HM Revenue and Customs v Loyalty Management UK Ltd (Joined Cases C-53/09 and C-55/09)
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE LINDSAY,Mr Justice Lindsay |
| Judgment Date | 22 June 2006 |
| Neutral Citation | [2006] EWHC 1498 (Ch) |
| Court | Chancery Division |
| Date | 22 June 2006 |
| Docket Number | Case No: CH/2005/APP/0476 |
[2006] EWHC 1498 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Lindsay
Case No: CH/2005/APP/0476
Mr C. Vajda Q.C. and Mrs P. Whipple (instructed by Solicitor to the Commissioners for Revenue & Customs) for the Appellants
Mr R. Venables Q.C. and Mr R. Mullan (instructed by Lovells) for the Respondent
Hearing dates: 9 th, 10 th, 11 th, 12 th, 15 th and 16 th May 2006
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This appeal adds to the already great number of pages of judgments which deal with VAT and what, broadly speaking, can be called sales promotion schemes. As I shall need to explain more fully below, the Respondent to the appeal, Loyalty Management UK Ltd ("LMUK"), runs the "Nectar" scheme under which, by their dealings with identified large businesses, their customers acquire "Nectar" points which they may then "redeem" so as to acquire, as "rewards", goods or services provided to them by other suppliers at either no cost or at some discount. In the course of the scheme LMUK makes payments to those other suppliers calculated, where goods or services have been provided by those other suppliers respectively to the customers, by reference to the numbers of points which the customers have redeemed. The appeal raises these questions; what is the proper characteristic, for VAT purposes, of the payment made by LMUK to those other suppliers; is it a payment for a redemption service supplied to LMUK or is it the whole or part of the price paid for the provision by those other Suppliers of the rewards to the customers? Is there, for VAT purposes, a supply of a redemption service to LMUK or of goods or services to the customers?
The London Tribunal Centre (Dr. A.N. Brice and Mr R.L. Jennings) in their decision published on the 18 th May 2005 held there to have been a supply to LMUK and none to the customers. The Commissioners for H.M. Revenue & Customs, appearing by Mr Vajda Q.C. and Mrs Whipple, now appeal. LMUK, appearing by Mr Venables Q.C. and Mr Mullan, resist the appeal.
Apart from consideration of whether or not I should make a reference (and, if so, what reference) to the European Court of Justice, the argument I have heard is divisible to three parts. Firstly, there are what I call the main arguments. Secondly, there is a consideration of the Tribunal's decision. Both those two parts, it is accepted, are properly before me. But, thirdly, as is accepted not to be properly before me, there is an argument called "the Commissioners' alternative argument" which both sides ask me to deal with.
This is not an appeal in which, turning to the law and to one or two paragraphs of a Tribunal's decision, one party says that those paragraphs are mistaken and the other says that they are not. The Commissioners say that the Tribunal was comprehensively wrong in law and LMUK, whilst averring that the Tribunal's conclusion is correct, say that it was unhappily expressed, was too narrow, was in several ways inaccurate (ways which they then specify) and in part dealt with an issue which was not argued and not truly before it. In such circumstances it will not, I think, be profitable to turn initially to the Tribunal's decision to deal with the shortcomings as to the law which it is said to have; the better course, the facts occasioning no difficulty, is for me set out the facts and then to come to some provisional view by reference to the law as now argued before me and only after that to turn to the Tribunal's decision in any detail. That is the plan that I shall adopt.
The facts
Before the Tribunal there was a draft Statement of Agreed Facts supplemented by agreed documents and some brief unchallenged oral evidence. The facts remain uncontentious and the statement of them I am about to embark upon derives from the sources I have mentioned, from the Tribunal's decision and from examples given to me in the course of argument.
LMUK's business consists of the running of what is described as the "Nectar multi-participant customer loyalty rewards programme" ("the Programme") which involves 4 tiers of participants.
One tier consists of "Sponsors", generally large companies with extensive businesses which wish to encourage their customers to be loyal to them. Amongst the largest sponsors at the time material to this appeal were Sainsbury's Supermarkets Ltd., Debenhams Retail plc, Barclays Bank plc and BP Oil UK Ltd.. In the Tribunal's decision the Sponsors are referred to as "Retailers" but not all of them – for example Barclays Bank Ltd. —would ordinarily be spoken of as retailers and it avoids misdescription and confusion between them and the retailers in another tier to call them "Sponsors".
Sponsors enter into written "Sponsor Agreements" with LMUK whereunder each is granted a right to participate in the Programme. LMUK binds itself so that each Sponsor will become an exclusive licensee of the Programme in the primary market sector in which it operates. Under Sponsor Agreements customers choosing to join the Programme and buying from the Sponsors are awarded Nectar "points" that will give them a right to "redeem" the points in return for "rewards" in accordance with terms and conditions which are agreed between LMUK and the customer upon the customer, as I shall describe, registering with the Programme. Sponsors are obliged to pay LMUK a sum (specified separately as between each Sponsor respectively and LMUK) in respect of each point which is issued through that Sponsor to its customers irrespective of whether those particular points are redeemed. LMUK is guaranteed a minimum payment from each Sponsor irrespective of the aggregate number of points issued by the Sponsor in any given month. Most Sponsors are also obliged to LMUK to issue a minimum number of bonus points to their customers and all are bound also to make annual payments to LMUK in respect of the marketing, development and promotion of the Programme.
In the Sponsor Agreements LMUK binds itself to the Sponsors to meet specified target criteria relating to the rewards which the Programme will provide, including terms as to the range of goods and services and the cash discounts which will be available to customers upon their redemption of the Nectar points they shall have acquired. Sponsors become entitled to free use of all trademarks owned by or licensed to LMUK and which relate to the Programme. LMUK agrees to provide to Sponsors certain information from its database, for example as to points issued to the Sponsors' customers, offers taken up, as to the redemption by those customers of points and as to other behavioural data, all broadly intended to assist in the creation of targeted marketing initiatives by Sponsors or by LMUK in conjunction with Sponsors. Such access to LMUK's database is, though, controlled by LMUK and is subject to restrictions.
The next tier consists of LMUK, which not only contracts with Sponsors, as I have mentioned, but with retailers ("Suppliers") whose rôle is to provide goods or services to the Sponsors' customers when they come to redeem their Nectar points. In the Tribunal's decision these Suppliers are, in some references, called "Redeemers" but I shall hope consistently to call them "Suppliers" (although without intending thereby to beg any of the questions with which this appeal is concerned).
The third tier consists of those Suppliers. They, in general, contract with LMUK on terms described as "Standard Terms for Supply of Redemption Services to LMUK". The agreed terms include so-called "Commercial Terms" which vary in detail from one Supplier to another and which broadly regulate the kind of rewards to be offered by that Supplier to those who seek to redeem Nectar points, the amount the Supplier will receive for each Nectar point redeemed with him and the manner in which redemption is to be effected.
The "commercial terms" make reference to "Standard Terms for Supply of Redemption Services to LMUK" and I was referred to the terms applicable to the contract between LMUK and one particular Supplier as if those standard terms were typical. Under the heading "Application of these Terms" clause 1 provided that the terms and conditions were to apply to all contracts between LMUK and the particular supplier:-
"for the supply of redemption services to LMUK by way of the supply of goods, services and cash discounts as specified in the Commercial Terms as redemption options ("Rewards") in the LMUK Loyalty Programme ("Programme") to Programme Collectors ("Collectors") and the processing of Vouchers and/or points and/or redemption information for LMUK to assist LMUK to discharge obligations to Collectors. By way of consideration for such redemption services, LMUK will pay a fee ("Service Charge")."
There was no definition of the expression "redemption services". Under the heading "Provision of Rewards", clause 3.1 provided that "the Supplier shall supply Rewards to any Collector redeeming points and/or Vouchers … in the same manner and to the same quality, as apply to customers who pay for such items in cash or by any other method". Clause 3.1 provided also that the Supplier "will provide the Reward on this basis subject only to payment of the balance of the price normally applicable in similar circumstances". Clause 3.2 provided that the Supplier had to provide LMUK with accurate information of the kind there described and clause 3.3 that "the Supplier shall be responsible for all aspects of the supply of the Rewards". In clause 3.4 the...
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