R (Teleos Plc and Others) v Commissioners of Customs and Excise (Interim Relief)

JurisdictionEngland & Wales
JudgeLORD JUSTICE DYSON,Mr. Justice Bennett,Lord Justice Ward
Judgment Date02 March 2005
Neutral Citation[2005] EWCA Civ 200
Docket NumberCase No: C3/2004/1795
CourtCourt of Appeal (Civil Division)
Date02 March 2005
Between
The Queen on the Application of Teleos plc & Ors
Appellant
and
Commissioners of Customs and Excise
Respondent

[2005] EWCA Civ 200

Before

Lord Justice Ward

Lord Justice Dyson and

Mr. Justice Bennett

Case No: C3/2004/1795

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM The High Court of Justice, Administrative Court

Mr. Justice Moses

Insert Lower Court NC Number Here

Royal Courts of Justice

Strand, London, WC2A 2LL

Andrew Young (instructed by Messrs Dass Solicitors) for the Appellant

Rupert Anderson QC, Rebecca Haynes, Mario Angiolini (instructed by C&E Solicitors office) for the Respondent

LORD JUSTICE DYSON
1

This is an appeal by Teleos Plc ("Teleos") against the decision of Moses J of 29 July 2004 whereby he refused to grant interim relief in the form of a payment of money principally on the grounds that the application was for an interim payment and the conditions applicable to such an application prescribed by CPR 25.7 were not satisfied. The Commissioners of Customs and Excise ("the Commissioners") cross-appeal against the judge's order for costs in respect of the application. The judge himself gave Teleos permission to appeal since he considered that the appeal raised an issue of some importance.

2

The application was made in judicial review proceedings in which Teleos challenge the lawfulness of the decision by the Commissioners that mobile phones supplied by it did not meet the conditions for zero-rate VAT and ought therefore to be chargeable to VAT at the standard rate. The relevant assessment was made on 26 September 2002. The total amount assessed as being due to the Commissioners was £1,533,274. The phones had been supplied to a Spanish company in circumstances in which, the Commissioners contend, Teleos has not supplied evidence that the goods have left the United Kingdom so as to fulfil the conditions for zero-rating. The legal basis for these conditions ultimately derives from Directive 77/388/EEC ("the Sixth VAT Directive"). The Commissioners recouped part of the amount of the assessment by setting off £1,058,121.94 of VAT input credits due to Teleos pursuant to section 81(3) of the Value Added Taxes Act 1994 ("the 1994 Act").

3

The judge decided that it was necessary to refer questions concerning the interpretation of Art. 28c(A) of the Sixth Directive to the European Court of Justice ("ECJ") in order to determine the proper scope and interpretation of the conditions for zero-rating. It is unlikely that a decision on the reference will be made until before 2006 at the earliest. It is this delay that prompted the application for interim relief.

4

By an application notice dated 23 July 2004, therefore, Teleos applied to the court for interim relief in the sum of 50% of the total amount set off by the Commissioners (£529,275.31) plus provision for past and future legal costs. The application was made pursuant to CPR 25 and/or the court's inherent jurisdiction.

5

In support of the application, Teleos relied on the witness statement of Robert Holland, its solicitor, who said that, unless interim relief were given, the company "is almost certain to be wound up. Teleos requires interim relief so as to pay its taxes and to resume trading". Shortly before the hearing, the Commissioners served a statement by Ruth Farmer, a senior Operational Accountant. She analysed the financial information provided by Teleos and concluded that its financial position was much better than it had suggested, and that, in so far as it appeared to be financially vulnerable, this was because dividends of £1 million had been paid on 19 December 2002 in unexplained circumstances, and in the period after the assessment under challenge (a) interest free loans had been made to directors and (b) unusually high remuneration had been paid to directors. A number of other points were made by Ms Farmer which led her to say at para 28 of her statement:

"In those circumstances, the Commissioners reached the conclusion that Teleos did not satisfy the test for an interim payment at this stage."

6

Before the judge, the argument advanced on behalf of Teleos centred on CPR 25. The argument based on the court's inherent power to grant an injunction for an interim payment was not developed. Moreover, no argument was addressed to the judge that the Commissioners had failed properly to exercise their discretionary power to make an interim payment. The judge said that it was plain that this was a claim for interim payment and not a claim for interim relief, so that the principles stated in CPR 25.7 applied. Since it was common ground that the claim did not satisfy the requirements of CPR 25.7, the application was dismissed. That was the essential holding of the judge. He also seems to have considered whether the application should be allowed in the exercise of the court's inherent jurisdiction, and referred to para [10] of the decision of Neuberger J in Capital One Developments Limited v Customs and Excise Commissioners [2002] EWHC 197 (Ch), [2002] STC 479 (a decision to which I shall return) which is in these terms:

"As to the second point, while it may be wrong to suggest that it is an absolute principle, it seems to me that it would require very special facts before a court would be prepared to use its powers to grant an interim injunction to order that a payment of a disputed sum from a defendant to the claimant on the basis that it will be repaid if the claimant lost."

7

I say that the judge "seems to have considered", because, although he said that in this case there was no basis for thinking that the sums would be repaid if Teleos lost, he went on to say:

"But I stress that this is a case to which the principles set out in Civil Procedure Rules 25, Rule 7 apply, and it is accepted that those rules do not apply in this case."

The judge then considered whether the Commissioners' decision to refuse an interim payment was "on conventional public law grounds, irrational." He said:

"In my judgment, it cannot be said that it is. The Commissioners were entitled to take into account that there was very little prospect of any of these sums returning should the Commissioners be successful. Indeed, this case has not been argued on the basis that there is a legitimate public law challenge to the Commissioners' refusal."

There has been no challenge to this part of his judgment by Mr Andrew Young on this appeal.

CPR 25

8

CPR 25 provides for interim remedies. CPR 25.1(1) states that the court may grant "the following interim remedies". There follows a list of remedies in paras (a) to (o). Para (k) reads:

"an order (referred to as an order for interim payment) under rule 25.6 for payment by a defendant on account of any damages, debt or other sum (except costs) which the court may hold the defendant liable to pay."

CPR 25.1(3) is a provision on which Mr Young places much reliance:

"The fact that a particular kind of interim remedy is not listed in paragraph (1) does not affect any power that the court may have to grant that remedy."

9

Rule 25.6 makes certain general procedural provisions for interim payments. Rule 25.7 defines the conditions that must be satisfied if an interim payment is to be made. It is unnecessary to set them all out in this judgment. They include that the defendant against whom the order is sought has admitted liability to pay damages or some other sum of money to the claimant, or that the claimant has obtained judgment against that defendant for damages to be assessed and that, with certain exceptions, the court is satisfied that, if the claim went to trial, the claimant would obtain judgment for a substantial amount of money against the defendant from whom he is seeking an order for interim payment. As I have said, it is common ground that Teleos does not satisfy the rule 25.7 conditions.

10

The court's power to order interim payment derives from section 32(5) of the Supreme Court Act 1981 which defines "interim payment" as:

"a payment on account of any damages, debt or other sum (excluding any costs) which that party may be held liable to pay to or for the benefit of another party to the proceedings if a final judgment or order of the court in the proceedings is given or made in favour of that other party."

11

This statutory provision and the consequent rules were necessary because the court has no inherent power to order an interim payment: Moore v Assignment Courier Ltd [1977] 1 WLR 638. In that case, landlords brought proceedings against tenants claiming possession and mesne profits, and sought orders that, before the determination of their forfeiture actions, judgment be entered for them for mesne profits, since they were entitled to compensation in one form or another for the tenants' occupation of the premises. The applications were dismissed on the grounds that the court had no inherent jurisdiction to make the orders sought.

12

It is a general principle of our system of civil justice that a defendant has the right not to be held liable to pay until liability has been established by final judgment. Rule 25.7 departs from that principle, but it is subject to strict conditions. In these circumstances, I would respectfully doubt the correctness of para [10] of the judgment of Neuberger J in the Capital One case. If the court had the jurisdiction to which he refers, then the court could have granted the plaintiff landlords in the Moore case the money they claimed by way of an injunction. Be that as it may, Teleos does not say that the judge should have granted a mandatory injunction requiring the Commissioners to pay the sum claimed.

The submissions on behalf of Teleos

13

Mr Young submits...

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