Longborough Festival Opera v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lightman |
| Judgment Date | 27 January 2006 |
| Neutral Citation | [2006] EWHC 40 (Ch) |
| Docket Number | Case No: CH/2005/APP/0488 |
| Court | Chancery Division |
| Date | 27 January 2006 |
[2006] EWHC 40 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Lightman
Case No: CH/2005/APP/0488
Ms Aparna Nathan (instructed by Needham & James, Compton House, Moreton-in-Marsh, Gloucestershire GL56 0AX) for the Appellants
Ms Valentina Sloane (instructed by Solicitor for HMRC, Somerset House, West Wing, Strand, London WC2R 1LB) for the Respondents
Hearing dates: 13 th—14 th January 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 is an appeal pursuant to section 11 of the Tribunals and Enquiries Act 1992 by the appellant Longborough Festival Opera ("LFO") against a decision ("the Decision") released on the 26 th May 2005 of the VAT and Duties Tribunal ("the Tribunal"). The issue before the Tribunal was whether the LFO was entitled to exemption from VAT on the basis that it was an eligible body supplying a right to a musical performance of a cultural nature within the meaning of Article 13A(1)(n) of the EC Council Directive 77/388 of 17 th May 1977 on the harmonisation of the laws of Member States ("the Sixth Directive") which is implemented within the United Kingdom by item 2(b) of Group 13 in Schedule 9 to the Value Added Tax Act ("the VATA 1994"). The Tribunal upheld the contention of the Respondent, the Commissioners to Her Majesty's Revenue and Customs ("the Commissioners"), that it was not such an eligible body.
FACTS
The full facts are set out in the Decision. Counsel have however agreed the relevant facts for the purpose of this appeal as I have set them out below.
Mr Graham lives at New Banks Fee, Longborough, in Gloucestershire ("Longborough"). Mr Graham built a large barn at Longborough which he originally intended to house cattle but instead used as an opera house. He added a "Palladian-style" front, added a stage, and installed seating. He later installed a proper stage with an orchestra pit, proper seating and boxes.
At first the opera performances at Longborough were produced and managed by Longborough Developments Ltd ("LDL"), a property and development company incorporated in 1965 of which Mr Graham and his wife are directors and in which Mr Graham holds the majority of the shares and his wife the remainder. LDL produced the operas on a commercial basis with a view to profit. This business venture was only a small part of its overall business activity.
By 1999 Mr Graham considered that the opera at Longborough had reached a stage at which it would benefit from the support of patrons who might not be so likely to support a commercial venture. The support of patrons would also have the effect of improving the standard and quality of performances. To this end in 2000 Mr Graham incorporated LFO. LFO is a company limited by guarantee and is registered as a charity. The 2002 opera season at Longborough was the first season of operas produced and managed by LFO and in October 2001 LFO first received income in respect of Longborough paid by way of advanced bookings for that season. Since 2002 LFO has produced and managed most of the operas at Longborough. LFO has at all times fixed prices for admission, not to make a profit, but to cover the costs of production.
Clause 3 of the Memorandum of Association (the Objects Clause) of LFO ("the Memorandum") provides that the objects of LFO are "such objects and purposes in any part of the world as are exclusively charitable in accordance with the laws of England and Wales", and then sets out certain specific objects:
"(i) to promote, maintain, improve and advance the education of the public through the support and encouragement of the art of music (including opera, chamber music, singing and all forms constituting in whole or in part of music) by providing, presenting, producing, organising, managing and conducting performances of opera, music recitals and concerts of cultural value to the community, and in particular for the promotion, encouragement and appreciation of opera, and
(ii) to promote, maintain, improve and advance the education of the local community (in particular professional music students, primary and secondary school pupils) by the organising, managing and conducting of performances of opera in collaboration with local schools, by providing master classes in signing for professional music students and local school pupils and providing work experience for these students and pupils relating to the organisation and presentation of musical performances together with the opportunity for them to attend rehearsal sessions."
Clause 4 of the Memorandum gives LFO (amongst others) the following powers in the furtherance of its objects:
"4 In furtherance of the Objects but not further or otherwise the Company shall have the following powers:
4.1 to purchase, take on lease or in exchange, hire or otherwise acquire any real or personal property and any rights or privileges which the Company may think necessary for the promotion of the Objects, to manage and improve such property and to provide, construct, maintain, alter and equip any facilities, buildings or erections necessary for or conducive to the Objects (subject to such consents as may be required by law)…
4.7 to invest the moneys of the Company not immediately required for its purposes in or upon such investments, securities or property as may be thought fit, in its absolute discretion, with power to vary or transpose any investments for or into others of any nature."
Clause 5 of the Memorandum governs the application of LFO's income and property, and includes the following:
"5 The income and property of the Company shall be applied solely towards the promotion of the Objects, and no part thereof shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise by way of profit, to the members of the Company, and no Director shall receive any salary or fees or remuneration or other benefit in money or money's worth from the Company
Provided that nothing herein shall prevent the payment in good faith by the Company of:
5.1 reasonable and proper remuneration to any member officer or servant of the Company not being a director in return for any services actually rendered to the Company, or
5.2 reasonable and proper professional charges to any member of the Company or a Director or any partner or employee of his or hers for any professional services rendered to the Company….or
5.3 interest at a reasonable and proper rate on money lent to the Company by any member of the Company or by a Director, or
5.4 reasonable and proper rent for premises demised or let to the Company by any member of the Company or by any Director, or
5.5 reimbursement of reasonable out-of-pocket expenses actually incurred by any member of the Company or by any Director, or
5.6 fees, remuneration or other benefit in money or money's worth to any company of which any member of the Company or any Director may also be a member holding not more than 1% of the issued share capital of that company, or
…"
Mr Graham gave evidence to the Tribunal that this absolute prohibition on the payment of salary, fees, remuneration or other benefits in money or money's worth to directors of LFO has been strictly observed.
Article 31 of the Articles of Association of LFO ("the Articles") provides that the Board shall consist of not less than two persons. LFO has four directors on the Board, of whom two are Mr and Mrs Graham. Mr Graham is the Chairman. The other two directors are Mr Crombie and Mr de Navarro. The four directors are referred to as "the Trustees" and I shall also refer to them as "the Trustees".
Trustees meetings have taken place three or four times a year. There has never been a Trustees meeting without all four Trustees being present. Every matter on the agenda has always been discussed until agreement has been reached and so there has never been any dissent. The Trustees have at all times been aware of their duties and have taken those duties seriously. In particular Mr de Navarro has examined all financial questions to satisfy himself as to their regularity before making decisions.
The Articles also contain the following provisions:
"48 The Board may meet together for the despatch of business…. Unless otherwise determined, two Directors shall be a quorum. Questions arising at any meeting shall be decided by a majority of votes. In cases of equality of votes the chairman of the meeting shall have a second or casting vote.
…
69 No alterations shall be made to the Articles except by a resolution put to a General Meeting of the Company by the Board (a simple majority of whom at a duly convened Board meeting shall decide to put such resolution to a General Meeting) and passed at such General Meeting (of which at least twenty-one days notice has been given) by three-quarters of those present and voting at such General Meeting provided that no alteration shall be made which shall have the effect of the Company ceasing to be a charity."
Article 66 of the Articles provides that in the management of the affairs of LFO no director shall be liable for any loss to LFO's property arising by reason of an improper investment made in good faith (so long as he shall have sought professional advice before making such investment). The Memorandum permits LFO to pay the premium of indemnity insurance for the directors and limits the liability of the members upon winding up to an amount not exceeding £1.
Mr Graham provided two "letters of comfort" of the 12th January 2002 and the 9th November 2002 ("the Letters") to the...
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