Airtours Holidays Transport Ltd v Revenue and Customs Commissioners

JurisdictionEngland & Wales
CourtSupreme Court
JudgeLord Clarke,Lord Hodge,Lord Carnwath:,Lord Carnwath,Lord Neuberger,Lord Mance
Judgment Date11 May 2016
Neutral Citation[2016] UKSC 21

[2016] UKSC 21


Easter Term

On appeal from: [2014] EWCA Civ 1033


Lord Neuberger, President

Lord Mance

Lord Clarke

Lord Carnwath

Lord Hodge

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


David Scorey QC Jonathan Bremner

(Instructed by Forbes Hall LLP)


Owain Thomas QC Matthew Donmall

(Instructed by HMRC Solicitor's Office)

Heard on 25 February 2016

Lord Neuberger

(with whom Lord Mance and Lord Hodge agree)


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

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").


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.


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.


The Terms and Conditions ("the Terms") referred to in the Letter were in a standard form. The Terms started by providing that they applied to the Services, and together with the Letter constituted "the Contract", and I shall adopt that definition. The Terms then stated that "[f]or the avoidance of doubt 'we' and 'our' refers to [PwC], and 'you' and 'your' refers to the entity or entities on whose behalf the [Letter] was acknowledged and accepted". The Terms then included the following provisions:

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".


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.


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.


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.


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.


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...

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