Capital One Developments Ltd v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE NEUBERGER |
| Judgment Date | 04 February 2002 |
| Neutral Citation | [2002] EWHC 197 (Ch) |
| Docket Number | Case No HC…… |
| Court | Chancery Division |
| Date | 04 February 2002 |
[2002] EWHC 197 (Ch)
Mr Justice Neuberger
Case No HC……
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
The Strand
London
WC2A 2LL
MR MICHAEL PATCHETT-JOYCE (instructed by Messrs Penningtons) appeared on behalf of THE CLAIMANTS
MR JONATHAN PEACOCK QC (instructed by the Solicitor for HM Customs & Excise) appeared on behalf of THE DEFENDANT
Monday 4 February 2002
Introduction
This is an application by Capital One Developments Limited, ("the claimants)" for an order that the Commissioners for Customs and Excise ("the Commissioners") pay them a sum of nearly £8 million, which is currently the subject of a bona fide disputed claim by the claimant before the VAT and Duties Tribunal ("the Tribunal"). The application raises questions relating to the court's jurisdiction to make an interim order for payment of input VAT which is subject to a disputed claim pending the resolution of the dispute by the Tribunal.
The Facts
The claimants together with other companies in the Capital One group ("the group"), entered into a series of transactions designed to optimise the VAT position of the group in relation to the construction of a building at Station Road, Nottingham. As a result of these transactions and the construction of the building, the claimant made a VAT return for the period 4/2000 seeking a payment of about £8 million. The Commissioners rejected this claim on 27 July 2001. The claimants appealed that decision to the Tribunal to whom such appeals are directed by section 83 of the Value Added Tax 1994 ("the 1994 Act"). It appears that this appeal may well be heard in about three months time, with an estimate of ten days.
The facts and principles on which the substantive claim to the £8 million is made and resisted are not relevant for the purposes of this application. It is sufficient to say that each party accepts that the other party has a reasonable arguable case and that at least if the facts are determined by the Tribunal favourably to the Commissioners, the issues of law are agreed to justify a reference to the European Court of Justice ("the ECJ").
In March 2001, before it issued the appeal to the Tribunal, the claimants sought payment of the £8 million from the Commissioners on the basis that, if the claimants' contention was correct, they were being wrongly deprived of a substantial sum which they could profitably employ, and if the claimants' contention turned out to be wrong the repayment of the £8 million to the Commissioners would be guaranteed by a bank in the Capital One group. This request was rejected by the Commissioners. After further discussions the claimants issued the present application which effectively repeats the proposal of March 2001.
The Prima Facie Position
The order sought by the claimants is an interim order in the sense that it would result in something happening, namely money being paid for a potentially temporary period in that the order would effectively be rescinded—indeed, its effect reversed—in the event of the decision of the Tribunal being adverse to the claimants.
At first sight, therefore, the claimants' case suffers from two defects. First, the court should not grant interim relief where it has no jurisdiction to grant final relief. Secondly, in any event, the court should not order a payment of money where the defendant's liability is disputed, save in accordance with principle applicable to an interim payment, which cannot be invoked by the claimants here.
So far as the first point is concerned, it appears to me that, at any rate in general, a court cannot grant an interlocutory injunction where there is no substantive action which it could entertain. That is well illustrated by the fact that if no claim form has been issued when an interim injunction is sought, the court will invariably require, as a condition of granting the interim injunction, an undertaking to issue a claim form. In this connection, it is true that the terms of section 37 of the Supreme Court Act 1981, which empower the court to grant an injunction, are very wide indeed. However, I do not think that they would enable the court normally to make an interlocutory order where there are no facts which would enable it to entertain an action in connection with the issue: see, for instance, Siskina [1979] AC 210, 254E.
Section 24(1)(a) of the Civil Jurisdiction and Judgments Act 1982 specifically empowers the court to grant interim relief in a "case where the issue to be tried …. relates to the jurisdiction of the court to entertain the appeal and that section 25(1) of the same Act gives the court power to grant interim relief, even where there are no proceedings on foot. However, it appears to me that the very existence of these statutory provisions indicates that, in their absence, the court would have no jurisdiction to grant such orders.
Section 25(1) of the 1982 Act has no application here. It is concerned with cases falling within the Brussels or Lugano Conventions. Section 24(1)(a) has no application because the court would have no jurisdiction to determine the issue as to the liability of the Commissioners for payment of the £8 million. That is because that is the very issue which the 1994 Act has directed be determined by the Tribunal: see the discussion in Glaxo Group Plc v Inland Revenue Commissioners [1995] STC 1075, 1080H-1084C per Robert Walker J.
As to the second point, while it may be wrong to suggest that it is an absolute principle, it seems to me that it would require very special facts before a court would be prepared to use its powers to grant an interim injunction to order that a payment of a disputed sum from a defendant to the claimant on the basis that it will be repaid if the claimant lost.
Payment into court to protect a fund or to protect a claimant, or a freezing order to protect the claimant is one thing. Payment of a deposited sum to the claimant before judgment, which the claimant may have to pay back if it fails, is quite another. As Mr Jonathan Peacock QC, who appears for the Commissioners, says, the CPR specifically deals with interim payment orders: see rule 25.7. Before any such interim payment order can be made, the court must be satisfied that the claimant will recover judgment for the sum which is to be paid over to it: see CPR rule 25.7(1)(c) and Schott Kem Ltd v Bentley [1991] 1 QB 61, 71E-F, per Neill LJ.
It is not suggested on behalf of the claimants that this is such a case. Given those restrictions in respect of interim payment, while I do not say that the court could never use its wide interlocutory jurisdiction to order an interim payment on a returnable basis, I think it would require a very exceptional case before that would be done.
The Issues
Mr Michael Patchett-Joyce, who appears on behalf of the claimants, contends, however, that the present application is justified because of the court's duty to ensure that the VAT regime is managed and run in conformity with the Sixth Directive (Council Directive 77/388 OJL145 of 13 June 1977), as interpreted by the ECJ. In particular he says, where the court would otherwise have no jurisdiction to make an order, the Sixth Directive by its terms, and as interpreted by the ECJ, may effectively accord to the court such a power, with the result that the court will have jurisdiction. In other words, if an aspect of the Sixth Directive has direct effect, then this court must give effect to it.
I accept that proposition as a matter of principle, which is helpfully summarised in paragraphs 2 and 3 of Halsbury's Laws (4th ed, reissue) Vol 49–1, and I do not understand Mr Peacock to challenge it.
Mr Patchett-Joyce's case primarily relies on Articles 17 and 18 of the Sixth Directive, and in particular Articles 17(1) and 18(4). Article 17 is headed "Origin and Scope of the right to deduct", and Article 17(1) is in these terms:
"The right to deduct shall arise at the time when the deductible tax becomes chargeable."
Article 18 is headed "Rules governing the exercise of the right to deduct. Article 18(4) provides as follows:
"Where for a given tax period the amount of authorised deductions exceeds the amount of tax due, the member states may either make a refund or carry the excess forward to the following period according to the conditions they shall determine. However, member states may refuse to refund or carry forward if the amount of the excess is insignificant."
These provisions have substantially been brought into domestic law through the medium of sections 25 and 26 of the 1994 Act. In this connection I should refer in particular to sections 25(1)-(3) inclusive, which provide as follows:
(1) A taxable person shall—
(a) in respect of supplies made by him; and
….
account for and pay VAT by reference to such periods…. at such time and in such manner as may be determined by or under regulations and regulations may make different provisions for different circumstances.
(2) Subject to the provisions of this section he is entitled at the end of each prescribed period to a credit for so much of his input tax as is allowable under section 26 and then to deduct that amount from any output tax that is due to him.
(3) If either no output tax is due at the end of the period or the amount of credit exceeds that of the output tax then subject to subsections (4) and (5) below the amount of the credit or, as the case may be, the amount of the excess shall be paid to the taxable person by the Commissioners. An amount which if due under this subsection is referred to in this Act as a VAT credit."
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