In Bournemouth Symphony Orchestra v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE MANN |
| Judgment Date | 09 October 2006 |
| Neutral Citation | [2005] EWHC 1566 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CH/2004/APP/0810 |
| Date | 09 October 2006 |
[2005] EWHC 1566 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr. Justice Mann
Case No: CH/2004/APP/0810
MR. K. PARKER Q.C. (instructed by Deloittes) for the Appellant.
MR. N. PAINES Q.C. and MS. V. SLOANE (instructed by the Solicitor to HM Customs and Excise) for the Respondents.
Hearing dates: 14 th and 15 th June 2005
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.
Mr Justice Mann:
Introduction
This is an appeal by the taxpayer from a decision of the VAT and Duties Tribunal (Mr David Williams, Chairman, and Mrs S Edmondson SCA) given on 15 th October 2004 ("the Decision") in which the Tribunal determined that the Bournemouth Symphony Orchestra ("BSO" or "the BSO") did not benefit from an exemption from VAT provided by Article 13A(1)(n) of the Sixth Directive and by the Valued Added Tax Act 1994 Schedule 9 Group 13. The essential question arising before the Tribunal was whether or not the BSO was "managed and administered on an essentially voluntary basis".
The Legislation
Article 13 of the Directive (77/388/EC) provides that:
"1. Without prejudice to other community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse…"
There then follows a list of 17 exemptions under paragraphs (a) to (q) which generally have the characteristic of being services provided for the public good and in many cases by a non-profit-making or non-commercial organisation. The relevant paragraph is (n):
"(n) Certain cultural services and goods closely linked thereto supplied by bodies governed by public law or by other cultural bodies recognised by the member state concerned…"
Some of those heads of activities, including the one just set out, are qualified further in paragraph 2 of Article 13:
"2(a) Member states may make the granting to bodies other than those governed by public law of each exemption provided for in…1(n) of this Article subject in each individual case to one or more of the following conditions:
— they shall not systematically aim to make a profit, but any profits nevertheless arising shall not be distributed, but shall be assigned to the continuance or improvement of the services supplied, [which I shall call "the first indent", in line with appellations in the authorities]
— they shall be managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest, either themselves or through intermediaries, in the results of the activities concerned, [which I shall call "the second indent"]
— they shall charge prices approved by the public authorities or which do not exceed such approved prices or, in respect of those services not subject to approval, prices lower than those charged for similar services by commercial enterprises subject to valued added tax…
(b) The supply of services or goods shall not be granted exemption as provided for in…1(n) above if:
— it is not essential to the transactions exempted,
— its basic purpose is to obtain additional income for the organisation by carrying out transactions which are in direct competition with those of commercial enterprises liable for valued added tax."
So far as UK legislation is concerned, the relevant legislation is contained in schedule 9 of the 1994 Act. Under group 13 ("cultural services etc") the following exemptions are listed:
"2. The supply by an eligible body of a right of admission to —
…(b) a theatrical, musical or choreographic performance of a cultural nature."
Under the Notes which follow, the expression "eligible body" is defined:
"(2) For the purposes of item 2 'eligible body' means any body (other than a public body) which —
(a) is precluded from distributing, and does not distribute, any profit it makes;
(b) applies any profits made from supplies of a description falling within item 2 to the continuance or improvement of the facilities made available by means of the supplies; and
(c) is managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities."
The appeal to the Tribunal, and the appeal to me, concern the "management and administration" provisions of the Directive and the Act. The relevant words in the Directive are in the second indent in paragraph 2:
"They shall be managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest, either themselves or through intermediaries, in the results of the activities concerned."
In the Act the relevant words are:
"(c) is managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities."
Although the wording of those provisions is different, the parties before me agree that since the Act is intended to implement the Directive, they should be construed together, and the debate has in fact centred around the wording of the former.
The Issues in General Terms
The Bournemouth Symphony Orchestra is a well known orchestra based, as its name suggests, in Bournemouth. It is an orchestra of some considerable repute. Organisationally and structurally, it operates as a company limited by guarantee; the musicians are all employed by the company, as are a number of administrative staff. The detailed structure was set out in the Decision, and for present purposes it suffices to outline that structure. The Articles of Association provide for a Council, which has few significant functions other than the appointment of some of the directors to the Board. There is a Board which essentially equates to the familiar board of a commercial company. It takes the principal strategic decisions and oversees the activities of those who carry out the general administration. The membership includes a number of people, most of whom clearly participate on a voluntary basis. One of the members is the managing director, who at the present time is a Mr Michael Henson. He is remunerated; I deal below with the question of what he is remunerated for. The question which arises in this case is whether the fact that he is remunerated, against the background of all the other board members (apart from one) not being remunerated, has the effect that the BSO is not "managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest….in the results of the activities [of the BSO]" or is not "managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities" within the important provisions referred to above.
The Authority
The essential point in the present case is the extent to which a paid board member prevents an otherwise voluntary board from being voluntary (or essentially voluntary) within the meaning of the above provisions. It is related to questions that arose in the main case that was placed before me, namely Commissioners of Customs and Excise v Zoological Society of London [2002] STC 521 ("the London Zoo case"). Since extensive reference was made to that case in submissions before me (and in the decision appealed from) it will be useful to set out relevant parts of the report of that case at this point.
In that case there was an unpaid governing board (like a board of directors) and certain senior employees who were called directors but who were not on the board (though they attended meetings). Exemption from VAT was refused on the ground that the society was not managed and administered on an essentially voluntary basis because these people were paid. The question that arose in that case is summarised by Advocate General Jacobs in his opinion in the following terms (see page 523):
"2. The High Court of Justice of England and Wales wishes to know, essentially, how that condition is to be interpreted where the entity in question has, on the one hand, one or more governing bodies whose members are unpaid and, on the other, one or more paid directors or other management staff who are not members of those bodies."
The questions actually raised appear at paragraph 15 of his opinion. They can be summarised as follows:
i) How does one determine by whom a body is managed and administered for the purposes of the provision. In particular, do the words refer to only the members of "senior controlling organs" of the body, or do they refer to individuals involved in any managerial or administrative function.
ii) What are the criteria for determining whether management and administration is conducted on an essentially voluntary basis. Do the words refer to (a) the extent to which the managing body is conducted by remunerated and unremunerated persons respectively; or (b) to the individual financial basis on which each of those persons conducting the management and administration of the body performs that role; or (c) some other test or criterion.
In its judgment the European Court of Justice considered the two questions referred to above. In relation to question (a)—how does one identify the management and administration for the purposes of the exemption—it observed:
"18. The aim of that condition [viz the management and administration condition] is therefore to preserve the VAT exemption for bodies which do not have a commercial purpose, by requiring that the persons who participate in the management and administration of such bodies have no financial interest of their own in their results, by means of...
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