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Cite as: [2000] EWHC Admin 370

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TH E HON JUSTICE LANGLEY [2000] EWHC Admin 370 (14th July, 2000)

CO/1606/2000

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
CROWN OFFICE LIST
IN THE MATTER OF AN APPLICATION FOR PERMISSION TO APPLY FOR JUDICIAL REVIEW
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 14th July 2000

B e f o r e :
TH E HON MR JUSTICE LANGLEY

Between:

	THE QUEEN and THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents
	- and -
	BRITISH SKY BROADCASTING GROUP PLC	Applicant

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - - -
Mr P. Mantle (instructed by the Solicitor for the Customs and Excise for the Respondents)
Mr D Vaughan QC (instructed by Messrs Herbert Smith for the Applicant)

Judgment
As Approved by the Court
Crown Copyright ©
MR JUSTICE LANGLEY:
This is an application for permission. The questions are whether the application made on May 8, 2000 is out of time under RSC Order 53 rule 4 and if it is whether the court should extend time.
THE DISPUTE
The essentials of the dispute can be stated reasonably shortly. The Applicant (BSB) provides subscription television packages. All subscribers also receive a listings magazine included in their subscription. Until they wrote a letter to BSB dated and delivered on May 29, 1998, the Commissioners had treated the supply as a multiple supply for the purposes of VAT. By the letter the Commissioners notified BSB of their ruling that BSB should account for VAT on a single supply basis. The difference turns on the fact that magazines are zero-rated for VAT but television services are not. So long as the supply was treated as a multiple supply the price of the magazines fell to be deducted from the subscriptions payable before VAT was levied on them. But if VAT was levied on a single supply basis it did not. BSB appealed against this ruling, but in the meantime as from 1 June 1998 (and in the event) accounted for and paid VAT on the full subscription price.
In sufficient if not precise terms the reason why BSB had to pay on the new basis as from June 1998 was that there are limits to the extent to which the Commissioners can make assessments of back tax and extra statutory concessions exist the effect of which is that a previous "ruling" will not be reversed so as to lead to an assessment of tax until and only with effect from notification of a change.
BSB's case is that it is in competition with cable companies for the supply of television services. Some of those companies ("the competitor companies") also provided magazines as part of their subscription package. They too accounted for to VAT on a multiple supply basis. But they were not, it seems, notified of a change of ruling as BSB was by the May 29 letter. There may of course be factual differences between the position of those companies and BSB but that is not a matter of which there is any evidence before the court. BSB's evidence is that at the time it was assumed everyone in the industry was being treated in the same way and the company refers to the principle of treatment with equal fairness set out in the Taxpayer's Charter.
BSB's appeal against the ruling in the May 29 letter was heard by a Tribunal in late March 1999. On July 12 the Tribunal handed down its decision which upheld the Commissioners' ruling. Between June 1, 1998 and the end of July 1999 BSB had paid some £22.6 million by way of VAT on that basis which would not have been payable if it had continued to account for VAT on a multiple supply basis or won the appeal.
Following the Tribunal's decision, on, it seems, July 12, 1999 the Commissioners wrote to the competitor companies (or at least one of them) saying that as from August 1 1999 they too would be assessed for VAT on the single supply basis. The letter appears to have assumed that there were no relevant distinctions to be drawn between the competitor companies and BSB and therefore that the tribunal ruling in BSB's case applied to them too. But because this was the first occasion on which the Commissioners had notified the competitor companies of a change in their previous ruling the payment of VAT on the new basis could or at least was only sought to commence prospectively, hence the date of August 1.
That gives rise to the nub of BSB's complaint. They have had to pay VAT on the magazine portion of the subscription price from June 1998 to July 1999 (£22.6 million) and their competitor companies have not. BSB say that is unfair and discriminatory and they should be repaid the £22.6 million.
I am satisfied, indeed it is not in issue, that these facts give rise to a reasonably arguable claim. They also raise matters of some real general legal importance and difficulty. Whilst Mr Mantle submitted any claim was weak and the points of more interest than importance neither party sought to argue that the claim was so weak or indeed so compellingly strong that the merits in terms of likely outcome should play a part in the exercise of discretion with which I am concerned if BSB is wrong on the first issue as to whether their application is out of time.
By a letter dated July 7 1999 BSB were advised that the Tribunal decision would be a difficult one to appeal successfully, given the current case law, but that it concerned a developing area of law on which further precedents could be expected over the next 12 months. The advice was to lodge a "holding" appeal. An appeal was lodged on August 18.
KNOWLEDGE AND DELAY
For the purposes of the application, Mr Mantle accepted that the issues should be approached on the basis that it was not until early August 1999 that BSB became aware of the fact that the competitor companies were only to be taxed on the basis of a single supply from August 1, 1999. It was on August 9 that BSB received a copy of the Commissioners' letter of July 12 sent to one of the competitor companies albeit the copy letter itself was sought in a context where the suspicions of BSB and its advisers had already been more than aroused.
The subsequent history can be summarised shortly.
BSB sought advice from accountants and solicitors (not the solicitors currently on the record). The company was advised that it would have to give the Commissioners an opportunity to rectify the position before it could formally seek other remedies (including judicial review) but that it needed to act promptly. It is BSB's evidence that it did not then think that the 3
month time limit for judicial review would start to run until the Commissioners had refused to rectify the disparity.
Mr Vaughan rightly acknowledged, however, that matters did not proceed promptly. Detailed advice was only sought towards the end of September. It was supplied on October 5, including a draft letter to be sent to the Commissioners, the "aim" of which was said in part to be "to cause Customs to concede that they have treated taxpayers in a similar position to Sky differently". That was said to be "the starting point in levelling a complaint against the Customs". The advice was that in the event that "Customs" refused to rectify the position BSB should lodge an application for judicial review and/or bring an action for damages. The letter also referred to the possibility that the Commissioners might seek to postpone dealing with the point until the appeal against the Tribunal's decision had been determined.
The draft letter was not sent until November 22. There is really no good explanation for this further delay. Internal approvals were required and it can be accepted that it was a serious matter. But the draft was not confrontational. It stated the alleged disparity and unfairness and sought its resolution.
A reply was sent on December 22. It referred to the appeal creating uncertainty; to facts of individual cases and that they were confidential, and concluded that the writer was unable to give BSB the reply for which it was hoping.
BSB wrote in response on January 19, 2000. The letter can fairly be described as a letter before action. It stated that the appeal was not relevant to the issue raised, and that if it could not be resolved BSB would consider "alternative courses of action through the courts separate from the current appeal".
The Commissioners replied on February 9. Their letter said there was nothing "the Department can properly do to give you what you are asking" and so BSB should give consideration to the "alternative courses of action " referred to in its letter.
Subsequent correspondence from BSB and the present application referred to the February 9 letter as containing "the decision" of the Commissioners. Although Mr Vaughan tentatively sought to submit that in some way the Commissioners had acknowledged that such was the case, or led BSB on to believe as much, and so that time should run from that date, I simply cannot read anything of the sort into the exchanges which took place.
In early March the appeal against the decision of the Tribunal was temporarily removed from the Court List to await the outcome of the appeal to the House of Lords in the Card Protection Plan case.
This application, on advice, was made on May 8, within but at the end of the 3 months following 9 February.
BSB had also taken further advice on the merits of the appeal. The company was advised that a judicial review application could not proceed whilst the appeal was pending because it would have failed to exhaust available alternative remedies as a successful appeal would lead to repayment of the VAT paid. The advice was that the prospects of a successful appeal were not good and on May 5 the appeal was withdrawn.
R.S.C. Order 53 rule 4
Rule 4(1) provides that:
An application for permission to apply for judicial review shall be made promptly and in any event within three months from the date when grounds for the application first arose unless the court considers that there is good reason for extending the period within which the application shall be made.
I would note that:
(1) The question is when did "grounds for the application" first arise. It is not when did the applicant first know of the existence of such grounds. Knowledge or the lack of it are relevant to the discretion to extend time.
(2) There is no dispute that the focus is on the real substance of the claim made to decide when grounds for an application first arose. That may differ from the specific decision which an applicant seeks to impugn: see R v Secretary of State for Trade and Industry Ex P. Greenpeace Ltd No 1 [1998] Eu LR 48 per Laws J at pages 53 to 56.
(3) It is for the applicant (BSB) to establish that there is good reason for time to be extended; the respondents may but do not have to demonstrate prejudice.
(4) The wording of the rule is not limited to "good reason for the delay", it is a wider discretion.
ISSUE 1 When did Grounds first arise?
It is Mr Vaughan's submission that the decision which is impugned is the Commissioners' refusal to rectify the alleged disparity of treatment and that was only clearly manifested by the 9th February letter. Hence it is submitted that as it is agreed there was no prejudice to the Commissioners arising between 9 February and 8 May the application was brought in time.
In my judgment this submission fails for several reasons. The substance of BSB's complaint is the disparity. That arose, or at the least was incipient, when the Commissioners wrote to BSB but not the competitor companies in May 1998. The disparity had run its course by August 1, 1999 from when the competitor companies were also required to pay VAT on a single supply basis. The correspondence in late 1999 and early 2000 was asserting the grounds for an application not creating them. Nor is the 9th February letter properly to be characterised as a "decision"; it rejected the claim and the grounds on which it was made. That was not the exercise of a discretion by the Commissioners; the issue was one of entitlement or not to repayment. It is of course right that parties should raise matters of dispute in correspondence before launching legal proceedings. But it is wrong to equate a failure to resolve the dispute with the grounds for its existence.
Mr Mantle pointed out that if BSB's submission were to be accepted the effect would be that the start of time running would be a matter within the sole control of BSB and in effect the time provisions would in many cases be emasculated. I agree that is the antithesis of prompt.
In my judgment, therefore, BSB needs an extension of time if it is to be permitted to bring this application.
EXTENSION OF TIME
There is (rightly) no dispute that until BSB was aware of the disparity in the treatment of the competitor companies it would be entitled to an extension of time to make the application, nor is it in issue that this is a case in which no objection could properly be made to the full 3 months period being used in correspondence about and the preparation of the application. In a case in which the grounds of the application depend on events in which the applicant was not directly involved (the situation of the competitor companies) the importance of knowledge is I think all the greater.
Whilst Mr Vaughan submitted that BSB's knowledge remained insufficiently complete for some time, I think the disparity in treatment was sufficiently known to the company by August 9, 1999 when it obtained a copy of the July 12 letter to one of the competitor companies. Thereafter 10 months elapsed before the application was made.
The factors which have been put forward as justifying an extension and my comments upon them are as follows:
(1) The difficulty and importance of the issues involved. I have already said that I think there is some force in this. But of themselves they do not provide a good reason for delay but only a factor in the overall discretion.
(2) The need to know whether the competitor companies were to appeal the ruling in their case on the basis that their factual position differed from BSB. I am not impressed by this; the essence of BSB's complaint was disparity and that was sufficiently shown by the information it had by August 9. The money paid by BSB would not be affected by any appeals by others.
(3) The existence of BSB's appeal against the tribunal ruling which, it is submitted, made an application for judicial review premature. Whilst in some circumstances I accept that such a factor could be compelling, in this case I do not think it can carry more than a little weight in the overall balance. The prospects of an appeal were never considered to be good and the appeal was lodged only on a "holding" basis. As time went by the prospects were thought to have deteriorated further. It was BSB's assertion in correspondence that the issues were separate.
(4) The need for caution before taking on a body with which good relations was important to BSB. I reject this; there was no need for confrontation nor did it in fact occur. Attempts to resolve the matter without litigation could have been made much earlier than they were.
(5) The fact that BSB acted throughout on legal advice which it understood to be to the effect that time would only run from a rejection by the Commissioners of the claim to repayment. As is apparent from this judgment, I think that advice was misconceived. But it is not, on the evidence, in dispute that it was given, albeit accompanied by advice that BSB needed to act promptly. BSB is of course a substantial and sophisticated company. Nonetheless I do think this is a real factor in considering the overall exercise of discretion, which goes wider than simply looking for good reasons for the delay itself. This is not a case of delay by the advisers but a misconception as to what the law required.
(6) The possibility that if an extension of time were to be refused BSB would still have a claim which could proceed by the issue of an ordinary claim form. BSB's claim is for restitution of the £22.6 million it has paid. It might also allege a breach of duty. As Mr Mantle submitted such a claim would need a cause of action and that might not easily be established. Nonetheless if there is at least some real prospect of such a claim being pursued (as I think there is) in case management terms there is less to be said for shutting out the present application.
(7) It is not suggested that any specific prejudice has been caused by the delay nor that any specific incidence of detriment to good administration is present. Any possibility of adopting the same approach to the competitor companies had gone by the time BSB knew of the disparity. The want of prejudice is a corollary of the nature of the dispute which involves a claim to payment by BSB which has no effect on others or broader implications beyond the questions of principle. That said, it is of course right that the Commissioners are and were entitled to be concerned to know in good time whether there was to be a challenge to the retention of what is a substantial sum. But apart from that, BSB also had no reason to think that there would be any prejudice and the letter of November 22 raised the challenge.
Both parties agreed that the correct overall approach was to be found in the dictum of Woolf LJ (as he then was) in R v Commissioners for Local Administration, ex p, Croydon LBC [1989] 1 All ER 1033 at 1046:
While in the public law field, it is essential that the courts should scrutinize with care any delay in making an application and a litigant who does delay in making an application is always at risk, the provisions of RSC Order 53 rule 4 and section 31(6) of the Supreme Court Act 1981 are not intended to be applied in a technical manner. As long as no prejudice is caused ... the courts will not rely on those provisions to deprive a litigant who has behaved sensibly and reasonably of relief to which he is otherwise entitled.
I find the balance arising from the factors to which I have referred a fine one. I do not think BSB has behaved "sensibly and reasonably" in all respects as much of the delay after August 9, 1999 was, in my judgment, both unnecessary and unreasonable. On the other hand, it is not without some explanation (legal advice); there are real and important issues raised; there is a risk that those issues will be litigated in any event; and there is no prejudice.
I have reached the conclusion that the balance of those factors, albeit a fine one, does come down in favour of BSB and that there is, therefore, "good reason" for extending the period in which the application can be brought. I shall therefore grant an extension of time under RSC Order 53 rule 4(1) and give permission to BSB to make its application.
MR JUSTICE LANGLEY: I would like to thank the parties in this case for their proposed amendments. One of them caused a certain minor objection, but I have nonetheless adopted it and I am referring to it on page 2 of the draft. My understanding was that there was no pursued objection by BSkyB to that amendment anymore.

MS JASSEY: That is right, my Lord.

MR JUSTICE LANGLEY: You will find it has come into the draft. I have just received a further suggested amendment. I cannot remember to what page it is, but I simple want to make it clear that there is a reference to solicitors, who are not the same solicitors acting now. I propose to make that amendment as suggested, to which I understand there is no objection, and a draft containing that amendment should emerge very shortly. Subject to that, the draft which you have has been amended, and I hand that down as my judgment in this case.

MR MANTLE: I am very much obliged, your Lordship.

MR JUSTICE LANGLEY: Are there any applications?

MR MANTLE: My Lord, it is agreed between the parties, if your Lordship thinks it appropriate, that costs should be costs in the case.

MR JUSTICE LANGLEY: I think that is very appropriate. In which case I will make an order to that effect if I need to do so.

MR MANTLE: My Lord, there are no other orders which the parties were intending to seek from your Lordship.

MR JUSTICE LANGLEY: Thank you very much. If you wait you will receive a copy of the final version.