Jersey Choice Ltd v HM Treasury
| Jurisdiction | England & Wales |
| Judge | Johns |
| Judgment Date | 27 November 2020 |
| Neutral Citation | [2020] EWHC 3258 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: BL 2018 000737 |
| Date | 27 November 2020 |
[2020] EWHC 3258 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST
Royal Courts of Justice
7 The Rolls Building
Fetter Lane
London
EC4A 1NL
HHJ Johns QC
Sitting as a Judge of the High Court
Case No: BL 2018 000737
Mr Aidan O'Neill QC and Mr Nicholas Gibson (instructed by CJ Jones Solicitors LLP) for the Claimant
Ms Jessica Simor QC and Ms Amy Mannion (instructed by General Counsel and Solicitor to HMRC) for the Defendant
Hearing date: 14 October 2020
HHJ Johns QC:
On 17 July 2012 Parliament enacted s.199(3) of the Finance Act 2012 to remove VAT relief known as Low Value Consignment Relief (“LVCR”) from low value goods sold to UK customers using mail order from the Channel Islands.
That legislation had already been challenged at the bill stage by way of judicial review. Mitting J rejected that challenge to what was then the Finance Bill 2012 by his decision given on 15 March 2012 in ( [2012] EWHC 718 (Admin) R (Jersey) v HMRC and R (Guernsey) v HM Treasury [2012] STC 1113) (“the Channel Islands JR”).
The claimant, Jersey Choice Limited (“JCL”), a seller of low value horticultural products by mail order from Jersey, now says that the provision has caused it loss in excess of £15m and by these proceedings issued on 29 March 2018 seeks damages for breach of EU law from the Defendant, Her Majesty's Treasury (“HMT”).
HMT applies by notice dated 6 March 2020 for strike out of the claim or summary judgment against JCL, pointing to the 2012 decision in the Channel Islands JR.
It is necessary to refer in detail to the decision of Mitting J and set out the legislative background before addressing the arguments made on the application.
The Channel Islands JR and legislative background
The circumstances in which Mitting J was considering what became s.199(3) of the 2012 Act appear from paragraph 12 of his decision:
“12. The Channel Islands contend that the proposed clause would, if enacted, be unlawful under European Union law and invite me so to declare. If I do, it is unlikely that the draft clause will be included in the Finance Bill. If I do not, it will be; and if Parliament enacts the Bill containing the clause, it will become law with effect from 1 April 2012.”
His summary of the evidence before him included reference to the market in low value horticultural products, being the market with which the present case is concerned:
“16. A third category of Channel Island business which would be affected by the withdrawal of LVCR is horticulture and flower selling, both indigenous to the Channel Islands. The withdrawal of LVCR would have a significant adverse impact on all of these categories of business.”
He accepted the “general thrust” of the evidence and was “satisfied that the withdrawal of LVCR would have a severe adverse impact on employment and business, including that of the postal services, in the Channel Islands.” That evidence included a witness statement from Tim Dunningham, then managing director of JCL, made in support of the application for judicial review. The statement was included in the bundle for the hearing before me. Mr Dunningham described JCL's main business as the supply of Jersey grown bedding plants, perennials, shrubs, vegetable plants, seeds and bulbs to UK customers. JCL was said to have around 300,000 active customers, 40 permanent employees, and 80 seasonal staff. It operated a high volume, low margin, business model. 100 percent of its products enjoyed VAT relief.
Mitting J identified the nub of the case in paragraph 33 of his decision:
“33. Is the United Kingdom entitled selectively to disapply LVCR? This is the nub of the case…”
The complaint before him by Jersey and Guernsey was that the removal of LVCR would not be to treat them in the same way as other non-EU territories, as appears from paragraph 67 of his decision:
“The Channel Islands compare goods imported from their territory with goods imported from other non-EU territories and contend that they should be treated with fiscal equality”.
Mitting J accepted that fiscal neutrality, non-discrimination or equal treatment and proportionality are basic principles of European Union law (para.65) but decided that those principles did not help the Channel Islands. Key to his decision was that Jersey and Guernsey, while part of the customs territory, are not part of the European Union for the purposes of VAT. He had spelled that out in para.1:
“1. The European Union is a complex organism. Some territories are part of the Union for some purposes, but not for others. The bailiwicks of Jersey and Guernsey (‘the Channel Islands’) are part of the customs territory of the Union, but are not part of the territory of a member state, the United Kingdom, for the purposes of VAT; see EC Council Directive 2006/112 of 28 November 2006 on the common system of value added tax (‘the Principal VAT Directive’) art 6(1).”
Having referred to two decisions of the Court of Justice of the European Union, he expressed his conclusion as follows:
“75. These two cases, taken together, demonstrate that the European Union and, by necessary extension, member states, when permitted to do so or not prohibited from doing so by Union legislation, may, for any reason or none, discriminate against non-EU states in relation to the import of goods from them; even in the field of indirect taxation. The principle of fiscal neutrality is not, therefore, engaged in that context. There is no requirement that the United Kingdom should treat one non-EU territory in the same manner for the purposes of LVCR as any other, or as every other. For the same reasons, the principle of proportionality is also not engaged.
76. These considerations provide most of the answer to the question which is at the heart of this case. There is no principle of EU law which requires the United Kingdom to treat the importation of low value goods on mail order from the Channel Islands in the same manner as similar goods from any other non-EU territory. They also assist in construing the language of art 23. There is nothing in the words to prohibit a selective disapplication of the proviso. If there is nothing in the basis of EU law to prohibit a selective disapplication, and I decline to do so.”
As to the legislative context for this application, the EU rules on VAT derive from what is now article 113 of the Treaty on the Functioning of the European Union (“TFEU”), which is found in Chapter 2 of TFEU dealing with tax provisions.
“The Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition”.
The articles relied on by JCL are also now to be found in TFEU, in the section dealing with free movement of goods.
“Article 28
1. The Union shall comprise a customs union which shall cover all trade in goods and which shall involve the prohibition between Member States of customs duties on imports and exports and of all charges having equivalent effect, and the adoption of a common customs tariff in their relations with third countries.
2. The provisions of Article 30 and of Chapter 3 of this Title shall apply to products originating in Member States and to products coming from third countries which are in free circulation in Member States.
…
Article 30
Customs duties on imports and exports and charges having equivalent effect shall be prohibited between Member States. This prohibition shall also apply to customs duties of a fiscal nature.
…
Article 34
Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States.”
As to the applicability of articles 28, 30 and 34 of TFEU, article 355(5)(c) of TFEU provides for a limited application of the treaties to the Channel Islands. It was common ground before me that articles 28, 30 and 34 relating to the free movement of goods apply to the Channel Islands as part of the customs territory. That common ground reflects the discussion of the position of Jersey in the judgment of the Supreme Court in the recent case of Routier v Revenue & Customs Commissioners (No.2) [2019] UKSC 43.
“15. The combined effect of article 299(6)EC [now art.355 of TFEU] and Protocol 3 to the Act of Accession is that the rules of EU law relating to the common customs area, including the free movement of goods, apply in Jersey ( Jersey Produce Marketing Organisation Ltd v States of Jersey (Case C-293/02) [2005] ECR I-9543.”
The principal rules on VAT are found in Council Directive 2006/112/EC (“the Principal VAT Directive”), made under article 113 of TFEU. Article 1(1) records that “This Directive establishes the common system of value added tax (VAT)”; article 1(2) providing that “The principle of the common system of VAT entails the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, however many transactions take place in the production and distribution process before the stage at which the tax is charged”. Article 2 sets out those transactions which are subject to VAT. As to goods, they include, in addition to the supply of goods within a member state (article 2(1)(a)),...
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