The Commissioners for HM Revenue and Customs v British Telecommunications Plc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rimer,Lord Justice Kitchin,Lord Justice Christopher Clarke |
| Judgment Date | 11 April 2014 |
| Neutral Citation | [2014] EWCA Civ 433 |
| Docket Number | Case No: A3/2012/3096 |
| Court | Court of Appeal (Civil Division) |
| Date | 11 April 2014 |
[2014] EWCA Civ 433
Lord Justice Rimer
Lord Justice Kitchin
and
Lord Justice Christopher Clarke
Case No: A3/2012/3096
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
Mr Justice Warren and Judge Charles Hellier
Appeal No: FTC/05/2012
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Paul Lasok QC and Ms Eleni Mitrophanous (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Appellants
Mr Roderick Cordara QC and Ms Lyndsey Frawley (instructed by BT Legal) for the Respondent
Hearing dates: 29, 30 and 31 October 2013
Introduction
On 30 March 2009, British Telecommunications plc ('BT') wrote to The Commissioners for Her Majesty's Revenue and Customs ('HMRC') making a claim for hitherto unclaimed VAT 'bad debt relief' for the period 1 January 1978 to 31 March 1989 – thus for a period ended 20 years before the claim. The claim was for £91,822,303 plus interest. It was said to be in relation to BT's business and private customers. It arose because, although BT had accounted for the standard rate of VAT on its supplies to customers, in some cases the customers had failed to pay BT either in part or at all for its supplies. The claim was for a refund of the VAT for which BT had accounted in respect of the amount unpaid by its defaulting customers.
The domestic legislation relating to claims for VAT bad debt relief in respect of supplies made during the period to 31 March 1989 was section 22 of the Value Added Tax Act 1983 (' VATA 1983'), which (in materially identical terms) replaced section 12 of the Finance Act 1978 and required particular conditions to be satisfied before a claim could be made, including a condition that the customer was insolvent. BT's letter suggested that it had, during the currency in force of section 22, made claims for relief in cases in which such conditions were satisfied. Its March 2009 claim was for relief in respect of cases where they were not. Its case was advanced on the basis that it had a directly enforceable European Union ('EU') law right to relief in such cases, with which the section 22 conditions, in particular the insolvency condition, were said to be incompatible. Whilst BT apparently recognised (although it misdescribed the relevant statutory provisions) that section 39(5) of the Finance Act 1997, which came into force on 19 March 1997, had finally precluded the making of its bad debt relief claims under section 22 in respect of supplies made before 1 April 1989, it asserted (or can be read as having intended to assert) that section 39(5) should be disapplied as denying BT its EU law right, leaving it free to make its claims 12 years later.
By a decision of 11 January 2010, HMRC gave their reasons for rejecting BT's claim; and on 1 April 2010, following the carrying out of BT's requested review of that refusal, HMRC wrote to BT upholding its decision.
BT appealed before the First-tier Tribunal (Tax Chamber) ('the FTT') against HMRC's decision. By a direction released on 26 January 2012, BT's appeal was transferred to the Upper Tribunal (Tax and Chancery Chamber) for the determination of three preliminary issues. They were heard by the Upper Tribunal (Warren J and Judge Charles Hellier) in February 2012, together with an appeal by HMRC against a decision of the FTT allowing an appeal of GMAC UK PLC ('GMAC', formerly General Motors Acceptance Corporation (UK) PLC) against HMRC's refusal of GMAC's claim for VAT bad debt relief in relation to supplies of cars between October 1978 and 1997.
The preliminary issues in the BT appeal before the Upper Tribunal addressed the question whether, if BT had at some time had a directly enforceable EU law right to claim bad debt relief, that right was still exercisable on 30 March 2009. It was agreed that BT's claim could not succeed as a matter of domestic law: it could only succeed if EU law permitted it to do so. The issues were set out as follows in the Upper Tribunal's judgment released on 3 August 2012.
'237. The three Preliminary Issues all relate to the time within which claims must be made and are as follows:
a. Issue 1: On the assumption that BT could otherwise have relied on an EU law right to bad debt relief, in respect of bad debts allegedly arising in the prescribed accounting periods running from 1 January 1978 to 31 March 1989, by virtue of Article 11C(1) of the Sixth VAT Directive, was the exercise of that right in 2009 barred in accordance with the general principles of EU law and/or subject to section 39(5) of the Finance Act 1997?
b. Issue 2: If the answer to Question 1 is in the negative in relation to the general principles of EU law, but affirmative in relation to section 39(5), does section 39(5) fall to be disapplied, or construed, under EU law, in such a way as not to affect the exercise of BT's right under EU law?
c. Issue 3: Do section 80 of the Value Added Tax Act 1994 and section 121 of the Finance Act 2008 apply to BT's claim irrespective of the answer to Question 1?'
The Upper Tribunal answered the first two issues in favour of BT and the third in favour of HMRC. Its answers were as follows:
'244. The answers to the Preliminary Issues are therefore as follows:
a. Issue 1: On the assumption that BT could otherwise have relied on an EU law right to bad debt relief, in respect of bad debts allegedly arising in the prescribed accounting periods running from 1 January 1978 to 31 March 1989, by virtue of Article 11C(1) of the Sixth VAT Directive, the exercise of that right in 2009 was not barred in accordance with the general principles of EU law but was no longer available as a result of section 39(5) FA 1997.
b. Issue 2: Section 39(5) falls to be disapplied, or construed, under EU law, in such a way as not to affect the exercise of BT's right under EU law. This conclusion turns on our view that inadequate notice of the termination of the Old Scheme was given. Accordingly, BT's claims were not time-barred when they made them in the claim letter dated 30 March 2009.
c. Issue 3: Section 80 of the Value Added Tax Act 1994 and section 121 of the FA 2008 have no relevance to BT's claim on the footing that its claims arise under section 22. If its claims arise, instead, under section 80, those claims were not made before 1 April 2009 and are now time-barred.'
BT's claim was therefore held to fail as a matter of national law, a conclusion which HMRC do not dispute. What they do dispute is that, on the assumption made, EU law entitled BT to bring its claim in March 2009. HMRC challenge the Upper Tribunal's conclusion on four grounds of appeal, for which the Upper Tribunal gave permission. They are:
'1. That the Upper Tribunal erred in holding that the general principles of EU law did not bar any claim by BT, in particular by rejecting the submission that there was an obligation under those general principles to act within a reasonable time.
2. That the Upper Tribunal erred in holding that section 39(5) Finance Act 1997, which brought the "Old Scheme" of bad debt relief to an end, falls to be disapplied or construed in such a way as not to affect the exercise of any rights that BT might have, in particular that it erred in holding that inadequate notice of the termination of the Old Scheme was given.
3. That, on the basis of the Upper Tribunal's own expressed view, BT did not have any directly effective rights and the Upper Tribunal ought therefore to have taken that into consideration.
4. That the Upper Tribunal erred in holding that the Insolvency Condition was disproportionate, unreasonable or otherwise unjustified so as to infringe directly effective EU law rights.'
Grounds 1 and 2 challenge the Upper Tribunal's answers to the first and second preliminary issues. Ground 3 goes to the validity of an assumption upon which the answers to those issues were based. Ground 4 challenges a conclusion of the Upper Tribunal that was essential to its answers to issues 1 and 2.
To understand how the issues arise, it is necessary first to explain the history of the 'bad debt relief' legislation. Before doing so, I should first mention two matters of which Mr Lasok QC, for HMRC, informed us. First, the parties have reached an agreement on the quantification of BT's claim, originally put at just under £92m, plus interest. The agreed figure is £65.2m excluding interest although, were BT ultimately to succeed, that figure would need to be adjusted to take account of the fact that BT had claimed bad debt relief in respect of the VAT when accounting for corporation tax. Second, this appeal is not a 'one off' one in which only BT is interested. Others are also interested in its outcome, including GMAC; and, as the Upper Tribunal ruled that there is no time limit for making these claims, other like claims may still be waiting to be made.
Finally, and by way of introduction to the legislative story, this appeal is centrally about (a) the alleged incompatibility of elements of the national legislation with what is said to be BT's entitlement to enforce its directly effective EU law rights under an EU directive, and (b) how, in the case of any such incompatibility, the court must deal with the problem. One authority relevant to the arguments is the decision of the House of Lords in Fleming (t/a Bodycraft) v. Her Majesty's Revenue and Customs [2008] UKHL 2; [2008] 1 WLR 195. As an opening guide to the relevant principles, Lord Walker of Gestingthorpe said this:
'24. … it is a...
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