Royal Mail Group Litigation v Royal Mail Group Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 28 March 2022 |
| Neutral Citation | [2022] EWHC 704 (Ch) |
| Court | Chancery Division |
[2022] EWHC 704 (Ch)
Mr Justice Adam Johnson
High Court of Justice
VAT – exemption – postal services – scope of exemption under EU law – EC Directive 2006/112, art. 132(1)(a) – whether services part of the ‘universal service’ – EC Directive 97/67, art. 3 – yes – whether services exempt – yes - whether Royal Mail an ‘emanation of the State’ – yes, at least until October 2013.
In Royal Mail Group Litigation v Royal Mail Group Ltd [2022] BVC 6, the High Court (EWHC) determined two preliminary issues in relation to this group claim concluding various services provided to business were properly exempt from VAT under EU law, and that Royal Mail had been an emanation of the State until, at least, October 2013 when they were privatised.
This case related to a group claim involved in several strands of ongoing litigation.
Royal Mail provided the claimants with postal services from February 2009 onwards. Although they were treated as exempt from VAT under the applicable UK legislation, the claimants alleged such services were not permitted to be exempted from VAT as a matter of EU law. Therefore, they argued, the amounts they paid for the services must be treated as having included VAT which they were entitled to recover as input tax.
The two issues before the court were:
- whether the services were exempt under EU law;
- whether Royal Mail was an ‘emanation of the State’.
In December 1997, the Postal Services Directive (EC Directive 97/67, art. 3) introduced the concept of the universal postal service and required member states to ensure users enjoyed the right to a universal service with certain minimum requirements at affordable prices.
In the UK, the Postal Services Commission (Postcomm) was established to ensure the provision of a universal postal service and granted a licence, under the Postal Services Act 2000, to Consignia plc (as Royal Mail was then known) to provide the service.
VATA 1994, sch. 9, grp. 3 originally exempted all services provided by Royal Mail. Following the decision in R (on the application of TNT Post UK Ltd) v R & C Commrs (Case C-357/07) [2009] BVC 389, when the ECJ determined, under EU law, not all public postal services were exempt, the UK legislation was amended to exclude from exemption any supplies made by Royal Mail for which the terms had been individually negotiated. Services provided by Royal Mail continued to be exempt if they were services required to be provided as a condition of their licence and they were price controlled.
Six ‘Sample Services’ were identified for this case. All were originally treated as exempt for VAT purposes, but there were some differences in how they were treated under the Royal Mail’s licence. All but one of them (Door to Door) were mandated and price controlled but only franking services were also mandated as falling within the universal service. Amendments to the licence in 2011 identified PPI as also being included in the universal service but did not otherwise affect the Sample Services which, except for Door to Door, all remained exempt from VAT following the decision in TNT and subsequent amendments to the legislation in the UK. Door to Door services were subject to VAT from January 2011.
Under the Postal Services Act 2011 a new regulator was appointed (Ofcom). Royal Mail was provisionally designated as the universal services provider with several conditions imposed by Ofcom. The VAT treatment did not change until 2012 when, following a period of consultation, Royal Mail was granted increased pricing flexibility and most of the Sample Services became subject to UK VAT. Only franking and single piece PPI remained part of the UK’s universal service and price controlled and therefore continued to be exempt from VAT.
The Royal Mail’s position was that, as the public postal service, the things they were required to do to provide a service in the public interest, by reason of their status, that were regulated in relation to price were exempt from VAT under EU law.
The claimants argued, on a correct interpretation of TNT Post, only services falling within the ‘universal service’ could fall within the EU VAT exemption. Furthermore, relying on ECJ caselaw, the scope of the universal service had to be limited and a distinction drawn between the essential needs of the population at reduced cost, and services dissociable from the service of public interest which included services which met the needs of the business community. The Sample Services, they said, each had characteristics that took them outside the art. 3 definition of ‘universal service’.
The Court examined each of the cited cases and found that ‘dissociable services’ were private law, commercial arrangements that were not a function of any legislative or regulatory intervention. It rejected the contention all business-related services fell outside the universal service quoting, at paras. 121 and 122, the Postal Services Directive, art. 12 which specifically considers applying tariffs for services forming part of the universal service and takes, as an example, services for businesses.
On the interpretation of TNT Post, the Court noted the Advocate General in that case had stated the scope of the EU exemption should be considered by reference to the art. 3 universal service, but the ECJ took a different view, putting the emphasis on status, and status alone. The Court was entirely persuaded by the reasoning adopted in R (on the application of Whistl UK Ltd (formerly TNT Post UK Ltd)) v R & C Commrs [2015] BVC 2. The correct approach, therefore, was to ask whether the Sample Supplies were supplies made by Royal Mail as the public postal services acting as such.
The Court concluded Royal Mail had been acting as the public postal services in providing the Sample Services. That was because Royal Mail was required to provide each of the services on regulated terms in its capacity as the public postal services. It was performing a public mission and was not acting as a commercial endeavour. The Sample Services, therefore, qualified for exemption under EU VAT law. That position persisted until the changes by Ofcom in 2012.
Even if, however, the Sample Services had to fall within the scope of art. 3, to benefit from the exemption, the Court held that they did, applying the outline definition given in that article of a postal service which was of specified quality being permanently provided at affordable prices for all users. No part of that excluded business-oriented services or excluded services on the basis they were dissociable services going beyond the bounds of any traditional or basic postal service. The Court rejected each of the characteristics the claimants had identified (at para. 98) as taking the Sample Services outside art. 3.
Finally, on the question of add-ons, the Court noted the VAT position was nuanced, based on an existing body of caselaw concerning multiple and composite supplies, was fact sensitive and therefore did not fall within the scope of the current case.
If Royal Mail (and its predecessors) was an emanation of the State, EU law would be directly enforceable against it and the claimants could then claim damages, and an injunction.
It was agreed, from 2001 when Royal Mail was incorporated (as Consignia plc) until October 2013 when it was privatised, Royal Mail was an emanation of the State. After October 2013 it was not controlled by the State because it was privately owned but it was still performing a task in the public interest and, for that, had been given special powers insofar as it continued to provide single piece franking.
The Court therefore concluded:
- The Sample Services, except for ‘Door to Door’ were properly exempt from VAT, under EU law, since Royal Mail was the public postal services acting as such.
- Royal Mail was an emanation of the State prior to 15 October 2013.
This will be a further blow to the group claim involving some 340 claimants, following on from the recent decision in the separate but related litigation of Zipvit Ltd v R & C Commrs (Case C-156/20) [2022] BVC 1.
In that case, the ECJ concluded no VAT was either due or paid if both the supplier and the recipient of the supply assumed the supply was exempt and, therefore, the supplier’s invoice did not refer to VAT.
Comment by Angela Bedi, Senior Tax Writer at Croner-i.
Laurent Sykes QC, Michael Firth and George McDonald (instructed by Mishcon de Reya LLP) appeared for the claimants
Javan Herberg QC and Emily Neill (instructed by Macfarlanes LLP ) appeared for the defendant
| Paragraph | |
| Introduction | 1 |
| (1) EU VAT Exemption | 2 |
| (2) Emanation of the State | 14 |
| The Relevance of the Questions | 16 |
| The Sample Services | 22 |
| VAT Treatment of the Sample Services | 30 |
| The Legal and Regulatory Framework | 33 |
| Postal Services Directive | 36 |
| Postal Services Act 2000 | 40 |
| Consultations by Postcomm: 2001-2005 | 46 |
| The Licence | 52 |
| The VAT Directive, the VAT Act 1994 and the original Group 3 | 55 |
| TNT Post | 60 |
| The Amended Group 3 | 61 |
| Postcomm Decision August 2011 | 68 |
| Licence: 2011 Amendments | 74 |
| Postal Services Act 2011 – Ofcom | 76 |
| The Current Group 3 | 81 |
| Ofcom's March 2012 Decision | 83 |
| The UPS Order | 87 |
| Summary | 92 |
| The EU VAT Exemption: the Parties' Cases in Detail | 93 |
| The EU VAT Exemption: Discussion & Conclusions | 102 |
| (1) The Main Contentions of Law | 102 |
| (2) Corbeau and the meaning of “dissociable services” | 105 |
| Corbeau | 105 |
| Postal Services Directive | 117 |
| Ilves Jakelu | 125 |
| Confetra | 132 |
| Deutsche Post | 137 |
| (3) Interpreting TNT Post: “the public postal services acting as such” | 147 |
| TNT Post | 147 |
| Whistl | 177 |
| Winterhoff | 184 |
| Interpreting TNT Post:... |
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