England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(Mr Justice Laddie)

		The Royal Courts of Justice The Strand London WC2A Friday 9 March 2001

1. LORD JUSTICE ROBERT WALKER: This is a renewed application for permission to appeal from an order of Laddie J made in the Chancery Division on 20 December 2000 dismissing an appeal by Kuwait Petroleum (GB) Ltd ("KPL") from a decision made on 24 March 2000 by the VAT Tribunal.
2. The proceedings before the Tribunal were very protracted because on 13 January 1997 it had given a preliminary ruling referring five questions to the Court of Justice of the European Communities, on which the Court of Justice had given judgment on 27 April 1999 (see [1999] STC 488).
3. The case is concerned with the treatment for VAT purposes of a customer loyalty programme which KPL operated during the early 1990s. Laddie J described it at the beginning of his judgment, summarising findings made by the Tribunal. I need not repeat it again.
4. The essential issue between KPL and the Commissioners of Customs and Excise appeared to be whether the redemption goods which a customer might eventually obtain under the scheme were supplied to the customer free of charge so as to come within Article 5(6) of the Sixth Directive (EC Council Directive 77/388) with the consequence that they were treated as supplies made for a consideration. Article 5 deals with the supply of goods. Article 11 deals with the taxable amount. One of the questions referred to in the Court of Justice related to Article 11A(3)(b) (which is concerned with 'price discounts' and 'rebates') and the other questions were concerned with Article 5(6).
5. Before the Tribunal and before Laddie J KPL relied without success on two arguments which were (as Laddie J noted) alternatives and indeed mutually exclusive.
6. One was termed 'the consideration argument'. If successful, it would have avoided Article 5(6) by establishing an implied bargain, whenever a customer bought fuel, that part of the money which he paid was consideration for vouchers and (in due course) redemption goods. That argument is no longer pursued. It does not appear in the proposed grounds of appeal.
7. The other argument (termed 'the price reduction argument') is what is relied on by Mr John Walters QC on this application. It depends on the miscellaneous provisions in Article 11C, paragraph (1) of which provides:

"In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determine by the Member States.

However, in the case of total or partial non-payment, Member States my derogate from this rule."

8. Non-payment relates to bad debts, and is not in point here. But it was and is argued that the provision of redemption goods should be regarded as a reduction, made after supply, in the price for the premium goods; that is, petrol or diesel.
9. This argument is founded on the principle (which is sometimes called the principle of neutrality and is indeed a basic principle of the Community's VAT system) that it is intended to tax only the final consumer. Mr Walters emphasises that the Tribunal based its reference to the Court of Justice on the premise that the redemption goods were supplied by KPL, through the medium of Argos, for business purposes. It did not, he says, itself become a final consumer.
10. In order to preserve the principle of neutrality, therefore, the provision of the redemption goods should be regarded as a post-supply reduction in the price of the premium goods (immediately balanced by an Article 5(6) supply of the redemption goods for a notional consideration).
11. Mr Walters has in his skeleton argument, and in a further outline submission produced today, developed this argument by reference, among other things, to what Advocate-General Fennelly said on the reference to the Court of Justice in this case and also to the valuable survey of European authority in Bugeja [2000] STC 1, a decision of Carnwath J. The judge dealt with these arguments at the end of his judgment (paras 42, 43 and 45). He dealt with them fairly briefly, although he is not to be criticised for that: some points do not admit of very much elaboration.
12. When I first considered the matter on paper, I thought that Laddie J's reasoning could not seriously be challenged. However, having more fully studied his judgment and Mr Walters' full critique of it in his skeleton argument, and having had the benefit of discussion with my Lord, Mr Justice Lightman, I have to some extent modified my view.
13. I still think that Mr Walters faces a difficult task on a further appeal. But I do think that the argument against breaching the principle of neutrality any more than is unavoidable gives him a fair start. I think that there is more than a fanciful prospect of success and that the test in s 55 of the Access to Justice Act 1999 is satisfied.
14. I would therefore grant permission to appeal.
15. If my Lord agrees, it would be helpful for the listing authorities to consider whether the appeal can be listed at the same time as the appeal in Bugeja, which is, I am told, to be heard early next July. We would give no direction to that effect, but draw it to the attention of the listing authorities as a possibility to be considered.
16. MR JUSTICE LIGHTMAN: I agree.
ORDER: Application for permission to appeal allowed. Permission granted to the appellant to file a further skeleton argument. (Order not part of approved judgment)