Telewest Communications Plc and another v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judge | Sir Christopher Staughton,Lady Justice Arden,Lord Justice Kennedy |
| Judgment Date | 10 February 2005 |
| Neutral Citation | [2005] EWCA Civ 102 |
| Docket Number | Case No: C3/2004/0158 |
| Court | Court of Appeal (Civil Division) |
| Date | 10 February 2005 |
[2005] EWCA Civ 102
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
(CHANCERY DIVISION)
SIR FRANCIS FERRIS
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Kennedy
Lady Justice Arden and
Sir Christopher Staughton
Case No: C3/2004/0158
David Milne QC, Frederick Philpott (instructed by Deloittes) for the Appellants
Christopher Vajda QC, Ian Hutton (instructed by H M Customs and Excise) for the Respondent
Telewest Communications Plc have a business of providing television programmes by cable. Customers for that service are enlisted by one of twenty-eight regional companies, which are owned and controlled by Telewest Communications Plc. We refer to the parent and its subsidiaries as "the Group". The twenty-eight companies are also organised in a smaller group for the purposes of value added tax.
Each customer has an elaborate printed form of contract, much of it in small print but still legible, at any rate until it has been photocopied several times (as it has been in preparing the papers for the Court of Appeal).
Besides the task of supplying television programmes there is also a monthly magazine supplied to the customers, listing the programmes to be expected in the coming month. That is produced by Cable Guide Limited, which is ultimately part of the Group as to 80 per cent. Until 1999, both the goods and services involved in providing television programmes and the listing magazines were supplied to the customers by one of the regional companies. Value Added Tax was required to be paid by the regional company at the standard rate on the television programmes. But the magazine, as goods that are zero-rated, did not give rise to an obligation to pay value added tax. The Commissioners of Customs and Excise accepted that the sum payable by the customers could be divided between that part attributable to the goods and services supplied in the provision of television programmes, and that part attributable to the magazines. Only the former was taxable; the magazines, as publications, were zero-rated.
Then there came the decision of the European Court of Justice in the case of Card Protection Plan v Commissioner of Customs & Excise (1999) STC 174. The company, here referred to as CPP, provided fifteen different services of which two were singled out, that is to say the arrangement of insurance for credit card holders and the registration of card numbers with the provision of a loss notification service. The House of Lords submitted this question to the European Court of Justice:
"1. Having regard to the provisions of the Sixth Directive and in particular of Art.2 (1)thereof, what is the proper test to be applied in deciding whether a transaction consists for VAT purposes of a single composite supply of two or more independent supplies?"
The answer of the Court of Justice (1999) STC 270, was as follows:
"32. The answer to the first two questions must therefore be that it is for the national court to determine, in the light of the above criteria, whether transactions such as those performed by CPP are to be regarded for VAT purposes as comprising two independent supplies, namely an exempt insurance supply and a taxable card registration service, or whether one of those two supplies is the principal supply to which the other is ancillary, so that it receives the same tax treatment as the principal supply."
The House of Lords held that the transactions performed by CPP were to be regarded as comprising a principal exempt insurance supply and the other supplies in the transactions were ancillary, so that they were to be treated as exempt. It was thus established that, at any rate in some cases, a mixed supply was not to be dissected into a taxable supply and an exempt supply, but rather treated as taxable or exempt in accordance with its principal character. This was a victory for the taxpayer in the CPP case – but not for others. In British Sky Broadcasting Plc v Commissioners of Customs & Excise (1999) V & DR 283 there was a supply of satellite television broadcasts, and a magazine called "Sky TV Guide". It was held by the Tribunal that there was a single integrated service, which was evidently the broadcasting service. So value added tax was payable at the standard rate on the whole of the amount charged by B Sky B.
The Scheme
The Telecom Group thereupon took advice, and set up a scheme which is claimed to have restored the arrangement that prevailed before 1999, that is to say payment of VAT in respect of the supply of television programmes and zero-rating for the magazines. There is a dispute as to whether that objective was achieved. The steps that were taken have been set out in the judgment of Sir Francis Ferris, sitting as a deputy judge of the High Court, on appeal from a decision of the VAT Tribunal. We set out what happened, somewhat abbreviated, from [2004] STC 517.
First, there was the incorporation of a new company named Telewest Communications (Publications) Ltd. on 18 th October 1999. That company, which we will call "Publications", is a wholly owned subsidiary of Telewest Communications Plc. However, it did not become a member of the (smaller) Value Added Tax group.
The existing procedure had been as follows, described by Sir Francis Ferris in his paragraph 14 onwards:
(a) The supply of the magazine before January 2000
Before January 2000, a customer wishing to arrange for a supply of cable television services was first shown a leaflet describing different packages at different prices. For example a standard service package was available for £17.99 per month and was described as:
"Over 50 Channels covering news, current affairs, family entertainment, children's channels, music, sport, foreign language and information including BBC 1 and 2, ITV and Channel 4 and 5 Plus Cable Guide Magazine."
At the bottom of the leaflet were printed the words: "Effective 1 November 1998. All prices include VAT at 17.5%." Overleaf were listed other optional charges which included: "Cable Guide: First copy included in monthly subscription. Additional copies £3.25 each".
The tribunal mentions in para 18 what seems to have been a slightly later version of the leaflet the language of which was substantially the same.
A customer desiring to accept what was offered would be required to enter into a formal written contract on a printed form. The tribunal recorded in para 19 of its decision a contract for a combined television and telephone package, cl H of which provided:
H. CHANGING THE AGREEMENT
1. …
2. We may amend or vary the terms of this Agreement … from time to time. However, you will have the right to terminate this Agreement if the changes are significant …
3. We will give you at least 30 days' notice of any increase to the charges or changes to the Services before they take effect either by writing to you direct or publishing the changes in Cable Guide."
In relation to this the tribunal found that 'Services' were defined in cl. Q as 'the services which you have ordered and which are described overleaf' and that 'Overleaf the services were described by reference to the particular package chosen by the customer, which of course included Cable Guide Magazine'.
The tribunal noted that in the contracts with the Yorkshire Cable regional company (YCCL) the provision for changing the agreement was worded somewhat differently and read:
'32. CHANGING THE AGREEMENT
A. Subject to your right to terminate under clause 15 YCCL may at any time change any of the terms and conditions of this Agreement by giving you not less than one month's prior notice'.
8. The provision of the magazine before the change was described by the judge in paragraphs 7 and 8:
"Until July 2001 there was a single magazine, named Cable Guide which was produced by a company named Cable Guide Ltd. of which Telewest Plc is, either directly or indirectly, the majority shareholder. Cable Guide is published monthly and has a cover price of £3.25 a copy. It could, and still can, be purchased from newsagents at this price, but the overwhelming majority of copies were, until the end of 1999, distributed by regional companies to their customers without any charge being made over and above the monthly subscription for the television services. In other words the monthly subscription was paid in return for a package consisting of the television services and the magazine.
Until the summer of 1999 the commissioners allowed Telewest Plc to account for VAT on the supplies made by the Telewest VAT group by attributing £3.25 out of each monthly subscription to the magazine Cable Guide and treating this as consideration for a zero-rated supply. The balance of each monthly subscription was attributed to the television services and treated as consideration for a standard-rated supply."
The next step in the scheme was an agency agreement between Publications and 27 of the regional companies. It was concluded orally, as the Commissioners accept, on 1 st December 1999, although not put into writing until 16 May 2000. The one remaining regional company became a party to the agency agreement on 16 th May 2000, by a separate agreement in writing. The judge summarised the terms of the agency agreement in his paragraph (21) as follows:
(1) Publications was required to provide each customer of the regional companies with one copy of each monthly issue of Cable Guide for so long as that person remained a customer;
(2) Publications was to procure that...
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