England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
CH/2004/APP/0810 and CH/2005/APP/0488

		Royal Courts of Justice Strand, London, WC2A 2LL
		09th October 2006

Lord Justice Chadwick :

1. This appeal, in proceedings between Bournemouth Symphony Orchestra ("the BSO") and the Commissioners for H M Revenue & Customs (formerly the Commissioners of Customs & Excise), and the application for permission to appeal in proceedings between Longborough Festival Opera ("the LFO") and the Commissioners have been heard together. The issue in each case was whether the BSO or the LFO (as the case may be) was an eligible body for the purposes of item 2 in group 13 of schedule 9 to the Value Added Tax Act 1994 ("VATA 1994").
2. Section 31(1) VATA 1994 provides that a supply of services is an exempt supply (for the purposes of sections 4(2) and 31 of that Act) if it is of a description for the time being specified in schedule 9. Group 13 (Cultural Services etc) in schedule 9 VATA 1994 includes, at item 2: "The supply by an eligible body of a right of admission to - (b) a theatrical, musical or choreographic performance of a cultural nature". An "eligible body", in that context, is any body (other than a public body) which satisfies the three requirements set out in note (2) to group 13. The third of those requirements is that the body is managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities.
3. We indicated at the conclusion of oral submissions that we would refuse the Commissioners' application for permission to appeal in the LFO case for reasons which would be given in judgments which we would hand down. This judgment sets out the reasons which led me to the view that permission to appeal in the LFO case should be refused. It contains, also, the reasons why I would dismiss the appeal in the BSO case.

The cultural services exemption

4. Group 13 was introduced into schedule 9 VATA 1994 by an amendment effected by the VAT (Cultural Services Order) 1996 (SI 1996/1256). It gives effect to paragraph (n) of article 13A.1 of Council Directive (EEC) 77/388 on the harmonisation of the laws of Member States relating to turnover taxes ("the Sixth Directive"). Article 13A.1 provides that a Member State shall exempt from the charge to value added tax the supply of "(n) certain cultural services and goods closely linked thereto supplied by bodies governed by public law or by other cultural bodies recognised by the Member State concerned". But the obligation to exempt is subject to article 13A.2 which is in these terms, so far as material:

"13A.2(a) Member States may make the granting to bodies other than those governed by public law of each exemption provided for in 1(b), (g), (h), (i), (l), (m) and (n) of this Article subject in each individual case to one or more of the following conditions:

- they shall not systematically aim to make a profit, but any profits nevertheless arising shall not be distributed, but shall be assigned to the continuance or improvement of the services supplied,

- they shall be managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest, either themselves or through intermediaries, in the results of the activities concerned,

- they shall charge prices approved by the public authorities . . . or . . . prices lower than those charged for similar services by commercial services subject to value added tax,

- exemption of the services concerned shall not be likely to create distortions of competition such as to place at a disadvantage commercial organisations liable to value added tax."

5. Schedule 9 VATA 1994 is to be interpreted in accordance with the notes which it includes – section 96(9). Note (2) to group 13 was clearly intended to subject the exemption conferred by item 2 in that group to the conditions allowed by both the first indent (as to part) and the second indent under article 13A.2(a) of the Sixth Directive. The note is in these terms:

"(2) For the purposes of item 2 "eligible body" means any body (other than a public body) which –

(a) is precluded from distributing, and does not distribute, any profit it makes;

(b) applies any profits made from supplies of a description falling within item 2 to the continuance or improvement of the facilities made available by means of the supplies; and

(c) is managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities."

In that context "public body" has the meaning given by note (1). It may be noted that paragraphs (a) and (b) of note (2) do not give effect to the whole of the condition described in the first indent: there is no requirement that an eligible body shall not "systematically aim to make a profit". Nor does note (2) incorporate the third or the fourth indents of article 13A.2(a).

6. It is common ground that, in order to ascertain the scope and effect of the requirement imposed by the domestic legislation, the correct approach is to construe the words of the directive in the Community law context in which they appear – see the observations of Sir Andrew Morritt, Vice-Chancellor, in Commissioners for Customs & Excise v BAA plc [2003] STC 35. It is pertinent to have in mind that article 13A.2(a) of the Sixth Directive provides Member States with the power to make the grant of the cultural services exemption "subject in each individual case to one or more of the . . . conditions" set out in the four indents which follow. As I have said the United Kingdom has, in fact, chosen to impose the conditions allowed by the first indent (as to part) and by the second indent; but it might have chosen to impose the condition allowed by the second indent and not that allowed by the first indent. The correct approach, as it seems to me, is to interpret the condition allowed by the second indent on the basis that it is intended to be independent of (and not merely ancillary to) that allowed by the first indent.
7. The European Court of Justice considered the cultural services exemption – and, in particular, the first and second indents under article 13A.2(a) of the Sixth Directive – on a reference from the High Court in Case C-267/00 Commissioners of Customs and Excise v Zoological Society of London, [2002] ECR I-3353, [2002] STC 521 ("the London Zoo case"). The underlying facts in the London Zoo case are set out at paragraphs 11 and 12 of the opinion of Advocate General Jacobs:

"11 The Society comprises some 4,000 individual members who elect a president, secretary, treasurer and council. None of the officers or members of the Society or of its council receives any remuneration from, or has any financial interest in, the Society. Members of the council, including the officers, may receive only reimbursement of proper expenses. The council is the governing body of the Society, with general responsibility for management, control and administration of its revenue, property and affairs. It meets six times a year to deal with business, and has also appointed seven management boards or committees with responsibility for supervising specific aspects of that business; they meet between four and eight times a year and their members are again unpaid but receive reimbursement of expenses in the same way as council members.

12 In addition, the Society employs several hundred staff, including a director general and four directors, who must not be members but to whom it may pay 'reasonable and proper' remuneration. The director general and directors are involved with the Society's activities in accordance with their areas of responsibility, and attend meetings of the council and the management boards and committees as appropriate but are not members thereof. There is a finance director, a personnel director and one director for each of the Society's two zoos, the latter being responsible for the day-to-day operation of the zoos."

The question referred sought guidance as to how the words in the second indent under article 13A.2(a) were to be interpreted in relation to those facts; and, in particular, (a) what were the criteria for determining by whom a body is managed and administered for the purposes of that provision and (b) what were the criteria for determining whether management and administration of a body is conducted on an essentially voluntary basis.

8. At paragraphs 17 to 19 of his opinion the Advocate General discussed the proper approach to the interpretation of exemptions and limitations on exemptions. He observed that both must be interpreted "in such a way that the exemption applies to that to which it was intended to apply and no more". It was appropriate to consider "the purpose of the relevant provisions in their context". At paragraphs 20 to 26 he considered the purpose of article 13A.2(a). He referred at paragraph 21, with apparent approval, to the submission advanced by the Commission:

"21 . . . although Member States are free to apply or not any of the discretionary conditions in Article 13(A)(2)(a), each one must be interpreted uniformly throughout the Community and not as each Member State thinks fit. Those conditions allow the Member States to confine the exemption to activities carried out on a non-commercial basis and to avoid distortion of competition with taxable commercial undertakings. The second indent reinforces the first by ensuring that a formally non-profit-making organisation does not produce private profit for those who direct its activities."

At paragraph 22 the Advocate General rejected the submission, advanced on behalf of the United Kingdom, that the overriding object of the provisions in article 13A.2(a) was to enable a Member State to maintain fiscal neutrality as between commercial and non-commercial undertakings by preventing the distortion of competition. At paragraph 25 of his opinion he observed that:

"25 . . . the wording of the condition in question [the condition described in the second indent] reflects another concern which was manifestly felt in the drafting of Article 13(A), that of ensuring that certain activities should not benefit from exemption if they are run for commercial profit."

He pointed out that two of the exemptions were expressly confined to 'non-profit-making organisations' and that each of the seven sub-paragraphs in article 13A.1 to which article 13A.2(a) applied – sub-paragraphs (b), (g), (h), (i), (l), (m) and (n) – could be subjected, under the first indent in article 13A.2(a), to the condition that any profits should not be distributed.

9. The Advocate General then went on to say this:

"26 The second indent reflects a slightly different aspect of the same concern. Rather than focusing, like the first indent, on the approach of the entity to the making and use of profit, it seeks specifically to exclude the possibility that the persons who manage and administer the entity may have any direct or indirect interest in the financial results of its activities. The condition 'on a voluntary basis' may thus be seen as reinforcing that basic prohibition."

The "basic prohibition", in that context, is, I think, the prohibition which excludes bodies from the benefit of the exemption if they are run for commercial profit. As the Advocate General pointed out, the first indent addressed one aspect of that concern, the second indent addressed "a slightly different aspect of the same concern". His observation that the condition "on a voluntary basis" was to be seen as "reinforcing that basic prohibition" is, as it seems to me, properly understood as an indication of his view that the restriction in the second indent (as a whole) was one which could be imposed by Member States – whether in addition to the restriction in the first indent or as a "stand alone" condition – in order to secure adherence to the "basic prohibition" that the body should not be run for commercial profit. I am not persuaded that, in making the observation that he did in the final sentence of paragraph 26 of his opinion, the Advocate General intended to distinguish between "on a voluntary basis" and "by persons who have no direct or indirect interest". As I have said, I think he was referring to the condition as a whole.

10. At paragraphs 28 to 33 of his opinion the Advocate General addressed the meaning of "managed and administered" in the second indent under article 13A.2(a). He identified the issue as "the level at which the Community legislature intended the second indent . . . to be capable of application". He noted the Commission's view that "not all persons exercising management functions in a broad sense need to be volunteers; the presence of salaried staff is not precluded where they have no decisive influence over central decision-making – determining the organisation's policy, in particular financial policy, and directing its activities – but merely perform management tasks of an executive nature under the direction of those who have real decision-making authority". And he went on to say this:

"30 In line with the view that I have taken above [at paragraph 26] the second indent of Article 13(A)(2)(a) concerns those who run the organisation in question and seems clearly designed to preclude their being in a position to run it in such a way as to further their own enrichment.

31 If a Member State applies that indent alone, the aim and effect appear to be a 'separation of powers'. Certain individuals may have an interest in 'the results of the activities concerned' but must not be in a position to influence those results, whilst others, who may be in a position to influence the results, must have no interest in them, so that whatever decisions they take will be unaffected by considerations of private gain, whether direct or indirect."

Applying that test to the facts in the London Zoo case, the Advocate General thought that the "management and administration" of the Zoo might well include some of the activities of the operational directors to whom he had referred at paragraph 12 of his opinion, notwithstanding that they were not members of the council or of the management boards – see paragraph 33 of his opinion.

11. The Advocate General addressed the meaning of the words "on an essentially voluntary basis" at paragraphs 34 to 37 of his opinion. He was able to do so shortly in the circumstances, as he said, that both the Zoological Society and the United Kingdom Government were content to adopt the Commission's view that the requirement that management and administration be conducted on an essentially voluntary basis "is to be interpreted as meaning that substantially all the management and administration must be conducted by unremunerated persons".
12. The Court of Justice answered the question under reference in these terms:

"1. . . . the condition requiring a body to be managed and administered on an essentially voluntary basis refers only to members of that body who are designated in accordance with its constitution to direct it at the highest level, as well as other persons who, without being designated by the constitution, do in fact direct it in that they take the decisions of last resort concerning the policy of that body, especially in the financial area, and carry out the higher supervisory tasks.

2. . . . the words 'on an essentially voluntary basis' refer to the members who compose the organs entrusted with the management and administration of a body of the kind referred to in that provision and those persons who, without being designated by the constitution, do in fact direct it, and refer also to the reward which the latter may receive, habitually or exceptionally from that body."

13. In the course of its judgment the Court of Justice, after noting (at paragraph [16]) that the second indent under article 13A.2(a) was an optional condition which Member States were at liberty to impose (or not), had said this:

"[17] As for the interpretation of that extra condition, to the effect that a body availing itself of one of the exemptions in Article 13A(1) of the Sixth Directive must be managed and administered on an essentially voluntary basis, it follows from the legal context in which that condition occurs that the Community legislature wanted to make a distinction between the activities of commercial undertakings and those of bodies not aiming to achieve profits for their members (see in relation to the exemption under art 13A(1)(m) of the Sixth Directive, Case C-174/00 Kennemer Golf & Country Club [2002] ECR I-3293, paragraph 34)."

In order to understand what the Court had in mind when referring to the "legal context in which that condition occurs" it is necessary to consider its decision in the Kennemer Golf & Country Club case.

14. In Case C-174/00, Kennemer Golf & Country Club v Staatssecretaris van Financien [2002] ECR I-3293 the questions under reference, from the Hoge Raad der Nederlanden, included "whether art 13A(1)(m) of the Sixth Directive, read together with the first indent of para (2)(a) of that provision, is to be interpreted as meaning that an organisation may be categorised as 'non-profit-making' even if it systematically seeks to achieve surpluses which it then uses for the purposes of the provision of its services" – see paragraph [24] of the Court's judgment in that case. Article 13A.1(m) required exemption of "certain services closely linked to sport or physical education supplied by non-profit-making organisations to persons taking part in sport or physical education". That sub-paragraph – as in the case of the cultural services exemption in sub-paragraph (n) – was capable of being made subject, when implemented by a Member State, to the conditions described in article 13A.2(a). The relevant legislation in the domestic law of the Netherlands did impose the condition (allowed by the first indent) that the organisation must not aim to make a profit. It was in that context that the Court of Justice observed at paragraph [34] of its judgment – to which reference is made in paragraph [17] of the judgment in the London Zoo case – that:

"[34] The Netherlands government argues that such an interpretation [that 'profit', in the context of 'non-profit-making organisation', is to be understood not in the sense of surpluses but in the sense of financial advantages for the members of the organisation] does not take account of the fact that the first indent of art 13A(2)(a) must, as an additional condition necessarily have a content extending beyond that of the basic provision. In response to that argument, it suffices to observe that that condition does not refer only to art 13A(1)(m) of the Sixth Directive but also to a large number of other compulsory exemptions which have a different content."

And the Court of Justice went on to answer the third question under reference in that case in these terms:

"[35] Consequently, the answer to be given to the third question must be that art 13A(1)(m) of the Sixth Directive is to be interpreted as meaning that an organisation may be categorised as 'non-profit-making' even if it systematically seeks to achieve surpluses which it then uses for the purposes of the provision of its services. The first part of the optional condition set out in the first indent of art 13A(2)(a) of the Sixth Directive is to be interpreted in the same way."

So the distinction which the Community legislation sought to make was not between bodies which sought to generate surpluses from their activities and those which did not: the distinction was between bodies - "commercial undertakings" – which distributed profits to their members and bodies – "non-profit-making organisations" - which did not.

15. Further illumination is thrown on the point by the discussion of the first indent of article 13A.2(a) of the Sixth Directive in the opinion of Advocate General Jacobs in the Kennemer Golf & Country Club case. He said this:

"52 This provision [the first indent of article 13A.2(a)] sets out three conditions: (i) there may be no systematic aim of making a profit; (ii) any profits nevertheless arising may not be distributed; (iii) such profits must be used for the continuance and improvement of the services supplied. It seems to me clear from the language used that those conditions are cumulative and not alternative.

53 They must moreover be construed in such a way as to be coherent both among themselves and with the terms of the exceptions to which they may be applied. Therefore, taken together, they should be capable of allowing some non-profit-making organisations within the meaning of art 13A(1)(m) to benefit from the exemption whilst excluding others; put another way, it should be possible for some but not all of those organisations to fulfil the conditions . . . . The same applies, mutatis mutandis, with regard to the bodies referred to in the other sub-paragraphs of art 13A(1) to which the conditions may be applied; whilst there may be some degree of overlap between the definition of the body in question and the conditions that may be imposed, the application of the combined conditions may be expected in some way to limit the scope of that definition.

54 It is inherent in the concept of a non-profit-making organisation as I have defined it that the second condition of the first indent – prohibition of the distribution of profits – will be fulfilled. Moreover, the word 'profit' must be construed here as 'surplus of income over expenditure' rather than 'enrichment of natural or legal persons' (that is to say profit which by its very nature is distributed) or the condition would be circular and would have no meaning . . .

55 It must consequently bear the same meaning in the third condition – use for the furtherance of the services supplied – which will often, but not necessarily, be fulfilled; a non-profit-making-organisation may make a surplus which it uses otherwise than for the continuance or improvement of its services whilst none the less ensuring that third parties are not enriched."

16. It seems clear, therefore, that, in referring to "the legal context in which [the condition described in the second indent under article 13A.2(a)] occurs" at paragraph [17] of its judgment in the London Zoo case, the Court of Justice had in mind the same basic prohibition as that to which the Advocate General had referred in paragraph 26 of his opinion: that bodies which are run for commercial profit should not benefit from the cultural services exemption. The first indent under article 13A(2)(a) prohibited the distribution of profits: in the sense of surplus income after expenditure. The second indent was available to meet a different concern. As the Advocate General had pointed out (ibid) the condition allowed by the second indent was to be interpreted with that in mind. The concern addressed by that condition was that the cultural services exemption should not be available in circumstances where the activities of the body seeking exemption led to financial advantages for those who managed and administered its affairs. Those persons might include third parties who were not members of the body. That approach reflects the views expressed by the Advocate General at paragraphs 30 and 31 of his opinion in the London Zoo case. And that, as it seems to me, accords with what the Court of Justice went on to say, in paragraph [18] of its judgment in that case:

"[18] The aim of that condition [that the body must be managed and administered on an essentially voluntary basis] is therefore to reserve the VAT exemption for bodies which do not have a commercial purpose, by requiring that the persons who participate in the management and administration of such bodies have no financial interest of their own in their results, by means of remuneration, distribution of profits or any other financial interest, even indirect."

17. The condition described in the second indent (management on an essentially voluntary basis) cannot be intended to duplicate the conditions described in the first indent – although the conditions in the two indents may overlap. The second condition of the first indent – as explained by Advocate General Jacobs at paragraph 54 of his opinion in the Kennemer Golf & Country Club case – will prevent the distribution of surplus income. The second indent prevents the enrichment of persons who participate in the management and administration: they are to have no financial interest in the "results of the activities" concerned. To put the point another way, persons who participate in the management and administration are not to be rewarded for doing so, notwithstanding that so to reward them might not fall within the prohibition against distribution of surplus income. This, I think, is what the Commission had in mind, in the sentence cited by the Advocate General at paragraph 21 of his opinion in the London Zoo case to which I have already referred:

"21 . . . The second indent reinforces the first by ensuring that a formally non-profit-making organisation does not produce private profit for those who direct its activities."

18. The discussion in the judgment of the Court of Justice in the London Zoo case to which I have made reference thus far – that is to say, the discussion as to the object which the condition allowed by the second indent under article 13A.2(a) of the Sixth Directive seeks to achieve - leaves open the question: whose enrichment does the condition seek to prevent? That question is addressed by the Court of Justice at paragraph [19] of its judgment:

"[19] The condition that such persons should have no financial interest of their own thus refers only to persons directly associated with the management and administration of a body and not to all persons working for reward in one way or another in its administration. . . ."

So, in order to determine who are the relevant administrators and managers for the purposes of the condition which limits the exemption, the competent national authorities must identify the members of that body designated, in accordance with its constitution, to direct it at the highest level and other persons (if any) who, without being designated by the constitution, do in fact direct it. That was the sense in which the Court of Justice answered part (a) of the question under reference. For convenience, I shall refer to those persons as "the relevant managers".

19. At paragraphs [24] to [28] the Court of Justice addressed part (b) of the question under reference. It observed that the issue was:

"[24] . . . whether, on a proper interpretation of the second indent of Article 13A(2)(a) of the Sixth Directive, the words 'on an essentially voluntary basis' refer to the composition of the organs entrusted with the tasks of managing and administering a body, in the sense that it would be permissible for some of those who have a financial interest in the body to be involved in those tasks exceptionally and in an incidental way, or whether those words refer to the reward which those persons receive, in the sense that it would be permissible to grant them certain exceptional and symbolic financial advantages."

The response of the Court on that issue was that words "on an essentially voluntary basis" require consideration of both (i) the contribution actually made by each relevant manager to the management and administration of the body concerned and (ii) the reward (if any) each relevant manager actually receives for carrying out those tasks. That that was the Court's view appears from paragraph [26] of its judgment:

"[26] . . . The words 'on an essentially voluntary basis' . . . refer both, on the one hand, to the composition, in terms of membership, of the directing organs or, as the case may be, to the persons who actually direct without being designated by the constitution and, on the other hand, to the reward which the latter may receive habitually or by way of exception from the body concerned."

20. The Court of Justice had noted, at paragraph [25] of its judgment, that it was common ground between the parties that, even if all the management of the body must be carried out by unpaid persons, the fact that paid staff took part occasionally or incidentally in the adoption of essential decisions, or that small or token payments were made to those staff, would not be sufficient to deprive their activity of its essentially voluntary character and to justify the conclusion that the body pursued a disguised commercial purpose. But, as it seems to me, the Court was prepared to go a little further than that. The Court was prepared to accept that the cultural services exemption would not be lost under the second indent by reason only (i) that relevant managers who had a financial interest in the body were involved in the tasks of management and administration (albeit at the highest level) only "exceptionally and in an incidental way" and (ii) that relevant managers were rewarded by the grant of "exceptional and symbolic financial advantages".
21. The Advocate General had advised, at paragraph 38 of his opinion in the London Zoo case, that the condition allowed by the second indent under article 13A.2(a) of the Sixth Directive - that management and administration be conducted on an essentially voluntary basis - "is to be interpreted as meaning that substantially all the management and administration must be conducted by unremunerated persons". The Court of Justice, as it seems to me, has explained, in its judgment, that regard must be had to the nature of the remuneration. In particular, it is necessary to have regard to the link, or nexus, between the remuneration (if any) of the relevant manager and the part which that relevant manager actually takes in the management and administration of the body from which the remuneration is derived. That, I think, is what the Court had in mind when it observed, at paragraph [27] of its judgment in the London Zoo case, that:

"[27] It is for the competent national authorities to determine, for each body in question, and by means of an overall assessment, whether by reason of any contribution to the management of the body, as defined in the context of the answer to part (a) of the question, by persons having a financial interest in it, and by reason of any reward given to the latter, the essentially voluntary character of the management or administration of a body can be accepted or not."

22. As I have said, it is clear that, in determining whether the condition in the second indent under article 13A.2(a) of the Sixth Directive is met, the competent national authorities must first identify the relevant managers: that is to say, it is necessary, first, to identify those who are designated in accordance with its constitution to direct, at the highest level, the body seeking exemption and other persons (if any) who, without being designated by the constitution, do in fact direct that body "in that they take the decisions of last resort concerning the policy of that body, especially in the financial area, and carry out the higher supervisory tasks". That follows from the terms in which the Court of Justice answered part (a) of the question under reference in the London Zoo case.
23. It may be said that the relevant managers fall into two classes – defined by the answer to part (a) of the question under reference as (i) those who are designated in accordance with its constitution to direct, at the highest level, the body seeking exemption and (ii) other persons (if any) who, without being designated by the constitution, do in fact direct that body. And it may be said that the relevant managers are treated in that way by the Court of Justice in the final (and, in the present context, critical) sentence of paragraph [26], from which the Court's answer to part (b) of the question under reference is taken. A syntactical analysis requires that sentence to be parsed as follows:

The words 'on an essentially voluntary basis' . . . refer both, [A] on the one hand, [i] to the composition, in terms of membership, of the directing organs or, [ii] as the case may be, to the persons who actually direct without being designated by the constitution and, [B] on the other hand, to the reward which the latter may receive habitually or by way of exception from the body concerned.

If the sentence is read in that way, then it may be said that the words "the latter" in the penultimate line within that sentence – and within paragraph 2 of the answer given by the Court of Justice to the question under reference – refer only to the relevant managers within the second class.

24. I am not persuaded that a syntactical analysis of that nature provides assistance in the present case. It is necessary to keep in mind that the words which are to be interpreted are not those in the final sentence of paragraph [26] of the judgment of the Court of Justice in the London Zoo case. The words which are to be interpreted are those in the second indent under article 13A.2(a) of the Sixth Directive:

". . . .managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest . . . in the results of the activities concerned"

The judgment of the Court of Justice in the London Zoo case, read as a whole, teaches that the question for the national court is whether persons who participate in the management and administration of the body seeking exemption receive some financial reward for doing so. The object of the condition allowed by the second indent is to deny exemption to a formally non-profit-making organisation which does, in fact, produce private profit for those who direct its affairs. In that context it is pertinent, as it seems to me, to note that the first sentence of paragraph [26] of the judgment of the Court of Justice in the London Zoo case includes a reference back to paragraph [17] in that judgment:

"[26] . . . it is apparent from the purpose of the second indent of Article 13A(2)(a) of the Sixth Directive, as explained at paragraph 17 of this judgment, that the condition laid down by that provision is intended to make a distinction between the activities of commercial undertakings and those of non-profit making bodies, that is to say those that do not aim to generate profits for their members.. . . "

As I have said, the intent is to reserve the exemption for non-profit-making bodies whose activities do not lead to financial advantages for those who manage and administer their affairs. The essential requirement is that persons who participate in the management and administration of such bodies have no financial interest of their own in the results of those bodies. That requirement applies as much to relevant managers within the first class as it does to relevant managers within the second class.

25. That said, there is an obvious distinction between, on the one hand, those who are members of a constitutional organ charged with the task of directing the body's activities at the highest level – who may or may not be employees - and, on the other hand, those who are not charged with the direction of the body by its constitution but who do, in fact direct it in that they take decisions of last resort – who are likely to be employees. In each case the relevant enquiry is whether the decision takers have an interest in the results of the body's activities. But it is, perhaps, more likely that, in the case of employees, the answer to that enquiry will turn on the nature of the remuneration which they receive: is there a sufficient nexus between that remuneration and the part which the employee actually takes in the management and administration of the body from which the remuneration is derived?
26. In the case of employees who are relevant managers within the second class - taking decisions of last resort although not charged with the direction of the body by its constitution – the answer to that question may well be self-evident. There is likely to be an obvious nexus between the remuneration and the participation in the management and administration of the body from which the remuneration is derived. In the case of employees who are relevant managers only because they fall within the first class – being members of a constitutional organ charged with the task of directing the body's activities at the highest level – the answer to that question is likely to be more difficult. Is there, in fact, a sufficient nexus between the remuneration which they receive as an employee (which will at least include, even if it is not wholly attributable to, remuneration in respect of functions which, on this hypothesis, do not involve direction of the body's activities at the highest level) and their participation in the direction of the body's activities as a member of a board or committee charged with that task by the constitution?
27. With those considerations in mind, I turn to the appeal by Bournemouth Symphony Orchestra ("BSO") from the order made on 21 July 2005 by Mr Justice Mann.
Bournemouth Symphony Orchestra v Commissioners for H M Revenue & Customs

The underlying facts

28. The underlying facts in the BSO appeal are helpfully summarised at paragraph [5] in the judgment of Mr Justice Mann [2005] EWHC 1566 (Ch):

"The Bournemouth Symphony Orchestra is a well known orchestra based, as its name suggests, in Bournemouth. It is an orchestra of some considerable repute. Organisationally and structurally, it operates as a company limited by guarantee; the musicians are all employed by the company, as are a number of administrative staff. The detailed structure was set out in the [decision of the tribunal], and for present purposes it suffices to outline that structure. The Articles of Association provide for a Council, which has few significant functions other than the appointment of some of the directors to the Board. There is a Board which essentially equates to the familiar board of a commercial company. It takes the principal strategic decisions and oversees the activities of those who carry out the general administration. The membership includes a number of people, most of whom clearly participate on a voluntary basis. One of the members is the managing director, who at the present time is a Mr Michael Henson. . . ."

29. The managing director is a paid employee of the BSO. It was for that reason that the Commissioners, in a letter dated 21 March 2003, refused to accept that the BSO was entitled to be treated as making exempt supplies within article 13A.1(n) of the Sixth Directive. They wrote:

"The role of the Managing Director is such that he is salaried to manage and administer the Company. He is also a member of the Board that is constitutionally responsible for running the BSO. He has voting rights on that Board with the only restriction being section 59.2 of their constitution and that does not preclude him from a fully active role within the highest levels of management and administration of the body.

This relationship does not comply with article 13(a) of the EC Sixth Directive . . . "

Article 59.2 of the articles of association of the BSO had the effect that, at any meeting of the board of directors of the BSO, the non-employee directors would have a greater number of votes than the employee directors.

30. The VAT and Duties Tribunal (Dr David Williams, chairman, and Mrs S Edmondson FCA) in a decision released on 15 October 2004 ([2004] UKVAT V18799), dismissed the BSO's appeal from that refusal. The BSO appealed from the tribunal's decision under section 11 of the Tribunals and Inquiries Act 1992. The judge dismissed that appeal.

The tribunal's decision

31. The tribunal found that the managing director received "reasonable and proper" remuneration as managing director. It was satisfied that there was no specific element in that remuneration that directly reflected Mr Henson's position as a member of the board. Nor was his remuneration directly linked to any profit or surplus of the BSO. But, as would be expected in such a position, the remuneration was not nominal. That led the Tribunal to conclude that the managing director had a financial interest in the BSO. It rejected the argument that the absence of any specifically identified element of the remuneration associated with membership of the Board "in any way dilutes the significance of this financial interest".
32. The tribunal examined the relevant provisions of the articles of association of the company. It noted that article 38 provided that "the management of the Company shall be undertaken by the Board". It held, at paragraph 39 of its decision, that the board was the "key decision making body of the BSO". It made no finding that Mr Henson, as managing director, made decisions of last resort independently of the board. As the tribunal put it: "Given the duty of all committees to report to the Board on a regular basis, the tribunal finds this reflects and confirms a picture of an active Board meeting regularly and taking the key decisions itself".
33. The tribunal noted that article 48 provided for the board to consist of not more than ten directors, all of whom were to be members and one of whom was to be the managing director. One director was to be a musician, appointed from persons nominated by the musicians in the orchestra. It noted, also, that article 54 provided that a director who was an employee was not eligible to vote on any matter concerning his remuneration or the terms of his employment. Nor could an employee director chair any meeting of the board – article 55. The tribunal concluded:

"38 That formal structure puts the managing director on both the Board and the Council of BSO and places few limits, aside from voting limits, on the managing director's role on those bodies."

And it went on, in the same paragraph, to say this:

"That being so, and given the remuneration paid to the managing director constitutes a financial interest, the formal position suggests that BSO fails the test of being essentially voluntary".

That conclusion was not displaced by consideration of "the actual position". In practice "the managing director has and performs a significant role in the central decision making of BSO".

34. The tribunal recognised that the managing director was not the only paid employee who was a member of the board of directors. As I have said, article 48 in the articles of association of the BSO required that there should be one salaried member of the orchestra on the board ("the musician director"). The tribunal accepted that, aside from the managing director and the musician director "there is no question but that the management and administration of BSO is not only 'essentially of a voluntary nature' but is entirely of such a nature". It went on to say this:

"23. . . . Nor does the . . . position of the musician director [alter] this. He or she receives nothing of substance from being a director, and in particular receives no additional salary or any fee for taking such part in BSO's management as he or she does."

It is pertinent to note that there was no finding that the musician director did not take a full part in the deliberations of the board at board meetings. And the tribunal did not explain why – on the test which it applied (receipt of salary) - the musician director was not also to be treated as having a financial interest in the BSO.

The decision in the High Court

35. The BSO appealed to the High Court. The judge summarised what he took to be the tribunal's reasoning at paragraph [22] of his judgment, [2005] EWHC 1566 (Ch):

"[22] . . . the Tribunal considered, firstly, that the relevant decision-making body to be considered for the purpose of determining who has 'management and administration' of the BSO was the Board. It then considered that Mr Henson's salary gave him a 'financial interest' in the BSO, and that his role on the Board and in the running of the company meant that the management was not 'essentially voluntary'."

36. The judge rejected the proposition that the managing director's salary gave him a financial interest in the results of the BSO's activities. He accepted, at paragraph [29] of his judgment that: "In one sense any employee has an interest in the results of the activities of his employer, because if those results are bad enough he or she stands to lose his or her job". And he accepted that it might also be said that an employee had an interest "in that salary levels might be linked in some way to the overall success of the entity (without an express link in terms of something like bonuses) because an employer which is more prosperous might be able to afford higher salaries (or better perks) than one who is not". But he went on:

"[29] . . . The provision has to be read in context. The opening words of paragraph 1 of Article 13 require Member States to exempt certain services and goods 'under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse'. The relevant condition in the present case (in the second indent) is in my view intended to further that objective. There might be such abuse, for example, if a managing employee was on a bonus related to the financial performance of the entity, because that would or might be a way of taking out something that might otherwise be a profit. The condition provides that those with such an interest should not take part in the high-level management of the entity, presumably so that their activities are not motivated by an element of personal gain. . . .

[30] The question therefore arises: On which side of the line do employees fall, where those employees do not have a salary which is in terms related to the results of the activities (or enterprise)? It seems to me that most such employees fall outside the category of interested persons as described in the Directive. Their rights are not sufficiently closely linked to the results of the entity's activities to give them an interest in those results. While a proprietary interest in the results would certainly qualify, such an interest is not necessary. Results-related bonuses would also be likely to qualify. However, a normal salary would not, or at least not without more. It may be (I do not decide it) that an apparently 'straight' salary could be seen to be so high as to amount to some attempt to extract profit by a salary so as to fall within the condition, but even if that is the case then that would not affect the position of a normal employee.

[31] Accordingly, on my view of the Directive, unaffected by authority, a person who receives a salary does not have a 'direct or indirect interest … in the results of the activities' of the body concerned. . . ."

37. The judge then asked himself whether the conclusion to which he was drawn in the absence of authority could stand with the judgment of the Court of Justice in the London Zoo case; and, in particular, with the passage in paragraph [18] of that judgment on which the tribunal had relied:

"[18] . . . the persons who participate in the management and administration of such bodies [are to] have no financial interest of their own in their results, by means of remuneration, distribution of profits or any other financial interest, even indirect."

He concluded that the Court of Justice was not, there, suggesting that receipt of remuneration would, necessarily and in all circumstances, give the recipient employee a financial interest in the results of his employer's activities. Rather, when paragraph [18] of the Court's judgment was read with paragraph [17], it was clear that the Court was doing no more than point out that remuneration could be a means by which profits were distributed, contrary to the underlying objective of article 13A.2(a) of the directive that there should be a distinction "between the activities of commercial undertakings and those of bodies not aiming to achieve profits for their members". He said this, at paragraph [34] of his judgment:

"[34] Paragraph 18 [of the judgment in the London Zoo case] then illustrates the achievement of this objective further. In its attempts to make sure that there is no element of disguised profit extraction it equates those who administer and manage with the 'members' that it has referred to in the previous paragraph, and requires that they have no financial interest in 'their' results ('their' must be a reference back to 'bodies'). The short catalogue which follows is a list of devices which might be used to give (but do not necessarily give) an interest in the results. The emphasis is on 'no financial interest of their own'; the paragraph is not, in my view, intending to say that all remuneration will give such an interest. It might, and it might not, depending on how it is structured. If the Court had intended to say that all remuneration was a financial interest I think that there are more straightforward ways in which it could have expressed that conclusion than this one sentence in a part of the judgment which deals with a different point. "

38. By rejecting the proposition that the managing director's salary gave him a financial interest in the results of the BSO's activities the judge was led to hold that the tribunal had fallen into error. He pointed out that there was a logical difficulty inherent in the tribunal's reasoning which could be seen in the difference of treatment of the managing director, on the one hand, and the musician director, on the other hand. At paragraph [42] of his judgment he said this:

"[42] [The tribunal's] conclusion was that the managing director had a relevant financial interest because he was salaried; he performed a significant role in the management; and therefore the management was not essentially voluntary. But it seems to have considered that the position of the musician director was different. . . . . His position did not alter the 'essentially voluntary' nature of the board because:

'he or she receives nothing of substance from being a director, and in particular receives no additional salary or any fee for taking such part in BSO's management as he or she does.'

Here it adopted a different approach, looking to what identifiable pay the individual musician got for the management function. It did not consider the question whether the musician director had a financial interest in the results of BSO's activities. If it had applied the same reasoning as it applied to the managing director it ought to have concluded that he did, at which point it would presumably have had to consider whether the musician director's role was significant. But the Tribunal did not approach the matter in that way . . ."

39. The judge set out, at paragraphs [43] and [44] of his judgment, what he regarded as the correct approach to the question whether the BSO was managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest in the results of its activities:

"[43] . . . First, the Tribunal should have considered whether Mr Henson had a direct or indirect financial interest in the results of the activities of BSO. If all that he had was a salary which was not performance related, and was not a disguised way of removing what would otherwise have been profits, and nothing similar was true in relation to it, then he should have been found not to have had a financial interest. That would have dealt with that requirement. If he did not have such an interest, it should then have gone on to consider separately whether the management of the BSO was 'essentially voluntary'. The answer to that question does not necessarily lie in the simple fact that Mr Henson received remuneration. It depends on looking at how and by whom the management was conducted and placing his participation in that context. On the facts of this case the Tribunal had found that none of those engaged at board level were paid anything in respect of their BSO activities, other than the musician director and Mr Henson. It was doubtless correct to find that, absent the participation of those two gentlemen, the management was conducted on an essentially voluntary basis. The question then is what difference does their participation make, and that involves considering such things as their respective formal positions, what part they played in practice, what parts the other board members played, what their functions otherwise were, and whether they were paid any sum explicitly in respect of their board activities (to which the answer is No).

[44] The conduct of such an inquiry would reveal whether the management is "essentially voluntary". Voluntary must mean not remunerated or rewarded for the function. I have stressed the word "essentially" because it is important. What is important is the essence of the structure and practice. It is not an absolute test. It does not have to be absolutely or purely voluntary. That is doubtless why the ECJ in the London Zoo case accepted that occasional participation by paid employees did not compromise what was otherwise the voluntary nature of the management. Nor did token payments to the managers. Those are examples of what will not cause the line to be crossed. They demonstrate that an otherwise apparently voluntary management structure remains essentially voluntary despite the fact that it might be said to have become not purely voluntary. They are not, in my view, an exhaustive classification. Whether the line is crossed is a question of judgment in each case."

40. The judge's conclusion that the tribunal had adopted the wrong approach led him to consider whether to remit the matter to the tribunal for further consideration, or to determine the issue for himself. He decided to take the latter course. He was satisfied that there was a firm (and undisputed) factual basis upon which he could approach that task. He set out what he saw as "the clear picture which emerges" from the facts at paragraphs [47] and [48] of his judgment:

"[47] . . . The . . . picture . . . is of a board of people who are clearly volunteers, and two people who come from the employment side. The first is the musician director. He is paid to be a cellist, and receives nothing extra for being a board member. His prime function is to be a cellist, and it is not part of his job to be a board member. I do not think that his position would affect the otherwise voluntary character of the management body. He is a cellist who happens to be a board member, but the latter function is very much subsidiary to his musical functions. "

[48] The managing director appears to me to be different. He is not paid any identifiable separate sum in respect of his board membership, but his job as a whole (for which he is paid as a whole) involves his carrying out managerial functions (in the high-level sense required by the London Zoo case) as a board member (and, so far as is relevant, other than as a board member). His membership of the board is not incidental to another function; it is part of his overall function. As a board member he has real input. . . . [The] Tribunal found that his functions put him 'at the heart of the BSO organisation' (paragraph 33) . . . The board was an active board that took the key decisions (paragraph 39). The managing director was at all board meetings at which minutes were produced, and a major item on every board agenda was his report to the board. This was preceded as standard by discussions between him and the chairman. Other directors were not always present, though looking at their identities they can certainly not be said to be mere ciphers . . . Historically speaking the managing director had been centrally involved in important discussions some years previously when funding requirements led to the disbandment of one of BSO's two orchestras. One of the influences on the BSO, 'and not the least of them' is the managing director. For all these functions Mr Henson is paid a sum which exceeds £80,000 (though this figure did not appear in the Tribunal's decision). It was these factors that led the Tribunal to determine that the managing director 'performs a significant role in the central decision making of BSO'.

41. On those facts the judge held that the BSO had not satisfied the condition for which the second indent under article 13A.2(a) of the Sixth Directive provides. His reasoning is set out at paragraph [49] of his judgment:

"[49] Looking at this evidence realistically, the position of the BSO is that its board contains a number of volunteers and one significant person who is a full-time employee and who is not a volunteer. He contributes to a significant extent in the decision-making process, and it is clear enough that he is intended to. It is clear enough to me from the findings of the Tribunal that his contribution at board level is not de minimis, slight, occasional or any other adjective which enables one to ignore it in assessing the voluntary quality of the board. It is apparent that when the Tribunal held it to be 'significant' it meant significant in the sense that it was real, substantial, wide-ranging and constant. It is not the sort of participation that one can ignore in the same way that one can ignore occasional contributions. He is paid to do this - it is part of his job. That means that he is not a volunteer; and it also means that overall the managerial body is not 'essentially voluntary' - it is not of the essence of the board that it is voluntary. It contains a number of volunteers, but it contains one significant non-volunteer whose participation is built in as a matter of formality (via the articles) and as a matter of substance. One might go so far as to describe it as 'largely' voluntary, but that would leave a significant element that is non-voluntary and which prevents the extra step required to make it 'essentially voluntary'."

It was on the basis of that reasoning – which, as he recognised, differed from the reasoning of the tribunal – that the judge dismissed the appeal.

This appeal

42. On this appeal the BSO seeks to uphold the judge's decision that the tribunal erred in holding that Mr Henson had a financial interest in the results of its activities. But it submits that, having reached that conclusion, the judge ought to have gone on to allow the appeal. The point is put in this way, at paragraph 16 of the skeleton argument filed in this Court:

"16 . . . It is plain from the terms of paragraph 27 of London Zoo that it is only the contribution to the management of, and the rewards received by, persons having a financial interest in a body which are at all relevant to the "overall assessment" which the national authority must carry out. If a person has no financial interest, as was the position with Mr Henson, his contribution to management and his reward do not enter into the assessment."

It is said that, having decided that Mr Henson had no financial interest in the results of the BSO's activities, the judge was wrong to adopt an independent test of his own by asking, as a separate question whether the management of the BSO was "essentially voluntary". The BSO submits that the judge's error is to be found in paragraph [43] of his judgment:

"If Mr Henson did not have [a financial interest in the results of the activities of the BSO], [the tribunal] should then have gone on to consider separately whether the management of the BSO was 'essentially voluntary'."

43. The Commissioners, on the other hand, challenge the judge's decision that the tribunal erred in holding that Mr Henson had a financial interest in the results of its activities. In a respondent's notice, filed on 1 November 2005, they draw attention to paragraph [18] in the judgment of the Court of Justice in the London Zoo case. They submit that the tribunal was correct to take the view, in the light of that paragraph, that "as the managing director's remuneration was not nominal or token, it was, following the guidance of the Court, a financial interest in [the BSO] within the meaning of article 13A(2)(a)". On that basis the Commissioners do not need to rely on the judge's approach, based on an independent test of "essentially voluntary". Nevertheless – without, I think, any obvious enthusiasm for that approach – the Commissioners submit that the judge's eventual conclusion must be right. As it is put at paragraph 9 of their skeleton argument in this Court:

"Whether the Managing Director's remuneration is properly regarded as a financial interest or as making him a 'non-volunteer', once it is concluded that he 'has and performs a significant role in the central decision making of BSO' (as per the tribunal) or that 'he contributes to a significant extent in the decision making process' (as per Mann J), the conclusion that the BSO is not managed and administered on an essentially voluntary basis is inevitable."

44. In my view the BSO is correct in its contention that, having decided that Mr Henson had no financial interest in the results of the BSO's activities, the judge was wrong to adopt an independent test of his own by asking, as a separate question whether the management of the BSO was "essentially voluntary". The condition allowed by the second indent under article 13A.2(a) of the Sixth Directive is satisfied if the body seeking exemption is "managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest . . . in the results of the activities concerned". There is no support, either in the text or in the London Zoo case, for a disjunctive interpretation: that is to say, an interpretation which poses two independent conditions – whether those conditions be alternative or cumulative. The condition is not to be read as if it required, in the alternative (A) that the body is managed and administered on an essentially voluntary basis or (B) that the body is managed and administered by persons who have no financial interest in the results of is activities. Nor, as it seems to me, is the condition to be read as requiring (A) that the body be managed and administered on an essentially voluntary basis and (B) that the body be managed and administered by persons who have no financial interest in its results. As I have pointed out, the Advocate General did not see the words "on an essentially voluntary basis" as adding some additional or independent requirement. There is, I think, a single condition in the second indent. Each of the elements "essentially voluntary basis" and "no financial interest" must be given appropriate weight; but they must be taken together in determining whether the single condition is satisfied. As I have said, in each case, the relevant enquiry is whether the decision takers have an interest in the results of the body's activities. The object of the condition is to deny exemption to formally non-profit-making organisations which do, in fact, produce private profit for those who direct their activities.
45. I turn, therefore, to the question whether the tribunal was right to conclude that Mr Henson, as a salaried employee, did have an interest in the results of the BSO's activities for the purposes of the condition allowed by the second indent. It is essential, in this context, to keep in mind the finding of the tribunal that the relevant managers (in the sense in which I have used that expression earlier in this judgment) were the board of the BSO. It was members of the board who were designated in accordance with the constitution of the BSO to direct its activities at the highest level. There was no finding that the managing director (or Mr Henson, in particular) was a relevant manager within the second class – persons who, without being designated by the constitution, do in fact direct the body seeking exemption.
46. Given the tribunal's finding that Mr Henson is a relevant manager only because he falls within the first class – as a member of a constitutional organ charged with the task of directing the body's activities at the highest level – the relevant enquiry is whether there is, in fact, a sufficient nexus between the remuneration which he receives as an employee and his participation in the direction of the BSO's activities as a member of the board. That is not an enquiry which was undertaken, in terms, by either the tribunal or the judge. But it is pertinent to have in mind the way in which the tribunal addressed the position of the other salaried employee who was on the board – the musician director.
47. The relevant enquiry, in relation to the musician director, was the same: was there a sufficient nexus between the remuneration which he (or she) received as an employed member of the orchestra and his (or her) participation in the direction of the BSO's activities as a member of the board? The tribunal answered that question when it held (at paragraph 23 of its decision) that

"He or she receives nothing of substance from being a director, and in particular receives no additional salary or any fee for taking such part in BSO's management as he or she does."

On a proper analysis, the tribunal's decision that the essentially voluntary nature of the board was not affected by the position of the musician director – a decision with which the Commissioners do not quarrel – is plainly based on a finding that there was not a sufficient nexus between the remuneration which he (or she) received as an employed member of the orchestra and his (or her) participation in the direction of the BSO's activities as a member of the board.

48. Do the tribunal's findings of fact lead to a different conclusion in the case of Mr Henson? As I have said, the tribunal did not find him to be a relevant manager within the second class. The tribunal accepted, also, that there was no specific element in the remuneration received by the managing director that was directly attributable to his position as a member of the board. And there was no finding that his participation in the deliberations of the board at board meetings (in the sense of decision taking rather than the provision of material to inform decision taking) was greater or less than that of the musician director.
49. The answer, I think, lies in the fact that the terms upon which Mr Henson was employed went beyond requiring him to carry out the functions of chief executive and adviser to the board. He was employed as managing director. His terms of employment – whether or not spelt out in his letter of appointment and his job description - required him to accept appointment to the board of directors and to participate in board meetings. His remuneration as managing director included remuneration for the time spent in, and the contribution which he made to, the deliberations of the board. It is nothing to the point that there was no specific element in his remuneration which was directly attributable to his participation as a member of the board. The tasks for which he was remunerated included participation, as a member of the board, in BSO's management and administration (in the sense in which that concept is to be understood in the light of the tribunal's finding and the decision of the Court of Justice in the London Zoo case). As the judge put it, at paragraph [48] of his judgment: "his job as a whole (for which he is paid as a whole) involves him carrying out managerial functions (in the high-level sense required by the London Zoo case) as a board member . . . His membership of the board is not incidental to another function; it is part of his overall function".
50. For my part I would hold that the findings of fact made by the tribunal in this case led necessarily to the conclusion that there was a sufficient nexus between the remuneration which Mr Henson receives as an employee and his participation in the direction of the BSO's activities as a member of the board to justify a refusal of exemption on the grounds that the BSO did not satisfy the condition allowed by the second indent under article 13A.2(a) of the Sixth Directive.
51. It is for those reasons that I would dismiss the appeal in the BSO case.
H M COMMISSIONERS FOR REVENUE & CUSTOMS v LONGBOROUGH FESTIVAL OPERA
52. I turn now to the reasons which led me to refuse permission to appeal from the order made on 27 January 2005 by Mr Justice Lightman in the LFO case.

The underlying facts in the LFO case

53. The underlying facts were set out by the judge at paragraphs [3] to [22] of his judgment, [2006] EWHC 40 (Ch). At this stage, I need refer only to the following:

"[3] Mr Graham lives at New Banks Fee, Longborough, in Gloucestershire ('Longborough'). Mr Graham built a large barn at Longborough which he originally intended to house cattle but instead used as an opera house. He added a 'Palladian-style' front, added a stage, and installed seating. He later installed a proper stage with an orchestra pit, proper seating and boxes.

[4] At first the opera performances at Longborough were produced and managed by Longborough Developments Ltd ('LDL'), a property and development company incorporated in 1965 of which Mr Graham and his wife are directors and in which Mr Graham holds the majority of the shares and his wife the remainder. LDL produced the operas on a commercial basis with a view to profit. This business venture was only a small part of its overall business activity.

[5] By 1999 Mr Graham considered that the opera at Longborough had reached a stage at which it would benefit from the support of patrons who might not be so likely to support a commercial venture. The support of patrons would also have the effect of improving the standard and quality of performances. To this end in 2000 Mr Graham incorporated LFO. LFO is a company limited by guarantee and is registered as a charity. The 2002 opera season at Longborough was the first season of operas produced and managed by LFO and in October 2001 LFO first received income in respect of Longborough paid by way of advanced bookings for that season. Since 2002 LFO has produced and managed most of the operas at Longborough. LFO has at all times fixed prices for admission, not to make a profit, but to cover the costs of production.

. . .

[8] Clause 5 of the Memorandum governs the application of LFO's income and property, and includes the following:

'5 The income and property of the Company shall be applied solely towards the promotion of the Objects, and no part thereof shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise by way of profit, to the members of the Company, and no Director shall receive any salary or fees or remuneration or other benefit in money or money's worth from the Company

Provided that nothing herein shall prevent the payment in good faith by the Company of: . . .

5.3 interest at a proper and reasonable and proper rate on money lent to the Company by any member of the Company or by a Director, or

5.4 reasonable and proper rent for premises demised or let to the Company by any member of the Company or by any Director . . .

. . .

[10] Article 31 of the Articles of Association of LFO ('the Articles') provides that the Board shall consist of not less than two persons. LFO has four directors on the Board, of whom two are Mr and Mrs Graham. Mr Graham is the Chairman. The other two directors are Mr Crombie and Mr de Navarro. The four directors are referred to as 'the Trustees' . . .

[11] Trustees meetings have taken place three or four times a year. There has never been a Trustees meeting without all four Trustees being present. Every matter on the agenda has always been discussed until agreement has been reached and so there has never been any dissent. The Trustees have at all times been aware of their duties and have taken those duties seriously. . . .

. . .

[14] Mr Graham provided two "letters of comfort" of the 12th January 2002 and the 9th November 2002 ("the Letters") to the Trustees. The letter of the 12th January 2002 said:

'Further to the minutes of the Trustees' meeting of 13th October 2001 I am writing to confirm that Longborough Developments Ltd and I will provide the appropriate funds to cover any deficit arising from LFO's 2002 season'.

The letter of the 9th November 2002 was slightly different:

'As requested I am writing in my capacities as Director of Longborough Developments and personally to confirm that LDL or I will make good any financial deficiency which may arise from next year's performances and operations.'

There was no mention whether such support, if it were necessary, would have been a gift or a loan, or, if the latter, whether interest would have been charged. . . .

. . .

[20] In 2003 the VAT Consultancy wrote to the Commissioners on behalf of LFO stating that LDL intended to charge a rent in respect of the use of the opera house in 2002. They had made inquiries as to what it would cost to hire a similar facility on the open market and had established that LFO would expect to pay a minimum of £20-30,000 for a comparable theatre bearing in mind the benefit accruing to LDL for programme and other sales. . . ."

54. In 2002 and 2003 discussions took place between the LFO's value added tax consultants and the Commissioners of Customs & Excise on the question whether the LFO could take advantage of the cultural services exemption. The outcome of those discussions was a letter from the Commissioners dated 2 July 2003. The Commissioners accepted (i) that the LFO was a charity which was precluded from distributing any profits which it might make, (ii) that any profits would be ploughed back into the facilities made available for visitors, (ii) that the trustees made "the highest level decisions" and (iv) that the trustees received no salary from the LFO. Nevertheless, the Commissioners noted that :

"From correspondence and discussions it has been established that Mr and Mrs Graham, two of the four trustees, are directors of Longborough Developments Ltd, which is considering charging a rent to the Charity for the lease of the Opera building. It has also been confirmed that Mr Graham has agreed to personally guarantee any losses of the charity."

The Commissioners took the view that Mr Graham, as guarantor of potential losses, was a person with a financial interest in the LFO. As they put it: "If a person who is responsible for directing the activities of the charity also has a direct financial interest in it – in that they personally stand to lose money – the conditions for exemption are not met." They went on to say: "If Longborough Developments Ltd charge a rent, as is proposed, to the charity, Mr and Mrs Graham will have a further financial interest, as they are directors of this company". So, in the view of the Commissioners, the condition described in the second indent under article 13A.2(a) of the Sixth Directive was not met.

55. The VAT and Duties Tribunal (Mr Angus Nicol, chairman, and Mr Praful Davda FCA), in a decision released on 26 May 2005 ([2005] UKVAT V19087), dismissed the LFO's appeal from that refusal. The LFO appealed from the tribunal's decision. On 26 January 2006 Mr Justice Lightman allowed the LFO's appeal. The Commissioners sought permission to appeal to this Court. I directed that that application be listed for hearing with the appeal in the BSO case, on notice to the proposed respondent, LFO and on terms that the Court would proceed to hear the appeal in the LFO case forthwith if it were persuaded that permission to appeal should be granted. In the event we did not find it necessary to call upon counsel for the LFO.

The tribunal's decision

56. The tribunal directed itself that there were five issues which it needed to decide. Those issues are set out at paragraph 77 of its decision:

"77(1) The first issue that we have to decide is the construction to be put on the expressions 'interest' in Article 13A.2(a) and 'financial interest' in Note (2) to Group 13 of Schedule 9. Do those expressions necessarily mean enrichment of the person with such an interest, or is the meaning wide enough to encompass any interest whether involving gain or loss?

(2) Having decided that, we should then go on to decide whether a body, to be eligible under Group 13, must be incapable of distributing profits or surplus or granting financial advantage to a person concerned in its management and administration, or, whether it is enough if that body, though not prevented by law from so doing, in fact never does so?

(3) If a person who is involved in the management and administration of a body, making decisions at the highest level, is in receipt of any of the payments permitted to be made to a director by clause 5 of the Memorandum, or is in a position to receive such payments, is that an interest in the results of the activities of that body?

(4) If such a person guarantees the debts of a body, whether or not he becomes obliged to honour that guarantee, is that a financial interest in the sense that he might wish so to order the affairs of the body that his guarantee will never have to be met?

(5) Was either of the 'guarantees' enforceable? (There was no consideration for either, and neither was a deed.) Or was each simply a promise to make a gift to a charity if a particular need arose? What, if any, difference does it make whether it was enforceable or not?"

57. The tribunal took the view that the second of those issues was "the key issue in this appeal". Its conclusion on that issue was expressed at paragraph 87 of its decision:

"87 It appears to us, therefore, that the conditions [in article 13.2A(a) of the Sixth Directive] require that it shall not be possible for any person who is concerned in the management and administration of such a body to derive a financial advantage from that body. . . . If it is possible for those who manage it to manipulate it so as to derive personal benefit from it, then the body is not eligible for the exemption."

58. Mr Graham had given evidence to the Tribunal – which was accepted - that the absolute prohibition in clause 5 of the memorandum of association on the payment of salary, fees, remuneration or other benefits in money or money's worth to directors of LFO has been strictly observed. Nevertheless, the tribunal went on to decide that Mr Graham was in a position to derive a personal advantage from the LFO - issue (3). It said this, at paragraph 93:

"93 What emerges plainly is that either Mr Graham or LDL was in a position to charge rent for the use of the theatre, which was in fact contemplated; LDL was in a position to make charges for the use of the equipment in the theatre; Mr Graham was at liberty to make a loan, with interest if he chose, under either of his letters of comfort, and did make loans for other purposes, to the Appellant, as did LDL. Mr Graham was in control of LDL, and he and Mrs Graham exercised actual control over the Trustees: in the case of any disagreement between them and the other two Trustees, Mr Graham's casting vote would prevail. There would also be nothing to prevent Mr Graham charging rent under a lease of the opera house to LDL, and LDL, which is already a commercial company, charging a licence fee to the Appellant."

59. I should add, for completeness, that the tribunal decided that "interest" was wide enough to include any interest, whether involving gain or loss – issue (1); and that the existence of the letters of comfort, or guarantees, whether or not legally enforceable and whether or not it became necessary for Mr Graham to honour his commitments thereunder, were sufficient to give him an interest in the LFO for the purposes of article 13A.2(a) – issues (4) and (5).
60. In the light of those conclusions the tribunal dismissed the appeal.

The decision in the High Court

61. Mr Justice Lightman reversed the tribunal on each of the five issues which it had addressed. He held that "interest", in the context of article 13A.2(a) of the Sixth Directive, meant such an interest as might lead to the enrichment of the person with the interest – issue (1) – and that there was no such interest in the case before him: a director did not have an "interest" for that purpose "merely because he gives the body a guarantee or an interest free loan, still less if the guarantee is unenforceable – issues (4) and (5). In relation to issue (2) the judge held that the requirement was that "the eligible body must be legally incapable of distributing its profits or diluting its profits in favour of its directors or members and must not do so". The LFO satisfied that condition. On issue (3) he expressed his conclusion in these terms, at para [50] of his judgment, [2006] EWHC 40 (Ch):

"[50] . . . (iii) the mere fact that a director is not legally prohibited from receiving a payment for which provision is made under clauses 5.2 to 5.5 of the Memorandum, and indeed in fact receives such a payment, does not disqualify him from eligibility. Whether a body is disqualified turns upon the terms of any contract made and the terms of the body's constitution and applicable law regarding the director's participation in any decision-making regarding contracts which might confer a financial interest in the body's results upon him. Mr Graham has not entered into any relevant contract and is excluded from any participation in the decision-making whether LFO should enter into any contract with him or LDL; . . ."

The judge's reference, there, to Mr Graham being excluded from any participation in the decision whether the LFO should enter into a contract with him or with LDL was founded on article 94 in Table A to the Companies Act 1985.

62. In addressing the question whether the LFO satisfied the condition allowed by the first indent under article 13A.2(a) of the Sixth Directive, the judge had said this:

"[32] I turn now to the first condition in the First Indent that the cultural bodies to be exempted shall not systematically aim to make a profit. In this condition "profit" means the enrichment of, or conferment of financial advantages on, natural or legal persons and in particular those who control or have a financial interest in or are members of it. The focus is on the aims of the body, and not the results of its activities."

In support of that proposition the judge referred to the opinion of Advocate General Jacobs in the Kennemer Golf & Country Club case. He went on:

"[33] The Commissioners do not and cannot allege the existence of any such aim. There can accordingly be no question of any non-compliance with this condition. . . .

[34] I turn to the second condition in the First Indent that any profits arising shall not be distributed but shall be assigned to the continuance or improvement of the services provided. Note 2 [to group 13, schedule 9 VATA 1994] requires that the body is legally precluded from distributing its profits and is required to apply them as there set out. . . . In my judgment this restriction is implicit in the First Indent . . .

[35] It is in my judgment quite plain that the First Indent creates no obstacle to the eligibility of LFO, for the necessary constraint is implicit in the Memorandum and Articles of LFO and the fiduciary duties of the Directors. In this condition the word 'profits' means surplus or profit on the bodies' activities. The condition precludes any dilution of such surplus or profit by the entry into contracts not in the best interests of the body or on terms other than the best reasonably obtainable, but does not preclude the entry into contracts by the cultural body with members, staff or third parties provided that by their true character or terms they are not a method of distribution of profit to another party. If the contract is for goods or services (or in this case the use of the opera house or equipment) needed by the body at the best price reasonably obtainable and is not made with the member, employee or third party because he is such and for his benefit, the provisions of the First Indent are complied with. Accordingly the potential for the making of contracts between LFO and Mr Graham or LDL as contemplated in the Memorandum and as set out in the recited facts does not involve any dilution of the profits of LFO nor will the conclusion of such contracts do so if the Trustees comply with their fiduciary duties to LFO. In full accordance with the condition in the First Indent and Note 2(a) and (b) any contracts on the part of LFO (and in particular the contracts contemplated by clause 5.2-5 of the Memorandum and any contract with LDL) can and should only be entered into if it is in the interests of LFO to do so and if they are entered into on the best terms available and with no aim of benefiting any other party. The Directors (and accordingly LFO) are legally precluded from acting otherwise.

The application for permission to appeal

63. The Commissioners do not seek to challenge the judge's conclusion that Mr Graham did not have a financial interest by reason of his potential liability under the letters of comfort to give a guarantee or an interest free loan. The challenge is limited to the judge's finding that neither the legal possibility nor the contemplation that the LFO might enter into commercial contracts with Mr Graham for a lease or licence of the opera house or with LDL in respect of the equipment had the effect that the LFO was unable to take advantage of the cultural services exemption. The Commissioners take three points: (i) the judge was wrong to hold that a commercial contract between a body and a director of that body will not give the director a financial interest for the purposes of the second indent; (ii) the judge was wrong to hold that the second indent does not seek to prevent a director having a financial interest in the body as a result of a commercial contract entered into between the director and that body if that director is excluded from participating in decision-making regarding the contracts in which he is directly or indirectly interested; and (iii) the judge was wrong to hold that the LFO complied with the first indent on the grounds that any contracts on the part of the LFO can and should only be entered into on the best terms available.
64. It is important to keep in mind that an appeal from the order made by Mr Justice Lightman on 27 January 2006 would be an appeal to which section 55(1) of the Access to Justice Act 1999 applies: that is to say it would be an appeal from an order made on an appeal to the High Court – a second appeal. Permission to appeal to this Court cannot be granted unless the second appeal would raise an important point of principle or practice, or there is some other compelling reason why this Court should entertain a second appeal - CPR 52.13(2). It is important to keep in mind, also, that, as the judge pointed out at paragraph [50](iii) of his judgment, Mr Graham has not entered into any contract with the LFO for a lease or licence of the opera house and (so far as I am aware) there is no current proposal that he should do so. Nor has LDL entered into any contract with the LFO for the use of the equipment.
65. In those circumstances, I take the view that the application for permission to appeal can be disposed of shortly. Mr Graham has no financial interest in the results of the activities of the LFO. The LFO is precluded by clause 5 of its memorandum from distributing profits to its members; and it does not propose to do so. Whether it would cease to be eligible for the cultural services exemption if it were to take a lease of the opera house from Mr Graham in the future is a question which, as it seems to me, would be more appropriately considered with the benefit of knowing the terms of that lease. I am not persuaded that the possibility of taking a lease, whatever the terms, is sufficient to preclude the exemption. There is no important point of principle to be decided on the facts as they are at present; no point of practice; and no compelling reason why this Court should entertain a second appeal.

Lord Justice May:

Bournemouth Symphony Orchestra's appeal
66. I agree with Chadwick LJ and Lloyd LJ (whose judgment I have seen in draft) that Bournemouth Symphony Orchestra's appeal should be dismissed. I gratefully adopt Chadwick LJ's account of the facts and circumstances of the appeal; and I shall not repeat extended passages from the authorities to which he and Lloyd LJ refer.
67. My reasons for agreeing that the appeal should be dismissed more closely approximate to those of Lloyd LJ (and the judge) than to those of Chadwick LJ. In an attempt to avoid muddying the waters further than is unavoidable, I shall express my reasons in my own words and briefly.
68. The critical provision is the second indent of Article 13A.2(a) of the Sixth Directive, which enables Member States to stipulate conditions for exempting bodies from charging VAT on the supply of certain cultural services. The second indent provides:

"… they shall be managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest, either themselves or through intermediaries, in the results of the activities concerned."

The context is that exemption is to be available to bodies who do not distribute profits, but use any they make to continue or improve their services.

69. To apply the second indent, you have first to determine which persons manage and administer the body. The London Zoo case gives reasonably clear guidance on this. Mr Henson and the musician Board member are among the persons who manage and administer the BSO.
70. You next have to ask whether the persons who manage and administer the body do so on an essentially voluntary basis. For the BSO, the musician Board member acts as such on an essentially voluntary basis, because he or she is engaged to be a playing member of the orchestra; is not obliged to stand for election to the Board; and is paid nothing extra for being a member of the Board. Mr Henson is not a Board member on an essentially voluntary basis, because his engagement as managing director requires him to be a member of the Board. Since Mr Henson's contribution to the Board's management and administration of the BSO is significant, by virtue of his membership of the Board, the BSO is not managed and administered on an essentially voluntary basis. That is sufficient to dispose of the appeal, and it is not, in my view, necessary also to determine whether Mr Henson (or the musician Board member) have no direct or indirect financial interest in the results of BSO's activities. I agree that the question whether a Board member acts as such on an essentially voluntary basis will usually be linked with what he is paid for. He will be paid for what he is obliged by his engagement to do. But the nature of his remuneration will not, I think, necessarily always determine whether his membership of the Board is essentially voluntary.
71. If the body were, as the BSO is not, managed and administered on an essentially voluntary basis, it is, in my view, additionally theoretically necessary to ask whether the relevant persons have no direct or indirect interest in the results of the activities concerned. I say "theoretically", because paid Board members are unlikely to act as such voluntarily; and unpaid voluntary Board members are only likely to have an interest in the results of the body's activities if they are entitled, independently of their Board membership, to receive something in the nature of a distribution of profits – which would come up against the first indent before getting to the second. But if the additional question needs to be answered, I agree with Lloyd LJ for the reasons he gives that entitlement to a flat rate salary, unaffected by the financial success of the body, is not a direct or indirect interest in the results of the body's activities. Paragraph 18 of the judgment of the European Court of Justice in the London Zoo case does not, I think, dictate the contrary. I read the reference there to "by means of remuneration" as an example of the means whereby profits might be distributed. This is consonant with the language and context of the second indent. The context concerns bodies who do not distribute profits. The language would be a very odd way of referring to flat rate remuneration which does not depend on the results of the body's activities. A person with an interest in the results of the body's activities receives more if the results are good and less if they are poor. The possibility that the results might be so poor that the person's flat rate salary might simply not be paid is not, I think, to be regarded as constituting an interest in this context. Accordingly, I would, if it were necessary, hold that the musician Board member is a person who has no direct or indirect interest in the results of BSO's activities. Likewise Mr Henson, but he is not a Board member on an essentially voluntary basis.
72. It will be seen that I think that the elements of the second indent are theoretically cumulative and that both have to apply to achieve exemption. There could therefore be two questions. But I agree with Chadwick LJ that what a salaried person who manages and administers is paid for may, as in this case, determine whether he does so on an essentially voluntary basis.
Longborough Festival Opera
73. I agree with Chadwick LJ for the reasons he gives that the Commissioners' application for permission to bring a second appeal should be refused.

Lord Justice Lloyd:

Longborough Festival Opera
74. I agree with Chadwick LJ as to the reasons why it was not appropriate to grant permission for an appeal by HMRC against the order of Lightman J in the Longborough Festival Opera case.
Bournemouth Symphony Orchestra
75. As regards the Bournemouth Symphony Orchestra's appeal, the issues are more difficult. I agree with Chadwick LJ that the appeal should be dismissed. I also agree with him that the critical factor which leads to this result is the presence on the Board of the managing director, who is paid a salary by the orchestra which includes payment for his participation in the management and administration of the orchestra as a member of the Board. However, I reach that conclusion by a different process of reasoning from that of Chadwick LJ. I prefer that adopted by Mann J.
76. As Chadwick LJ says, the appeal turns on the second indent in article 13A 2(a) of the Sixth VAT Directive, which was enacted in the UK as Note 2(c) to Items 1 and 2 in Group 13 within Schedule 9 to the Value Added Tax Act 1994. It is sensible to approach the question by reference to the text of the Directive, which allows Member States to require of bodies, in order to qualify for this cultural exemption from VAT, that:

"they shall be managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest, either themselves or through intermediaries, in the results of the activities concerned."

77. That text appears to me to make three enquiries necessary in relation to any given body whose eligibility for exemption from VAT is at issue:

i) Who are the persons by whom the body is managed and administered, for these purposes? That is a question with which the European Court of Justice's decision in the London Zoo case was concerned.

ii) Are they persons who have no direct or indirect interest in the results of the activities of the body?

iii) Do they manage and administer the body on an essentially voluntary basis? The London Zoo case was also concerned with this issue.

Chadwick LJ considers that there are not three but only two questions. I will explain later why I feel unable to agree with him on that point.

78. The VAT and Duties Tribunal held, at paragraph 39 of its decision, that the Board of Directors was the body by which the BSO is managed and administered, for these purposes, so that it was not relevant to consider the position of anyone other than members of the Board. However, two members of the Board are paid by the BSO, so both of the other two questions have to be considered, whereas in the London Zoo case no member of the Council was paid by the Zoological Society. One of the two is the managing director, Mr Henson, who is a member of the Board by virtue of his appointment to that post. The other is a musician director, who is a salaried member of the orchestra, chosen by the musicians every two years. He or she is paid as a musician, but is not paid anything extra for being a member of the Board. All the other members of the Board are volunteers, receiving no more than the reimbursement of proper expenses.
79. It is to the members of the Board so constituted that the requirements of the second indent must be applied, with reference both to the question whether any of them has an interest in the results of the activities of the BSO, and to that of the essentially voluntary basis of the management and administration.

The London Zoo case

80. A good deal of the argument before us, as before the judge, turned on the London Zoo case. This was bound to be so, given the source of the relevant domestic law in the Sixth VAT Directive and the focus in that case on the second indent which is also at issue before us. The claim by the BSO for the repayment of VAT said to have been wrongly paid was prompted by the London Zoo decision. As Chadwick LJ says at paragraph [24], our task is to construe the words of the UK legislation and of the Directive, not (at least directly) those of the Court in the London Zoo case. Nevertheless, a consideration of what was said in that case is unavoidable.
81. The main question before the Court was how to identify the persons responsible for the management and administration of the relevant body, in relation to whom the conditions of the second indent had to be satisfied. If those persons were limited to the Council, no question arose of any of them having a financial interest in the activities of the company, or of the management being other than essentially voluntary. If they included the senior paid staff, the latter were certainly paid under their terms of employment, so that questions would have arisen as to the essentially voluntary character of the management and as to financial interest. The questions of fact were for the national court to resolve, but under the Court's decision, if the reality corresponded with the constitution of the company, the only relevant persons would have been the members of the Council.
82. The questions referred were directed, first, to the identification of the persons as to whom the tests set out in the second indent had to be satisfied and, secondly, as to how to determine whether the body's direction and management was being carried out on an essentially voluntary basis. The case was therefore concerned with one of the issues in the present case, but not with the question what is meant by a financial interest in the activities, and not on facts resembling those which we have to consider.
83. As Chadwick LJ has observed, the Court's conclusion was not the same as that proposed by Advocate-General Jacobs; one aspect of the difference is important in this case. Nevertheless it is sensible to start by considering what the Advocate-General said.
84. Chadwick LJ has set out paragraph 26 of the Advocate-General's Opinion at his paragraph [9]. As the Advocate-General said, the first indent confines eligibility for exemption to bodies which may not, and do not, distribute profits, but apply any profits made to the continuance and improvement of the facilities made available. This is part of the UK legislation as Note 2(a) and (b). He said that the second indent then precludes those concerned in the management and administration of the body from "being in a position to run it in such a way as to further their own enrichment" (paragraph 30), and that persons who are in a position to influence the results of the activities of the body "must have no interest in them, so that whatever decisions they take will be unaffected by considerations of private gain, whether direct or indirect" (paragraph 31).
85. Those considerations led the Advocate-General to express the view, in paragraph 32, that the management and administration with which the second indent is concerned is that "which may influence financial results - and indeed also the use made of the resources thereby arising, in so far as both those aspects may have an effect on the interests of the persons concerned", and thus is at the highest level of policy decisions. He went on at paragraph 33 to express his view, accordingly, as to who the persons are to whom the second indent refers. I need not quote that passage.
86. He then addressed briefly the answer to be given to the second question, about how to determine whether the management and administration was conducted on an essentially voluntary basis. This had been the subject of less controversy between the parties. His proposed answer, which was not adopted by the Court, was as follows:

"38. The requirement in the same indent that management and administration be conducted on an essentially voluntary basis is to be interpreted as meaning that substantially all the management and administration, thus defined, of the body in question must be conducted by unremunerated persons. However, the fact that paid staff intervene in such activities occasionally or in a peripheral manner, or that nominal or token payments are made to the persons responsible for management and administration, is not contrary to that requirement."

87. With the benefit of that advice, the Court, addressing the first question, commented at paragraphs 17, 18 and 19 on the aim of the condition as to management and administration on an essentially voluntary basis:

"17. As for the interpretation of that additional condition, namely that a body availing itself of one of the exemptions in Article 13A(1) of the Sixth Directive must be managed and administered on an essentially voluntary basis, it follows from the legal context in which that condition occurs that the Community legislature wanted to make a distinction between the activities of commercial undertakings and those of bodies not aiming to achieve profits for their members …

18. The aim of that condition is therefore to reserve the VAT exemption for bodies which do not have a commercial purpose, by requiring that the persons who participate in the management and administration of such bodies have no financial interest of their own in their results, by means of remuneration, distribution of profits or any other financial interest, even indirect.

19. The condition that such persons should have no financial interest of their own thus refers only to persons directly associated with the management and administration of a body and not to all persons working for reward in one way or another in its administration. …"

88. Proceeding from there, the Court considered the first question. In the course of doing so it made two references to the matters at issue in the present case, at the end of paragraphs 21 and 22:

"21. … Therefore, persons carrying out purely executory tasks are not affected by the requirement that management and administration be on an essentially voluntary basis.

22. … it is for the competent national authorities to determine, in respect of each body concerned, which are the persons who fall within the scope of the additional condition laid down in the second indent of Article 13A(2)(a) of the Sixth Directive and who must therefore fulfil the requirement of not having a financial interest in the body's results."

89. The Court answered the first question referred to it at paragraph 23 as follows:

"23. The answer to part (a) of the question must therefore be that, on a proper construction of the second indent of Article 13A(2)(a) of the Sixth Directive, the condition requiring a body to be managed and administered on an essentially voluntary basis refers only to members of that body who are designated in accordance with its constitution to direct it at the highest level, as well as other persons who, without being designated by the constitution, do in fact direct it in that they take the decisions of last resort concerning the policy of that body, especially in the financial area, and carry out the higher supervisory tasks."

90. The Court then turned to the second question, dealing with it shortly. At paragraph 24 it reformulated the question, which had been put in a more open way in the terms of the reference:

"24. By part (b) of its question, the referring court is asking essentially whether, on a proper interpretation of the second indent of Article 13A(2)(a) of the Sixth Directive, the words 'on an essentially voluntary basis' refer to the composition of the organs entrusted with the tasks of managing and administering a body, in the sense that it would be permissible for some of those who have a financial interest in the body to be involved in those tasks exceptionally and in an incidental way, or whether those words refer to the reward which those persons receive, in the sense that it would be permissible to grant them certain exceptional and symbolic financial advantages."

91. The phrase "those who have a financial interest in the body" was not derived from anything in the terms of the question as it had been referred to the Court. This mentioned, instead, the conduct of the management and administration "by remunerated and unremunerated persons respectively", and "the individual financial basis upon which each of the persons conducting the management and administration of the body performs that role (for example, none of those persons must receive more than nominal remuneration)". It seems to me that this modification of the terms of the question may have contributed to some of the difficulties in interpreting and applying the Court's decision to which I refer later.
92. The Court continued as follows:

"25. The Zoological Society, the United Kingdom Government and the Commission are agreed that, on a proper construction of the words 'on an essentially voluntary basis', even if all the management of the body must be carried out by unpaid persons, the fact that paid staff take part occasionally or incidentally in the adoption of essential decisions, or that small or token payments are made to those staff, is not sufficient to deprive their activity of its essentially voluntary character and to justify the conclusion that the body pursues a disguised commercial purpose."

93. As a statement of the position of the parties, that cannot be read as a decision by the Court that "all the management of the body must be carried out by unpaid persons", quite apart from the phrase being expressed in the conditional tense. Then the Court said:

"26. In that respect, it is apparent from the purpose of the second indent of Article 13A(2)(a) of the Sixth Directive, as explained in paragraph 17 of this judgment, that the condition laid down by that provision is intended to make a distinction between the activities of commercial undertakings and those of non-profit-making bodies, that is to say those that do not aim to generate profits for their members. The words 'on an essentially voluntary basis' thus refer to the members who compose the directing organs and those persons who, without being designated by the constitution, do in fact direct the body concerned, and refer also to the reward which the latter may receive, habitually or exceptionally, from that body."

This makes a similar point, though not in the same terms, as Advocate-General Jacobs did in his paragraph 26, quoted by Chadwick LJ at paragraph [9].

94. The words "the latter" at the end of paragraph 26 of the Court's judgment refer to "those persons", not both to them and to "the members". (This is confirmed by reference to the French text.) As such, however, the phrase is odd, to say the least, because it appears to exclude from consideration any reward received by members of the Board from the body, as distinct from reward received by other persons who might be called de facto directors. It may be that the wording of paragraph 26 is explained by the fact that no member of the Council of the Zoological Society did receive any reward, and that it may have been assumed that members of a Board would not be paid. For my part I cannot see that it could be a correct reading of the second indent to confine the relevance of a reward received by managers to those in the second class, the de facto directors, and not to apply the same test to members of the Board.
95. Continuing, the Court said:

"27. It is for the competent national authorities to determine, for each body in question and by means of an overall assessment, whether, by reason of any contribution to the management of the body, as defined in the context of the answer to part (a) of the question, by persons having a financial interest in it, and by reason of any reward given to them, the essentially voluntary character of the management or administration of a body can be accepted or not."

96. This passage contains another odd reference, namely to a reward being given to persons having a financial interest in the body, who make a contribution to the management of the body. It seems to me that the natural reading of the second indent is to prohibit any participation at all in the management and administration of the body on the part of persons who have a financial interest in the results of the body's activities. This passage does not seem to regard that as impossible. Paragraphs 18 and 22 of the court's judgment, on the other hand, both treat persons with a financial interest as being excluded from the management and administration. In the circumstances it does not seem to me that these passages can be regarded as authoritative on this point either way; it was not one which the Court had to decide.
97. The Court answered the second question as follows, permitting the same comment on the words "the latter" as I have made about paragraph 26, above:

"28. The answer to part (b) of the question must therefore be that, on a proper interpretation of the second indent of Article 13A(2)(a) of the Sixth Directive, the words 'on an essentially voluntary basis' refer to the members who compose the organs entrusted with the management and administration of a body of the kind referred to in that provision and those persons who, without being designated by the constitution, do in fact direct it, and refer also to the reward which the latter may receive, habitually or exceptionally, from that body."

98. The Court having chosen not to adopt the answer to this question proposed by the Advocate-General (see paragraph 86 above), the case therefore did not decide that the second indent can only be satisfied if remunerated staff are not involved in the management and administration of the body at all, or at most occasionally or in a peripheral manner. The lack of logic in interpreting the relevance of a reward (in relation to the essentially voluntary test) as being limited to de facto directors, and so as not to be relevant to members of the Board, which I have noted at paragraph [94] above, seems to me to make it impossible to assume that, in a case in which the point mattered, the European Court of Justice would take the view that it was irrelevant to consider whether any reward was paid to a member of the Board. I therefore agree with the reservations expressed by Chadwick LJ at the beginning of his paragraph [24] on this point, and with his conclusion set out at the end of paragraph [24], even though the words of paragraph 26 of the Court's judgment do, through their repetition in its paragraph 28, form part of its ruling on question (b) in the London Zoo case.

The application of the London Zoo case to the facts of the present case

99. Thus the London Zoo case, for all its relevance to the second indent, did not decide the point which arises in the present case. It is therefore necessary to work out, with the benefit of what was said in that case, how the second indent applies to the facts of the present case. The Tribunal and the judge below reached the same result but differed in their reading of the indent.
100. The Tribunal held that the managing director was someone who had a financial interest in the results of the activities of the BSO. In this respect they were persuaded by the fact of his receiving substantial remuneration for a job which made him automatically a member of the Board, and which therefore required him, as a part of the functions of his job, to take part in the decision-making functions of the Board. They held that his part in the management of the BSO meant that the latter was not conducted on an essentially voluntary basis.
101. Mann J considered that flat rate remuneration, such as the managing director received, did not constitute a financial interest in the results of the activities of the body in question. However, he went on to consider the "essentially voluntary" question as a separate matter, and concluded that the BSO could not satisfy this requirement, given the participation of the managing director which was not on a voluntary basis.
102. It seems to have been common ground that the fact that the player director is paid by the BSO does not by itself prejudice the essentially voluntary character of the management and administration. In my judgment that is correct. The reason is that the payment of remuneration by itself is not fatal (so long as it is not related to results); the question is: for what is the remuneration paid? In the case of the player, he or she is paid for playing, presumably on the same basis as all other players, and is not paid anything different or extra for taking part in the management and administration of the orchestra. In the case of that member of the Board, therefore, his or her participation is on a voluntary basis, despite his or her being paid by the BSO for doing other things.
103. The managing director, by contrast, is a member of the Board from the moment he takes up the post and for as long as he holds it. In paragraph 8 of Mr Henson's witness statement he said: "As managing director I am required to sit on the Board of Directors", though he pointed out, correctly, that his letter of appointment and his job description do not refer to his participation in Board proceedings. No part of his remuneration is specifically referable to the performance of his duties as a member of the Board.
104. Mann J considered that, in this situation, even though his pay did not give him a financial interest, it did preclude a finding that the direction and management was on an essentially voluntary basis. He said this:

"43. … The answer to that question [i.e. whether the management was essentially voluntary] does not necessarily lie in the simple fact that Mr Henson received remuneration. It depends on looking at how and by whom the management was conducted and placing his participation in that context. On the facts of this case the Tribunal had found that none of those engaged at board level were paid anything in respect of their BSO activities, other than the musician director and Mr Henson. It was doubtless correct to find that, absent the participation of those two gentlemen, the management was conducted on an essentially voluntary basis. The question then is what difference does their participation make, and that involves considering such things as their respective formal positions, what part they played in practice, what parts the other board members played, what their functions otherwise were, and whether they were paid any sum explicitly in respect of their board activities (to which the answer is No).

44. The conduct of such an inquiry would reveal whether the management is "essentially voluntary". Voluntary must mean not remunerated or rewarded for the function. I have stressed the word "essentially" because it is important. What is important is the essence of the structure and practice. It is not an absolute test. It does not have to be absolutely or purely voluntary. That is doubtless why the ECJ in the London Zoo case accepted that occasional participation by paid employees did not compromise what was otherwise the voluntary nature of the management. Nor did token payments to the managers. Those are examples of what will not cause the line to be crossed. They demonstrate that an otherwise apparently voluntary management structure remains essentially voluntary despite the fact that it might be said to have become not purely voluntary. They are not, in my view, an exhaustive classification. Whether the line is crossed is a question of judgment in each case."

Financial interest and essentially voluntary: a single test?

105. On behalf of the BSO, Mr Lasok Q.C. submitted that the judge wrongly departed from the guidance given by the London Zoo case when, having held that the managing director did not have a financial interest in the activities of the body by reason of his flat-rate salary, he went on to consider separately whether the management and administration of the body was conducted on an essentially voluntary basis. Conversely, Mr Paines Q.C. for HMRC submitted, in support of the Respondent's Notice, that the judge was wrong to hold that receipt of a flat rate salary at a more than nominal rate did not give the managing director a financial interest.
106. Mr Lasok submitted that, once the persons relevant to the second indent have been identified, there is only one question to be asked, namely whether any of them has a financial interest in the results of the activities of the body. If not, then the essentially voluntary basis of the management and administration is thereby established. The judge pointed out that, on his interpretation of "financial interest", that submission would allow a body, all of whose directors were remunerated at a full but flat rate, to qualify for exemption on the basis that it was managed and administered on an essentially voluntary basis. This seemed to him an impossible conclusion. For that reason, and because it seemed to him the correct approach to the words of the indent, he went on to address the essentially voluntary basis of the management and administration as a separate question.
107. Mr Lasok's argument is supported by the terms of the ECJ's judgment in the London Zoo case, in particular paragraphs 17 and 18, quoted above. He might also have referred to paragraph 26 of the Advocate-General's Opinion. However, while it is clear from paragraphs 17 and 18 that the objective of the second, as well as the first, indent is to distinguish between commercial undertakings and bodies which do not aim to achieve profits for their members, it does not seem to me that one can conclude from this that there are not two separate conditions, one as to financial interest and the other as to essentially voluntary management and administration, unless the test for each is set in such a way that the answer to one immediately provides the answer to the other. Moreover, when the Advocate-General said at paragraph 26 that "the condition 'on an essentially voluntary basis' may thus be seen as reinforcing" the basic prohibition, it does not seem to me that he meant that there is not also a separate question as to financial interest, even if, as Chadwick LJ says at paragraph [9], the basic prohibition referred to is that which underlies the first and second indents, excluding from the exemption bodies which are run for commercial profit. As to that, I agree with his explanation of the phrase "the legal context in which that condition [of essentially voluntary management and administration] occurs", as set out in his paragraphs [13] to [16]. It seems to me that this analysis emphasises the unqualified proposition set out in paragraph 18 of the Court's judgment (and reiterated at paragraph 22) that those who participate in management and administration must not have any financial interest in the results of the body's activities. As I have noted at paragraph [96] above, this is not consistent with what the Court said later, at paragraph 27.
108. Mr Paines' submission, in favour of a single test, but a different one from that advocated by Mr Lasok, supports the approach that the test for each requirement is such that the answer to one provides the answer to both. He submitted that, when the judge tested the point by postulating a fully remunerated board being regarded as carrying on the management and administration of the body on an essentially voluntary basis, he should have drawn the conclusion that he had identified the wrong test for financial interest. In particular he relied on the words in paragraph 18 of the Court's judgment: "no financial interest of their own in their results, by means of remuneration, distribution of profits or any other financial interest". He submitted that this shows that receipt of remuneration (unless, perhaps, it were merely at a token level) is a financial interest for this purpose. I agree with Mann J that this passage provides a "list of devices which might be used to give (but do not necessarily give) an interest in the results": paragraph 34. Remuneration might be on terms which gave a financial interest, but not all remuneration does. If the Advocate-General's proposals had been adopted by the Court, it would have held that paid staff could only take part in the management and administration occasionally or in a peripheral manner. Since it did not accept that suggestion, it is reasonable to suppose that the Court did not mean to achieve the same result as if it had accepted it.
109. The judge held that remuneration paid at a proper flat rate (rather than, for example, with a results-based bonus element, or at such a high rate as to be regarded as a disguised way of extracting profits) does not give the employee a financial interest in the results of the activities of the body. He considered that to read the reference to "interest" as including such a salary would give it a very wide scope, not justified by the aim of the indent, excluding not only paid employees but also a wide class of persons with indirect "interests" in the success of the body's activities. As Mann J said at paragraph 33, straightforward remuneration is not necessarily a way of getting profits into the hands of members, or of persons in a similar position, and it is therefore not within the scope of what the Court identified at paragraph 17 of its judgment as the objective.
110. For the reasons given by the judge on this point, supported by the Court's rejection of the Advocate-General's proposal for the answer to question (b), I agree with the judge that the payment of remuneration at a proper rate which is not variable according to the results of the body's activities does not give the employee in question a financial interest for the purposes of Note 2(c) or an "interest" for the purposes of the second indent.
111. I also agree with him, however, that this does not dispose of the question whether the management and administration is essentially voluntary. I do not regard the London Zoo case as deciding that there is only one composite question in this respect, such that, having found that none of the relevant directors has a financial interest, the essentially voluntary point follows without more. As the judge observed, that could, in theory at least, result in the entire board, or the majority of it, being paid at a full rate, including for taking part in the highest level of the management and administration of the body, and the management and administration nevertheless being "essentially voluntary".
112. To take another hypothetical example by way of illustration, suppose that a body otherwise eligible for the cultural exemption had an employee whose terms of employment gave him or her an interest in the results of the activities of the body, by way of a profit-related bonus or, for an employee concerned with fund-raising, a reward proportionate to the amount of funds raised (this would not be consistent with what is regarded as good practice in fund-raising in the United Kingdom, but is not illegal) but who was not a member of the Board, nor a de facto director, and whose contractual reward was therefore clearly and specifically related to the tasks for which he or she was employed. Suppose then that this employee was later appointed to the Board, with no change to the terms of the employment and no additional or different reward. Such a person would have an interest in the results of the activities of the body, but the contractual reward would not relate to the functions of being a member of the Board. The terms of membership of the Board would be such that this person's appointment to the Board would not prejudice the essentially voluntary basis of the management and administration of the body's affairs, if that test were otherwise satisfied, but his or her interest in the results of the body's activities would be inconsistent with the second indent, so that the body would not qualify.
113. It seems to me that there are two questions, and that the essentially voluntary question must be addressed separately from that of financial interest. Otherwise it would, at least in theory, be possible for a body to qualify despite the fact that, in the case postulated by the judge, all or a majority of the members of the Board are paid (at a flat rate which is more than nominal) for their participation in the deliberations of the Board or, in the case which I have suggested, a member of the Board who is not paid for such participation is someone who has a separate financial interest in the results of the body's activities.
114. Chadwick LJ regards the question of financial interest as not being distinct from the question of the essentially voluntary conduct of the management and administration. He has some support from the terms of paragraph 27 of the judgment of the ECJ in London Zoo, with its apparent contemplation of the possibility that persons with a financial interest might participate in the decision-making processes. However, it seems to me that, as mentioned at paragraph [96] above, the Court put forward two inconsistent opinions on this point (which it did not need to decide), paragraph 27 to that effect being contradicted by paragraphs 18 and 22.
115. I respectfully disagree with Chadwick LJ's observation, in the middle of his paragraph [24], that what is to be derived from the judgment in the London Zoo case is that the national court must consider "whether persons who participate in the management and administration of the body seeking exemption receive some financial reward for doing so". It seems to me that, if that were taken as the sole test, it would give effect to the words "managed and administered on an essentially voluntary basis", but not to the words "by persons who have no direct or indirect interest ... in the results of the activities concerned". I agree with Chadwick LJ that for the relevant body to have a managing director who is paid for taking part in the decision-making process at the highest level, as Mr Henson was, is inconsistent with the exemption, but in my judgment that is because it does not allow the management and administration to be described as being carried out on an essentially voluntary basis, not because his flat rate remuneration gives him a financial interest in the results of the activities.
116. In discussing the application of the test to the circumstances of the orchestra, at paragraph [44], Chadwick LJ suggests, only to reject, a disjunctive reading, under which management and administration would have to be either on an essentially voluntary basis or by persons having no financial interest. I would not favour such a reading, and I do not understand any party to have suggested it at any stage. In my judgment the requirements are cumulative: the management and administration must be conducted by persons who have no financial interest in the results of the activities, and it must be conducted on an essentially voluntary basis. The fact that the two elements were not treated separately in the London Zoo case, which did not pose any question about financial interest, does not seem to me, with respect, to take the matter much further, especially in the light of some of the contradictory or puzzling observations of the Court to which I have drawn attention. Moreover, with respect, it seems to me that Chadwick LJ's test, even if applied as a single test, has two elements in it, because it looks both at financial interest and at the nexus between that interest and participation in the decision-making process.
117. I consider, as Mann J did, that to treat a flat rate salary at a proper level as a financial interest for this purpose would go too far in excluding from participation in the management and administration of the body persons who, though they have financial dealings with the body, do not have a real interest in the results of its activities. It would make the musician director's participation fatal, because he would clearly have a financial interest in that sense. If, however, this test is to be limited by requiring a nexus between the financial interest, on the one hand, and the participation in the decision-making process, on the other, which could result in the musician director not having a financial interest, it would also not catch someone such as the employee who is paid on a basis related to profits or results, whom I have postulated in paragraph [112] above. It is for those reasons, and because it seems to me to fit better with the natural reading of the second indent, that I regard the questions to be posed as two, and separate, rather than as a single question involving two elements: a financial interest (which in Chadwick LJ's view could be by way of flat-rate salary) and a nexus between that interest and participation in the decision-making process. I agree that both these elements have to be considered, but I do not see that any nexus is required between the two.

Essentially voluntary management and administration?

118. Coming to the facts of the present case, and on the premise that neither of the paid directors has a financial interest in the results of the BSO's activities, in the sense in which I understand that phrase, the question is whether the presence on the Board of Directors of those two persons who are employed and paid by the orchestra disqualifies it from the cultural exemption from VAT, or whether the essentially voluntary test is satisfied despite their presence on the Board.
119. For reasons mentioned at paragraph [102] above, I do not regard the participation of the musician in the management and administration as other than voluntary, even though he receives a salary as a player in the orchestra. The more difficult question arises from the position of the managing director.
120. It is true that he is not paid anything which is specifically attributable to his participation in the Board and its decision-making. His job does, however, place him on the Board and requires him to take part in the deliberations of the Board. Having reviewed with care the evidence (oral and documentary) as to the functions of the managing director, the Tribunal said at paragraph 43:

"The tribunal concludes, based on its consideration both of the formal position and of the actual position, that the managing director has and performs a significant role in the central decision making of BSO. That position is such that, overall, it cannot be said that BSO is run on an essentially voluntary basis."

121. The judge, having taken a different view from the Tribunal about the test for financial interest, and having concluded that the managing director did not have such an interest, said, as a consequence of that conclusion, at paragraph 43, that the Tribunal should then have gone on to consider separately whether the management of the BSO was "essentially voluntary". I have already quoted at paragraph [104] what he went on to say about the answer to this question.
122. The judge asked himself whether he should remit the case to the Tribunal for a factual decision on the correct test, but concluded that he was in as good a position as the Tribunal to decide what the answer was on the correct test. In that sense, what he went on to do was to make findings of fact so far as relevant to what he regarded as the right question in law. Later, at paragraph 48, having considered the position of the musician director and held that this did not prevent the management and administration from being essentially voluntary in character, he said this:

"48. The managing director appears to me to be different. He is not paid any identifiable separate sum in respect of his board membership, but his job as a whole (for which he is paid as a whole) involves his carrying out managerial functions (in the high-level sense required by the London Zoo case) as a board member (and, so far as is relevant, other than as a board member). His membership of the board is not incidental to another function; it is part of his overall function. As a board member he has real input. To summarise what appears above, the Tribunal found that his functions put him "at the heart of the BSO organisation" (paragraph 33), and described the functions that put him there – see above. The board was an active board that took the key decisions (paragraph 39). The managing director was at all board meetings at which minutes were produced, and a major item on every board agenda was his report to the board. This was preceded as standard by discussions between him and the chairman. Other directors were not always present, though looking at their identities they can certainly not be said to be mere ciphers (or Christmas tree decorations, to use a phrase which Mr Parker borrowed from previous authority). Historically speaking the managing director had been centrally involved in important discussions some years previously when funding requirements led to the disbandment of one of BSO's two orchestras. One of the influences on the BSO, "and not the least of them" is the managing director. For all these functions Mr Henson is paid a sum which exceeds £80,000 (though this figure did not appear in the Tribunal's decision). It was these factors that led the Tribunal to determine that the managing director "performs a significant role in the central decision making of BSO"."

He stated his conclusion at paragraph 49:

"49. Looking at this evidence realistically, the position of the BSO is that its board contains a number of volunteers and one significant person who is a full-time employee and who is not a volunteer. He contributes to a significant extent in the decision-making process, and it is clear enough that he is intended to. It is clear enough to me from the findings of the Tribunal that his contribution at board level is not de minimis, slight, occasional or any other adjective which enables one to ignore it in assessing the voluntary quality of the board. It is apparent that when the Tribunal held it to be "significant" it meant significant in the sense that it was real, substantial, wide-ranging and constant. It is not the sort of participation that one can ignore in the same way that one can ignore occasional contributions. He is paid to do this – it is part of his job. That means that he is not a volunteer; and it also means that overall the managerial body is not "essentially voluntary" – it is not of the essence of the board that it is voluntary. It contains a number of volunteers, but it contains one significant non-volunteer whose participation is built in as a matter of formality (via the articles) and as a matter of substance. One might go so far as to describe it as "largely" voluntary, but that would leave a significant element that is non-voluntary and which prevents the extra step required to make it "essentially voluntary"."

123. It might be thought that the presence of the managing director on the Board is a somewhat arbitrary factor as the criterion determining whether a body, otherwise eligible for exemption from VAT on these grounds, should or should not qualify for such exemption. That would be too narrow a view. Even if the person in the position of the managing director (whatever the title given to the post) were not a member of the Board, he could still be one of the persons by reference to whom the second indent has to be satisfied. That would be the case if he was, on the facts, someone who, without being designated by the constitution, does in fact direct it, in that he takes, or shares in the taking of, the decisions of last resort concerning the policy of the body, especially in the financial area, and carries out the higher supervisory tasks: see the first ruling of the ECJ in the London Zoo case, quoted at paragraph [89] above. If a proper examination of the facts shows that, despite not being a member of the Board, he plays a significant part in the higher decision-making processes of the body, and is not limited to implementing decisions reached without his participation, then the second indent has to be satisfied in respect of him. In other words, if the payment of a full salary to the managing director, being a member of the Board, prevents the body from fulfilling the conditions in the second indent, it would not be sufficient, in order to avoid this problem, to remove him from the Board, if he were to continue to take part in the management and administration of the activities of the body at the highest level.
124. Although it does not affect Community-wide considerations, it is to be noted that, since any body governed by English law which is within the ambit of Item 2 in Group 13 is likely to be a charity, the policy of the Charity Commissioners will be relevant to such a body, under which the participation of paid employees in the governing body of the charity (however it may have been established) is regarded as something which needs to be justified on specific grounds, because of the inherent conflict between the duties incumbent on someone in the position of trustee, director, or as the case may be, and his or her personal interest as a paid employee: see the Commissioners' publication CC11, Payment of Charity Trustees (May 2004), at paragraphs 42 to 53 and the Annex. The witness statements of Mr Henson, and of Mr Minns, the Head of Finance, confirmed that the Charity Commission was satisfied that it was appropriate for the Managing Director to be a member of the Board. Mr Minns said, at paragraph 25, that the Commission did not consider the Managing Director to be a paid trustee. The Tribunal was not influenced by that: see paragraph 24. If it had been regarded as relevant, it might have been necessary to question that proposition (it may have been tested in cross-examination). It seems to me more likely that the Commission considered that, even though the Managing Director was in the position of a paid trustee, the circumstances were such as to justify his membership of the Board.
125. The Appellant did not in terms challenge the judge's conclusions in paragraph 48 in the Appellant's Notice or its skeleton argument, limiting itself to the contention that the "essentially voluntary" requirement was satisfied by the finding that those who participated in the management and administration had no financial interest in the results of the body's activities. There is therefore no appeal against the judge's conclusions of fact. The Appellant did not pursue before the judge a proposition put to the Tribunal, that the Managing Director's vote "never counts" (see Mr Minns' witness statement paragraph 26), or, more formally, that he has no decisive influence in the policy-making by the Board. The Tribunal rejected that: see paragraph 43 (quoted at paragraph [120] above), and the Appellant did not challenge this conclusion in its Appellant's Notice to the High Court.
126. In his oral submissions Mr Lasok made the point that paragraph 27 of the judgment in London Zoo required attention to be given to the participation of relevant individuals in and their contribution to the management and administration. He contended that it was necessary to consider the activity of the Board overall, and to assess the role of the Managing Director in that overall context. Neither of those propositions seems to me to be in any way controversial, but they must be seen in the context of the Appellant's acceptance of the judge's findings set out in his paragraph 48, and of his factual inferences set out in paragraph 49.

Conclusion

127. It is instructive to compare the positions of the musician director and of the managing director.

i) As I have noted at paragraph [102] above, the musician director is employed as a musician, and is paid for his activities as such. He became a member of the Board by being chosen as such by the other musicians. This did not affect his terms of employment or his remuneration. Thus neither his duties as an employee nor his reward altered as a result of his being chosen as a member of the Board. His remuneration is therefore specifically and exclusively attributable to his activities as a musician, not at all to his activities as a director.

ii) The managing director, by contrast, as noted at paragraphs [103] and [120] above, and as held by the judge in paragraph 48 of his judgment, quoted at paragraph [122] above, was employed on terms which, from the first, made him a member of the Board and required him to discharge his duties, in part, through such membership and through participating in the decision-making process. No specific part of his salary was attributable to his functions as a board member, but the discharge of those functions was part of his job, and therefore part of what he was being paid for.

128. In that context, in my judgment, Mann J was right to hold that the managing director's remuneration and his participation in the highest decision-making processes of the BSO makes it impossible to say that the management and administration of the BSO is conducted on an essentially voluntary basis.
129. It does seem to me that the effect of the conclusion to which Mann J came, and to which, albeit for different reasons, both Chadwick LJ and I have come, is unfortunate, and takes the effect of the limitation in the second indent further than is necessary to give effect to the basic policy behind the first and second indents, namely that a body should not be eligible for the cultural exemption if it is run for commercial profit. In principle, it should not be inconsistent with that basic policy that a cultural body should be run competently and in a proper and professional manner, taking advantage of the expertise of professional managers, and if appropriate taking the benefit of that experience by participation in the highest level of decision-making. On the contrary it is highly desirable that a cultural body should be run in such a way, while not for profit, in order that the aims of the body should be achieved in the most effective and efficient manner for the public benefit. But for the requirement that the management and administration of the body be conducted on an essentially voluntary basis, I would find no difficulty in holding (as Mann J would have done) that the BSO was eligible for the exemption. A somewhat similar point was made in London Zoo; it is referred to at paragraph 29 of the Advocate-General's Opinion. Nothing turned on the point in that case, whereas in the present case it lies at the heart of the matter. It seems to me that this is the one point which is fatal to the BSO's appeal.
130. Relevant as the London Zoo case is to the issues in the present case, it has to be said that, perhaps because the specific issues at stake in that case were different from those which we have to address, the judgment of the European Court of Justice is not as helpful as one would have wished. It may be that, eventually, that Court will have to give further consideration to some of the points arising under the second indent. However, despite a divergence of reasoning in this court, and despite there being some doubts left unresolved by the Court's judgment in that case, I do not think that any possible resolution of those doubts by that Court could assist the BSO, and it does not seem to me (nor has either party suggested) that a reference of any question to the European Court of Justice is necessary in order to allow this court to resolve the dispute before us and to come to the right result in deciding the appeal.
131. I therefore agree with Chadwick LJ as to the result of the appeal by the BSO, but not as to all of his reasoning. It seems to me that the judge was right in his conclusion and in the reasons he gave. I do not regard flat-rate remuneration at a proper rate as giving the employee a financial interest in the results of the employer's activities. I do not regard it as necessary, for the second indent to exclude a body from the exemption, that there should be a nexus between the financial interest of a relevant person and his or her participation in the highest decision-making process of the body. Rather, I would hold that, if remuneration is to constitute a financial interest, it must be either results-based in some way or at such a high rate as to be a disguised means of distributing profit. I would also hold that no person who has a financial interest may, consistently with the second indent, take any part in the management and administration of the body. However, I would also hold that the question whether the body is managed and administered on an essentially voluntary basis is separate, and turns on the terms and basis on which all those who take part in the management and administration do so. That fact that (unlike the musician director) the managing director is paid at a full and proper rate for doing so means that, even though he is only one out of 8 directors, the management and administration of the BSO is not carried out on an essentially voluntary basis. I would dismiss the BSO's appeal on that basis.