Crompton (Alfred) Amusement Machines Ltd v Commissioners of Customs and Excise (No. 2)

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
Judgment Date17 February 1972
Judgment citation (vLex)[1972] EWCA Civ J0217-2
Date17 February 1972

[1972] EWCA Civ J0217-2

In The Supreme Court of Judicature

Court of Appeal

Appeal (by leave) of Commissioners of Customs and Excise from order of Mr. Justice Forbes, London, dated 15th July, 1971.


The Master Of The Rolls

(Lord Denning),

Lord Justice Karminski and

Lord Justice Orr.

In The Matter Of The Purchase Tax Act 1963
In The Matter Of The Arbitration Act 1950
In The Matter Of The Crown Proceedings Act 1947
In The Matter Of An Arbitration
Alfeed Crompton Amusemsnt Machines
Complainants Respondents
Commissioners Of Customs And Excise

THE ATTORNEY-GENERAL (The Right Hon. Sir Peter Rawlinson, Q. C.), Mr. MORRIS FINER, Q. C., Mr. GORDON SLYNN and Mr. JARIATH FINNEY (instructed by Mr. D. J. Willson, Solicitor for the Commissioners of Customs and Excise) appeared on behalf of the Appellants.

Mr. ANTHONY J. L. LINCOLN, Q. C., Mr. STANLEY E. BRODIE and Miss MARY HOGG (instructed by Messrs. Bell, Brodrick & Gray, agents for Messrs. Fairs Blissard Barnes & Stow of Norbury) appeared on behalf of the Respondents.


There are many amusement arcades nowadays. They contain amusement machines which are worked by putting a coin in the slot, or in other ways. One of the makers of these machines is Alfred Crompton Amusement Machines Ltd. They supply them to an associated company called Alfred Crompton Ltd., who in turn supply them to retailers and operators.


These machines are chargeable with purchase tax. Alfred Crompton Amusement Machines Ltd. are registered manufacturers. Accordingly, purchase tax is chargeable on the wholesale value of the goods purchased by Alfred Crompton Ltd. A dispute has arisen now as to the wholesale value. The dispute has gone to arbitration. It is between Alfred Crompton Amusement Machines Ltd. (the Company) on the one hand, and the Commissioners of Customs and Excise (the Commissioners) on the other hand. The company now want to see all the documents which the Commissioners have relating to the matter. The Commissioners object to produce them. They claim: (i) Legal Professional Privilege; (ii) Crown Privilege, The question is whether these privileges are available, or not.




I must first set out the statutory provisions governing the determination of wholesale value. They are contained in the Purchase Tax Act, 1963.


Section 3(1) says that the wholesale value is to be fixed by the Commissioners. The words are: ". … the wholesale value of any goods…. shall be taken to be the price which in the opinion of the Commissioners the goods would fetch, on a sale made…. by a person selling by wholesale in the open market in the United Kingdom to a retail trader".


Section 36(1) (2) says that if the person accountable does not accept the value fixed by the Commissioners, he can require the dispute to go to arbitration. He must require it within 14 days from the time when he is told of the Commissioners opinion: and he must deposit with them the amount of the tax. The words are: "31(1) If… … any dispute arises as to the wholesale value of any goods …. the question shall be referred to a referee appointed by the Lord Chancellor…. and the decision of the referee…. shall be final and conclusive".


"(2) The foregoing subsection shall not have effect, and tax shall be chargeable on the wholesale value of the goods as fixed by the Commissioners, unless within the prescribed period from the time when the Commissioners' opinion as to the wholesale value of the goods has been communicated to the person accountable… … notice requiring a reference has been served on the Commissioners and that person has deposited with them the amount of the tax appearing on the basis of their opinion to have become due".




The Company or their associates, have been making amusement machines since 1962 at least. There were negotiations with the Customs about the calculation of purchase tax. The company issued price lists showing the prices which they charged to customers. Some of these customers were retailers. Others were operators. The company said that the "wholesale value" was to be ascertained by taking the price charged to operators and making appropriate deductions there from, such as for cash discount, trade discount, after-sales service, and retailers' margin. In June 1964, agreement was reached. The wholesale value was to be taken as the total selling-price, including service charge, less any freely availablecash discount, less the included purchase tax, less an allowance of 17 ½ to cover retailing and services, plus delivery and insurance.


Three years later that agreement was upset by a letter of 31st July 1967, from the solicitors to the company. It was, in the view of the Commissioners, the opening shot in an attempt to get bigger deductions for servicing and retail margins. In this letter the solicitors sent the company's cheque for £30,254 15s. lid., and said:


"We have advised our clients that neither we, nor the company's consultant accountant, are satisfied that this is the correct amount payable, but consider that the amount correctly payable is, in fact, less.


We should, therefore, be glad if you would consider this sum as paid to you by way of deposit. If an assessment has been made pursuant to the Statute, we should be glad if you would regard this letter as a request for a reference to the Referee". For the next two-and-a-half years the Commissioners sought to fix the wholesale value. They investigated the affairs of the company. They obtained information from the customers of the company. Eventually they gave their opinion in a letter to the company dated 8th December 1969. It said:


"In accordance with Section 3 of the Purchase Tax Act, 1963, in the opinion of the Commissioners, the wholesale value of amusement machines and of stands and top signs for any such machines, in respect of which you became accountable for purchase tax during the period 1st April 1967, to 30th September 1968, both dates inclusive, is, in every case, the gross tax inclusive price shown in your price lists as being current at the time the tax became due less successive deductions of a three per cent, discount (being a discount for cash); and of a five per cent, discount (being a trade discount); plus any delivery charges not included in the gross price; and finally less the included purchase tax".


There followed an opinion in the same terms for the period 1st October 1968, to 31st December 1968, but with 2 instead of 3%.


The company objected to this assessment of wholesale value. They accepted that it was right to take the gross tax inclusive price and to deduct the 3% discount for cash and the 5% trade discount: but they said that they should have further deductions for their "after-sales services" and for the "retailers' margin". They duly served notice requiring a reference. The dispute was referred to arbitration. Pleadings were delivered. The company, in their statement of claim, contended that, in addition to the successive deductions allowed by the Commissioners, 1 there should be further deductions on these grounds:


(i) The Company said that they provided an after-sales service for the repair and maintenance of the machines. They provided it without any additional charge to the customer. It was, therefore, included in the gross price shown in their price lists. It should, they said, be deducted from that gross price in order to obtain the wholesale value. They claimed that this service warranted a deduction of 17 if when the service was for two years; or 12 ½ when it was for one year.


(ii) The Company said the gross price in the price lists was the price charged by them on sales direct to operators who actually operated the machines. If the machines were sold to retailers who resold them to operators, the retailers would require a profit or margin for themselves. The Company claims that a deduction should be allowed for the retailers' margin. They put it at 33 1/3%.


The Commissioners in their defence disputed those contentions. They rejected the 17 ½ deduction, because they said that the company did not provide an after-sales service at all, but only repaired machines so as to fulfil the conditions of sale. The Hi Commissioners rejected the 33 1/3% deduction because the grossprices in the price lists were prices charged to retailers, of the equivalent of retailers, and not to operators.




Although this was an arbitration, nevertheless, each party was entitled to discovery from the other. Each was bound, "subject to any legal objection", to produce before the arbitrator "all documents within their possession or power respectively which may be required or called for": and for that purpose the High Court has power to make orders in respect of discovery of documents, as it has in relation to an action in the High Court: see the Arbitration Act, 1950, Section 12(l)(6)(b). The parties, therefore, had to make discovery, but could claim privilege on any of the established grounds as if it were a piece of ordinary litigation - see in re ( La Societe les Affreteurs Runis and The Shipping Controller 1921 3 K.B. 1).


Before 1947, the Commissioners of Customs, being a Government Department, would not have been obliged to make discovery: but by Section 28 of the Crown Proceedings Act, 1947, they were bound to make discovery and produce documents just like any ordinary litigant, except when they had a privilege on account of the public interest.


In this case the Commissioners made a list of documents, in which they set out many documents, but they claimed privilege for some on the ground of legal professional privilege and for others on the ground that their disclosure would be contrary to the public interest. The company applied to the Master for production of these documents....

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