John Dee Ltd v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 03 February 1995 |
| Date | 03 February 1995 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Turner J.
Robert Englehart QC and Adam Lewis (instructed by Gregory Rowcliffe, agents for Dickinson Dees, Newcastle upon Tyne) for the company.
Peter Mantle (instructed by the Solicitor for Customs and Excise) for the Crown.
The following cases were referred to in the judgment:
Associated Provincial Picture Houses Ltd v Wednesbury CorpELR[1948] 1 KB 223
Bellenden (formerly Satterthwaite) v SatterthwaiteUNK[1948] 1 All ER 343
C & E Commrs v JH Corbitt (Numismatists) LtdELRVATVAT[1981] AC 22; (1980) 1 BVC 330 (HL); (1978) 1 BVC 145 (QB)
C & E Commrs v Peachtree Enterprises Ltd VAT[1994] BVC 209
G v G (Minors: Custody Appeal) WLR[1985] 1 WLR 647
John v Reese ELR[1970] Ch 345
Mr Wishmore Ltd v C & E Commrs VAT(1988) 3 BVC 311
Ponnamma v Arumogan ELR[1905] AC 383
Quilter v Mapleson ELR(1882) 9 QBD 672
R v Broadcasting Complaints Commission, ex parte OwenELR[1985] QB 1153
R v Secretary of State for the Environment, ex parte Brent London Borough Council ELR[1982] QB 593
R v Secretary of State for Social Services, ex parte Wellcome Foundation Ltd WLR[1987] 1 WLR 1166
Value added tax - Tribunal - Jurisdiction - Discretionary decision by Customs - Whether jurisdiction of tribunal supervisory or appellate - Value Added Tax Act 1983, s. 40(1)(n), Sch. 7, para. 5(2) (Value Added Tax Act 1994 section 83 schedule 11 subsec-or-para 4Value Added Tax Act 1994, s. 83(l), Sch. 11, para. 4(2)).
This was an appeal by the taxpayer company under the Value Added Tax Act 1983, s. 40(1)(n) against a decision of the VAT tribunal upholding Customs' exercise of their discretion to require the company to provide security under the Value Added Tax Act 1983, Sch. 7, para. 5(2) ((MAN/92/331) No. 11,264; [1995] BVC 1313).
The company was incorporated on 23 January 1991. The new company took over some 20 per cent of the heavy haulage and contract distribution undertaking of the John Dee group of companies which had been in difficulties and in respect of which joint administrative receivers had been appointed on 3 January 1991. The total estimated deficiencies of the group amounted to a sum in excess of £24m, some £1.9m owing to Customs for VAT.
Two of the company's initial directors, neither of whom held a controlling interest, had also been directors of companies in the John Dee group.
In view of the two directors' involvement with the John Dee Group and without considering representations made by the taxpayer in order to show that its financial position was secure, Customs, by a letter dated 10 January 1992, required the taxpayer pursuant to the discretion conferred on them by the Value Added Tax Act 1983, Sch. 7, para. 5(2) to provide security as a condition of registration for VAT.
On appeal against Customs' decision to require security, the VAT tribunal found that it was Customs' usual practice not to ask for financial or other information before requiring security to be given. The tribunal decided that such a practice could not be a fair or reasonable approach. However, the tribunal went on to consider what decision as regards security Customs might reasonably have reached had they taken into account the material financial information available as at 10 January 1992 and concluded that the decision would have been the same.
It was common ground that Customs should have considered whether or not to ask the taxpayer for information in order to assist them in their decision.
There were two issues before the High Court. The first issue was as to the true nature of the jurisdiction of the VAT tribunal on an appeal from a discretionary decision of Customs. The second issue was, if Customs had wrongly exercised their initial discretion, whether the VAT tribunal should:
(a) allow the appeal against the initial decision and leave it to Customs to make a fresh decision on the basis of such facts as they ought properly to consider at the time of the fresh decision, or
(b) itself come to a decision in the light of the current evidence, or
(c) put itself in the position of Customs in the light of such evidence as existed at the time of the decision which they had taken and substitute its own decision for that of Customs.
The taxpayer contended that the jurisdiction of the tribunal was appellate rather than supervisory, and in any event, the tribunal was not entitled to substitute its own decision for that of Customs.
Customs contended that the tribunal's jurisdiction was merely supervisory: that the decision of Customs to require a trader to provide security was discretionary and administrative and therefore rules for the review of administrative decision were particularly appropriate.
Held, allowing the taxpayer's appeal:
1. The nature of the tribunal's jurisdiction was not expressly defined in the legislation, but an appeal against a decision in the exercise of a discretion in relation to a requirement for security, where Customs were not obliged to set out the facts which they had found or considered, or to justify or explain, was an appellate jurisdiction. If the VAT tribunal was able only to review the decision on a point of law, then it might have been expected that the Value Added Tax Act 1983, s. 40 would have said so.
2. Once the tribunal was satisfied that Customs' original decision had been erroneous because of a failure to take into account relevant material, it should simply have allowed the appeal, leaving Customs free to make a fresh decision if they thought fit on the facts as they appeared at the date of that fresh decision. The tribunal was not entitled nor required to substitute its own discretion for that of Customs.
By notice of motion, John Dee Ltd ("the company") appealed against a decision of the Manchester VAT tribunal (chairman Mr J H Fryer-Spedding OBE). The grounds of the appeal were:
1. The VAT tribunal ought to have held that the Value Added Tax Act 1983, s. 40(n) conferred an absolute right of appeal against the exercise by Customs of their discretion to require security before accepting registration for VAT. An appeal under s. 40(n) did not confer merely a power to review Customs' decision.
2. Even if the tribunal were exercising only a supervisory jurisdiction, the notice requiring security should have been quashed. The matter should have been remitted to Customs for reconsideration in the light of information which the company wished to put before them, and that information should not be limited to matters available to Customs at the time when the original notice was issued.
Turner J: This is an appeal on a point of law by John Dee Ltd from the decision of the VAT tribunal, chairman Mr Fryer-Spedding, released on 11 October 1993. The hearing before Mr Fryer-Spedding was by way of appeal by the appellant ("the company") against a notice dated 10 January 1992 by which Customs had required the company to provide security under the provisions of para. 5(2) of Sch. 7 to the Value Added Tax Act 1983 in the sum of a cash deposit of £355,900 or alternatively a smaller sum if monthly, rather than quarterly, returns were submitted.
The background to this case is as follows: On 23 January 1991 a limited company was incorporated which, on 19 March of the same year, changed its name to John Dee Ltd. A Mr Davidson and a Mr Newton were two of the initial directors. Neither held a controlling interest. At some time prior to the commencement of the trading activities of the company, six limited companies generally trading as the John Dee Group Ltd had traded profitably for many years. By the beginning of 1990 the group had fallen into serious financial and management problems as the result of which joint administrative receivers were appointed on 3 January 1991. The total estimated deficiencies included in the directors' statement of affairs as at that date was a sum in excess of £24m. Customs were among the creditors of the John Dee Group in a sum amounting to nearly £1.9m. The two above-named directors of John Dee Ltd had also been directors of one or more of the former constituent companies in the John Dee Group. Those facts coupled with the fact that the company took over some 20 per cent of the undertaking of the former John Dee Group provide the underlying facts to the notice served by Customs requiring the company to provide security as already mentioned.
In the letter which gave notice of the requirement to give security dated 10 January 1992 Customs had stated that they had noted:
The VAT record of (John Dee Ltd) and other businesses in which your directors Mr Davidson and Mr Newton were involved and for the protection of the revenue in the pursuance of their powers under schedule 7, paragraph 5(2) of the Value Added Tax Act 1983 they require you, as a condition of your supplying goods or services under a taxable supply within the meaning … assigned to it by section 2(1) of the said Act, to give security to them by guarantee or by a cash deposit …
If you have information which you think is relevant and you wish the Commissioners to reconsider their decision, please contact me urgently. Any reconsideration does not affect your right to appeal to an independent Value Added Tax Tribunal Centre within 30 days of the date of this letter …
The company replied to this letter on 3 January 1992 stating that they wished to appeal on the grounds therein set out. The principal grounds on which the company relied were:
(2) that it had no connection with the former group company apart from the two directors already named; and
(3) that the company was trading profitably and had made returns of VAT and payments thereof on the terms and conditions laid down by the respondent; and
(4) that ownership of the company was not vested in the former directors of the group of companies and that there had been "a substantial third party investment". Customs replied to this letter on 6 February stating:
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