England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR JUSTICE MOSES
QUEEN'S BENCH DIVISION ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		6th December 2002

Lord Justice Mummery :

1. This is an appeal by HM Commissioners of Customs and Excise (the Commissioners) against the order of Moses J dated 22 March 2002. On an application for judicial review by DFS Furniture Company PLC (DFS) he ordered that the claim be allowed, that the decision of the Commissioners in a letter dated 19 February 2001 not to repay to DFS the sum of £6.2m be quashed and that the Commissioners repay that sum, plus interest accrued since 23 June 1997, within 28 days. The judge refused permission to appeal. On 11 June 2002 Laws LJ granted the Commissioners permission to appeal.

The Issue

2. At this stage of the proceedings there is only one ground of challenge to the lawfulness of the Commissioners' decision letter of 19 February 2001. DFS contends that the Commissioners are precluded from refusing repayment, as they came to an agreement with DFS in November 1996 to settle an appeal by DFS to the VAT Tribunal against the Commissioners' refusal to refund to DFS sums claimed to be due under section 80 of the Value Added Tax Act 1994 (the 1994 Act). It has been agreed by the parties that the resolution of the remaining issues (arising from Community law, the Human Rights Act 1998 and Articles 6 and 14 and Article 1 of Protocol No 1 of the Convention) raised by DFS in a Respondent's Notice should be adjourned pending the decision of this court in Marks & Spencer PLC –v- Commissioners of Customs and Excise [2000] STC 16 in the light of the ruling of the Court of Justice on a reference under Article 234 of the Treaty.

The 1994 Act

3. Under section 83 of the 1994 Act an appeal lies to a VAT Tribunal in respect of a claim for the repayment of an amount under section 80 of the 1994 Act. Section 80 is concerned with recovery of overpaid VAT. It provides the means by which a taxpayer can recover an amount paid to the Commissioners by way of VAT, which was not VAT due to them. Section 80, as amended, also contains the following provisions, which came into force on 4 December 1996.

"(4) The Commissioners shall not be liable, on a claim made under this section, to repay any amount paid to them more than three years before the making of the claim.

(4A) Where-

(a) any amount has been paid, at any time on or after 18^th July 1996, to any person by way of repayment under this section, and

(b) the amount paid exceeded the Commissioners' repayment liability to that person at that time,

the Commissioners may, to the best of their judgement, assess the excess paid to that person and notify it to him.

(4B) For the purposes of subsection (4A) above the Commissioners' repayment liability to a person at any time is-

(a) in a case where any provision affecting the amount which they were liable to repay to that person at that time is subsequently deemed to have been in force at that time, the amount which the Commissioners are to be treated, in accordance with that provision, as having been liable at that time to repay to that person; and

(b) in any other case, the amount which they were liable to repay to that person."

4. Section 85 contains provisions for settling VAT appeals by agreement.

"(1) Subject to the provisions of this section, where a person gives notice of appeal under section 83 and, before the appeal is determined by a tribunal, the Commissioners and the appellant come to an agreement (whether in writing or otherwise) under the terms of which the decision under appeal is to be treated –

(a) as upheld without variation, or

(b) as varied in a particular manner, or

(c) as discharged or cancelled,

the like consequences shall ensue for all purposes as would have ensued if, at the time when the agreement was come to, the tribunal had determined the appeal in accordance with the terms of the agreement (including any terms as to costs).

(3) Where an agreement is not in writing –

(a) the preceding provisions of this section shall not apply unless the fact that an agreement was come to, and the terms agreed, are confirmed by notice in writing given by the Commissioners to the appellant or by the appellant to the Commissioners, and

(b) references in those provisions to the time when the agreement was come to shall be construed as references to the time of the giving of that notice of confirmation."

Judgment of Moses J

5. After a detailed examination of the communications between DFS and the Commissioners in the Autumn of 1996 in their legal and factual setting, Moses J concluded that an agreement was reached between DFS and the Commissioners to settle an appeal by DFS to the VAT Tribunal; that that settlement had the effect of a judicial determination; and that the Commissioners were not therefore entitled to "claw back", under the statutory powers in section 80(4A) of the 1994 Act, the refund to DFS.
6. The judge's analysis of the correspondence was that an offer to settle the appeal was contained in a letter from DFS dated 11 November 1996, that that offer was orally accepted on behalf of the Commissioners on 25 November 1996 and that under the terms of the agreement so reached the decision of the Commissioners appealed by DFS was to be treated as discharged or cancelled. As the agreement was not in writing, the judge then had to consider whether there was compliance with section 85(3). He held that a letter from DFS's solicitors dated 28 January 1997 was, in the context of the earlier documents, a written confirmation of the terms of the agreement in compliance with the requirements of section 85(3).

Grounds of Appeal

7. The Commissioners appeal on the ground that the judge erred in fact and in law in concluding that the Commissioners entered into an agreement with DFS within the meaning of section 85. They accept that, after the appeal had been commenced by DFS, they authorised payment of the claim made by DFS under section 80. They contend, however, that the authorisation of the payment and the actual making of it was not under an agreement to settle the appeal by DFS. The refund was made administratively pursuant to a unilateral publicly announced change of policy regarding the deferral of repayments, following a judicial decision declaring the policy of deferment to be unlawful.
8. Mr Peter Mantle, on behalf of the Commissioners, has demonstrated to my satisfaction that the Commissioners and DFS did not in fact come to an agreement settling its appeal to the VAT Tribunal. DFS cannot rely on the provisions of section 85 to challenge the lawfulness of the Commissioners' decision in their letter of 19 February 2001 refusing a refund of £6.2m.
9. It will be necessary to focus, as did the judge in his careful and clear judgment, on the correspondence and other communications between the Commissioners and DFS in the Autumn of 1996. The communications between the parties in 1996 and 1997 involve a confusing succession of claims and cross claims: (a) a claim by DFS for overpayment of VAT; (b) a refund by the Commissioners in respect of the overpayment claim; (c) the Commissioners' recovery of the refund from DFS; and (d) the claim by DFS in these proceedings for the return of the recovered refund.

Overpayment of VAT by DFS.

10. In 1996 DFS claimed to have made an over declaration of VAT in the sum of £6.2m. In connection with its business of selling furniture DFS arranged for interest free credit to be made available to its customers for purchases of furniture. It would invoice the customer for the full purchase price, but receive from the finance house the purchase price, less an agreed commission for arranging the credit. DFS accounted for VAT on the gross purchase price invoiced to the client. In Primback Limited –v- Commissioners of Customs and Excise [1996] STC 757 the Court of Appeal held that DFS was only obliged to account for VAT calculated on the net purchase price it received from the finance house. (A different conclusion was ultimately reached by the Court of Justice in [2001] STC 803, but that is not immediately relevant to the present appeal).
11. Shortly before DFS sought a refund of the overpaid VAT, the Paymaster General announced on 18 July 1996 the proposed introduction, with immediate effect, of a 3 year limitation period to apply retrospectively to refund claims in relation to VAT and other indirect taxes and to associated statutory interest.

Deferral of Repayment

12. On 17 September 1996, DFS formally applied by letter for a refund of all overpaid VAT for the prescribed accounting periods from the period commencing 1 December 1985 to the period ended March 1993. It also enclosed a completed voluntary disclosure (form VAT 652) relating to the prescribed accounting periods from the period ended June 1993 to the period ended March 1996. The Commissioners replied on 7 October 1996 that they had decided to defer accepting DFS's Voluntary Disclosure submitted on 17 September and thus to defer the refund in the light of the announcement on 18 July 1996 of the proposed introduction, with immediate effect, of a three year limitation period applying retrospectively to refund claims and associated statutory interest. The Commissioners stated their belief that no appeal to the VAT Tribunal was available to DFS against deferment of payment of the refund.

Appeal to VAT Tribunal

13. On 30 October 1996 DFS served a notice of appeal to the VAT Tribunal against the decision of the Commissioners of 7 October 1996 not to repay, or to delay repaying, the refund due under section 80 of the 1994 Act, together with statutory interest, for overpaid VAT. In a covering letter of the same date DFS contended that it was entitled to immediate repayment. It also reminded the Commissioners of its previous request in its letter of 17 September 1996 to confer special treatment on its claim.
14. DFS wrote a further letter to the Commissioners on 11 November 1996. This is the crucial letter in the case. Moses J held that it contained an offer, which was subsequently accepted by the Commissioners in settlement of the appeal by DFS. The letter referred to the letter of 30 October 1996 and continued

"As you may know, the VAT Tribunal has since our last letter confirmed our view that it is not within the Commissioners' powers to delay or defer repayment under section 80. The Tribunal took the view that even if the Commissioners did possess such a power, its exercise in circumstances such as the present would be wholly improper and their decision not to pay would be totally unreasonable.

As regards the Commissioners' view that theirs was not a decision against which an appeal could be made, the Tribunal held that such a decision shall be construed as a plain refusal to make a repayment rather than a decision to defer and such refusal is clearly capable of being appealed.

Consequently, we believe that there is no basis in law for any further delay in respect of our claim for repayment. The Tribunal expressed the hope that the Commissioners would act in good faith and proceed on the basis that the Tribunal had directed the Commissioners to make repayment immediately and we trust that the Commissioners will indeed so act.

In light of this, we intend applying to the Tribunal for an extension of time in which to serve our list of documents as it would benefit neither Customs nor ourselves to incur further costs in pursuing the appeal if Customs were to act in accordance with the Tribunal's decision. We would be grateful if you could confirm your agreement to such an extension as soon as possible. We will, of course, only withdraw the appeal once we have received repayment in full.

Finally, we would emphasise that we are making two claims. First, that as a matter of current law (as upheld by the Tribunal) we are entitled to repayment immediately. Second, we are also requesting that you give our claim special treatment, so that even if Parliament approves the proposed changes, we would be allowed to keep the repayments in excess of the three-year cap. We should be grateful if you would confirm whether Customs & Excise are prepared to accept our claim for special treatment.

We look forward to your speedy response."

15. The letter was addressed to Mrs L Crosby at the VAT Business Advice Centre of the Commissioners in Sheffield.
16. The judge construed the letter as an offer, which was orally accepted by Mrs Crosby on behalf of the Commissioners on 25 November 1996, resulting in an agreement within section 85. The Commissioners contended that the letter was an invitation to reverse their decision, rather than an offer to settle the appeal.
17. Before considering the possible formation of an agreement to settle the appeal, I should summarise the relevant events occurring between 11 November and 25 November 1996.
18. On 19 November 1996 a decision was handed down by Keene J in R v. Commissioners of Customs and Excise ex parte Kay & Co Ltd [1996] STC 1500, declaring that the Commissioners' policy of deferring refunds of overpaid VAT was unlawful. DFS and the Commissioners were both aware of the impact of that ruling on the claims by DFS.
19. On 20 November 1996 DFS wrote to Mrs Crosby referring to the letter of 11 November 1996.

"As you know, the High Court ruled yesterday that Customs & Excise have no discretion to defer repayments under section 80 of the Value Added Tax Act 1994. This means that it has been unlawful for the Commissioners to withhold payment of the amounts set out in the forms VAT 652 enclosed with our letters of 17 September 1996 and 30 October 1996 and we would request that they rectify that position and make immediate payment."

20. In the last paragraph of the letter DFS reiterated its earlier request for the Commissioners to confer special treatment on its claim and to allow it to retain the section 80 repayments to be made to it, even in the event that a three year limitation period were introduced.
21. On 22 November 1996 the Commissioners issued a Business Brief (Issue BB/ 23/96), explaining how they would pay VAT refund claims, which had been deferred wholly or in part since 18 July 1996 pending Parliamentary approval of the necessary legislation. The Brief stated that on 19 November 1996 the High Court said the policy of deferring payments was not justified and continued

"Following the High Court decision Customs will be authorising and paying the agreed claims which have been deferred. However, if Parliamentary approval is given for the legislation introducing the three year cap on repayments, then Customs will have the power to assess to recover any refunds more than three years old which have been paid out since 18 July 1996. Full use will be made of that power in order to protect the revenue.

This means that in some cases refunds will be made, and then very shortly afterwards an assessment will be issued to recover the refunds. Businesses who are entitled to a refund will therefore be asked, where time permits, if they want to receive the money, or whether they want to wait to see if Parliament approves the legislative proposals."

22. The Brief added that Customs intended to authorise and pay deferred refunds with all due speed, but, to avoid unfairness to taxpayers, they intended to deal with cases in a stated order of priority, dealing first with those applicants who sought judicial review and those who had benefited from the courts' declarations and then dealing with businesses who appealed to the VAT and Duties Tribunal against deferment of payment of their claim.
23. DFS became aware of the Business Brief issued by the Commissioners. It sent a copy of it to Mrs Crosby with a letter of 25 November 1996, stating

"We would like to confirm, for the purposes of the paragraph headed "Payment of deferred claims", that we would want to receive payment of the claims set out in the forms VAT 652 previously sent to you. In this connection, we would again like to draw your attention to the request made in our last letter of 17 September 1996 for special treatment.

Further, referring to the paragraph headed "Order in which business claims will be dealt with", we understand that you confirmed to our solicitors during a telephone conversation earlier today that our said claims have already been authorised on Friday 22 November 1996 and are in the process of being paid to us. We would be grateful if you could confirm this in writing."

24. As already indicated, the judge held that the Commissioners and DFS had "come to an agreement" within the meaning of section 85(1) of the 1994 Act as Mrs Crosby had orally accepted on behalf of the Commissioners an offer contained in the letter of 11 November 1996. There was evidence before the court of a telephone conversation on 25 November 1996 between Mrs Crosby and Mr David Saleh, a solicitor with Clifford Chance, who were acting on behalf DFS. According to Mr Saleh's witness statement of 8 May 2001

"On 25 November 1996, I spoke with Mrs Crosby on the telephone at 4.25pm. I told her that the claimant wanted full payment of the sum claimed in its appeal and she confirmed to me on the telephone that the Claimant's claim had been authorised for payment on Friday 22 November 1996 and was in the process of being paid to the Claimant. The Claimant noted this telephone call in writing to Mrs Crosby of the Defendant by a letter drafted by me dated 25 November 1996."

25. On 26 November 1996 the Commissioners sent to DFS a copy of a general letter referring to the announcement of 18 July 1996 about the immediate implementation of a 3 year limit for refunds of overpaid indirect taxes and to the fact that the Commissioners had capped £6.2m as a result of that announcement. The letter continued

"On 19 November 1996 the High Court decided this policy of deferment in advance of Parliamentary approval was not correct and accordingly your outstanding claim has now been processed and authorised for payment. However, please read the next paragraph very carefully.

VERY IMPORTANT

If Parliament agrees in the forthcoming Budget that a 3-year limit is appropriate from 18 July 1996 for refunds of overpayments of indirect tax then Customs will require the repayment of the amount paid to you as a result of this letter. In your own interest you are therefore strongly advised to keep the monies paid to you readily available so that you are able to repay when required to do so by Customs."

26. In accordance with an authorisation on 4 December 1996 the sum of £6.2m was transferred by the Commissioners to DFS's account with the Royal Bank of Scotland on 9 December 1996.
27. On 28 January 1997 Clifford Chance, solicitors for DFS, sent a letter to the VAT Tribunal and copied it to the Commissioners. The judge concluded that, read in context, the letter was a notification for the purpose of section 85(3) of the oral agreement come to between the Commissioners and DFS on 25 November 1996. The letter simply stated

"We write to inform you on behalf of the Appellant [DFS] that the Commissioners have settled the Appellant's claim in full and that the Appellant wishes to withdraw his appeal to the VAT & Duties Tribunal.

Please treat this letter as an application of behalf of the Appellant to the Tribunal for an award of costs….."

28. Agreement on costs was in fact reached between the Commissioners and DFS's solicitors, as evidenced by a letter of 25 March 1997. No claim for interest on the sum repaid was pursued in the tribunal or correspondence.

The Judicial Review Proceedings

29. The judicial review proceedings by DFS referred to a notice of recovery assessment made by the Commissioners under section 80 (4A) of the 1994 Act in respect of the refund of £6.2m made in December 1996. As long ago as 17 April 1997 the Commissioners served the notice on DFS relating to the VAT refund of £6.2m. The position of the Commissioners was explained in a covering letter, in which the earlier letter of 26 November 1996 was mentioned.

"As you know the Commissioners made payment to you of £6.207,224 on 03. 12. 96. £6,207,224 was paid in respect of an amount overpaid by way of VAT more than 3 years prior to the date of your claim. At the time you indicated that you would like repayment of the capped sum pending Parliamentary approval of the 3 year time limit. Parliament has now approved this time limit and has given the Commissioners of Customs and Excise powers to recover refunds of sums overpaid in VAT which are subject to the cap.

In pursuance of their powers under Section 80(4A) VAT Act 1994, which allows the Commissioners to assess any amount they paid after 18 July 1996 which they were not liable to pay, an assessment is issued for the sum of £6,207,224. The assessment is made up of £6,207,224 which relates to the VAT refund."

30. In its response of 24 April 1997 DFS reiterated the requests in its earlier letters between September and November 1996 for "special treatment." This request was refused by the Commissioners in a letter of 30 May 1997, confirming that the assessment still stood. On 23 June 1997 the sum of £6,207,224 was transferred by DFS to the Commissioners.
31. The matter was resurrected by DFS in November 2000 following the judgments handed down by the Court of Appeal on 26 October 2000 in R-v- Customs and Excise Commissioners ex parte Building Societies Ombudsman Co Ltd [2000] STC 892 (the BSOC case). In that case, unlike this case, the appeal by the taxpayer to the VAT Tribunal against the decision of the Commissioners to defer payment of the refund was the subject of an order of the Tribunal allowing the appeal and the Commissioners were adjudged liable to pay the refund. The Court of Appeal held that the Commissioners were not subsequently entitled to invoke the administrative "claw back" powers in section 80(4A) of the 1994 Act so as to overthrow the judicial determination of the Tribunal on liability to refund the sum claimed.
32. In a letter dated 17 November 2000, written on behalf of DFS by Price waterhouseCoopers, it was contended that the assessment of 17 April 1997 was wrong in law and should now be withdrawn in the light of the decision in the BSOC case to the effect that, where the amount of the repayment liability had been determined judicially, the Commissioners were not entitled to recoup administratively what they had been adjudged by the Tribunal to be liable to pay. It was held that the " clawback" provisions in Section 80(4A) and (4B) could not override a judicial decision pre-dating the exercise of the power thereby conferred. It was contended that DFS was plainly on all fours with the BSOC case and that the clawback assessment issued on 17 April 1997 was unlawful.
33. Further correspondence culminated in the decision letter of the Commissioners dated 19 February 2001, asserting that the assessment issued to DFS was not ultra vires; that the recovery assessment of 17 April 1997 stood; and that DFS was not entitled to a refund of the sum that had been paid by it under that assessment. In particular, the Commissioners disputed that there was any section 85 agreement reached between them and DFS.
34. The lawfulness of that decision was challenged in the proceedings for judicial review issued by DFS in the Administrative Court on 13 May 2001. DFS's case was that the Commissioners' decision not to make repayment was wrong in law, because the correspondence between 30 October 1996 and 25 March 1997 demonstrated an agreement within the meaning of section 85 of the 1994 Act; that there was no distinction between DFS's case and the BSOC case; and that the Commissioners had acted wrongfully in refusing to pay back the money illegally clawed back by them.

Submissions of DFS

35. On behalf of DFS Mr R Cordara QC accepted that the question for the judge was: did the Commissioners and DFS "come to an agreement" in November 1996 under the terms of which the decision under appeal was to be treated as discharged or cancelled? He submitted that the judge had correctly found that the parties had come to an agreement on 25 November 1996, which complied with the requirements of section 85 and precluded the Commissioners from issuing an assessment on 17 April 1997 pursuant to Section 80 (4A).
36. It was not disputed that DFS had given notice of an appeal to the VAT Tribunal under section 83; that, after the appeal had been instituted, the Commissioners paid to DFS the sum of £6.2m claimed by it; that the appeal was never heard by the tribunal; and that the decision under appeal was discharged or cancelled. So, Mr Cordara submitted, the appeal must have been settled by agreement.
37. He disputed the Commissioners' contention that the refund was a "unilateral act" on their part. Rather it represented a total capitulation by the Commissioners in the face of the DFS appeal to the VAT Tribunal. After the refund the Commissioners took no active part in the appeal process. They did not purport to continue to contest the appeal. That was because the refund represented the settlement of the dispute between the parties. The Commissioners permitted DFS to withdraw the appeal and to retain the money and an agreement was reached on the question of costs.
38. Mr Cordara referred to the correspondence and to the evidence on which the judge based his decision, in particular the evidence of Mr Saleh about his telephone conversation with Mrs Crosby on 25 November 1996. Mr Cordara submitted that the judge correctly interpreted the evidence, viewed objectively, as an acceptance of an offer made by DFS. He cited Scorer –v- Olin Energy Systems Limited [1985] STC 218 for the proposition that the situation must be viewed objectively, having regard to the surrounding circumstances. The position was that DFS, in its letter of 11 November 1996, had offered to withdraw its appeal, if the sum claimed was paid. On 25 November 1996 Mrs Crosby stated in her conversation with Mr Saleh that payment of the refund had been authorised. Authorisation was in fact given on 3 December 1996. Payment was made on 9 December 1996. In those circumstances the judge was entitled to conclude that the parties had "come to an agreement" within the meaning of section 85.

Conclusion

39. I am unable to accept the submissions of DFS. I respectfully differ from the judge's view that the Commissioners and DFS had "come to an agreement" within section 85. I would allow the appeal. The further question under section 85(3) of the giving of confirmation by notice in writing of the fact that an agreement was come to and the terms agreed does not arise for decision. I say no more about it.
40. The judge's reasoning on the agreement point is contained in paragraphs 58 to 62 of his judgment. Crucially, Moses J concluded that the letter of 11 November 1996 contained an offer, which was accepted orally by Mrs Crosby on behalf of the Commissioners in the telephone conversation of 25 November 1996. On that basis Moses J continued

"58…The warning given by the Commissioners on 26^th November does not alter the analysis. True it is that that letter does no more than record what has happened. It does not constitute a written acceptance of the claim. But the warning cannot, as Mr Mantle contended, be regarded as a counter-offer. In that warning the Commissioners were not inviting DFS to agree anything whatever. In my view, DFS, as an appellant before the VAT tribunal and the Commissioners, did come to an agreement under the terms of which the decision, which was a decision to defer payment made in October 1996, was to be treated as discharged or cancelled. Thus the like consequences ensued as would have ensued if the tribunal had determined that the Commissioners were liable to repay the amount of the overpayment (as in BSOC) and were not entitled to defer. The like consequences of course only followed if the provisions of section 83 were complied with.

59. I do not agree that the claim for repayment by DFS can be distinguished from its appeal in which it sought repayment. The two were identical and indivisible. In both DFS sought repayment of the sums which the Commissioners had hitherto refused to pay. In making payment in full the Commissioners evidenced their agreement to meet the claim and settle the appeal. There was an agreement to pay, as evidenced by the authorisation. The agreement to pay was an agreement under which the decision to defer the decision under appeal was to be treated as discharged or cancelled. It matters not that the Commissioners' motive was to comply as soon as possible with Mr Justice Keene's ruling, nor that the payment was made because the Commissioners were under a legal obligation to make it. That seems to me to be irrelevant. Any agreement reached by the Commissioners to make a payment must inevitably either be because they regarded themselves under a legal obligation to make that agreement or, alternatively, in the exercise of their powers of fair management

60. Nor do I consider that such a finding deprives section 84A of all effect, as Mr Mantle suggested.

61. Section 84A operates whenever there has been a voluntary payment in response to a claim under section 80(2), but subsection (4A) does not operate where a payment has been made in settlement of a dispute which has given rise to an appeal settled within the meaning of section 85. The distinction finds support at paragraph 106 in BSOC. True that there was no intervention of a judicial determination as in BSOC, but section 85 has the same effect as the intervention of a judicial determination.

62. The appeal had to be ended somehow. In my view it ended as a result of DFS's withdrawal, but that withdrawal was only made on terms that it received payment. The appeal ended because DFS agreed to withdraw it on the payment by the Commissioners of the sum claimed in the appeal."

41. There are two good reasons for preferring a different legal analysis of the communications between the parties
42. No Offer and Acceptance

The letter of 11 November 1996, read in context and according to its ordinary and natural meaning, did not make any offer to the Commissioners, which was capable of acceptance by them, so as to lead to a concluded agreement to settle the pending appeal. The letter was not worded as an offer nor, even on Mr Cordara's preferred characterisation, as an invitation to agree that the decision under appeal was invalid and to treat it as discharged or cancelled. In my view, the letter would not be construed by the reasonable recipient as making any offer or invitation to come to such an agreement. The letter asserted, relying on a recent tribunal decision, that the Commissioners were not legally entitled to defer refunds under section 80. It trusted that the Commissioners would make the refund immediately. It asked for confirmation of the Commissioners' agreement to an extension of time for the service of a list of documents in the appeal to the tribunal. It stated an intention to withdraw the appeal once repayment in full was received. It emphasised the two basis of DFS's claims: legal entitlement to immediate repayment and special treatment. But no offer or invitation to come to an agreement was made by DFS. In the absence of such an offer or invitation, no oral acceptance was possible on 25 November 1996 or at any other time. In the absence of an offer and an acceptance, there was no meeting of minds and no agreement, either within the meaning of section 85 or at common law. That is fatal to DFS's case. I agree with the observations of Jonathan Parker J in Schuldenfrei v. Hilton [1999] STC 821 at 831 (a decision on similarly worded provisions in section 54 of the Taxes Management Act 1970) that

" ….the notion of parties having "come to" an agreement plainly implies not merely that they are of the same mind in relation to a particular matter, but also that their minds have met so as to form a mutual consensus, and that that meeting of minds, that mutual consensus, has resulted from a process in which each party has to some extent participated. On that footing it is, in my judgment, both legitimate and helpful (as both sides have accepted) to approach the question whether the Revenue and the taxpayer have made a section 54 agreement in the instant case by applying common law principles of offer and acceptance." (paragraph 44).

43. Administrative Policy Decision

It is true that it may be possible to infer an agreement to settle a claim or an appeal from the conduct of the parties and from the surrounding circumstances, by relying, for example, on the refund followed by the withdrawal of the appeal. But the making of the refund and the withdrawal of the appeal need not, in all circumstances, be referable to a prior agreement reached by the parties. It all depends on the context in which the refund was made. There may be a non-contractual explanation for the refund and for the withdrawal of the appeal. In my view, that was the case here. If, contrary to my view, there was an initial offer, or an invitation to agree, to settle the appeal in the letter of 11 November 1996, it was overtaken by subsequent events. The true explanation for the refund, which is borne out by the documents and by the sequence of events described earlier, is that it was made in consequence of a unilateral reversal by the Commissioners of a policy (i.e. deferral of repayment under section 80), which had been declared unlawful by Keene J in the case of ex parte Kay on 19 November 1996. They refunded £6.2m to DFS because it was unlawful for them to defer the refund any longer. They decided to act in accordance with their legal obligations, as determined by the court. This is clear from the Business Brief of 22 November 1996 issued three days before the alleged formation of an agreement by acceptance of an offer to settle. By the time that the alleged agreement was made the Commissioners had already decided to make the refund and had made a public announcement of the change in the policy of deferring refunds. The refund was made by the Commissioners without the need to come to an agreement with DFS to settle the appeal. The VAT appeal was neither determined judicially nor was it settled by a negotiated agreement. It was subsequently withdrawn by DFS, because it had ceased to have any practical point once DFS had received the refund .

44. I am unimpressed by Mr Cordara's objection that this analysis is flawed, being, he submitted, the result of an irrelevant inquiry into the subjective motivation of the Commissioners in making the refund, instead of a relevant inquiry into the objective existence of an agreement (see Scorer), involving the discharge or cancellation of the decision under appeal and having the statutory consequences stated in section 85. For the reasons stated above, there was no agreement in fact nor was it necessary in the circumstances for DFS to come to an agreement with the Commissioners in order to achieve the refund or to discharge or cancel the decision under appeal.

Result

45. The Commissioners succeed on the agreement to settle issue. The remainder of the appeal is adjourned.

Lord Justice Keene

46. I agree.

Lord Justice Laws

47. I also agree.
ORDER: The commissions succed on the agreement to settle issue; the remainder of the appeal be adjourned; agreed minute of order provided. (Order does not form part of the approved judgment)