.
39.
Apart from the factors mentioned in para 32 above, it does not seem to
me that there is much else which assists on the interpretation of the Contract
for present purposes. It is true that the evidence before the FTT supported the
notion that, at any rate at the time of the hearing in the FTT, one would have
expected an agreement such as the Contract to involve PwC agreeing to provide
the Services to Airtours,
as well as to the Institutions. However, I do not
think that that can be of any, or at any rate of much, weight. First, we are
concerned with a contract made in 2002, and the FTT hearing was several years
later. Secondly, the evidence did not support a universal practice, or general
understanding, let alone a professional duty, for an accountant to contract
with the borrower as well as the lender in a case such as this. So, at best
from
Airtours’
point of view, one is left with the possibility that PwC and
Airtours
may have believed that the Contract was being made with
Airtours
as
well as the Institutions (although it is fair to emphasise that I do not think
that the evidence went nearly as far as that). However, it is very well
established that the understandings of the parties themselves at the time they
entered into a written contract is wholly inadmissible when the issue is one of
interpretation, as opposed to rectification, of the document.
41.
Accordingly, in agreement with the UT and the majority of the Court of
Appeal, I consider that Airtours
is wrong on the first question, and, as the
Commissioners contend, PwC had no contractual obligation to
Airtours
to supply
the Services to it or to the Institutions. That means that it is necessary to
address the second question.
The second question: was there nonetheless a supply?
42.
Even if Airtours
were not contractually entitled to require PwC to
provide the Services to the Institutions, it remains the fact that it was
plainly in
Airtours’
commercial interest that those services be provided. That,
it may be said, is evident not merely from the background (namely that the
provision of the Services was intended to facilitate the restructuring of
Airtours’
borrowing) and from the face of the Letter (given that
Airtours
undertook to pay PwC for providing those services). Indeed, I do not think that
Mr Scorey QC exaggerated
Airtours’
case when he described PwC’s work pursuant
to the Contract as “important to
Airtours’
very survival”.
43.
In those circumstances, it is argued on behalf of Airtours
that, even if
it was not contractually entitled to have the Services provided to the
Institutions, the facts that (i) it had a substantial commercial interest in
those services being provided by PwC to the Institutions, and (ii) it not
merely countersigned the Contract pursuant to which they were provided, but
thereby agreed to pay PwC for the Services, lead to the conclusion that the
Services were “supplied” to
Airtours
(as well as to the Institutions).
44.
Some support for that proposition may arguably be found in the speech of
Lord Millett in Customs and Excise Comrs v Redrow Group Plc [1999] 1 WLR 408, 418G, where he said “[o]nce the taxpayer has identified the payment the
question to be asked is: did he obtain anything - anything at all - used or to
be used for the purposes of his business in return for that payment?”. If one
takes that question at face value, then it can be said with some force that
Airtours
obtained a substantial benefit from paying PwC’s invoices, namely the
potential (and, as it turned out, the eventual actual) financial support of the
Institutions for its restructuring.
45. However, Lord Millett’s observation cannot be taken at face value. As Lord Reed explained in Revenue and Customs Comrs v Loyalty Management UK Ltd [2013] STC 784, paras 66-67:
“66. [T]he speeches in Redrow should not be interpreted in a manner which would conflict with the principle, stated by the Court of Justice in the present case, that consideration of economic realities is a fundamental criterion for the application of VAT. … [T]he judgments in Redrow cannot have been intended to suggest otherwise. On the contrary, the emphasis placed upon the fact that the estate agents were instructed and paid by Redrow, and had no authority to go beyond Redrow’s instructions, and upon the fact that the object of the scheme was to promote Redrow’s sales, indicates that the House had the economic reality of the scheme clearly in mind. When, therefore, … Lord Millett asked, ‘Did he obtain anything - anything at all - used or to be used for the purposes of his business in return for that payment?’, [that question] should be understood as being concerned with a realistic appreciation of the transactions in question.
“I think that Lord Millett went too far [at p 418G] when he said that the question to be asked is whether the taxpayer obtained ‘anything - anything at all’ used or to be used for the purposes of his business in return for that payment. Payment for the mere discharge of an obligation owed to a third party will not, as he may be taken to have suggested, give rise to the right to claim a deduction. A case where the taxpayer pays for a service which consists of the supply of goods or services to a third party requires a more careful and sensitive analysis, having regard to the economic realities of the transaction when looked at as a whole.”
47. This approach appears to me to reflect the approach of the Supreme Court in the subsequent case of WHA Ltd v Revenue and Customs Comrs [2013] UKSC 24; [2013] STC 943 where at para 27, Lord Reed said that “[t]he contractual position is not conclusive of the taxable supplies being made as between the various participants in these arrangements, but it is the most useful starting point”. He then went on in paras 30 to 38 to analyse the series of transactions, and in para 39, he explained that the tribunal had concluded that “the reality is quite different” from that which the contractual documentation suggested. Effectively, Lord Reed agreed with this, and assessed the VAT consequences by reference to the reality. In other words, as I said in Secret Hotels2 Ltd v Revenue and Customs Comrs [2014] STC 937, para 35, when assessing the VAT consequences of a particular contractual arrangement, the court should, at least normally, characterise the relationships by reference to the contracts and then consider whether that characterisation is vitiated by [any relevant] facts.
48. The same approach was adopted by the Court of Justice in Revenue and Customs Comrs v Loyalty Management UK Ltd and Baxi Group Ltd (Joined Cases C-53/09 and C-55/09) [2010] STC 2651, paras 39 and 40, where they stated, citing previous judgments, that “consideration of economic realities is a fundamental criterion for the application of the common system of VAT”, and added that that issue involved consideration of “the nature of the transactions carried out” in the particular case. To much the same effect, in Tolsma v Inspecteur der Omzetbelasting Leeuwarden (Case C-16/93) [1994] STC 509, para 14, the Court of Justice said that “a supply of services is effected ‘for consideration’ … only if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance”, which it explained as meaning “the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient”. In the context of the supply of goods, the Court made the same point in Primback Ltd v Customs and Excise Comrs (Case C-34/99) [2001] 1 WLR 1693, para 25, where it described “the determining factor” as “the existence of an agreement between the parties for reciprocal performance, the payment received by the one, being the real and effective counter-value for the goods furnished to the other”.
49. In Revenue and Customs Comrs v Newey (Case C-653/11) [2013] STC 2432, para 40, the Court of Justice again emphasised that “that a supply of services is effected ‘for consideration’, within the meaning of article 2(1) of [the Sixth] directive, and hence is taxable, only if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient”. In para 41, the court went on to explain that “the supply of services is therefore objective in nature and applies without regard to the purpose or results of the transactions concerned and without its being necessary for the tax authorities to carry out inquiries to determine the intention of the taxable person”. The court then observed in paras 42-43 that “consideration of economic and commercial realities is a fundamental criterion for the application of the common system of VAT” and that “the contractual position normally reflects the economic and commercial reality of the transactions”. An exception to the normal rule that the contractual relationship is central was then identified by the court as being where “those contractual terms constitute a purely artificial arrangement which does not correspond with the economic and commercial reality of the transactions” (para 45).
51.
On this analysis, it appears to me that, subject to considering a
further way in which Airtours’
case is put, it also fails on the second
question. The Contract, consisting of the Letter and the Terms, did reflect the
economic reality, and was not in any way an artificial arrangement. It is true
that
Airtours
benefitted from the Contract, but the benefit which it was
getting was not so much the Services from PwC, but the enhanced possibility of
funding from the Institutions for its restructuring (a possibility which
eventuated into reality thanks, to a substantial extent, to the Report). And it
was to improve the prospects of such refinancing that
Airtours
was prepared to
pay for the provision of the Report.
52.
On behalf of Airtours,
it is suggested that this conclusion is
inconsistent with the notion of fiscal neutrality, as the consequence of
Airtours’
appeal in this case failing is that VAT paid as output tax is not
reclaimable as input tax. However, as Advocate General Sharpston observed in Finanzamt
Frankfurt am Main V-Höchst v Deutsche Bank AG (Case C-44/11) [2012] STC 1951, para 60 in connection with exemptions, fiscal neutrality “is not a
fundamental principle or a rule of primary law which can condition the validity
of an exemption but a principle of interpretation, to be applied concurrently
with - and as a limitation on - the principle of strict interpretation of exemptions”.
“a supply of services is effected ‘for consideration’ … and hence is taxable, only if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient.”
56. This formulation demonstrates the need for a direct link between the service provided and the consideration received which the court had previously articulated in Staatssecretaris van Financiën v Association Coöperatieve Aardappelenbewaarplaats GA (Case C-154/80) [1981] ECR 445, para 12, Apple and Pear Development Council v Customs and Excise Comrs (Case C-02/86) [1988] STC 221, paras 11 and 12, and Staatssecretaris van Financiën v Hong Kong Trade Development Council (Case C-89/91) [1982] ECR 1277, para 10. The Court of Justice’s later statements of the test have followed Tolsma in not requiring the recipient of the services under the arrangement itself to be the provider of the consideration or to have legal responsibility for its provision - see Primback Ltd, para 25 and Newey, para 40, and see also Dixons Retail plc v Revenue and Customs Comrs (Case C-492/12) [2014] Ch 326, paras 31 and 32.
59.
Finally, it is also said that the fact that PwC did not contract with
Airtours
to provide the Services to the Institutions is a very small point on
which the present decision should turn. The answer to that was provided by Lord
Reed in WHA Ltd, para 26, where he said that “decisions about the
application of the VAT system are highly dependent upon the factual situations
involved. A small modification of the facts can render the legal solution in
one case inapplicable to another.”
Conclusion
60.
For these reasons, I would dismiss Airtours’
appeal.
LORD CLARKE: (dissenting) (with whom Lord Carnwath agrees)
61.
I agree with Lord Carnwath that this appeal
should be allowed, both for the reasons he gives and, in particular, for the
reasons given by Gloster LJ in her dissenting judgment in the Court of Appeal. The
principal reason why I have reached a different conclusion from that of Lord
Neuberger is that it seems to me that his approach is too narrow in that, while
it focuses on the relationship between PwC and the Banks, it gives too little
attention to the legal relationship between PwC and Airtours
and to the
economic realities of that relationship. The same is in my opinion true of the
approach of the majority of the Court of Appeal.
62. Gloster LJ set out the relevant principles, in my opinion correctly, in her para 37. It is convenient to set out here the basic principles without repeating the extensive citations of recent authority, including in particular in the Supreme Court. Using Gloster LJ’s sub-paragraphs, those principles are these:
i) Consideration of economic realities is a fundamental criterion for the application of the common system of VAT as regards the identification of the person to whom services are supplied.
ii) Decisions about the application of the VAT system are highly dependent upon the factual situations involved. Thus a small modification of the facts can render the legal solution in one case inapplicable to another.
iii) The case law of the CJEU indicates that, when determining the relevant supply in which a taxable person engages, regard must be had to all the circumstances in which the transaction or combination of transactions takes place. In cases where a scheme operates through a construct of contractual relationships, it is necessary to look at the matter as a whole in order to determine its economic reality. Thus the relevant contracts have to be understood in the wider context of the totality of the arrangements between the various participants.
iv) The terms of any contract between the parties, whilst an important factor to be taken into account in deciding whether a supply of services has been made, are not necessarily determinative of whether as a matter of “economic reality” taxable supplies are being made as between any particular participants in the arrangements. That may be particularly so where certain contractual terms do not wholly reflect the economic and commercial reality of the transactions. However, the contractual position is generally the most useful starting point for the VAT analysis.
v) There may, as a matter of analysis, be two or more distinct supplies within the same transaction. Moreover, a single course of conduct by one party may constitute two or more supplies to different persons. Once the taxpayer has identified the payment the question to be asked is: did he obtain anything - anything at all - used or to be used for the purposes of his business in return for that payment? This will normally consist of the supply of goods or services to the taxpayer. But it may equally well consist of the right to have goods delivered or services rendered to a third party. The grant of such a right is itself a supply of services. In one case (“Redrow”) the taxpayer did not merely derive a benefit from the services which the agents supplied to the householders and for which it paid. It chose the agents and instructed them. In return for the payment of their fees it obtained a contractual right to have the householders’ homes valued and marketed, to monitor the agents’ performance and maintain pressure for a quick sale, and to override any alteration in the agents’ instructions which the householders might be minded to give. Everything which the agents did was done at the taxpayer’s request and in accordance with its instructions and, in the events which happened, at its expense. The doing of those acts constituted a supply of services to the taxpayer. … The services obtained by the taxpayer were different. They consisted of the right to have the householder’s home valued and marketed in accordance with the taxpayer's instructions. Unless the householder sold his home and completed the purchase of a ‘Redrow’ home, however, the taxpayer was not liable for the agent's fees and paid no input tax, so there was nothing in respect of which a claim to deduction could be made. What must await events was not the identity of the party to whom the services were rendered, for different services were rendered to each; but which of the parties was liable to pay for the services rendered to him and so bear the burden of the tax in respect of which a claim to deduction might arise.
vi) However, the mere fact that the taxpayer has paid for the service does not necessarily mean that it has been supplied to him. Consideration of economic realities is a fundamental criterion for the application of VAT. Thus substance and reality remain critical. What is required is a realistic appreciation of the transactions in question. Consideration paid in respect of the provision of a supply of goods or services to a third party may sometimes constitute third party consideration for that supply, either in whole or in part. Economic reality being what it is, commercial businesses do not usually pay suppliers unless they themselves are the recipient of the supply for which they are paying (even if it may involve the provision of goods or services to a third party), but that possibility cannot be excluded a priori. A business may, for example, meet the cost of a supply of which it cannot realistically be regarded as the recipient in order to discharge an obligation owed to the recipient or to a third party. In such a situation, the correct analysis is likely to be that the payment constitutes third party consideration for the supply. A case where the taxpayer pays for a service which consists of the supply of goods or services to a third party requires a more careful and sensitive analysis, having regard to the economic realities of the transaction when looked at as a whole. It may lead to the conclusion that it was solely third party consideration, or it may not.
63.
Having set out those principles (and the
references which support them) Gloster LJ, in my opinion correctly, described
the real issue as being whether, on the primary facts found by the FTT, which
were in essence not in dispute, the arrangements between the Banks, PwC and
Airtours
as a matter of law, involved the supply of services to
Airtours
or
merely third party consideration provided by
Airtours
for services rendered to
the Banks alone.
64.
In para 41 Gloster LJ expressed the view that this
case, like Customs and Excise Comrs v Redrow Group plc [1999] 1 WLR 408
(“Redrow”), is a case where two distinct supplies of services were being
provided by PwC within the same overall transaction. She noted the caveats articulated
by Lord Reed and Lord Hope in Revenue and Customs Comrs v Loyalty Management
UK Ltd [2013] UKSC 15; [2013] STC 784 (“LMUK (SC)”) and recognized,
both that every case has to be approached on its own particular facts, and that
it may be dangerous to draw analogies between the facts of two different cases
which may appear superficially similar. However, she concluded that, although
there are obvious differences between the facts of Redrow and those of
the present case, the principles identified in Redrow, and confirmed in LMUK
(SC), support the analysis that in the present case PwC was making
two distinct supplies “in both directions” (see per Lord Hope in LMUK (SC)
at para 89), that is both to the Banks and to Airtours.
lang=EN-US> I agree.
65. I also agree with her description of the two distinct supplies in para 42:
“i) The
supply by PwC to [Airtours]
of the service of having PwC, after appropriate
liaison with the [
Airtours’]
directors and senior management, review, monitor,
and validate (if appropriate) its financial statements, budgets, financial
performance, EPM, arrangements with the CAA etc and report on such matters to
the [Banks]. That supply of the service of liaison, review etc, and reporting
to the [Banks] was provided to [
Airtours]
pursuant to the Contract which
conferred a contractual right on [
Airtours]
to have such work carried out for
the purposes of PwC reporting to the [Banks]. As Lord Millett pointed out in Redrow
at 418G, the grant of such a right (ie the right to have services rendered
to a third party) is itself a supply of services. The supply of that service,
pursuant to the Contract, was for a consideration payable by the appellant.
ii) The
supply by PwC to the [Banks] of
the service of reporting on, monitoring and advising in relation to [Airtours’]
financial statements, budgets,
financial performance, EPM, arrangements with the CAA etc - in other words the
provision to them of ‘the Services’ as defined in the Engagement Letters - in
order to enable the [Banks] to
decide whether to continue their credit facilities to [
Airtours].
This supply
was also made pursuant to the Contract but it was made in circumstances in
which the [Banks] incurred no
liability or contractual obligation to PwC to pay for the supply.”
66.
Gloster LJ went on to analyse first the Contract
and then the economic realities and concluded that both led to the same
conclusion, namely that to treat the Banks as the only entities supplied with
the services of PwC was much too narrow a view. I agree. Airtours
was at least
as much a beneficiary of the services provided by PwC as were the Banks.
67. The particular factors (all included in Gloster LJ’s analysis of the Contract in paras 44-53 and of the wider economic realities in paras 54-55) which have persuaded me that her analysis is correct are these.
68.
While I am not sure that I would go so far as
saying that the words “you” and “your” as used in the Contract always include
Airtours
(although it is certainly arguable that they do), that is not to my
mind critical. I agree with Gloster LJ (in her para 46) that, “as a matter of
construction of the Contract, and on analysis of the economic realities of the
surrounding commercial arrangements, the appellant had a contractual right
to require [her emphasis] that the Services, which were described in the
various Engagement Letters and which both the [Banks] and [
Airtours]
had
agreed, were indeed provided by PwC to the [Banks]”. I further agree with
Gloster LJ in her para 47 that it is wrong to say that there was no provision in the Contract to support
Airtours’
assertion that it had a right to require PwC to provide
services to the Banks and that
Airtours’
under the tripartite arrangement
was simply to make payment to PwC for the provision of services to the Engaging
Institutions. As Gloster LJ put it, that approach
disregards the reciprocal obligations entered into on the part of each of
Airtours
and PwC under the Contract
and the commercial reality of the arrangements. Again
as she put it, the absence of an express term
specifically stating that
Airtours
had a right to insist on PwC providing the Services to the Banks is irrelevant. The clear and necessary
implication from the express terms of the Contract is that
Airtours
had such a right.
69. I agree with these conclusions in Gloster LJ’s para 48:
“Although it may
have been the case that PwC was originally approached by the [Banks] … it is clear from the facts as
found by the FTT that [Airtours]
not only had positively to consent to the appointment of PwC but
also that it had an input into the decision to choose PwC rather than another
firm. [
Airtours]
also had to
agree that PwC would have unrestricted access to its books and records and that
[
Airtours’]
directors and
senior management would positively co-operate with PwC in the provision of
information; see for example the appellant’s confirmation of the November 2002
Letter of Engagement and paragraph 2 of the Terms and Conditions. As reflected
in both para 6 and para 12 of the November 2002 Letter of Engagement, the
commercial reality was that one of the contracting parties requesting PwC to
carry out the work was indeed [
Airtours]
itself. If [
Airtours]
had not joined in the request and agreed to PwC’s appointment, and
the scope of its work, the assignment would have taken a very different form
since PwC would have had no contractual right to access to [
Airtours’]
books and records or to
cooperation from its directors and senior management. It is also relevant in
this context that the evidence showed that at each stage the scope of the work
to be carried out by PwC was agreed by all three parties, namely [
Airtours]
lang=EN-US>, the
[Banks] and PwC. Thus although …
a distinction can be drawn with the factual scenario in
Redrow - where the taxpayer itself selected and gave instructions to the
estate agents, which could not be countermanded by the house owners - those
factors are not sufficient in my judgment to prevent their being two
distinctive services in the present case.”
70.
As Gloster LJ put it in her para 49, while of course the Banks required the provision of the Services
(as defined) for the purposes of their business in order to inform their
decision as to whether to continue financial facilities to Airtours,
Airtours
itself also clearly required PwC to provide the Services (as defined) to the Banks
for the purposes of
Airtours’
own business in order to persuade the Banks and
other financial institutions to continue the loan facilities to
Airtours
and to
ensure that its bonding arrangements with the CAA were maintained. Unless the
Services were provided to the Banks,
Airtours
had little hope of obtaining any
extension of its facilities.
71.
A good report by PwC was critical to Airtours’
future relationship with the Banks and thus to its future more generally. It is
true that PwC’s report might have been damaging to
Airtours’
interests but, as
Gloster LJ put it at the end of her para 49, it necessarily had to take that
risk. In truth the value of PwC’s services was as great to
Airtours
as it was
to the Banks. Hence the part played by
Airtours
in the selection of PwC and a
number of important aspects of the letter of engagement and terms and
conditions, which are set out in some detail by Lord Neuberger and Gloster LJ.
72. It is common ground that the Contract was a tripartite agreement. It is true that para 4 of the letter of engagement provided that PwC’s report and letters were for the sole use of the Banks and that it expressly provided that PwC would assume a duty of care to the Banks provided that they individually agreed to it. Paragraph 8 provided that information and advice would be information and advice would be addressed to the Banks with a copy to the directors of the Group, with the exception of any part of the report prepared exclusively or confidentially for the Banks. Moreover, it is also true that para 9 expressly provided the PwC had a duty of care to the Banks relating to the contents of the Phase 1 report.
73.
I do not however read any of those provisions as
negativing a duty of care owed to Airtours.
On the contrary, para 4 seems to me
to cater only for the Banks and the purpose of making information and advice,
other than that prepared exclusively or confidentially for the Banks, available
to
Airtours
can surely only have been to allow
Airtours
to rely upon it. As I
see it, the only purpose of the clause was to exclude specific confidential
matter. Paragraph 10 expressly contemplated the possibility of PwC’s liability
to
Airtours
because it expressly provided for a limitation of it. There would
have been no need for a provision limiting liability if no duty of care was
owed to
Airtours.
74.
Paragraphs 12 to 16 set out the scope of PwC’s
services, which identified the extensive basis of the contribution to be made
by Airtours.
Indeed, paras 15 and 16 included express provisions requiring
Airtours’
management to provide information and to be responsible in specific
respect.
Airtours
was also of course responsible for PwC’s fees.
75. Further, there were these important provisions in paragraph 26 under the heading “Terms and Conditions”:
“26. The attached terms and conditions (“the Terms and Conditions” have been agreed between the parties and set out the duties of each party in respect of the Services. The Terms and Conditions provide among other matters:
i) the Group will indemnify us against claims brought by any third party. For the avoidance of doubt, the reference to ‘you’ in clause 10 of the Terms and Conditions (and only in that clause) refers to the Group and not the [Banks]; and
ii) our aggregate liability to the Group, the [Banks] and any other third party to whom we later agree to assume a duty of care taken together, whether in contract, negligence or any other tort, will be limited in accordance with clause 9.4 of the Terms and Conditions. For this purpose, our liability in respect of Phase 1 of the Services will in no circumstances exceed £10m. In the event that you request and we agree to provide services beyond Phase 1, the financial limit of our aggregate liability will increase to £25m in respect of the Services and any additional services we provide to you.
iii) The Letter of Engagement and the Terms and Conditions are together referred to as the Contract, and evidence the entire agreement between the parties. For the avoidance of doubt, the [Banks] and the Group both agree to all the terms contained in the Contract.”
Those provisions strongly support the
conclusion that it was agreed that PwC owed a duty of care both to the Banks
and to Airtours,
as one would expect in the light of the substantive
obligations of PwC in a Contract which was for the benefit of both
Airtours
and
the Banks.
76.
These conclusions are essentially the same as
those set out by Gloster LJ in her paras 50 to 53. See in particular the first
sentence of para 50 and also the last sentence of para 51, where she said that
it seemed to her to be inconceivable that Airtours
did not have an implied
correlative contractual right to insist upon due and proper performance by PwC
of its obligations under the contract. I also agree with her conclusion to
similar effect in para 52. If this conclusion is
correct, as I believe it to be, it follows from HMRC’s concession referred to
in para 22 of Lord Neuberger’s judgment, that there has been a supply of services
to by PwC to
Airtours
as well as to the Banks.
77.
Having correctly considered first the
contractual position, Gloster LJ turned to the wider economic realities of the
situation. For the reasons I have already given, I agree with her that, as she
put it in her para 55, as part of the exercise of looking at the
economic reality as to whether a supply was made to a taxpayer, it is relevant
to see what, if any, value the taxpayer obtained from the alleged supply. I
also agree with her that there is no doubt that, on the evidence as accepted by
the FTT, PwC’s review, monitoring and (in the event) endorsement of the
appellant’s financial statements, projections and financial position, PwC’s
liaison with the appellant’s directors and senior management and its assistance
in securing the consequential continuing financial support of the Engaging
Institutions, was intended to play, and did indeed play, a critical role in the
maintenance of the appellant’s licence with the CAA and therefore the survival
of its business. As she says, put another way, Airtours’
right to have PwC
carry out this work provided real additional value to
Airtours
in its struggle
for financial survival. The presentation to the Banks of
Airtours’
own figures,
without review or validation by an independent third party such as PwC, would
have been highly unlikely in the circumstances to have satisfied the Banks and
other financial institutions, which were considering the possible continuation
of credit facilities. Finally, I agree with Gloster LJ that the arrangements
between the parties, affording as they did the undoubted consequential benefits
to
Airtours,
clearly involved the supply of economically valuable services to
the appellant by PwC as well as the provision of distinct services to the Banks.
78. For these reasons I would allow the appeal.
LORD CARNWATH: (dissenting) (with whom Lord Clarke agrees)
80.
The issue in short is whether the payments made by Airtours
were simply
third party consideration for services provided by PwC exclusively to the
Banks, or whether they were at the same time consideration for services
provided to
Airtours
itself. As the extracts cited by Lord Neuberger (paras
44-46) make clear, the contractual position is a useful starting-point, but not
necessarily conclusive; in the words of Lord Hope in Revenue and Customs
Comrs v Loyalty Management UK Ltd [2013] STC 784, para 110, such a case
“requires a more careful and sensitive analysis, having regard to the economic
realities of the transaction when looked at as a whole”.
81.
To rest on a narrow legalistic approach to the construction of the
contract seems particularly inappropriate in a case where the distinction
between services to Airtours
and services to the Banks is unlikely to have been
seen as of any practical significance to the parties, and probably for that
reason was not addressed in detail in that contract. Nor was it ever put to the
test. Once PwC had been engaged, there was never any question of its not
completing its task, with the co-operation of both
Airtours
and the Banks, and
for the benefit of both. A hypothetical analysis of how the contract might have
been given effect in circumstances which were never contemplated and never
happened, seems a sterile exercise.
i)
In October 2002 Airtours
was in serious financial difficulties and
needed something done quickly to ensure its own commercial survival. PWC’s
involvement was essential to the achievement of that objective, and
Airtours
was willing to pay for it. It was entitled to expect a correlative commitment
from PwC, and, had the issue arisen, it is hard to see any reason why it would
have been resisted.
ii)
The letter of engagement seems to me to acknowledge (as was the fact)
that Airtours
were party to the “request” to PwC to provide the services. I
agree with the First-tier Tribunal and Gloster LJ that “you” in para 6 (request
for assistance) and 12 (request to undertake a review) includes
Airtours.
This
is apparent from para 26(i) which limits “you” to the Group in respect of
clause 10 of the terms (indemnity), thereby implying that elsewhere it refers
to both the Group and the Engaging institutions.
iii)
Although the terms of the contract are in some respects equivocal, it is
not in dispute that Airtours
was a fully contracting party. It is possible, but
in my view artificial, to read that as limited to its obligations to pay and
indemnify. The terms of its confirmation letter (taken with para 30 of the
principal engagement letter), make clear that it was accepting “the terms of
[PwC’s] engagement” as set out in that letter. This implies that PwC was
“engaged” to
Airtours,
no less than to the Banks.
83.
The strongest pointer in this direction, in my view, lies in the
provisions for the timetable (clause 19). It is clear that timing for the
initial work was critical and very tight. The first agreement was signed on 5
November 2002, but the commencement of the work was fixed for 2 November, three
days earlier. The first draft of findings was to be available for discussion
with Airtours
management on 15 November, and with the Banks on the 18 November.
Timing for later phases were to be “agreed before each phase commences”. (That
must in my view imply agreement with both
Airtours
and the Bank, since the
co-operation of both would be essential to the fulfilment of any agreed
timetable; and I see no reason why any such agreed timetable should not be
envisaged as open to enforcement by either party.)
84.
The first payment by Airtours,
a retainer of £200,000, had to be made on
commencement. It is legitimate to ask what would have happened if, having paid
its £200,000 on 2 November in the expectation of receiving a draft PwC report
13 days later,
Airtours
had been faced with a failure by PwC to do anything. On
Lord Neuberger’s interpretation of the contract it would have had no
enforceable right of any kind. I find that impossible to accept, either as a
matter of ordinary contractual construction, or still less of economic reality.
The timetable in clause 19 was part of the obligations undertaken by PwC under
the contract. There is nothing in the contract to suggest that the obligation
was not enforceable by
Airtours as a party to the contract. Commercial sense
clearly dictates that it should be so.
85. For these reasons, in addition to those given by Lord Clarke, I would have allowed the appeal.