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England and Wales Court of Appeal (Civil Division) Decisions


You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> F & I Services Ltd v Customs & Excise [2001] EWCA Civ 762 (23 May 2001)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/762.html
Cite as: [2001] STC 939, [2001] BTC 5266, [2001] STI 850, [2001] EWCA Civ 762, [2001] BVC 347

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Neutral Citation Number: [2001] EWCA Civ 762
Case No: A3/2000/2158

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (CARNWATH J)

Royal Courts of Justice
Strand, London, WC2A 2LL
Wednesday 23rd May 2001

B e f o r e :

LORD JUSTICE ROBERT WALKER
LORD JUSTICE SEDLEY
and
MR JUSTICE LIGHTMAN

____________________

F & I SERVICES LTD
Appellant
- and -

COMMISSIONERS OF CUSTOMS AND EXCISE
Respondents

____________________

(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

Mr R Cordara QC and Miss P Cargill-Thompson (instructed by Hutchinson Mainprice for the appellant)
Mr M Kent QC and Mr R Anderson (instructed by the Solicitor to the Commissioners for the respondents)

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    LORD JUSTICE ROBERT WALKER:

    Introduction

  1. This is an appeal with the permission of Otton LJ from two orders of Carnwath J made on 14 April 2000 in two sets of proceedings between the same parties, F&I Services Ltd ("F&I") and the Commissioners of Customs & Excise ("the Commissioners"). By one order the judge dismissed an appeal by F&I from a decision made on 26 February 1999 by the London Value Added Tax Tribunal, dismissing F&I's appeal from a decision of the Commissioners contained in a letter dated 24 June 1998. By the other order Carnwath J dismissed F&I's application for judicial review of the decision made by the same letter, except that he gave directions for F&I's claim against the Commissioners for damages for negligence to continue as though begun by writ. This appeal relates to both of the judge's orders.
  2. The background to the appeal, in brief outline, is that in 1997 F&I (which is in the business of providing project promotion and budget services) developed a new promotional scheme. This scheme involved the sale (primarily to car dealers) of books of vouchers intended to be used at various named retail outlets such as restaurants, theme parks, cinemas and suppliers of consumer goods. These books of vouchers were produced by a company called Entertainment Publications Ltd ("EP"). EP negotiated and entered into contracts with the various retailers. The retailers undertook to honour the vouchers presented by customers, and EP was to produce and promote the vouchers at its own expense. EP then sold books of vouchers in block to F&I (at about £4 per book, plus VAT) and so passed the business opportunity to F&I. There were no detailed findings about this aspect of the matter but neither side suggested that it was relevant to the appeal.
  3. F&I sold books of vouchers to car dealers for £10.40 each (plus VAT). Dealers would normally sell a book to a customer who was buying a used car, charging the customer £300 for the vouchers (but, rightly or wrongly, no VAT). The total face value of the vouchers was about £2,200, but in practice it seems most unlikely that the average customer would wish to use, or would in fact use more than a relatively small number of the vouchers. They could not be used (with one possible exception) otherwise than in conjunction with a substantial cash payment (for instance one voucher was for £10 towards at least £150 spent on electronic goods from a named retailer, Tandy). In order to use all the vouchers the customer would have had to acquire six wristwatches, five televisions, and at least ten other items of electronic equipment, and to have stayed for a two-night break for two people at seven specified (and widely dispersed) branches of a chain of inns, Wayfarer Inns; and he would have had to pay out many thousands of pounds in cash. The goods and services covered by the vouchers included maps and insurance, that is zero-rated and exempt as well as standard-rated supplies.
  4. F&I wished to obtain official clearance for its view of the VAT implications of the new scheme. Its accountants, Arthur Andersen, wrote on 25 October 1997 to the Commissioners' VAT Advice Centre in Torrens Street, London EC1, describing the scheme and inviting the Commissioners to agree that the vouchers fell within para 5 of Schedule 6 to the Value Added Tax Act 1994 ("VATA 1994") with the consequence that car dealers were not required to account for output tax on the supply of vouchers to customers.
  5. On 18 November 1997 the Commissioners wrote agreeing that F&I's understanding of the VAT treatment was correct. The letter stated,
  6. "F&I Services Ltd will need to account for VAT at the standard rate on the sale of the vouchers to the retailer.

    The retailer will not need to account for VAT on the sale of the vouchers to the customer, provided that they are sold at, or below their face value. Schedule 6 Paragraph 5 of the VAT Act 1994 refers.

    When redeemed for goods or services these vouchers are consideration for VAT purposes and output tax then becomes due."

  7. Arthur Andersen wrote again to the Commissioners on 6 February 1998, saying that F&I had made the commercial decision to launch the voucher scheme. Their letter gave more details of the scheme:
  8. "In accordance with your letter of 18 November 1997, the vouchers will be sold at or below their face value. Given that the vouchers will typically be sold in conjunction with second hand motor vehicles, it is intended that any car in question will be sold for say, £9,000 which will be expressed to be inclusive of a voucher booklet valued at £300. In this instance, the customer will be given an invoice which clearly expresses that the car has been sold for £8,700 and the voucher booklet for £300. At present, the vouchers in the booklet can be exchanged for goods and services to the value of approximately £2,200."

    On 3 March 1998 the Commissioners replied confirming their previous view, but stating that the ruling applied only to F&I, and should not be treated as a general principle.

  9. However after questions had been raised by a trade competitor, a tax-avoidance specialist at the Commissioners' Thames Valley Collection, Mr T J Lloyd, inquired into the matter and took a different view. He wrote to Arthur Andersen on 24 June 1998 setting out his view, reached after a review of the evidence and discussion with the relevant policy branch, that the scheme did not work and that the previous official ruling was clearly incorrect. After a meeting on 6 July Mr Lloyd repeated his view in a letter dated 17 July 1998 but offered a 30-day moratorium:
  10. "As you may know, the Government is concerned about the effects of tax avoidance and is resolved that it should be tackled quickly. We recognise of course the need to strike a balance between securing the revenue and minimising the burdens on business, but we cannot allow a position to continue that results in a revenue loss and leads to distortion of competition between businesses. Nevertheless, on this occasion, Customs will allow you a period of 30 days from the date of this letter to apply the new ruling. I must emphasise that this concession is to allow you to notify your existing customers of the new ruling within this 30 day period. I must make it clear that the supply of any vouchers held by your existing customers, and unsold at the end of the 30 day period, must be treated as standard rated. This concession does not extend to any new customers you may secure during the 30 day period and who are not therefore, entitled to rely on the earlier decision."

    It is the decision in the letter of 24 June 1998 that has given rise both to F&I's statutory appeal under s.83 of VATA 1994 and to its application for judicial review.

    Community Directives and statutory provisions

  11. In relation to the statutory appeal there are relatively few material provisions of Community and national legislation, but a good deal of Community and national case law. The most material provisions of Community legislation are in the Sixth Council Directive of 17 May 1977, 77/388/EEC ("the Sixth Directive"), although this court was also referred to the basic principle in Article 2 of the First Council Directive of 11 April 1967, 67/227/EEC:
  12. "The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.

    On each transaction, value added tax, 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 value added tax borne directly by the various cost components.

    The common system of value added tax shall be applied up to and including the retail trade stage."

  13. Article 11 of the Sixth Directive lays down rules as to the taxable amount. Article 11 A 1(a) provides that (subject to exceptions which are not now material)
  14. "The taxable amount shall be ... everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidiaries directly linked to the price of such supplies."

    The Court of Justice of the European Communities has emphasised the need, in the case of consideration provided by a third party, for a direct link between the consideration provided and the service received under the transaction in question: Naturally Yours Cosmetics v C&E Commissioners [1988] STC 879, 894 (paras 11-2); Empire Stores v C&E Commissioners [1994] STC 623, 636 (para 12). The nature and limits of the direct link have been important issues in this appeal.

  15. Article 11 A 3 provides that the taxable amount shall not include
  16. "(b) price discounts and rebates allowed to the customer and accounted for at the time of the supply."

    The Court of Justice has held that an allowance made by a retailer does not cease to be a discount or rebate merely because it is obtained by presentation of a coupon which, although it has a nominal value, is in fact worthless in the retailer's hands: Boots Co v C&E Commissioners [1990] STC 387.

  17. These provisions of Article 11 A are given effect by s.19 of and Schedule 6 to VATA 1994, which must be construed in accordance with the Sixth Directive and other Community legislation. Schedule 6, para 5 provides:
  18. ""Where a right to receive goods or services for an amount stated on any token, stamp or voucher is granted for a consideration, the consideration shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds that amount."

  19. In C&E Commissioners v Granton Marketing [1996] STC 1049, 1053 this court accepted the submission on behalf of the Commissioners that para 6 of Schedule 4 of VATA 1983 (now Schedule 6, para 5 of VATA 1994)
  20. "needs to be read in its context as one of the provisions in that schedule designed to deal with potential distortions and anomalies. In the same way that transactions not at arm's length and at an undervalue, and transactions involving a discount for early payment, are made the subject of special provision (in paras 1 and 4 respectively) to avoid a distorted or unrealistic charge to tax, so para 6 is designed to avoid double taxation where a supply is capable of being sub-divided into two separate transactions by reason of prepayment."

  21. This provision has appeared in the national legislation since the introduction of VAT by the Finance Act 1972: see Schedule 3, para 5 of that Act and Schedule 4, para 6 of the Value Added Tax Act 1983 ("VATA 1983"). It has no obvious source either in the Sixth Directive or in any other provision of Community legislation, but it has been contended on behalf of the appellant that its source is to be found in Article 13 B (d) of the Sixth Directive.
  22. Article 13 B provides as follows:
  23. "Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse;

    .....

    (d) the following transactions:

    1 the granting and the negotiation of credit and the management of credit by the person granting it;

    2 the negotiation of or any dealings in credit guarantees or any other security for money and the management of credit guarantees by the person who is granting the credit;

    3 transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring;

    4 transactions, including negotiation, concerning currency bank notes and coins used as legal tender, with the exception of collectors' items; "collectors' items" shall be taken to mean gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest;

    5 transactions, including negotiation, excluding management and safe-keeping, in shares, interests in companies or associations, debentures and other securities, excluding:

    - documents establishing title to goods,

    - the rights or securities referred to in Article 5(3);

    6 management of special investment funds as defined by Member States;

    ..... "

    Other familiar exemptions included under Article 13B (other exemptions) include insurance, the letting of immovable property, and the supply of land and buildings.

  24. Whether or not it is also the source of Schedule 5 para 6, Article 13 B(d) has on any view been reproduced in Group 5 (finance) in the exempt goods and services specified in Schedule 9 to VATA 1994. The first five items in Group 5 were as follows (although item 5 has since been repealed):
  25. "1 The issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money.

    2 The making of any advance or the granting of any credit.

    3 The provision of the facility of instalment credit finance in a hire-purchase, conditional sale or credit sale agreement for which facility a separate charge is made and disclosed to the recipient of the supply of goods.

    4 The provision of administrative arrangements and documentation and the transfer of title to the goods in connection with the supply described in item 3 if the total consideration therefor is specified in the agreement and does not exceed £10.

    5 The making of arrangements for any transaction comprised in item 1, 2, 3 or 4 or the underwriting of an issue within item 1."

  26. Except in Granton Marketing, the statutory provision which now appears as Schedule 6, para 5 of VATA 1994 has received very little attention either from the national court or in the Court of Justice. It was referred to in the opinion of Advocate General Fennelly in Argos Distributors v C&E Commissioners [1996] STC 1359, 1362, but not by the Court of Justice (which did not follow the opinion of the Advocate General). It was referred to briefly in C&E Commissioners v High Street Vouchers [1990] STC 575, 582. Rather surprisingly, it did not apparently receive even a passing reference from this court in British Railways Board v C&E Commissioners [1977] STC 221 (in which the issue was whether the sale of a student's railcard was a zero-rated supply in respect of transport services). That may be because it was regarded simply as a valuation provision and not as bearing on how a composite transaction should be analysed.
  27. Identifying the issues

  28. There are some unusual and indeed paradoxical features of the appellant's case as it has been presented by Mr Roderick Cordara QC and Miss Perdita Cargill-Thompson. The case put forward on behalf of the appellant depends on the view initially taken on behalf of the Commissioners (but then disowned by them) having been correct, despite the fact that F&I is engaged on suing the Commissioners for negligence in forming and expressing their initial view. The appellant's case depends in part on Schedule 6, para 5 of VATA 1994 being applicable, but at the same time the appellant has questioned whether that provision has legitimacy in the form of enabling Community legislation. The appellant's counsel have vigorously criticised the judge for a judgment which is (in their contention) contrary both to common sense and to Community law, but counsel have themselves relied on a decision of the Netherlands High Court (the appeal of X BV, 15 July 1998, nr 33.390) which, in the form of the translated judgment shown to this court, is very short on reasoning.
  29. Against that Mr Michael Kent QC and Mr Rupert Anderson, for the respondent Commissioners, have submitted that the judge reached the correct decisions on both appeals, that the reasons which he gave were correct, and that his decision on the statutory appeal was in conformity with Community jurisprudence as well as authority in this court. They submitted that there was no need for this court to make a reference to the Court of Justice under Article 234 before disposing of the appeals.
  30. In the face of this striking conflict it is necessary to state some fairly elementary principles. VAT is essentially a Community tax and its principles are to be derived from Community legislation. The starting point is Article 2 of the First Directive, set out in para 8 above. VAT is a tax on the ultimate consumer, and however many steps there are in the process of supply to the ultimate consumer, it should be "exactly proportional to the price" - that is, the consideration received by the supplier who supplies the ultimate consumer. National legislation imposing VAT must be construed in accordance with these principles, and in such a way as to preserve fiscal neutrality and avoid distortions. Consideration is to be understood in accordance with Article 11A1 of the Sixth Directive. It includes non-monetary consideration (such as is provided in a barter transaction) so long as the non-monetary consideration is capable of being expressed as a monetary equivalent. It also includes consideration which the supplier receives from a third party, so long as there is a sufficiently direct link (see the cases referred to in para 9 above).
  31. These principles are not in doubt. Moreover it is not credible that they were not in the mind of Carnwath J since in Bugeja v C&E Commissioners [2000] STC 1, in which he gave judgment on 25 November 1999, he had referred to many of these principles and had made a detailed analysis of the problems of non-monetary consideration. In para 6 of his judgment now under appeal he referred to his review of the case law in Bugeja and stated that it was unnecessary to repeat that review.
  32. Bugeja was concerned with non-monetary consideration, but in a context which had some slight affinity to the cases on vouchers. Mr Bugeja sold video cassettes. A new customer would pay £20 for a cassette. It was marked with an unique Bugeja security tag (which could be regarded as a sort of voucher). If the customer returned the video in an acceptable condition, he could buy another video for £10, and could later trade it in on the same terms, and so on indefinitely. About three-quarters of his customers traded in videos, mostly within a week. Videos could not be traded in if they were badly damaged, or lacked a Bugeja security tag. Carnwath J (differing from the VAT Tribunal) held that on making a replacement supply Mr Bugeja received as consideration not (as the Commissioners had contended) £10 plus a video worth £10 nor (as the Tribunal had found and Mr Bugeja submitted as his primary argument) only the £10 paid in cash. The judge found that he received a composite consideration consisting of £10 plus the actual cost to Mr Bugeja of a similar video (about £3). An appeal to this court is to be heard next July.
  33. Non-monetary consideration is one of the issues in the statutory appeal, in that it has been argued on behalf of F&I that a retailer who accepts an EP voucher marketed by F&I has received (from one or both of those companies) non-monetary consideration in the form of marketing services. The other main issues are whether the vouchers should be treated as a form of discount or as a form of prepayment, and whether F&I is entitled to exemption under Article 13B(d) of the Sixth Directive (credit transactions). On the last point Mr Cordara has relied not only on the Dutch case already mentioned but also on the judgment of Neuberger J given on 9 November 2000 in Kingfisher plc v C&E Commissioners [2000] STC 992.
  34. Tripartite voucher cases

  35. The court has been referred, either at length or in passing, to a number of cases on vouchers or near-equivalents. Several of these cases have the common features of three principal parties (which may be called the issuer, the customer and the retailer) and a voucher of some sort which reaches the hands of the customer from the issuer, and then reaches the hands of the retailer from the customer. Whether it then completes the circle back to the issuer is, as will appear, an important distinguishing factor in the case law.
  36. Before embarking on any detailed discussion of the cases I should note some preliminary points. Both the national court and the Court of Justice have recognised that since the scheme of the VAT regime is designed to tax the ultimate consumer, without distortion, it is not right to analyse in isolation individual components of a composite transaction: see C&E Commissioners v Diners Club 1989 STC 407, 416-7, 420, approving C&E Commissioners v Pippa Dee Parties 1981 STC 495, 501; and the judgment of the Court of Justice in Chaussures Bally v Belgium 1997 STC 209, 223-4 (paras 14-18). Nor is it always helpful to subject either the whole or some component part of a transaction to detailed analysis in terms of domestic contract law: see the observations of Neuberger J in Kingfisher at p.1003, para 48 (citing the preamble to the Sixth Directive). That is a criticism which may be made of Granton Marketing, to which it will be necessary to return.
  37. Mr Cordara emphasised that there are many variable features to voucher schemes, and no single paradigm case. But a convenient starting point is the type of case in which the issuer (who may be imagined at the bottom left hand corner of an isosceles triangle) issues a voucher (either directly or through one or more intermediaries) to a customer (at the bottom right hand corner) and the customer uses it to obtain goods or services from the retailer (at the apex). The voucher travels in an anti-clockwise circle back to the issuer, matched by a series of payments or supplies made in a clockwise direction (but anticlockwise in chronological sequence).
  38. Five of the cases cited to this court fall into that pattern, or a variant of it. Davies v C&E Commissioners [1975] STC 28 (a decision of the Divisional Court presided over by Lord Widgery CJ) was concerned (as was the most recent case, Kingfisher) with vouchers issued on credit terms by a company in the well-known Provident group ("Provident"). Provident issued vouchers with a stated face value for which the customer eventually (because of the credit terms) paid more than face value. The customer used the vouchers to purchase goods from a retailer who was within Provident's scheme, and who accepted the vouchers at their face value. The retailer then redeemed the vouchers with Provident at an agreed rate of about 86p in the pound. The appeal was by the taxpayer, who appeared in person and argued that the consideration which he received was only 86 per cent of the nominal value of the voucher. His appeal failed. Lord Widgery stated (at p.30) that the customer who presented a Provident check was paying cash and not consideration other than cash. The court did not consider the VAT implications for the other parties to the composite transaction.
  39. High Street Vouchers [1990] STC 575 was concerned with a comparable scheme, except that the issuer (HSV) sold vouchers at a 9 per cent discount to intermediaries who passed them on, either by sale or as prizes, to members of the public. These customers could then use the vouchers at their face value to obtain goods from participating retailers. The retailers redeemed the vouchers with HSV at an agreed discount of about 9 per cent. HSV contended successfully before the VAT Tribunal that it was not making any supply for a consideration. McCullough J allowed the Commissioners' appeal, citing the observations of Woolf LJ in Diners Club [1989] STC 407, 417 as to the need to look at the entire transaction. He also made a passing reference (at p.582) to what is now Schedule 6, para 5 of VATA 1994:
  40. "Counsel's other point is that the time of sale of the vouchers by HSV is an identifiable tax point at which value added tax would have been payable but for the exemption expressly conferred by para 6 of Sch 4 to the 1983 Act. Maybe, but that cannot overturn a conclusion validly reached that at a later stage in the life of the vouchers a supply of services takes place."

    Here he was referring to HSV's services to the participating retailers: as he had said (at p.580), "in reality the discount is the price paid by the retailer for the benefits of participating in the scheme".

  41. It may be noted that in voucher schemes of the sort considered in Davies and High Street Vouchers the wastage rate (that is the proportion of vouchers which are never used) is quite low. The evidence in High Street Vouchers indicated that it was about 2 per cent, and it is reasonable to suppose that with Provident checks it was even lower, since they have for a long time been a source of credit for families who cannot afford to pay cash for clothes that they need. The wastage rate for free vouchers is no doubt much higher. The vouchers produced by EP, like the voucher cards with which this court was concerned in Granton Marketing, were sold to customers, but at a price far below the nominal value theoretically available to the customer (and for reasons already mentioned it was most unlikely, at least with EP vouchers, that more than a small proportion would be used).
  42. Vouchers were considered by the Court of Justice in Boots [1990] STC 387. It was not a true tripartite case as customers obtained vouchers by purchasing 'premium goods' from Boots. The vouchers could then be used at face value to obtain 'redemption goods'. But the vouchers were printed (presumably by the manufacturers) on the packaging of the premium goods and in some cases it was the manufacturer which bore the cost of the promotion, reimbursing Boots for redeemed vouchers. The Court of Justice contrasted that with the case of a voucher which, although having a nominal value, was worthless in the hands of Boots (p.407, para 13; see also the opinion of Advocate General Van Gerven at p.404, para 15):
  43. "It is only where the coupon surrendered to Boots is then recovered by its supplier, when the latter bears all or part of the promotion costs, that the coupon has monetary value for Boots equal to the amount actually paid by the supplier to Boots pursuant to their own contract. In the case in question, the coupon represents for Boots only an obligation to grant a reduction, which is allowed with the aim of attracting the customer."

    In the case in question (in which Boots bore the cost) the promotion scheme was simply a price discount or rebate within Article 11A3(b) of the Sixth Directive.

  44. In Argos [1996] STC 1359 the Court of Justice considered a variation on the theme in that it was the retailer, Argos, which issued vouchers (at a discount of about 5 per cent of their face value) to other traders, who distributed them either as incentives to employees or to customers as part of credit arrangements. Argos then sold goods to customers, accepting the vouchers at their face value. The issue was whether the consideration received by Argos was the face value at which the vouchers were accepted, or the discounted amount for which they had originally been issued. The Court of Justice (disagreeing with Advocate General Fennelly) held that it was the discounted amount. It said (p.1373, para 21):
  45. "The fact that a buyer of Argos goods does not know the real money equivalent of the voucher used by him is irrelevant: the important issue in this case is to determine the actual money equivalent received by Argos when it accepts vouchers in payment for its goods, since only that actual equivalent can constitute the taxable amount."

  46. It is convenient to go next to the recent decision of Neuberger J in Kingfisher [2000] STC 992, passing over for the moment Granton Marketing (on which Mr Cordara concentrated his strongest fire). Kingfisher was concerned with basically the same scheme as Davies, except that there was a different (or renamed) Provident company, and the rate of discount had narrowed to 10 per cent. There were two issues on the appeal by Kingfisher (the representative taxpayer on behalf of Woolworth, a retailer in the Provident scheme). The first issue was whether, when a customer used a voucher to buy goods from Woolworth, the retailer had to account for the face value of the voucher or only its discounted value of 90 per cent. The second issue (of particular relevance to the statutory appeal) was whether the services which Provident supplied to Woolworth were an exempt supply under Article 13B(d) of the Sixth Directive and Schedule 9, Group 5, item 1 of VATA 1994. It was in the interest of Kingfisher (which appeared by the same counsel as have appeared for F&I in this case) to contend that the supply was not exempt.
  47. On the first issue, Neuberger J held (in agreement with the Commissioners and the VAT Tribunal) that the consideration received by Woolworth was the face value of the voucher, and not its discounted value. On the second issue, he held that there was a supply of services to Woolworth by Provident and that it was an exempt supply.
  48. Neuberger J's judgment in Kingfisher is in my respectful view an admirable review of the difficult case law and the principles to be derived from it. In relation to the first issue he observed (at p.996) that as often happened in VAT appeals, the outcome depended
  49. " ... on how one analyses, possibly even how one categorises, the tripartite arrangement between Woolworth, Provident and the customer, which arises under the scheme."

    He set out the two competing analyses. These took the same view as to the relationships between Provident and the customer and between the customer and Woolworth, but differed as to the relationship between the two companies. Kingfisher contended that Woolworth agreed to honour the voucher in return for receiving 90 per cent of its face value. The Commissioners contended that Provident supplied a service to Woolworth, that is its promise to honour the voucher, and that for that service it was paid 10 per cent of the voucher's face value. The difference between these two analyses is not particularly large but it has important VAT implications if (as Neuberger J held on the second issue) Provident's supply to Woolworth is an exempt supply, and so gives Woolworth no input tax credit.

  50. Neuberger J went on to examine the authorities and found that they fell into two categories. Those relied on by Kingfisher (the decisions of the Court of Justice in Boots, Argos and Elida Gibbs v C&E Commissioners [1997] QB 499, [1996] STC 499) were all discount cases of one sort or another, in that the consideration actually obtained by the retailer was less than the shelf value of the goods sold (as in Boots or in the first ('money-off') scheme in Elida Gibbs) or was less than the nominal value of the redeemable voucher received (as in Argos). (The second, 'cash-back' scheme in Elida Gibbs raised a new difficulty in that vouchers were redeemed not by the retailer, who made the final taxable supply to the consumer, but by the manufacturer; however it is not necessary to go further into that difficulty here.)
  51. Neuberger J noted that in both Argos and Elida Gibbs the Court of Justice had relied on Glawe Spiel-und Unterhaltungsgeräte v Finanzamt Hamburg [1994] STC 543. That case provides a striking illustration of the principle (in Article 11A1(a) of the Sixth Directive) that consideration must be 'obtained' by the final supplier to the consumer. The case was concerned with gaming machines. It was held that an operator of gaming machines provides a service in consideration of his net takings, not in consideration of every coin put into the machine. The point was brought out with particular clarity by the requirements of German domestic law as to the design of gaming machines installed in bars and restaurants. In order to ensure that 60 per cent of the money staked is paid out as prizes, the machines must contain a reserve compartment which must be full before any money goes into the operator's cash box (there is presumably also a mechanism to ensure that the reserve pays itself out in winnings at appropriate intervals). Money in the reserve is not consideration for VAT purposes (see generally the opinion of Advocate General Jacobs at pp.547-9). Similarly in the voucher cases the court has to enquire whether a retailer who accepts a voucher obtains consideration to its full face value, or only some smaller amount.
  52. The cases relied on by the Commissioners on the first issue in Kingfisher were three domestic decisions (Davies, Diners Club and High Street Vouchers) and the decision of the Court of Justice in Chaussures Bally v Belgium [1997] STC 209. That was a credit card case in which the Court of Justice spelled out the essential difference between a discount which operates as a price reduction to the consumer and a discount which represents remuneration for a service supplied by a credit card company (or similar organisation) to a retailer (p.224, para 16)
  53. "[T]he fact that the purchaser did not pay the price agreed direct to the supplier but through the intermediary of the organisation issuing the card, which retained a percentage calculated on the price, cannot change the taxable amount. That deduction made by the card issuing organisation represents the consideration for a service rendered by it to the supplier. That service represents an independent transaction in respect of which the purchaser is a third party."

    So although the court has to look at a composite transaction as a whole, it must still identify each of the component taxable (or exempt) transactions comprised within the whole.

  54. Neuberger J concluded that the composite transaction with which he was concerned ought to be analysed as in the Chaussures Bally line of cases rather than the Argos line of cases, because Provident was supplying a service to Woolworth, just as the credit card company had been doing in Diners Club and Chaussures Bally. Neuberger J then decided, on the second issue, that the service provided by Provident to Woolworth was within Article 13B(d) of the Sixth Directive and Schedule 9, Group 5, item 1 of VATA 1994 ('transfer or receipt of, or any dealing with ... any security for money ...').
  55. Granton Marketing and the Dutch case

  56. The facts of Granton Marketing [1996] STC 1049 were closer to those of the present case than any of the decisions discussed above. Nevertheless there were some important differences. Discount cards distributed by Granton Marketing Ltd ("Granton") were specific to one particular retail outlet (the card considered in detail on the appeal was for the Italian Place Brasserie in Teddington). It entitled a cardholder to obtain during a twelve month period a free main course at up to twelve two-course lunches for two, a free main course at up to twelve two-course dinners for two, and a free bottle of house wine at up to twelve further lunches or dinners for two. It was therefore realistic to suppose that a cardholder who ate out regularly at The Italian Place with his or her partner, both at lunchtime and in the evening, might in the course of a year make full use of the card, so achieving a nominal saving of a maximum of just over £320 on undiscounted total expenditure (for the two customers) likely to be of the general order of £1500 or upwards. The card cost £14.99. It is unnecessary to enquire whether such a faithful customer might have done better to negotiate an individual discount at the brasserie.
  57. The relationship between Granton and a participating retailer was summarised by Waite LJ as follows (at p.1051):
  58. "The facility thus granted to the cardholder is supported by an agreement in standard form entered into by Granton with the restaurant named in the card, under which the restaurant undertakes to honour the promise in the Grantoncard bearing its name. Granton neither gives payment to nor accepts payment from the restaurants concerned. The sole value of the agreement to the restaurants is promotional; offering them the opportunity of a potential enlargement of their trade and goodwill through the introduction of a category of customer with a financial incentive to dine frequently, and in company, at their restaurant.

    The standard form of agreement incorporates provisions requiring Granton to promote the sale of cards in such numbers and at such price as Granton shall in its sole discretion determine; and a term obliging the restaurant 'to supply the goods or services described on all current Grantoncards up to the maximum value specified ... and in accordance with the terms and conditions stated on the cards', and to indemnify Granton against 'any claim ... which arises directly or indirectly from or in connection with statements made on or implications arising from' the cards."

  59. The point at issue was (as in the present appeal) whether VAT was chargeable on the sale by Granton of a discount card, or whether the consideration paid by the cardholder was to be disregarded under Schedule 4, para 6 of VATA 1983 (now Schedule 6, para 5 of VATA 1994). The VAT Tribunal construed Schedule 4, para 6 in such a way as to treat the sale of a card by Granton to an intermediary a taxable supply, but not the supply by the intermediary, Wentwalk Ltd ("Wentwalk") to the consumer. The Tribunal was following C&E Commissioners v Showmarch Marketing [1994] STC 19, a decision of McCullough J on which neither side relied in this court. Tucker J allowed the Commissioners' appeal (and dismissed Granton's cross-appeal). His reasons were as follows ([1995] STC 510, 512),
  60. "All that is granted by the voucher is a discount - and not a right, but an expectation. The effect of using the voucher is to obtain, not goods or services, but a reduction in the bill. These are not vouchers of the kind contemplated by para 6. A discount is not within the scope of that paragraph, and the tribunal was wrong to find that a discount card might come within it. And no right is granted against the retailer - if any right exists, it is exercisable against the supplier of the card. There is no privity of contract between the customer and the retailer, regarding the operation of the card."

  61. Granton and Wentwalk then appealed to this court. Several of the authorities already discussed were cited in argument but none was referred to in the judgment of Waite LJ (with whom Stuart-Smith and Swinton Thomas LJJ agreed). Waite LJ accepted the Commissioners' submission as to the general purpose of what is now Schedule 6, para 5 (see para 12 above) and observed that if the appellants were right, Granton's discount cards would be a category of goods or services which escaped VAT altogether, contrary to the requirements of the Sixth Directive.
  62. Waite LJ continued (at p.1053)
  63. " ... para 6 needs to be read in its context as one of the provisions in that schedule designed to deal with potential distortions and anomalies. In the same way that transactions not at arm's length and at an undervalue, and transactions involving a discount for early payment, are made the subject of special provision (in paras 1 and 4 respectively) to avoid a distorted or unrealistic charge to tax, so para 6 is designed to avoid double taxation where a supply is capable of being sub-divided into two separate transactions by reason of prepayment. ... The card confers on the cardholder no 'right' in the sense intended by that paragraph as against the restaurant at all. Alternatively if it does confer any such right, it is no more than an entitlement to a discount on the bill when qualifying meals are supplied. There are therefore no 'goods or services' received for the 'amount stated' on the token or voucher.

    For my part I find Mr Kent's argument wholly persuasive and consider that the judge was right to hold that all supplies of the cards, at every stage down the chain of sale to the ultimate purchasing member of the public, are liable for VAT. It is fundamental to Miss Jack's argument that the card confers a 'right to goods or services'. In fact it confers no such right. The only 'right' conferred by the card on the cardholder vis-à-vis the restaurant is the right to pay less (by an amount equivalent to one main course or one bottle of wine as the case may be) than the full price for a two-course meal for two and the wine served with it. The cardholder has no right to be supplied, merely by virtue of his ownership of the card, with any particular goods and services by the restaurant, which may refuse to serve him on the ground, for example, that the restaurant is closing early, or is full. His only right is to be allowed the appropriate reduction in price if and when he is served with a meal of the required size."

  64. Mr Cordara has subjected this court's decision in Granton Marketing to a root and branch attack. Four of his submissions call for close examination. First, he submitted that Article 11 of the Sixth Directive would be offended by any voucher transaction, and that this begged the central question of the legitimacy of Schedule 6, para 5 of VATA 1994. Second, he submitted that no immediately enforceable right to goods was ever conferred by a voucher (so that the Commissioners' argument proved too much). Third, he submitted that the distinction between discount vouchers and payment vouchers was inconsistent with Community law. Fourth, the arguments which Mr Cordara was deploying on this appeal were not put to the court in Granton Marketing.
  65. These grounds overlap to some extent but I will comment on them in turn. I do not accept the first submission, at any rate in the wide and unqualified form in which it was put forward. Schedule 6, para 5 is directed to a voucher "granted for a consideration". It does not apply to the sort of 'money-off' or 'cash-back' vouchers considered in many of the cases cited to this court. Its most obvious application is to the sort of 'savings stamp' schemes which were used, at times when credit was not so easy to obtain as it is today, to enable consumers to put money aside in order to obtain goods or services, at some future time, from a particular supplier. That would be a clear case of pre-payment contemplated by Article 11 A 1(a) ("the consideration which has been or is to be obtained"). If such savings stamps were sold by the supplier at a discount, it would appear to fall within Article 11 A 3(a) ("price reductions by way of discount for early payment"). But Schedule 6, para 5 must not be construed so widely as to distort the general scheme of VAT as a Community tax, and I think that this court was right, in Granton Marketing, to be aware of that danger.
  66. Mr Cordara's second point has considerable force. The national VAT legislation must be construed in its Community context, so as to harmonise the tax base, and without over-refined analysis of a particular transaction in terms of domestic law: see Kingfisher at p.1003. Both Tucker J's reference to privity of contract, and Waite LJ's apparent reliance on the distinction between a contractual offer and an invitation to treat, may have overlooked that principle. Probably no voucher of any sort gives a customer an absolutely unconditional right to point to any of a retailer's goods and say 'That is mine', any more than he has an unconditional right to be served in a restaurant or to be allowed on to a train. It may be that this court went further than it should have done, and further than it needed to go, in this part of its reasoning.
  67. Mr Cordara's third point was that the distinction between discount vouchers and payment vouchers was inconsistent with Community law. He described this distinction as an unsustainable fine line which was contrary to common sense and had no basis in Community law. I cannot accept that submission. It is no doubt true that a customer who presents a '50p off' voucher at Boots probably does not know or care whether this represents a discount borne by Boots or a part-payment to Boots (because Boots can obtain reimbursement from the manufacturer). But it is not necessary for the customer to know that (see C&E Commissioners v First National Bank of Chicago [1997] QB 570, 595, [1998] STC 850, 872, citing the passage from Argos at para 30 above). From the point of view of the retailer the distinction is of obvious economic and fiscal importance, as is illustrated by the different schemes considered in the Boots case. In that case the Court of Justice made clear that a voucher which was worthless in the retailer's hands was only "an obligation to grant a reduction" - that is a discount.
  68. It is true that in Granton Marketing this court did not cite any Community authority but it was referred to various Community authorities, including Boots and Marleasing v La Comercial Internacional [1990] ECR I-4135. This court plainly had the Community context in mind, although in its analysis it may have gone too far in its reliance on points of English contract law.
  69. It is also true that the arguments put to this court in Granton Marketing seem to have been more limited than those which Mr Cordara has relied on in this appeal. In Granton Marketing the taxpayers relied only on what is now Schedule 6, para 5. Mr Cordara has also relied on what he has called the pre-payment analysis, and on exemption under Group 5 in Schedule 9 to VATA 1994.
  70. As a footnote to Granton Marketing I should refer to the case decided by the Netherlands High Court, X BV, on which Mr Cordara relied. The court was shown an unofficial translation of a decision of the Court of Amsterdam made on 29 April 1997 and of the decision of the Third Chamber of the High Court made on 15 July 1998. The case concerned so-called A-cards available for use at restaurants. They were sold for NLG40 and had a maximum nominal value of NLG900. They seem to have resembled those issued by Granton except that they were available at several participating restaurants. The lower court rejected the taxpayer's argument that the supply of A-cards should be regarded as services concerning cheques or commercial paper. It also decided that the A-cards were not gift vouchers within the meaning of a specified ministerial decree.
  71. The High Court allowed the taxpayer's appeal. It did so, so far as can be discerned from the very short judgment as put before us, because it disagreed with the ruling about gift vouchers (defined as "a voucher, that can be purchased for a consideration, and which is used as consideration for the purchase of goods and services"). The High Court judgment says nothing about the financial services exemption point. It does not seem to me to give much assistance towards the determination of the statutory appeal.
  72. The course of the statutory appeal

  73. So I come at last to F&I's statutory appeal. F&I's grounds of appeal before the Tribunal were set out in eleven paragraphs, four of which were added by amendment. The original grounds relied principally on Schedule 6, para 5 and the amended grounds added the pre-payment point and the financial services exemption point. The Tribunal gave a very careful and thorough decision with detailed findings of fact. It also carefully recorded and fully discussed the submissions made by Mr Cordara on behalf of F&I. It ruled against the taxpayer on all three points, following Granton Marketing and attaching little or no weight to the Dutch case.
  74. I should set out para 51 of the Tribunal's decision since it contains conclusions which in part consist of, or are inferences from, findings of fact:
  75. "We are also persuaded that the retailer does not receive consideration for the reduction in his charges on redemption of the vouchers from a third party, EP Ltd, under the Naturally Yours Cosmetics principle. The direct link which is required is absent in this case as between what EP Ltd does and the purchase of a meal or goods by the customer. It appears to us, that there is consideration passing from the retailer to EP Ltd, of a non-monetary nature, in the retailer allowing its name and trade-mark to be used by EP Ltd on the vouchers, which EP Ltd is going to sell for gain. Similarly, in our view the payment of £300 by the customer, or whatever sum it happens to be, cannot in reality be regarded as a prepayment of any sum between £1.50 and £2,200; in any event, the redemption of the voucher involves no payment of any nature to the retailer, only a reduction in what the retailer will receive for his retail sale."

    (£1.50 was the lowest face value of any voucher, that for Sock Shop; £2,200 was the approximate aggregate face value of all the vouchers in the book.)

  76. In Naturally Yours Cosmetics [1988] STC 879 the Court of Justice considered an arrangement between a wholesaler of cosmetics ("NYC") and a beauty consultant (who was in effect a freelance retailer and was not registered for VAT). NYC supplied to the consultant for £1.50 a pot of rejuvenating cream with a normal wholesale price of £10.14 so that the consultant could give it as a 'dating gift' to a member of the public (known as a hostess) who allowed the consultant to use her home for a selling party. The supply of the pot of cream at this special price was a consideration provided by NYC to the consultant for her services in arranging a party, and the supply was made only if the party did take place. The consideration was quantified by the Court of Justice as the difference between £1.50 and the normal wholesale price. The principle in Naturally Yours Cosmetics ([1988] STC 879, 894, paras 11-17) is that if the supply of a service is to be taxable there must be a direct link between the supply and the consideration; and if the consideration is non-monetary, it must be capable of being expressed in monetary terms, and must be assessed subjectively (in the special sense in which the Court of Justice uses that term in this context).
  77. Carnwath J heard the statutory appeal and the judicial review proceedings together over three days in March 2000. His judgment is reported at [2000] STC 364. He summarized the facts and the legislation, making reference (as already noted) to his review of the case law in Bugeja. He referred to a book token as a familiar and straightforward example of a voucher which both sides accepted as falling within Schedule 6, para 5. He stated the first issue (at p.368) in an attractively simple way (which has been rather overtaken by the complex arguments and numerous authorities cited in this court),
  78. "This point can be illustrated by reference to the example of a book token, which both parties regard as falling within para 5 of Schedule 6. The sale of a book token does not attract any liability to account for VAT at that stage; but when it is used to purchase a book the nominal value of the book token is treated as a part of the consideration on which VAT is charged. In commercial terms there is only one transaction, the sale of the book; the issue of the book token is treated as a stage in that transaction.

    In this case F&I argue that the vouchers are equivalent to book tokens, and that, accordingly, they attract no liability to VAT at the time they are sold to the customers; but, as a corollary, the face value of the vouchers should be brought into account as part of the consideration, when they are used. By contrast, the Customs say that VAT is chargeable on the supply to the customers, but not at the time of use by them; they cannot be regarded as part of the consideration at that stage, since, unlike book tokens, they have no value to the retailers."

  79. In considering Schedule 6, para 5 of VATA 1994 Carnwath J referred at once to the decision of this court in Granton Marketing, which the Tribunal had treated as conclusive. He noted the concession of Mr Kent (for the Commissioners) that the passage cited at para 42 above might go too far (and further than was necessary for the decision). Mr Kent sought to withdraw the concession in this court but (as I have already indicated) I think that the concession was rightly made.
  80. Carnwath J then returned to the question of symmetry or uniformity of treatment of vouchers at each stage in their life cycle. He had already, at p.368, noted the need
  81. "to avoid the supply represented by the vouchers, on the one hand, being subject to double taxation, or on the other hand falling out of the tax net altogether."

    To achieve that symmetry or uniformity, consistently with his argument on Schedule 6, para 5, Mr Cordara relied on the principle in Naturally Yours Cosmetics, and on a passage in the Tribunal's findings:

    "The retailers were aware that, in return for agreeing to be named in the vouchers, they were receiving the benefit of EP's services in disseminating the vouchers and thus giving advertising services to the retailer, in addition to any monetary consideration that the transaction might generate."

    Mr Cordara submitted that that passage undermined the Tribunal's conclusion (set out in para 52 above) as to the absence of a direct link.

  82. Carnwath J rejected that submission in the following terms (at p.370),
  83. "I do not see any inconsistency. The earlier passage merely acknowledges that the retailers do get a general benefit from their involvement in the scheme. On the other hand, they get no specific benefit, when the customer presents a voucher on an individual purchase. There is no direct link between the supply of goods at that point and the overall benefit they get from participation in the scheme. In Naturally Yours Cosmetics, by contrast, the gift (of a pot of cream) was a reward for the specific service of organising a private party."

  84. He then (at p.371) discussed the pre-payment point. The Tribunal had rejected this argument in a fairly summary way, pointing out that the acceptance of the voucher by the retailer involved no payment of any sort to him, only (in language close to that used by the Court of Justice in Boots) "a reduction in what the retailer will receive for his retail sale". The judge agreed. He thought it wholly artificial to treat what the car dealer received as a prepayment to retailers "if only because none of the money ever reaches them".
  85. The judge then considered the third point in the statutory appeal, the claim for exemption under Schedule 9, Group 5 of VATA 1994. He had been referred to the decision of the VAT Tribunal in Kingfisher but he thought it clearly distinguishable. In Kingfisher, the Provident check represented an obligation, entered into by a large and long-established group engaged in the consumer credit business, to honour the check (at the agreed discount) on its presentation by a participating retailer. In the case before him, by contrast (p.372),
  86. " ... the voucher does not represent an obligation to pay anything. It is worthless in the hands of the retailer."

    Conclusions on the statutory appeal

  87. I have thought it necessary to make a detailed review of the case law and the course of the statutory appeal because of the vigorous and sustained attack which Mr Cordara has made, both on Granton Marketing and on the judgment now under appeal. I need not repeat what I have said about Granton Marketing. In my view it was correctly decided on the alternative ground set out at p.1053, that the card entitled the customer to a discount.
  88. As to the judgment under appeal, I see no force in Mr Cordara's criticisms. The judge recognised that the VAT Tribunal, as the fact-finding tribunal, had come to the conclusion that there was no direct link between whatever marketing benefit a particular retailer derived from the services of F&I and EP (on the one hand) and the supply which the retailer made to a customer (on the other hand). That finding was not inconsistent with the earlier explanatory narrative as to what a retailer might hope to get out of participation in the scheme. It was much less direct, as the judge noted, than the service which a beauty consultant performed in arranging for a hostess to hold a party for the sale of NYC's products in Naturally Yours Cosmetics; unless the party was held, the pot of cream was not available at a bargain price. Similarly in Kingfisher (decided since Carnwath J's judgment) the service which Provident provided to its participating retailers was a very real benefit in protecting them from exposure to bad debts in a sector of the market in which many customers are poor credit risks.
  89. The judge dealt only briefly with the prepayment point. In my view he was entitled to do so. It was a short point on which there was only one possible answer. The money which a customer paid to a car dealer for EP vouchers did not reach the participating retailers in any shape or form.
  90. Although Kingfisher was decided by Neuberger J after Carnwath J's decision, Carnwath J was referred to the decision of the VAT Tribunal (chairman Mr Stephen Oliver QC) on the second point in Kingfisher, that is the claim to exemption under Schedule 9, Group 5. The judge found that decision of no assistance to him because the facts were so different. In Kingfisher, the Provident voucher did in the retailer's hands evidence Provident's obligation to pay 90 per cent of the face value of the voucher. In the hands of a retailer in this case, the EP voucher was worthless. The judge also derived no assistance from the Dutch case. I agree with the judge's conclusions on this part of the case.
  91. For these reasons I would dismiss the statutory appeal. Like the judge I do not consider that there is any real doubt making it necessary to refer the matter to the Court of Justice under Article 234.
  92. Judicial review

  93. I can deal much more briefly with the judge's rejection of the application for judicial review, apart from allowing the claim to continue as a private law claim for negligence (a decision against which there is no cross-appeal). In my view the judge was clearly right to reject the application. The Commissioners are bound (both by Community law and by domestic law) to administer the VAT system correctly and to collect all tax which is properly due. They have no general dispensing power, and taxpayers cannot have any legitimate expectation that they will administer VAT in any way which is contrary to law.
  94. The judge put the point accurately when, after referring to part of the official VAT inquiries guide (Notice 700/51/95) he said,
  95. "Thus, the legitimate expectation is not that the clearance will be treated as binding come-what-may; but that, if there is a change in the understanding of the legal position, it will not be treated as retrospective. Although the reference is to a change resulting from a court or tribunal ruling, that is by way of example. A bona fide change of legal opinion within the commissioners might be expected to have the same result. (In this case, of course, there was no change of legal opinion within the commissioners; but that fact is relevant to the issue of negligence, rather than to the extent of any legitimate expectation created by a clearance itself.)

    Secondly, the need for such a limitation is reinforced when one considers the implications for taxpayers other than the person relying on the clearance. In this case, unlike those considered above, the effect of the Miss Sellick's ruling was, not simply to lift a VAT burden from one group of taxpayers (the car dealers), but to impose it on another (the participating retailers). Although there is evidence that the second group were in practice content, the commissioners could not bind them to accept that position."

  96. F&I's only legitimate expectation was that it would not be asked to pay tax in respect of past transactions. The 30-day breathing space which the Commissioners allowed (for existing customers) may not have been generous, but it was reasonable in all the circumstances. A longer period would have been unfair to competing traders. Moreover F&I resorted to judicial review without having pursued alternative remedies either through the Commissioners' own Adjudicator, or through the Parliamentary Commissioner for Administration.
  97. For these reasons and for the reasons more fully set out in the judgment of Sedley LJ (with which I am in respectful agreement) I would dismiss the judicial review appeal also.
  98. LORD JUSTICE SEDLEY:

  99. I agree, for the reasons given by Robert Walker LJ, that this appeal fails. I agree, too, that there is no sufficient ground for referring a question to the European Court of Justice. I add a few words of my own on the limb of the appeal concerned with judicial review of the Commissioners' decision because Mr Cordara's argument appears to me to be dipping its toe in a dangerously deep pond.
  100. There is an initial attraction to an argument that once a tax-collecting authority has given a potential taxpayer the all-clear, fairness dictates that the authority should be held to the expectation it has created. The short answer in the present case is the one given by Carnwath J: the Commissioners never generated a larger expectation than that they would give fair notice of any change of mind about the exigibility of VAT, and this is what they did. But at least two of the steps by which Mr Cordara has approached this point deserve examination.
  101. One is the suggestion that a public authority can create a legitimate expectation which defeats the law. In his written submission Mr Cordara contended: "The mere fact that advice turns out to be wrong in law does not by itself entitle the Commissioners to go back on it." I entirely disagree. There is nothing "mere" about official advice which is wrong in law, at least if the taxpayer relies on it. It is of course serious for the taxpayer; but it is serious for the public and for the rule of law. It is the Bill of Rights 1688 - the nearest thing we have to a constitutional text - which abrogates the dispensing power of the Crown. The decision of the divisional court (Bingham LJ and Judge J) in R v IRC, ex parte MFK Underwriting Agencies Ltd [1989] STC 873, which Mr Cordara regards as giving him support, makes it absolutely clear that the law recognises no legitimate expectation that a public authority will act unlawfully. It is only where the expectation is of a particular exercise of managerial discretion that the court will begin to examine its legitimacy. That is what happened here, but with the outcome I have mentioned.
  102. The other step concerns the award of damages or compensation as a remedy in a case such as the present. This is largely uncharted territory in this country. In France, for example, damages will ordinarily accompany a finding of détournement de pouvoir. In EU law, Brasserie du Pêcheur v Germany [1996] QB 404 now occupies the field. In domestic law Mr Cordara has fastened upon a passage from the decision of this court in R v North and East Devon Health Authority, ex parte Coughlan [2000] 2 WLR 622, §84. There the point was made that the unfairness which a change of policy may work on those who have relied on the earlier policy can often be adequately mitigated by writing into the new policy an exception in their favour or - if money can do it - by compensating them in money. The point, however, is that such a payment of money is not an anticipatory payment of damages: it is a practical means of eliminating unfairness which a policy change is otherwise going to inflict. In such a case there will be, in the end, no justiciable abuse of power.
  103. The first part of an excellent conspectus of the present availability of damages against public authorities can be found in [2001] JR 44 (the second part, at the time of writing, is to follow in the next issue). That the cases do not include damages for abuses of power falling short of malfeasance in public office does not necessarily mean that door is closed to them in principle. But the policy implications of such a step are immense, and it may well be that - despite the presence for some years in the rules of a power to award damages on an application for judicial review - a legal entitlement to them cannot now come into being without legislation.
  104. MR JUSTICE LIGHTMAN:

  105. I agree with both judgments.
  106. ORDER: Appeal dismissed with costs, to be the subject of a detailed assessment if not agreed; permission to appeal to the House of Lords refused.
    (Order does not form part of approved Judgment)


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