England and Wales High Court (Administrative Court) Decisions

BRITISH SKY BROADCASTING GROUP PLC v. COMMISSIONERS OF CUSTOMS AND EXCISE [2001] EWHC Admin 127 (23rd February, 2001)

Neutral Citation Number: [2001] EWHCC Admin 127 Case No: CO/1606/2000

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

ADMINSTRATIVE COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Friday 23^rd February 2001

MR JUSTICE ELIAS:

1. The Claimant in this application for judicial review, BSkyB, is a Satellite Broadcaster. It provides satellite broadcasting services throughout the United Kingdom and Ireland to individuals who are willing to enter into a contract and pay a monthly subscription. The subscription price varies depending on the particular programme channels to which the customer subscribes. Since late 1993, each subscriber has, in addition to the broadcasting services, been provided with a satellite listings magazine. Although part of the subscription, the magazine does have a cover price. As at June 1998 that was £3.25p. A small number of the magazines were sold to persons other than as part of the subscription price.

2. Under the relevant law, the supply of subscription television broadcasting is subject to VAT at the standard rate. However, the supply of magazines is zero-rated. In 1994 the Commissioners of Customs and Excise, the Defendants in this action, agreed with BSkyB that the supply of the magazines could be treated separately to the supply of broadcasting services and accordingly would be subject to VAT at the zero-rate. The part of the subscription price deemed to be attributable to the supply of the magazine was equal to the cover price of the magazine. Accordingly VAT was paid on the subscription price less the cover price.

3. In 1997 the Commissioners informed BSkyB that they were reconsidering the way in which they were treating the supply of the listings magazine. By a letter dated 29 May 1998 the Commissioners notified BSkyB that after further consideration of the position they had concluded that BSkyB were making a single supply of standard rate broadcasting with the magazine as an incidental and integral part of that service and that the subscription would no longer be treated as a mixed supply of broadcasting services with a zero-rated magazine. The effect was that VAT was to be paid at the standard rate on the whole of the subscription price. That change took effect from the 1 June 1998.

4. BSkyB appealed to the VAT and Duties Tribunal against that decision of the Commissioners. The appeal was dismissed on the 2 July 1999, the Tribunal concluding that the provision of the programme and the magazine should be treated as a single integrated service. Although an appeal was lodged against that decision in the High Court, it was subsequently abandoned. BSkyB therefore does not dispute that the Commissioners had correctly applied that law when they caused VAT to be payable on the whole of the subscription as from June 1998.

BSkyB's Grievance

5. BSkyB does not complain about its treatment taken in isolation. However, there are a number of cable companies who provide broadcasting services by subscription in much the same way as BSkyB, and it came to BSkyB's notice that although these companies also provide a listings magazine, ksome of them continued to be treated even after June 1998 on the basis that the supply of the magazine was a distinct supply which was zero-rated. BSkyB compares itself with two of the companies in particular, referred to (for confidentiality reasons) as company A and company B. That position continued for those companies until their position was reviewed following the decision of the VAT Tribunal in the BSkyB case. Thereafter they were required to pay VAT on the whole of the subscription price as from the 1 August 1999. BSkyB's case, in essence, is that there was no justifiable basis on which it ought to have been required to make VAT payments on its magazine earlier than these competing companies who, according to BSkyB, were in a similar position. It is relevant to point out that the Commissioners could not remedy the different treatment by retrospectively imposing a tax liability upon the cable companies. This is because the Commissioners have adopted a policy in the form of an extra-statutory concession that:

"If a Customs and Excise officer, with the full facts before him, has given a clear and unequivocal ruling on VAT in writing or, knowing the full facts, has misled a registered person to his detriment, any assessment of VAT due will be based on the correct ruling from the date the error was brought to the registered person's attention."

This is known as the Sheldon principle, named after the Minister who first announced this policy in Parliament in July 1978. The claimant does not challenge this principle itself; indeed, it benefited from it in respect of the period before the 1 June 1998 when it ought in law to have been paying VAT at the full rate. Of course, had the cable companies received a ruling that they were obliged to meet the full VAT liability on the same date as BskyB, the Sheldon principle would have affected the companies in precisely the same way.

BSkyB says that the inconsistency in treatment amounts to unfairness sufficient to invalidate the direction that it pay VAT on the magazine as from the 1 June 1998. BSkyB further submits that the only way in which there can be proper and equitable treatment , given the Sheldon principle, is for the court to order repayment of the sum which BSkyB has paid over to the Commissioners in respect of the 14 month period during which the discrimination continued. That sum amounts to something in excess of £23 million pounds.

The Law

6. It is not disputed that the Commissioners are under a duty in common law to act fairly. If they act unfairly, whether procedurally or in relation to the substantive decision itself, then that constitutes an abuse of power for which judicial review provides a remedy. The parties were in dispute as to the precise scope of the duty, at least insofar as it relates to the substantive decision itself. However, it is not necessary for me to explore that particular question because it is common ground that the duty arises given the way the claimant puts its case. Mr Pannick's case is that the Commissioners deliberately decided not to make other cable companies pay VAT on the magazine supply notwithstanding that they recognised that they were in no materially different position to BSkyB. He submits that the obligation to pay VAT on the listings magazine had been imposed on BSkyB simply because the Commissioners wanted to treat that company as a test case. Subject to an argument which I address later in this judgment, Mr. Lasok Q.C., for the Commissioners, accepted that the duty to act fairly would be engaged if the facts were as described by Mr. Pannick. He agreed that if the Commissioners had indeed considered that BSkyB and the two allegedly comparable cable companies were in an identical situation and had deliberately chosen to select BSkyB as a test case whilst choosing to treat the other identically placed companies more favourably, then that would involve a breach of the duty to act fairly.

7. In view of this, it is necessary for me to consider neither the exact scope of the duty nor whether that duty was derived from sources other than the common law. In his skeleton argument Mr. Pannick had asserted that there was also a legitimate expectation that the Commissioners would act fairly, derived from statements to that effect in the Taxpayers Charter published by the Commissioners. He also submitted that that duty derived from the law of the European Community and from principles derived from the European Convention on Human Rights. Mr. Lasok did not accept that any of these constituted the source of the duty but given the concession he has made that the scope of the common law duty was sufficiently wide to embrace the facts as alleged by Mr.Pannick, it is not necessary for me to explore any of those issues further.

The legal principles

8. In my view the concession was rightly made. There is no doubt that the duty to act fairly can be infringed where the taxing authorities treat similarly placed taxpayers differently. In the National Federation of Self Employed case [1982] A.C.617, Lord Scarman said this (p.651):

"I am persuaded that the modern case law recognises a legal duty owed by the revenue to the general body of the taxpayers to treat taxpayers fairly; to use their discretionary powers so that, subject to the requirements of good management, discrimination between one group of taxpayers and another does not arise; to ensure that there are no favourites and no sacrificial victims."

To similar effect are the following observations of Sir Thomas Bingham M.R. in the Unilever case (1996) STC 681 at 692:

"It is to be remembered that what may seem fair treatment of one taxpayer may be unfair if other taxpayers similarly placed have been treated differently."

No doubt it is these observations that have caused Mr. Lasok to make the concession in this case. However, it is only in an exceptional case that unfairness will amount to abuse of power. In Preston v Inland Revenue Commissioners [1985] STC 282 at page 293, another case involving alleged unfairness by the taxing authorities, Lord Templeman commented (page 239):

"The court can only intervene by judicial review......if the court is satisfied that the `unfairness' of which the taxpayer complains renders the insistence by the Commissioners on performing their duties or exercising their powers an abuse of power by the Commissioners".

He also observed that:

"The court cannot in the absence of exceptional circumstances decide to be unfair that which the Commissioners by taking action against the taxpayer had determined to be fair"

Similar observations were made by Lord Scarman (at page 299).

9. The need to find exceptional circumstances to warrant intervention was emphasised by the Court of Appeal in R v Inland Revenue Commissioners ex parte Unilever Plc [1996] STC 681. Simon Brown L.J. in that case used the term "conspicuous unfairness" to describe the quality of the unfairness necessary to constitute an abuse of power. He said this at page 695:

"Unfairness amounting to an abuse of power as envisaged in Preston and the other revenue cases is unlawful......because either it is illogical or immoral or both for a public authority to act with conspicuous unfairness and in that sense abuse its power".

Later in his decision at page 697 he observed that there a distinction between

"on the one hand mere unfairness - conduct which may be characterised as "a bit rich" but nevertheless understandable - and on the other hand a decision so outrageously unfair that it should not be allowed to stand"

10. Ultimately, as the Court of Appeal observed in R v North East Devon HealthAuthority ex parte Coughlan [2000] 2WLR 622, it is for the court to determine whether there is an abuse of power. But the passages to which I have made reference are a strong reminder that the threshold of unfairness amounting to an abuse of power is a high one, and that the court must be careful not to interfere simply because a decision can be justifiably subject to some criticism.

The grounds of challenge

Mr. Pannick puts his submission on fairness in two quite distinct ways. His first and very broad submission is that the court should judge the question of fairness not by considering the material before the Commissioners at the relevant time, but in the light of all the material the court has when it is determining the issue in dispute. His argument then is simple: we now know, in the light of the VAT decision, that in fact BSkyB and its competitors ought to have been treated in the same way. Each of them ought to have been paying VAT on the basis that the magazine was an integral part of the broadcasting services and that there was a single supply, all of which should have been subject to the standard rate VAT. Even if the Commissioners had in 1998 considered that there might have been material differences in the position of BSkyB on the one hand and the cable companies on the other, it was now plain that that was a mistaken assumption; there were no such material differences between them.

11 Accordingly, the Commissioners could not now claim that they had acted fairly. Even if the Commissioners had relied on what may have appeared at the time to be a cogent and rational distinction between the position of BSkyB and the other cable companies, that was not in law a justifiable reason for distinguishing between them at all.

12. This argument rests on the premise that it is enough that, objectively viewed, BSkyB and the two cable companies ought legally to have been treated in the same way. If they are in an identical situation in law, the duty of fairness is infringed if they are treated differently. Indeed, Mr. Pannick submits that the principle of fairness ought to give him remedy even if he shows only that he was treated unfairly in comparison with one of those companies.

13. The alternative argument is that even if it is necessary for the Commissioners to have considered BSkyB to be in a materially different position from the two cable companies, the evidence demonstrates this is precisely what they did believe. This argument accepts as its premise that the concept of fairness applies only when the decision maker in fact perceives the two situations to be the same and treats them differently nonetheless: if they are perceived to be in an identical position it is a breach of the duty of fairness to treat them differently.

14. I should emphasise the very limited and particular factual premise on which Mr. Pannick submits that this duty arises. He is not seeking to assert that there is a duty on the Commissioners positively to identify situations where apparently similarly placed taxpayers may be treated differently, and indeed he does not have to go that far. If there were such a duty, that would impose very heavy, not to say impossible, burdens on the Commissioners. There will inevitably be cases where different officers of the Commissioners take a different view of the tax liability of similarly placed taxpayers, each being in ignorance of the assessment of the other. Although I have heard no argument on the point, I should be very surprised if the duty to act fairly were infringed in such circumstances. It would be unduly onerous for the taxing authorities to ensure that there was a system in place to identify any such inconsistent treatment. Mr. Pannick places emphasis in this case on the fact, as he at least asserts it to be, that the Commissioners were aware that identically placed taxpayers were being differently treated. They had expressly considered the position of BSkyB in relation to the comparator cable companies and had selected his clients for different and less favourable treatment. In my judgment it ought to be an essential element of any allegation of unfairness based on different treatment that the authorities either knew of, or at any rate plainly ought to have been aware of, the alleged disparate treatment relied upon.

15. I shall now address each argument in turn. I shall refer to the first broader submission as the "identical in law" argument, and the alternative submission as the "identical in perception" argument.

"Identical in law" argument

The basis of this argument it that the court can now see, with the benefit of the decision of the VAT and Duties Tribunal, that BSkyB and the two cable companies ought to have been treated similarly in 1998. Accordingly, it is said that the Commissioners acted unfairly in treating them differently.

16. In my judgment this way of putting the case is wrong in principle and is a recipe for chaos in practice. Judicial review is about testing the legality of administrative action; save in exceptional cases, such as if jurisdiction is in issue, that can only properly be judged in the light of the factors which were known or ought to have been known by the administrator when the decision was taken. Of course, it may be necessary for an administrator to reconsider the decision if new facts emerge, but the legality of his action is not to be judged by material of which he was not, and could not be expected to have been, aware. Mr. Pannick's argument amounts to saying that a body will be at risk of acting unfairly if it makes a rational and defensible decision as to the effect of the law in a particular situation and a court subsequently holds that the legal analysis was wrong. In my view that cannot be right. The argument equates a lack of fairness with an erroneous analysis of the law, at least where that mistaken analysis has led to the different treatment of persons in a legally identical position. In my judgment that expands the concept of fairness well beyond its established or legitimate limit.

17. Furthermore, if this argument were right, the practical consequences would be severe indeed. Whenever a VAT Tribunal rules that a company is subject to VAT on something which was formerly zero-rated then other parties who have been paying VAT for years in respect of the same service could on Mr. Pannick's argument claim a rebate on the grounds that in retrospect it could be seen that they had been treated less fairly than the other party. The Commissioners would never know when they may be subject to an obligation to repay taxes which they had originally obtained perfectly lawfully. No doubt there would be an overwhelming temptation for the officers in any situation of uncertainty to levy a VAT charge in case by failing to do so they were creating the risk that they might subsequently be shown to be wrong with the consequences that others, currently paying the tax, would then be able to reclaim the tax paid on the grounds that they had been the subject of unequal and therefore unfair treatment. No sensible system of tax administration could operate in such a state of uncertainty.

"Identical in perception" argument

18. I turn to the alternative way which the case is framed. This narrow submission accepts that fairness has to be tested in the light of the material that was before the Commissioners in 1998. Mr. Pannick further recognises that it is incumbent upon him to show that the Commissioners perceived the position of BSkyB to be in all material respects precisely the same as the cable companies. Plainly there is no discrimination amounting to unfairness, and no lack of consistency, if there are potentially material differences between the companies. Mr. Pannick says that when the evidence before the court is carefully analysed, it is plain that the Commissioners drew no material distinction between BSkyB and the cable companies who had been zero-rated in respect of their magazines, were aware that their situations were materially the same, and yet BSkyB had been picked out or, as Lord Scarman described it in the Self Employed case, was a "sacrificial victim" receiving less favourable treatment. That, he submits, amounts to a clear breach of duty to act fairly.

19. Mr. Lasok, for his part, contends that the evidence makes it plain beyond doubt that the Commissioners considered that there were material differences between BSkyB and the cable companies which were sufficient to warrant their being subject to different treatment. In retrospect they were wrong to have formed the view that these differences did justify a different VAT treatment, but that is with the benefit of hindsight.

20. In order to resolve this dispute it is necessary to consider the evidence before the court about how the Commissioners did perceive the position when they decided to impose the VAT on the supply of BSkyB's magazine. I have been provided with various witness statements and other documents which go to this issue of whether BSkyB and the cable companies were perceived to be essentially in the same position. I will first deal with the documents because they provide some assistance in understanding how the matter was developing chronologically at the relevant time. It appears that the question of whether the VAT treatment of the supply of listings magazines was correct was first raised by Carl Render, a tax avoidance officer based at the Maidenhead. In a memorandum dated 20 November 1997, he submitted a carefully considered document on this question to other officers. This paper did not set out the Commissioners' policy as such, and indeed was expressly stated to be for the purpose of obtaining advice. He queried whether the decisions made in respect of BSkyB and other cable companies were correct. In that paper he observed that:

"Both the Cable Guide and the Sky TV Guide are sold separately. The Cable Guide extensively (for now) and the Sky TV Guide minimally. But I would argue that they are not capable of separate use. The Cable Guide only contains listings for cable TV and the articles in it relate to cable programmes. The same is true of the Sky TV Guide, other than it relates to satellite television."

I note that in this paper Mr. Render is simply expressing his own views; he recognised that there was at the time a factual distinction between the position of Sky and the other cable comparators, namely the extent of separate sales, but his own view was that this ought not to be a material distinction between the two cases.

21. Subsequently there was a meeting on the 24 April 1998 at which representatives from different branches of the Commissioners were present. A note of that meeting was later prepared and distributed to interested parties by Mr. Don Bryant, an officer of the tax avoidance branch. The note records the fact that the meeting was to discuss a number of cases where there were potentially mixed supplies. It was noted that three companies other than Sky were affected by the issue. In fact the note deals almost exclusively with Sky. However, five recommendations were set out, and two are material to the issue before the court. The first recommendation was that Sky should be issued with a ruling that they were making a single supply and taxed accordingly. The fifth recommendation was as follows:

"Where pressed, we should give similar rulings to the cable companies. However, we should qualify the position by saying that we will review the position depending on the outcome of the BSkyB case, in the event of litigation."

22. From certain hand-written observations on the first page of the note, it seems that one of the recipients of the note, Mr. Chris Colford, informed another recipient, Mr. Peter Kirkham of the Supply of Goods branch, that he agreed with the recommendations. That was on the 12 May 1998. Mr. Kirkham then indicated on the 14 May that he was happy for Mr. Colford to proceed on the recommendations. Mr. Colford then instructed Mr.Bryant to take forward the first recommendation with Carl Render to the control officer. (The control officer referred to is apparently the officer responsible for the tax affairs of BSkyB.) Nothing was said about any of the other recommendations.

23. In addition to these notes, three officers of the Commissioners have made witness statements in these proceedings. One of them, Ms. Susan Green, was at the material time responsible for the tax affairs of two cable companies, one of which was company A. She attended the meeting on the 23 April. She said that she had already by then taken the view that one of the cable companies for whom she was responsible should have its magazine assessed as a single supply because the magazine was produced in-house and was available only to subscribers. By contrast, she considered that company A should be treated as making a mixed supply. This was in particular because it was not an in-house magazine; it gave information about the listings of other cable companies; and it was generally available in newsagents and retailers to members of the public. As regards this last point, she said this:

"In fact the information provided to me by A showed a large number of copies of the magazine was sold through High Street newsagents such as W.H. Smith and Menzies. Relying upon the principles that could be derived from cases such as Commissioners of Customs and Excise v Automobile Association [1974] STC192, I considered that the magazines were the subject of a distinct supply as long as they remained generally available on the High Street. My team and I would regularly check High Street outlets in order to ensure that the magazine was still generally available."

She said that she changed her view about the proper tax treatment of the magazine after receiving and analysing the implications of the tribunal decision in the BSkyB case. It was only then that she made a ruling that the magazine should be treated as part of a single supply.

She said that she had maintained her view at the meeting on the 23 April that the mixed-supply ruling was correct, and that it was her recollection that the outcome of the meeting was that the position of the cable companies was seen to be different to that of BSkyB. As to the meaning of the final recommendation, she said this:

"The final recommendation ...refers to giving "similar rulings" to the cable companies. My recollection is that the conclusion of the meeting on this point was that we should give rulings to traders on this issue if they sought one, depending on the facts of each case, but not offer a ruling without a request. I do not remember the meeting determining what rulings should be given. Each case would have to be considered on its own facts."

24. Mr. Paul Tuckett, an officer of the Commissioners in the VAT headquarters branch which handles supply of goods issues, also swore an affidavit. He set out the tax treatment of some ten broadcasting companies who distribute magazines, other than BSkyB. From that and certain other supplementary information provided to the claimant's lawyers by letter dated 28 November 2000, it seems that there was no clear pattern in the way the companies were treated. Some were treated as making single supplies throughout, whereas other companies were treated as making single and mixed-supplies at different periods of time. He said that the Commissioners did not treat the issue as one of policy because they thought that each case depended on its own facts. As Mr. Lasok pointed out, that view was shared by the VAT tribunal in the BSkyB case who observed that each case depends on its own facts.

The third officer who swore an affidavit (indeed he made two) was Mr. Martin Aldous who was the control officer responsible for company B. When he took over as control officer of that company the magazine was already treated as a separate supply, and he says that he maintained that ruling because he saw no reason to change it. He described his understanding of the position before the VAT tribunal decision in the BSkyB case as follows:

"Before the decision was released, I had of course compared what I knew of B's arrangements for supplying the magazine with what I knew of BSkyB's arrangements. On the information available to me, there did not seem to be much difference between the two. However, my view at that stage was that the Commissioners were not likely to succeed in establishing that BSkyB was making a single, composite supply. Once I had read the BSkyB decision, I had to revise my view of the arrangements made by B."

He said that he had not attended the meeting on the 23 April and had not been party to any subsequent discussions about matters raised by that meeting.

25. Mr. Pannick submits that this material shows that the Commissioners had in reality recognised that there were no material differences between the position of BSkyB and cable companies A and B. He places emphasis in particular on the fifth recommendation in Mr. Bryant's note of the 23 April meeting. He submits that since it envisages a similar ruling in respect of any request made by a cable company to that given to BSkyB, this could only have meant a ruling treating the supply of the magazine as an integral part of the broadcasting supply. He asks the court to pay little regard to the affidavit of Ms. Green about the meeting. It was sworn over two years after the meeting and is simply inconsistent with the notes of the meeting; the contemporaneous document should be given greater weight. Furthermore, he says that the original memo of Mr. Render and the views of Mr. Aldous are consistent with an understanding that it was always appreciated that there was no material difference between the position of BSkyB and the two cable companies which he relies upon for comparative purposes. In short, he submits that his clients were chosen as the test case, which would, and in the event did, determine the position of the other cable companies. It was unfair to select them out for distinctive treatment in this way.

26. Mr. Lasok submits that the evidence demonstrates that the Commissioners did not consider that the cable companies were on all fours with BSkyB. He submits that it is plain that virtually everyone recognised that there were various factual differences between the position of BSyB and companies A and B, and in particular the fact that the magazine relating to the latter was far more widely distributed. True it is that in the event that seems not to have been considered of sufficient materiality to amount to a difference in law, but at the time there was a cogent, if not universally shared, view within the Commissioners that this did justify a difference in treatment. He submits that whatever the precise meaning of the word "similar" in the final recommendation, what is clear is that the outcome of the meeting was that there was thought to be a material difference between the position of BSkyB and the other cable companies. Why, he asks rhetorically, would the Commissioners not have made a similar ruling against the other companies if they had thought there was no distinction in their position? This would have raised the tax revenue. It is not said that the Commissioners were acting with spite or malice against the claimant, and it would have made no sense for them to have treated the cable companies differently had they perceived their situations to be legally the same. He also relies upon the evidence of Ms. Green which, he contends, confirms that the companies were not perceived as being in a legally identical situation and gives reasons why they were not. Had the meeting thought that company A was in the same position, Ms Green would surely have changed her ruling about the nature of its supply, yet she did not do so. He submits that no significance can be placed on the memo of Mr. Render since that was merely the expression of opinion by an officer seeking advice; and similarly the view expressed by Mr. Aldous was only the personal view based on his (possibly limited) understanding of the BSkyB position.

27. I accept the arguments of Mr Lasok. In my judgment the evidence makes it clear that the Commissioners did perceive a difference between the situations of BSkyB and the cable companies, essentially for the reasons relied upon by Mr. Lasok. I accept, as Mr. Pannick submits, that the word "similar" used in the final recommendation of the 23 April meeting does suggest that any cable company who for any reason had sought a ruling - and it is not clear why any would have done so - would have been treated as BSkyB was. Ms. Green's understanding of the position gives no weight at all to the word "similar". But even if that recommendation does carry the meaning relied upon by Mr. Pannick, in my view the evidence nevertheless shows that a distinction was drawn between the cable companies and BSkyB, and that is how Ms. Green understood the position. She did not issue a fresh ruling requiring company A to pay VAT on the magazines supplied and she surely would have done so if her belief had been that the Commissioners had formed the view that company A should have been treated in the same way as BSkyB. In addition, I am influenced by the fact that Mr. Tuckett clearly states that it was thought that each case should be considered on its own facts, and that the Commissioners did not believe that each company would stand or fall together. Indeed, this is confirmed by the fact, to which I have already referred, that the various broadcasting companies were treated in different ways at different periods.

28. It is right to point out that BSkyB has alleged that the distinguishing features relied upon by Ms. Green were never significant. However, Mr. Pannick does not say that it was irrational for them to have been perceived as potentially relevant matters. It would in my judgment have been impossible for him to have done so, not least because the fact that the magazine was sold separately to the public was a factor that was relied upon by BSkyB itself, before the VAT tribunal, as a reason why its supply of the magazine should be treated as zero-rated. The tribunal noted that the supply in its case was minimal. That would not apparently have been true of the comparator cable companies at the material time. The reasons relied upon by the Commissioners for treating the cable companies differently have in hindsight been shown to be wrong in law, but for reasons I have already given, that does not make the position adopted by the Commissioners unfair.

29. I turn to the final way in which Mr. Pannick puts his case. This is a variant on his narrower argument. He submits that even if one just looks at the position of company B, Mr. Aldous clearly thought that its position was the same as that of BSkyB and that accordingly it should have been treated the same way. I reject this argument. Mr Aldous did not think it appropriate to rule that company B should be subject to VAT and accordingly he did not do so. It may be that had he been in control of the affairs of BSkyB he would have taken the same view of their liability (although possibly he may not have done so once he had obtained a more detailed understanding of BSkyB's position). Whether that view would have carried the day in the light of the decision to implement the first recommendation of the 23 April meeting is doubtful. But in any event, the fact that an officer has reservations about the ruling which another officer has given in respect of a different company cannot in my opinion create a duty on the Commissioners to treat the two cases the same. Insofar as the Commissioners formulated a policy about how to deal with this issue of single or mixed supply across a range of companies, that was clearly not done on their behalf by Mr Aldous.

30. It follows that in my judgment this application must fail because the precondition to the duty to act fairly - namely that cable companies were perceived by the Commissioners, as being in a materially identical position to BSkyB - has not been made out.

Two other defences

31. It is not strictly necessary for me to consider the two additional grounds on which Mr Lasok seeks to argue that the claimants have no lawful claim for the compensation they seek, but since I have heard argument on them, I shall briefly indicate my conclusions on these points.

32. First, Mr. Lasok submits that the nature of the complaint, when properly analysed, does not permit the duty to act fairly to be engaged. He says that the complaint of BSkyB is not that VAT liability was unlawfully imposed upon it, but rather that it was not at the same time imposed upon cable companies A and B. The only reason why they have not been required to pay VAT from the same date is that the Sheldon principle precludes the Commissioners from imposing the tax liability in respect of any period prior to the companies having been informed of the change in policy. No ruling was given in respect of the cable companies until August 1999. But for that principle, there would have been no impediment to fairness being achieved by the retrospective application of the VAT ruling against those companies. The claimants had no expectation that they would not be subject to VAT because of the way they had personally been dealt with by the Commissioners; to this extent their case was quite different to that advanced in either Preston or Unilever. They were relying upon the more favourable identical treatment given to others. However, says Mr. Lasok, the principal duty of the Commissioners is to collect taxes, and it would undermine that basic objective if fairness were to require that they should treat BSkyB as though they had been given a ruling on the same date as the other two cable companies. The effect of that would simply be to increase the number of persons who were not paying taxes as they should.

33. I reject this argument. The essence of the challenge on unfairness in this context is disparate treatment as between identically placed taxpayers. As Bingham LJ recognised in Unilever, such disparate treatment can amount to unfairness: Mr. Lasok's argument comes close to denying that, and indeed it sits unhappily with the concession that he has made. If such unfairness exists, it is not altered by the fact that the Sheldon principle may prevent equal treatment being achieved by backdating the time from which the cable companies must pay VAT on the magazine supply. Conduct which is unfair and an abuse of power absent the Sheldon principle cannot become a proper exercise of power because the Sheldon principle has been adopted. If this argument has any relevance at all, in my view it can only be in relation to the relief, which the court should provide for breach of the duty of fairness. That is the alternative and in my opinion more attractive way in which the Commissioners deployed this argument. It requires a consideration of how the case on remedies was put by BSkyB.

Remedies.

The claimant's case on remedies was very simple. In Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC70, the House of Lords held, by a majority (Lords Goff, Browne-Wilkinson and Slynn, with Lords Keith and Jauncey dissenting) that tax paid pursuant to an invalid regulation was recoverable at common law, together with interest. In that case the effect of the regulation being held invalid meant that the Revenue had no power at all to demand the tax paid. However, in the course of giving the leading judgment for the majority, Lord Goff said this at page 177:

"As at present advised, I incline to the opinion that this principle should extend to embrace cases in which the tax or other levy has been wrongly exacted by the public authority not because the demand was ultra vires but for other reasons, for example because the authority has misconstrued a relevant statute or regulation."

Mr. Pannick says that these comments, albeit strictly only obiter, apply to the facts of this case and should be followed. He submits that there is no reason to treat abuse of power resulting from disparate and unfair treatment differently from any other form of abuse of power.

34. Mr. Lasok contends otherwise. He recognises that Lord Goff's dictum, although obiter, deserves the greatest respect, but he submits that even if it would apply to most forms of abuse of power, it would not apply to a case where the abuse consists of a failure to treat the claimant in the same way as another person. I see some force in this contention. The underlying rationale of the Woolwich case was the principle of unjust enrichment, the notion that the Revenue would have benefited from receiving moneys they ought never to have received if they had acted lawfully. It can be argued with some merit that it is difficult to see why the Commissioners have been unjustly enriched in circumstances where the claimant has been required to pay precisely what the law requires and where its grievance could have been met, but for the application of the Sheldon principle, by backdating the time from which the comparator companies had to pay VAT on their magazine supplies. Furthermore, the effect is to relieve the claimant from paying a tax which Parliament has provided ought to be paid.

35. I have not found this an easy point, but on balance I prefer the argument of the claimants. It says that the levy against it ought not to have been made at all if the Commissioners thought it right not to impose the levy on the cable companies. To that extent it was unjust to impose the liability at all, even although it would have been lawfully imposed if the companies had all received equal treatment at that time. Moreover, if they are unable to recover the moneys paid, then there will be no effective remedy at all for the abuse of power; there will merely be a declaration that the breach of the duty to act fairly has occurred. I accept that the effect of this conclusion is that the Commissioners will not be able to recover taxes which ought in law to have been collected. But that is equally so in cases such as Unilever when a taxpayer is led to believe by the conduct of the taxing authorities in its dealings with that taxpayer that the law will not be rigorously applied to him.

Mr. Lasok was rightly concerned about the potential implications of permitting recovery in such a situation. But if the duty to act fairly is sufficiently narrowly defined, much of the force of this objection disappears. In particular, if it were sufficient to establish a breach of the duty to act fairly merely to show that there was a difference in treatment without the taxing authorities having had cause to consider specifically the position of the claimant in relation to the alleged comparator taxpayers, the consequences of permitting recovery of the taxes paid would be very serious to the authorities. But in my view the very rare circumstances in which a challenge on grounds of disparate treatment would be likely to succeed will ensure that the well-worn floodgates, so often the focus of solicitous attention by defence lawyers, will remain firmly shut.

36. However, although I would have been prepared to allow recovery of the taxes paid had unfairness amounting to abuse of power been established, in my judgment there has been no breach of the duty to act fairly by the Commissioners. It follows that this application fails.

MR JUSTICE ELIAS: Four the reasons given in the judgment that has been handed down to the parties, this application is dismissed. Can I thank both of you for providing some valuable proof reading to my original draft. I used to be able to read the Guardian and not spot the misprints. I am very grateful. Some of them have not been incorporated into the typed copy but have been incorporated into the disk that has been given.

MR PANNICK: We have very helpfully been handed a disk, thank you very much.

MR LASOK: My Lord, the Commissioners seek their costs in this case. I think it is largely only the costs of the hearing before your Lordship which are outstanding, although there was a hearing in May connected with permission before Mr Justice Jowitt where costs were reserved. My recollection is that those costs have never actually been dealt with on the subsequent permission hearings, but all the other orders for costs which have been made in this case, with the exception of one for an extension of time, have been orders for costs in the case. We seek our costs as we have been successful.

MR JUSTICE ELIAS: Costs in the case and for all those where such orders have been made, and you are not bothered about the one order where Mr Justice Jowitt ----

MR LASOK: My Lord, perhaps I have not explained myself clearly. The position is, I think, that most of the costs before have been dealt with by orders for costs in the case. So they follow the event in your Lordship's judgment - the costs of the hearing before your Lordship and the costs of one hearing before Mr Justice Jowitt. We would seek our costs on that.

MR PANNICK: My Lord, I would resist the suggestion that we pay costs in relation to the hearing before Mr Justice Jowitt because, as I recollect the matter, that was concerned with the suggestion that there had been delay in bringing the proceedings and therefore permission should not be granted, and we of course succeeded on that. I am not asking for my costs, but, in my submission, there should be no order for costs in relation to that.

In relation to the costs of the judicial review in general, in particular the hearing before your Lordship, I would simply point out that we succeeded on the two matters addressed at the end of the your Lordship's judgment, that is whether the duty to act fairly was engaged at all in these circumstances and recovery of any sums overpaid. I would suggest, following the modern approach, that one does not award all the costs. One rather looks at what issues have been succeeded on by one party and which issues that party has lost on. There ought to be some diminution in the totality of the costs awarded to the Commissioners. I would suggest that they should have 75 per cent of the costs. That would be my submission.

MR LASOK: My Lord, if I can come back in relation to that. It is a relatively minor matter; it was a half-day hearing and leading counsel was instructed on behalf of the claimant. It was the first hearing in this matter. It was an oral hearing which had been requested by the applicants, and the outcome of that hearing was that Mr Justice Jowitt asked the applicants to go away and to provide further evidence. At that stage they had not even applied for an extension of time in order to bring their application for judicial review. They needed that extension. That extension was eventually granted by Mr Justice Langley on the basis of further evidence which was introduced between the first hearing and the second hearing. Mr Justice Langley, when he ordered costs in relation to the full hearing which eventually took place before him, awarded costs in the case. It would, in my submission, be entirely inconsistent for a less favourable order to be made for the Commissioners in relation to the hearing before Mr Justice Jowitt, which effectively was ineffective because the claimant had not made the necessary application, had not introduced evidence which Mr Justice Jowitt thought it necessary for him to deal with on that point. We were there on an oral hearing because the applicant had requested it. As it turned out it was not needed.

My Lord, so far as the issues are concerned that my learned friend raised, we have been entirely successful in the event. The claim in relation to remedy was entirely feedback (?) on establishing a substantive claim which failed. My Lord, if you are attracted in any way by my learned friend's submissions, I would respectfully suggest that your Lordship could take into account the relative amount of time that the matters on which my learned friend had limited success occupied before your Lordship. A reduction of 25 per cent would be far too high; the Commissioners should recover at least 90 per cent.

MR JUSTICE ELIAS: I think what I am going to do is act pragmatically rather that consistently perhaps. I do think that you should essentially get your costs of the main hearing. Mr Pannick, you are right that on a couple of points BSkyB were successful, but it does not seem to me that that really involved evidence as opposed to argument. However, there was that limited success on the legal point and, in so far as it related at all to the nature of the argument, clearly there must have been some preparation involved. I think what I will do is simply award no costs in relation to the hearing before Mr Justice Jowitt and secure what may be a broad and equitable outcome in that way.

MR LASOK: My Lord, the Commissioner had hoped to be able to seek summary assessment before your Lordship. In the light of that order, which I believe can be catered for by a schedule, I believe my learned friend only received the summary statement late. Indeed I think he only received it this morning just before court. We would ask that there be a detailed assessment. I do not think we can sensibly ask my learned friend to deal with the summary assessment.

MR JUSTICE ELIAS: I think it had better be a detailed assessment, unless you can come to an agreement obviously.

MR PANNICK: My Lord, I have an application for permission to appeal. Your Lordship is familiar with the circumstances.

MR JUSTICE ELIAS: Do you need leave to appeal from a judicial review these days? I cannot remember whether you need permission to appeal or not.

MR PANNICK: My Lord, yes. I understand you still need permission to appeal.

MR LASOK: I believe it is rule 52(13).

MR PANNICK: I have not got the relevant rule in front of me, but I am sure one needs permission to appeal. I ask for permission on the basis that the criteria to be applied in this context are a matter of considerable general importance and the approach that your Lordship adopted in particular as to the meaning of conspicuous unfairness and how high the standard is will obviously determine the application to the circumstances in the particular case. These are very important general issues not only for the BSkyB and other taxpayers, but also for the Commissioners.

MR JUSTICE ELIAS: Sorry, Mr Pannick, this really turned on the facts, as it seemed to me, of the particular case and the analysis of the evidence. I think you have to persuade the Court of Appeal on that.