Ford Motor Company Ltd v R & C Commissioners
| Jurisdiction | England & Wales |
| Judge | SIR DONALD RATTEE |
| Judgment Date | 15 March 2007 |
| Neutral Citation | [2007] EWHC 1014 (Ch) |
| Docket Number | CH/2006/APP/0756&0792 |
| Court | Chancery Division |
| Date | 15 March 2007 |
[2007] EWHC 1014 (Ch)
IN THE HIGH COURT OF JUSTICE
(CHANCERY DIVISION)
The Royal Courts of Justice
The Strand
London WC2A 2LL
Sir Donald Rattee
CH/2006/APP/0756&0792
Mr J Peacock QC and Mr P Walford (instructed by Peter Neale-Smith, Legal Department, Ford Motor Company Ltd, Eagle Way, Warley, Essex CM13 3BW) appeared on behalf of the Claimant.
Mr R Anderson QC and Mr P Woolfe (instructed by Mrs P Ramshaw, Solicitors Office, HM Revenue and Customs, Somerset House, West Wing, Strand, London WC2R 1LB) appeared on behalf of the Defendant
(As Approved)
Thursday 15 th March 2007
FORD MOTOR COMPANY LTD v THE COMMISSIONER FOR HM REVENUE & CUSTOMS
1. This is an appeal by Ford Motor Company Ltd against a decision relating to its liability to VAT made by the VAT and Duties Tribunal and issued on 31 st August 2006 following a hearing on 19 th and 20 th June 2006.
2. The facts found by the Tribunal are fully set out in paragraphs 10 to 42 of the Tribunal's decision and I shall refer to some of them a little later in this judgment. Suffice it to say at this point that the decision related to Ford's liability to account for VAT on certain sales of its cars between April 1994 and July 2005. The relevant sales were made pursuant to an advertising promotion made by Ford, whereby it offered certain models of car for sale with what was called in its promotional literature “free insurance cover and free breakdown service from the RAC.”
3. Although Ford chose to offer the insurance and RAC cover as free to the purchasers of its cars, Ford now argues that they were not free, because it wishes to, and does, argue that part of the price paid by the customer was in respect of the ability to obtain insurance and RAC cover without the payment of any premium by the customer. The reason for this apparent change of heart by Ford is that, according to Ford's argument, the supply of the right to insurance policies and RAC membership, as opposed to the supply of a car, was an exempt supply by virtue of section 31 of and items 1 and/or 4 of Part 2 of Schedule 9 to the Value Added Tax Act 1994, so that, according to Ford, it is not liable to account for VAT on so much of the price paid by the purchaser of a car as represents consideration for the right to insurance and RAC cover without payment of any premium to the insurer or to the RAC.
4. One might think it lies ill in Ford's mouth to say that what it offered to a purchaser as free, in order to encourage the purchaser to buy one of its cars, in fact, for the purposes of Ford's VAT liability, was not free but in return for a consideration which had to be paid by the purchaser. However, that, as I understand it, is Ford's case and was its case put before the Tribunal. The relevant European and United Kingdom legislation is also very helpfully set out in the Tribunal's decision and I need not quote it all again.
5. Before considering the application of this law to the present case, I should refer to certain of the facts found by the Tribunal. The relevant sales of cars to members of the public were achieved in two different ways. Ford maintains a network of dealers in the United Kingdom through which cars are sold to the general public. Most of these dealers are independent of Ford.
6. FCE Bank plc, to which I shall refer as Ford Credit, is a member of the Ford group of companies and provides finance to purchasers of cars who wish to acquire cars on hire purchase or other credit terms. In such a case Ford sells the car to an independent dealer who then sells it on to Ford Credit, which sells it on to the actual customer. Ford Credit is part of the Ford VAT group. The dealer of course is not. In sales not involving Ford Credit, Ford sells to the dealer who sells to the actual customer. The sales relevant to Ford's claim to VAT relief in the present case include both sales by Ford Credit to customers and, in cases not involving Ford Credit, sales by Ford to independent dealers for on-sales to customers.
7. As part of its sales promotional activities, from time to time Ford offers through its dealers special deals or arrangements to purchasers of certain Ford models. Such offers are communicated to Ford by its dealers and then made available to customers on their purchase of cars from dealers or from Ford Credit.
8. As I have already said, the relevant sales in the present case were made pursuant to an offer by Ford to provide the customers purchasing certain specified models of car with “free” insurance cover and “free” membership of the RAC for a year in each case. The free insurance and free RAC cover were provided by Ford in a manner set out in some detail by the Tribunal in its decision. In my judgment, the Tribunal's findings in this regard can be summarised sufficiently for present purposes as follows.
9. Prior to October 1998 Ford had entered into an agreement with a company called Ford and Guardian Direct Services Ltd (to which I shall refer as Guardian Direct) which traded as RAC Insurance Services. Under that agreement Guardian Direct provided to purchasers of the relevant Ford cars comprehensive insurance cover for one year, the cost of which was paid by Ford to Guardian Direct. The cover was restricted to the policy holder and up to five other named drivers between the ages of 17 and 80. The policy holder was given no entitlement to a refund of premium if the policy was terminated before the renewal date, but this is hardly surprising since the policy holder paid no premium. Ford paid all the relevant premiums. The purchaser within the scheme has to acquire the car from a dealer or from Ford Credit, register it and then apply for the insurance policy to Guardian Direct. Ford was charged by Guardian direct with fixed premiums not reflecting the risk element in any particular policy.
10. On 20 th October 1998 Ford replaced the arrangement with Guardian Direct by an agreement with Norwich Union, the 1998 agreement. That agreement provided for Norwich Union to provide motor insurance for customers of Ford, both insurance for which the customers paid premiums to the Norwich Union in the usual way and insurance for which the premiums were to be paid by Ford under the free insurance offers which I have described, which insurance had previously been provided by Guardian Direct.
11. The principal provisions of the 1998 agreement were described by the Tribunal in paragraphs 19 to 21 of their decision which I think I should read. At 19:
“The 1998 agreement by Clause 2 made Ford the “agent” of Norwich Union “to make arrangements” on Norwich
Union's behalf to enable Norwich Union to carry on the insurance business relating to Ford products. This included reviewing proposals from potential insurants, issuing policies, dealing with renewals, collecting premiums and settling claims. Ford gave an exclusivity undertaking to Norwich Union, (i.e. always to accept Norwich Union as the insurer unless a competing insurer offered better terms). The 1998 agreement was to last ten years and it covered “customer funded” and “free insurance”. Free insurance was defined as “annual motor insurance provided free of charge to customers of Ford Motors in connection with the purchase of a car by them and in respect of which the premiums are paid by Ford.” No commission was to be charged to Norwich Union by Ford under the free insurance programme.”
Then 20:
“Clause 5.1 of the 1998 agreement gave Ford authority “to the extent permitted by the Binding Authority” to bind Norwich Union to a “Ford Contract”, (i.e. a Norwich Union Ford Insure policy)” issued to an insured”. Clause 25 enabled Ford, as Norwich Union's agent, to appoint subagents so long as approved by Norwich Union and those subagents might be Ford dealers. The subagents had power to bind Norwich Union within the framework of the Binding Authority.”
Then 21:
“The Binding Authority of 7 th January 1999 between Norwich Union and Ford related exclusively to free insurance. It took effect from September 1998. It authorised Ford, which term included subagents, to bind Norwich Union to free insurance policies ‘in the form attached to this Binding Authority’ meeting certain eligibility criteria such as the models of Ford motor cars, the ages of the drivers (17 to 80) and the driving records (including convictions) of insurants and drivers. Other relevant provisions were: Clause 2.3 which directed that on cancellation of a free insurance policy no part of the premium was refundable. Paragraph 3.2 of Appendix 1 which enabled the insured to transfer the benefit of free insurance to another Ford model during the period of the free insurance policy but the insured who cancelled his free insurance was entitled to no refund.”
12. The 1998 agreement contains certain other provisions relating to the insurance to be issued by Norwich Union under the free insurance arrangements including the following, namely (a) the insured could include four other named drivers to be covered by the policy; (b) the insured was to be able to qualify for maximum no claims discount in future years; and, (c) the proposed insured had to acquire the car, register it and then apply to Norwich Union for the insurance; (d) in the words of the Tribunal, “the insurance premiums were calculated on an average basis per unit.” In later years certain changes were made in relation to the insurance to be issued by Norwich Union. In 2000 the policy terms were extended to cover the insured and other drivers driving with the permission of the insured. Named drivers could be added at additional cost. The insured was...
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