Airtours Holidays Transport Ltd v Revenue and Customs Comrs

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLady Justice Gloster,Lord Justice Vos,Lord Justice Moore-Bick
Judgment Date24 July 2014
Neutral Citation[2014] EWCA Civ 1033
Date24 July 2014
Docket NumberCase No: A3/2011/0251

[2014] EWCA Civ 1033





Royal Courts of Justice

Strand, London, WC2A 2LL


Lord Justice Moore-Bick

Lady Justice Gloster


Lord Justice Vos

Case No: A3/2011/0251

Airtours Holidays Transport Ltd
The Commissioners for Her Majesty's Revenue and Customs

Mr Andrew Hitchmough QC and Mr Jonathan Bremner (instructed by Pricewaterhouse Coopers Legal LLP) for the Appellant

Mr Owain Thomas (instructed by the General Counsel and Solicitor to the Commissioners for HM Revenue and Customs) for the Respondents

Hearing dates: Tuesday 4 th and Wednesday 5 th March 2014

Lady Justice Gloster



The issue in these proceedings is whether the appellant, Airtours Holidays Transport Limited (formerly MyTravel Group plc) ("the appellant"), is entitled to recover (as input tax) value added tax ("VAT") charged by PricewaterhouseCoopers LLP ("PwC") in respect of certain services provided by PwC and for which the appellant paid. The resolution of the issue turns upon whether, for VAT purposes, PwC "supplied" services to the appellant. The services were provided in the context of a large-scale restructuring of the appellant, at a time when its business was in financial crisis.

Procedural background


The appellant's appeal is against the decision of the Upper Tribunal dated 8 November 2010 ("the UT Decision") (Judge Avery Jones and Judge Hellier) ("the Upper Tribunal"). Permission to appeal was granted by Rimer LJ on 12 April 2011. The substantive hearing of the appeal before this Court was originally listed for 27 February 2012. At that time, however, the issues on the appeal were considered to be affected by two other cases which were subject to pending appeals to the Supreme Court: HMRC v Aimia Coalition Loyalty UK Ltd (formerly Loyalty Management UK Ltd) [2013] UKSC 15, [2013] 2 All ER 719; [2013] UKSC 42, [2013] 4 All ER 94 (" LMUK (SC)") and WHA Ltd v HMRC [2013] UKSC 24; [2013] 2 All ER 907 (" WHA (SC)"). As a result, on 14 February 2012 the Court ordered that this appeal be adjourned to a date to be fixed following the handing down of judgment in those two cases. Both LMUK (SC) and WHA (SC) have now been decided by the Supreme Court. In these two cases the Supreme Court confirmed that a previous decision of the House of Lords, which is highly pertinent to the issue in the present case, namely CCE v Redrow Group plc [1999] STC 161 (HL), [1999] 1 WLR 408 (" Redrow") had been correctly decided, notwithstanding the subsequent judgment of the Court of Justice of the European Union ("CJEU") in HMRC v Loyalty Management UK Ltd; Baxi Group Ltd v HMRC (Joined Cases C-53/09 and C-55/09); [2010] STC 2651 (" LMUK (CJEU)"). However, in a limited respect, the Supreme Court qualified the reasoning of the House of Lords in Redrow.


The First-tier Tribunal (Mr Richard Barlow and Ms Rayna Dean) ("the FTT"), in its decision dated 2 October 2009 ("the FTT Decision"), accepted the appellant's argument (supported by PwC) that the services provided by PwC for which the appellant paid ("the Servives") had been supplied for VAT purposes by PwC to the appellant, thus giving rise to an entitlement to deduct input tax. On appeal by The Commissioners for Her Majesty's Revenue and Customs ("the respondents"), the Upper Tribunal concluded that the FTT was wrong in law in its construction of the relevant agreements (see paragraph 23 of the UT Decision) and that, looking at the substance of the transactions, the appellant did not receive a supply of services from PwC, but rather that the Services had been supplied to a number of banks, to which the appellant was, at the relevant time, indebted. The Upper Tribunal also decided that the appellant received nothing of value from PwC to use for the purpose of its business in return for payment (see paragraph 24 of the UT Decision).

Factual background


The following summary of the factual background was not in dispute. It is largely taken from the findings made by the FTT, the witness statement dated 4 July 2008 of Gregory McMahon, the appellant's Company Secretary and Head of Legal Services, and the witness statement dated 16 December 2008 of Zubin Randeria, the partner in the Business Recovery Services Team of PwC who was the lead partner on the work carried out by PwC. Their evidence, supplemented by what they said in cross-examination, was accepted by the FTT as truthful; see paragraph 6 of the FTT Decision.


In 2002 the appellant faced a financial crisis that threatened the continuation of its business and its own existence. It was indebted to over 80 banks and other financial institutions ("the Banks"), pursuant to the terms of various credit facilities, including a Revolving Credit Facility dated 21 March 2000 ("the Revolving Credit Facility"), a Bond Facility dated 8 March 2002 and a facility referred to as the Orlando Term Loan Agreement Facility dated 15 November 1999 (together "the Bank Facilities"). It also had liabilities to another group of financial creditors who were holders of unsubordinated 1 bonds issued by the appellant in late 1999 ("the Bondholders"). As at September 2002 the amounts owed by the appellant under the Bank Facilities, to Bondholders and generally to other creditors stood at between £2 billion and £2.5 billion. Following the announcement of accounting problems, which resulted in the collapse of the appellant's share price, the Banks, which had been involved with the discussions about the renewal of the Revolving Credit Facility, became concerned that the appellant would not have sufficient funds to operate its business beyond 31 December 2002. In addition certain Banks began to refuse to allow the appellant to draw down funds which were required by it to pay for the continued running of its business. The most critical period was October and November 2002, when it was not clear whether its business would survive.


It became apparent to the appellant that it would need to involve the Banks that had been providing the Bank Facilities in agreeing a refinancing package. However, given the pressing time constraints, it was not possible for the appellant to negotiate individually with the vast number of Banks involved. Accordingly, in order to facilitate the refinancing process, the Banks formed a Steering Committee led by the Royal Bank of Scotland and Barclays Bank ("the Joint Lead Co-ordinators"). The Steering Committee represented all the Banks which had lent money to the appellant pursuant to the Bank Facilities. The Bondholders were separately advised and represented.


At the time, the appellant was obtaining legal advice from Slaughter and May as to how to restructure in order to return itself to long-term financial stability. It had appointed Deutsche Bank as its investment bank adviser and Ernst & Young as insolvency advisers to its Board of Directors in relation to the consequences of its going into administration. However, according to Mr McMahon's evidence, the appellant was also

"keen to have an adviser reviewing the refinancing and restructuring strategies. Essentially the Group required another party to consider the plans of the business and to provide confirmation to the Steering Committee that, based on the

information available at the time, the agreed actions were reasonable."

Whilst, according to Mr Randeria, PwC and KPMG were approached by the Banks to submit proposals for carrying out the advisory work required to provide an insight into the financial position of the appellant, nonetheless the appellant had a role in the decision-making process as to which firm of accountants was going to be appointed. According to Mr McMahon, PwC was ultimately selected because the appellant considered that KPMG had a conflict of interest as auditors to one of its principal competitors, First Choice Holidays & Flights Ltd, the proposed purchase of which by the appellant had been blocked by the European Competition Commission in 1999. Mr McMahon said:

"However, the appointment of PwC was acceptable to the Steering Committee; it had the required reputation, expertise and resources to deal with a task of this nature; and had some familiarity with the situation. Accordingly, the Steering Committee advised that they were happy with the appointment of PwC and [the appellant] agreed."

Mr Randeria's evidence was to slightly different effect. He merely said that, as a result of the conflict, the appellant "had an influence on the appointment of advisors which is very unusual."


PwC was originally engaged in November 2002 pursuant to a contract contained in a letter of engagement dated 5 November 2002 ("the November 2002 Letter of Engagement") from PwC. The letter was addressed "To the Engaging Institutions" and headed "Silver Group plc [code for the appellant] and its subsidiaries ('the Group')". The November 2002 Letter of Engagement (in so far as material) was in the following terms:


1. This letter ('the Letter of Engagement') confirms that we, PricewaterhouseCoopers ('PwC') have been retained by the institutions as defined in paragraph [this is blank but 4 is clearly intended] to provide the services ('the Services') set out below.

2. This Letter of Engagement outlines the Services to be provided, the fees to be paid in respect of the Services, and the terms applicable to the provision of the Services.

3. Three syndicates lend to the Group in respect of the following facilities: (1) the Revolving Credit Facility dated 21 March 2000 ("the "RCF...

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