England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DTVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		30 November 2001

Mr Justice Burton:

1. This is an appeal by the Commissioners of Customs and Excise ("the Appellants") against a decision of the VAT & Duties Tribunal (Peter Lawson (Chairman), Tony Ring) given on 9 April 2001, after a two day hearing on 19 and 20 February 2001, concluding that the School of Finance and Management (London) Ltd ("SFM") was eligible for exemption as a college of a university under Note 1 to Group 6 of Schedule 9 of the Value Added Tax Act 1994 ("VATA 1994").
2. The background to the hearing before the Tribunal is succinctly set out in the opening paragraphs of the Decision, which, for convenience, I repeat:

"1. The formal background to this appeal is as follows.

2. ... SFM ... registered for VAT with effect from 1 January 1996. [Its] business is the provision of degree-level education to fee paying overseas students, leading to the award of a University of Lincolnshire and Humberside ("ULH") validated degree.

3. Following correspondence between [SFM's] accountants and the Commissioners, the Commissioners confirmed by letter dated 11 December 1998 that [its] provision of education was exempt under [VATA 1994] Schedule 9, Group 6. After this, it was discovered that SFM had been incorrectly applying VAT to its sales. SFM therefore, through its accountants, by letter dated 1 February 1999 reclaimed VAT accounted for on its returns made for periods 05/96 to 08/98 amounting to £251,285.27.

4. The reclaim led to a further review by the Commissioners of the position and by letter dated 18 February 1999 they rejected the claim for repayment on the grounds that SFM does not qualify as an 'eligible body' under Schedule 9, Group 6 ... The appeal is against that rejection.

5. On 9 July 1999 the Commissioners issued an assessment for £765,013 estimated underdeclared VAT on sales for the period 1 January 1996 to 28 February 1999.

6. [SFM] was originally part of the E W FACT plc Group of Companies ["EWFG"] which was acquired in June 1998 by Nord Anglia Education plc. The trading activities of SFM were transferred to Kingswood College Ltd, an eligible body within the Nord Anglia VAT Group, on 25 February 1999.

7. Witness statements were made by ... [the] ... Finance Director of Nord Anglia Group, by John Graham Carr, until 31 January 2001, when he retired, Director of Professional and Academic Training of Nord Anglia Education plc, and by Professor George Cecil Corfield BSc, PhD, who worked for fourteen years at ULH and held various posts including that of Dean of Faculty and Director of Quality, and was a member of the Vice-Chancellor's management team."

3. The prospectus of SFM at the material time commenced, after a foreword from the Vice-Chancellor of ULH, "[SFM] is an Associate College of [ULH] and is also part of [EWFG]". The prospectus refers to the degree of Master of Business Administration ("MBA"), "the 'premier' qualification for today's aspiring senior managers". It states that "the twelve month MBA is a part of [ULH's] International Modular Masters in Management Programme".
4. Prior to summer 1996 degrees for students at SFM were awarded by the University of Hull. A Memorandum of Co-operation ("MOC") between SFM and ULH, which was never in the event signed but treated as the basis of the agreement between them, was then effective instead from summer 1996. The material parts of the MOC read as follows:

"By this memorandum of co-operation between ... [ULH] (the University) in partnership with ... SFM, SFM will offer a range of programmes as outlined below. This agreement covers the programmes (below) delivered through University approved SFM centres world-wide."

There is a list of programmes, including the MBA and certain other programmes which are said to be "subject to approval by the University and should be advertised as such". There is a definition section, which includes the definition of a Student, which provides that "each student will be enrolled as a student of the University". It is also provided that the University grants to SFM a non-exclusive licence to use the University's Intellectual Property as defined, in connection with the courses. The most material passages which follow are as follows:

"PRINCIPLES

This agreement is based on the following principles:

• SFM shall act as an approved Centre for the delivery of the University's Courses, as defined above.

• Students will be provided with all Study Guides developed and produced by the University for the Courses ...

• As part of its tutorial support, SFM will undertake the initial assessment of students' work which will be moderated by University staff appointed for that purpose.

• Students enrolled for the Courses will have the rights, privileges and responsibilities accorded to full-time students of the University.

RESPONSIBILITIES OF THE UNIVERSITY

1. To appoint Course Managers who will

• produce and maintain the student handbook for the Courses

• develop and co-ordinate an initial staff development programme ...

• organise an assessment schedule for the Courses ...

2. To appoint Centre Managers who will be the official liaison officer with SFM and who will

• ensure that students are registered with the University ...

3. Students enrolled on the Courses will not be entitled to automatic transfer to programmes delivered at the University. They shall, however, have a right of access to the University's guidance services and a right to an interview for any further Courses applied for at the University.

4. Students will be bound by the University Regulations in force at the time and the behaviour and disciplinary regulations of SFM.

RESPONSIBILITIES OF SFM

• To provide during each Academic Year the number of student places as agreed by the University and SFM.

• To seek University Agreement of any advertising of the Courses prior to its publication.

• To ensure that the Courses provided by SFM shall attain the University's minimum teaching standards ...

• To recruit and enrol students on the Courses in line with agreed University admissions policies and the Course regulations set out in the Definitive Course Documents, and to transmit student names to the University's Centre Managers for registration on the Courses.

• To act as a focal point where students can meet for formal and informal discussion of the Courses ...

• To mark assessable course work and examinations and provide an agreed sample for moderation by University staff within a previously agreed schedule ...

• To provide annual reports to the University on the conduct and progress of Courses.

QUALITY CONTROL AND ASSURANCE

The awards will be subject to the University's procedures for quality control and assurance. These include ...

ADMINISTRATION

SFM must obtain design approval from the University for any advertising campaigns promoting the Courses, and must notify the University, in writing, of the commencement of each cohort of students on the Courses within four weeks of the commencement of the Courses.

REVIEW AND/OR TERMINATION

This Memorandum covers the period for which the degree is validated or a period of five years, whichever is the sooner, at the end of which the two institutions will review their arrangements. ... Any party to the memorandum may request ... termination of this memorandum at an earlier date by giving twelve months prior notice, in writing, to the partner institutions. However the institutions confirm that should either ... [party] wish to terminate the relationship for whatever reason, they will collaborate to ensure that the present intake of students will be enabled to complete their Course.

FORCE MAJEURE

Should any party violate the terms of this agreement, the University or SFM reserves the right to terminate the agreement immediately. In this event, SFM will meet all reasonable expenses incurred by the University associated with the Courses and the University all reasonable expenses incurred by SFM associated with the Courses in ensuring that existing students are given a reasonable opportunity to complete the Courses."

5. Although, as can be seen, there is no use in the MOC of the term adopted in the prospectus, "Associate College" of ULH, there was oral evidence given in this regard, which I set out.

i) Mr Carr gave evidence as follows:

Day 1 Page 106: "ULH, as with all the Universities, has a number of collaborative provisions: in other words it would not be untypical for a university to have two or three associate colleges. For example the University of Surrey not only had [the Hampshire Business School] as associate college, it has Roehampton Institute, which is also an associate college."

Day 2 Page 7:

"Q: Do you say SFM is a college of ULH?

A: It is an associate college of ULH.

Q: Why will you not describe it as a college of ULH?

A: Well, ULH does not have colleges. ULH is a single entity university, it is not structured in colleges, so there is no college of ULH as opposed to, for example, the University of London, that has many colleges. ULH is a single entity university that has associate colleges."

ii) Professor Corfield put in a witness statement, which included the information that "students were registered with the University and received a University ID card, giving entitlement to use of University facilities in Hull and Lincoln, together with a copy of University Regulations". In oral evidence in chief at Day 1 Page 121 he was asked about what he further said in his witness statement about partnerships with colleges in Hull, Bishops Burton, Bridlington, York, Scarborough, Grimsby and Scunthorpe, involving "over 2,000 off-campus students":

"Q: Would they be colleges that might be described as associate colleges of ULH?

A: Yes indeed, and some of those colleges did use the terminology "associate college", some used the terminology "partner college "."

Further at page 125, still in chief:

"Q: I appreciate you retired from ULH in 1997, but I would like to ask you, if you would be so kind, to cast your mind back, wearing your ULH hat for a moment ... : first, the use of the expression "associate college " or "affiliate college"; is this an expression which the ULH would have approved with regard to SFM?

A: Yes, the ULH did approve their expression, albeit as Graham Carr indicated, that the definition of that phrase has not been clearly defined, but it is an approved expression and obviously it appears on the headed notepaper of SFM, it appears on offer letters to students, it appears on the prospectus and of course there is a clause in the Memorandum of Co-operation that all published materials are approved by the University de facto; the University is well aware of the use of that expression and, therefore, approved."

6. In cross-examination (Day 1, pp 142-3) Professor Corfield was asked about the colleges in Hull etc to which he had referred:

"Q: City colleges and technical colleges of the type you have described ... have ties with or sometimes are connected with a university, what is now called a new university, formerly a polytechnic, and in collaboration with them may provide a course?

A: Yes.

Q: Nonetheless, those colleges are in fact Further Education colleges.

A: Yes, in name, yes.

Q: And, I would suggest, they are not in any sense colleges of the university?

A: They will be - in quite a number of these cases, in the case of the offering of degrees at post-graduate level, they would be described as associate or affiliate colleges of the university.

Q: Again, you refer to the term "associate college" and elsewhere "affiliated college", and indeed your evidence is that each of these may dessribe themselves as an "associate" or an "affiliate college", why the reluctance for you and these colleges to describe themselves as colleges of the university, why do they feel the need to add the word "associate" or "affiliate"?

A: Mainly I would presume because they are colleges in their own right, they are independent, but they are associate colleges."

7. The Tribunal summarises the position in its Decision as follows:

"16. In outline the agreement worked as follows:

(i) SFM marketed world-wide the provision of courses leading to the award of certain of the degrees of ULH. The cost of the tuition and of the award itself was set by SFM. Students were enrolled with SFM and were registered as students of ULH in London or at an overseas centre. Following tuition and successful completion of examinations set by SFM with ULH, which were moderated by external examiners appointed by ULH, students were awarded their degree at one of the graduation ceremonies held by ULH in Lincoln or in Hull. SFM paid a per student fee to ULH to cover the cost of university administration, moderation and the graduation ceremony itself. Typically students would pay £5000 for the MBA degree, of which ULH would receive about £500 in respect of its fees. ULH would have been entitled to receive HEFCE [Higher Education Funding Council in England] funding in respect of their registered students, which would have included those enrolled at SFM.

(ii) Throughout the period when the agreement was in operation, SFM worked exclusively with ULH, having no arrangements with any other educational body during that time.

(iii) Whilst the term "associate college" is not defined in the Co-operation Memorandum, it was adopted to signify a degree of co-operation and integration that is significantly closer than a normal franchise arrangement. For example it covered areas such as shared academic appointments, joint teaching approaches, common regulations and university examination boards and shared research interests and supervision. In addition, two senior ULH officials, Professor J Adams who was the Pro-Vice-Chancellor and S Humphries, who was a director of ULH International Office, were remunerated members of the board of SFM between 18 December 1996 and 22 January 1998.

17. The arrangements with ULH were replaced with similar arrangements with Oxford Brookes University for courses commencing after June 1999. The final intake of SFMIULH students took place in October 1999. All students since that time have been enrolled on SFM/Oxford Brookes University programmes."

8. S.31 of VATA 1994 provides that "a supply of goods or services is an exempt supply if it is of a description ... specified in Schedule 9". Within Schedule 9 are a number of Groups, and the relevant Group is Group 6 - Education. The purpose of the Schedule is to identify what is an exempt supply, and item 1(a) of Group 6 provides that "the provision by an eligible body of ... education" is an exempt supply. Appended within the Schedule are explanatory notes, and the relevant note for the purposes of this case (as amended by various statutory instruments) is Note 1, which provides (in material part):

"(1) For the purposes of this Group an "eligible body" is -

(a) a school within the meaning of [the Education Act 1996 … etc], which is -

(i) provisionally or finally registered or deemed to be registered as a school within the meaning of the aforesaid legislation in a register of independent schools;

(ii) a school in respect of which grants are made by the Secretary of State to the proprietor or managers;

(iii) a community, foundation or voluntary school within the meaning of the School Standards and Framework Act 1998, a special school within the meaning of section 337 of the Education Act 1996 or a maintained school within the meaning of the Education Libraries (Northern Ireland) Order 1986; or

(iv) a public school within the meaning of section 135(1) of the Education (Scotland) Act 1980; or

(vi) a self-governing school within the meaning of section 1(3) of the Self-Governing Schools (Scotland) Act 1989; or

(viii) a grant-maintained integrated school within the meaning of Article 65 of the Education Reform (Northern Ireland) Order 1989;

(b) a United Kingdom university, and any college, institution, school or hall of such a university;

(c) an institution -

(i) falling within ... the Further and Higher Education Act 1992; or

(ii) which is a designated institution as defined in section 44(2) of the Further and Higher Education (Scotland) Act 1992 ... etc

(d) a public body of a description in Note (5) to Group 7 below;

(e) a body which -

(i) is precluded from distributing and does not distribute

any profit it makes; and

(ii) applies any profits made from supplies of a description with this group to the continuance or improvement of such supplies;

(f) a body not falling within paragraphs (a) to (e) which provides the teaching of English as a foreign language."

9. The issue on this appeal relates to the question set out by the Tribunal in paragraph 10(1) of its Decision, which it resolved in favour of SFM, namely:

"Is SFM, or was it at the material time, an 'eligible body' by virtue of being "any college, institution, school, or hall of a university" within Note 1(b) of Group 6?"

10. In paragraph 2 of the Grounds of Appeal, the Appellants contend as follows:

"The Tribunal erred in law in finding that SFM is or was a college of ... ULH and/or such conclusion was perverse on the facts as found by the Tribunal, namely:

(1) the fact that the witnesses from SFM did not regard SFM as a college of ULH but an affiliate or associate college to/of it.-

(2) the fact that the witnesses of SFM regarded SFM as independent fromlof ULH:

(3) the fact that SFM was not identified as a college of ULH in any constitutional document of ULH:

(4) the fact that SFM is not identified as a college of ULH in the (unsigned) [MOC] between SFM and ULH:

(5) the fact that SFM was alleged to be the college of three different universities within a five year period:

(6) the fact that SFM and ULH were physically disassociated:

(7) the fact of the commercial nature of SFM."

11. In addition Mr Hyam, who has ably and forcefully presented the case before me on behalf of the Appellants, and who also represented them below, has set out in paragraph 2 of his Skeleton Argument reliance upon the following further facts found by the Tribunal:

i) SFM was not and never has been entitled to grant funding from HEFCE:

ii) SFM did not contend that it was a body governed by public law (which ULH is):

iii) SFM is a body which is not precluded from distributing, and does distribute, any profit which it makes:

iv) There are no constitutional links between SFM and ULH:

v) The business of SFM was recently transferred to a different legal entity, Kingswood School Ltd.

The Appellant's Case

12. The case for the Appellant is effectively put on the following basis:

i) By reference to the EC Council Directive 77/388 of 17 May 1977 ("the Sixth Directive") Article 13.

The ultimate source for the provisions under consideration in VATA 1994 (and the statutory instruments underlying it) is Article 13 of the Sixth Directive, which relates to exemptions from VAT, and reads in material part as follows:

"Exemptions within the territory of the country

A. Exemptions for certain activities in the public interest.

1. Without prejudice to other Community provisions, Member States shall exempt the following 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: ...

(i) children's or young people's education, school or university education, vocational training or re-training, including the supply of services and of goods closely related thereto, provided by bodies governed by public law having such as their aim or by other organisations defined by the Member State concerned as having similar objects;

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 result of the activities concerned

- they shall charge prices approved by the public authorities or which do not exceed such approved prices or, in respect of those services not subject to approval, prices lower than those charged for similar services by commercial enterprises 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 enterprises liable to value added tax."

In an argument which was not run before the Tribunal below but which became in the very forefront of Mr Hyam's case before me, he relied upon the fact that exemption (i) of Article 13A(1) consisted of two different categories of suppliers of (for this purpose) university education, first bodies governed by public law having such as their aim and secondly other organisations defined by the Member State concerned as having similar objects. He submitted, by reference to Note 1, that (b) referred to the first category and (e) to the second. Thus in order to come within "a United Kingdom university and any college, institution, school or hall of such university" the body in question supplying the university education must be governed by public law: which SFM is not. Other organisations defined by the Member State concerned, in respect of which the UK has exercised its power and discretion under 2(a) of Article 13A to make the grant of exemptions subject to the first indent, namely that it must not aim to make and/or to distribute any profit, are covered by (e) of Note 1: with which condition SFM cannot comply. The dichotomy within Article 13A(1)(i) of a public law body and other defined organisations is submitted to be satisfied by the dichotomy in Notes 1(b) and 1(e), and SFM qualifies within neither of them. Further, within Article 13A(1)(i), SFM as a profit-making organisation, does not have similar objects.

ii) SFM, being not governed by public law and not falling within the definition or ambit of the Education Acts, is not in any event a college, or capable of being a college of a university, within Note 1(b).

iii) Further and in any event, SFM is not a college of a United Kingdom University. In the light of the evidence found by the Tribunal, and the factors already referred to, which I more particularly set out below when I analyse both sides' positions, the Tribunal erred in its conclusions. It erred on three bases:

a) The Tribunal's decision that SFM was a college of ULH was perverse, just as was concluded to be the case in relation to the tribunal's decision in Customs and Excise Commissioners v University of Leicester Students Union [2001] STC 550, that a university students' union was an integral part of that university.

b) The Tribunal erred in its reliance on the "always speaking doctrine" or the "updating principle" illustrated in R y Westminster City Council, ex part A [1997] 9 Admin LR 504 (CA), Victor Chandler International Ltd v Customs and Excise Commissioners [2000] 1 WLR 1296 (CA) and Fitzpatrick v Sterling Housing. Association Ltd [1999] 3 WLR 1113 (HL). The Tribunal concluded at paragraph 94 that: "the system of provision of Further and Higher Education has changed so much in the last decade that the 'always speaking' doctrine should prevail even over the substantial arguments against the taxpayer". Mr Hyam submits (and, as will appear, Mr Peacock QC and Mr Maugham for SFM (neither of whom appeared below) do not argue to the contrary) that there is no scope for the operation of this doctrine, not least because of the lack of foundation for the proposition that there has been a relevant change in the last decade as referred to.

c) Mr Hyam further attacks the conclusion of the Tribunal (also in paragraph 94 of the Decision) that:

"We ... believe that the fundamental purpose of [SFM] is to provide education services leading to the award of a university degree and in this context it may fairly be regarded as a 'college of a university'."

At the very least Mr Hyam submits that this is insufficient to found the Tribunal conclusion. He submits that on any view of the features which I shall enumerate below, even if his first two submissions fail and the question of whether SFM was a college of ULH has to be assessed on the facts of the case, there is only one answer and that is the opposite of the answer to which the Tribunal came.

iv) Where exemption from VAT is concerned, there must be strict construction so as to limit any exemption. Mr Hyam relies on the decision of the European Court in Stichting Uitvoering Financiële Acties v Staatssecretaris van Financiën ("SUFA") [1989] ECR 1737, in which it was held that the activities of a foundation which consisted exclusively in the organisation and performance of work related to the activities of another foundation did not fall within the relevant exemption (Article 13A(1)(f)). The passage relied upon is at paragraph 13 of the judgment of the Court:

"Terms used to specify the exemptions envisaged by Article 13 of the Sixth Directive are to be interpreted strictly, since they constitute exceptions to the general principle that turnover tax is levied on all services supplied for consideration by a taxable person."

This principle was applied by Schiemann J in the Crown Office List in Customs and Excise Commissioners v Annabel's Casino Ltd [1995] STC 226 (at 228), when he concluded that although betting, lotteries and other forms of gambling themselves were exempted from VAT (by Article 13B(f) of the Sixth Directive) such exemption did not extend to the supply of gambling equipment to those who used them for subsequent gambling. In Bulthuis-Griffioen v Inspektor Der Omzetbelasting [1995] STC 954 a trader who was a natural person could not claim exemption under Article 13A(1)(g) of the Sixth Directive, even though she was supplying nursery services, which were otherwise services within the subparagraph, because she was not a "body". SUFA was referred to at paragraphs 18 and 19 of the judgment of the court (at 962):

"18. It is settled case law that the exemptions provided for in Article 13 of the Sixth Directive have their own independent meaning in Community law (see the judgment in [SUFA] at 1752, para 11). That must also be true of the specific conditions laid down for those exemptions to apply and in particular of those concerning the status or identity of the economic agent performing the services covered by the exemption.

19. At para 13 of the same judgment (at 1753) the court held that the terms used to specify the exemptions provided for by Article 13 of the Sixth Directive are to be interpreted strictly since they constitute exceptions to the general principle that turnover tax is to be levied on all services supplied for consideration by a taxable person."

13. The Appellants submit that there are two questions to be asked. The first is whether SFM supplied university education: they agree that the answer to this question is yes. The second question is whether it is supplied by an eligible body, and in Mr Hyam's supplementary skeleton he formulates as being "Is [SFM] a university or part of a university?" Mr Hyam's answer is no.

SFM's Case

14. SFM agrees that there are two questions, and that the first is answered affirmatively in its favour. Mr Peacock QC, who has also put forward his case skilfully and persuasively, formulates the second question as "Is it by reference to its aims or objects a college of a university?", to which he answers yes. The Respondent's case can be summarised as follows:

i) The answer to Mr Hyam's new and primary submission is that there is no such dichotomy to be read out of Note 1 to Group 6, and that, although the Sixth Directive is relevant to a purposive construction of the United Kingdom legislation so as to render it compliant with the Directive, it does not form any basis for Mr Hyam's contention. Whereas it may be right that there are two categories of suppliers referred to in Article 13A(1)(i), there is no basis for a construction of Note 1(b) as if it, or it alone, represented the first category and Note 1(e) represented the second category. This ignores the presence within Note 1 of the other subparagraphs. As set out by me above, there is 1(a) which relates to schools as defined and 1(c) relating to institutions as defined, which may or may not be bodies subject to public law (although they would seem likely to be so): Note 1(d) plainly does relate to a body governed by public law: but Note 1(f) seems to concern a body which may or may not be governed by public law and will, because of its exclusion from Note 1(e), be profit-making. The relevance so far as Mr Peacock QC is concerned of Article 13A(1)(i) is that it emphasises that there will be amongst suppliers of university education those which are governed by public law and those which are not so governed but have similar objects. SFM, he submits, falls within the latter category.

Profit-making colleges are not excluded from the exemption if they fall within Note 1(b), as they would be if they fell only within Note 1(e). There is no need to assume that the United Kingdom has exercised its power to 'define out' profit-making colleges under Article 13A(2)(a): and as SFM has similar objects (i.e. the provision of education: see its Memorandum and Articles of Association) to a body governed by public law providing university education, SFM can be and is another organisation which, because it falls, on its case, within Note 1(b), as being a college of a university, is thus a defined organisation.

ii) Mr Peacock QC submits there to be no limitation on the definition of "any college, institution, school or hall of such a university" in Note 1(b). He points to the fact that in earlier legislation, namely the Finance Act 1972 Schedule 5 Group 6, there was an apparent distinction drawn between a university, a university college and the college, school or hall of a university, the university college being, as he submits, a reference to a body with a direct constitutional link with a university: so that he submits that the adoption of the wider formulation in the later legislation indicates that no constitutional link is necessary. Nor is there any need to construe in any reference to the Education Acts in order to define, or restrict the meaning of, the words.

iii) In any event SFM submits that the Tribunal was entitled to reach the conclusion it did that SFM was a college of ULH:

a) Mr Peacock QC relies upon Edwards v Bairstow [1956] AC 14, and in particular the well known passage in the speech of Lord Radcliffe at 38:

"By the system that has been set up the Commissioners are the first tribunal to try an appeal, and in the interests of the efficient administration of justice their decisions can only be upset on appeal if they have been positively wrong in law. The court is not a second opinion, where there is reasonable ground for the first. But there is no reason to make a mystery about the subjects that commissioners deal with or to invite the courts to impose any exceptional restraints upon themselves because they are dealing with cases which arise out of facts found by commissioners. Their duty is no more than to examine those facts with a decent respect for the tribunal appealed from, and if they think that the only reasonable conclusion on the facts found is inconsistent with the determination come to, to say so without more ado."

b) On the assessment of the features to which I shall turn below, Mr Peacock QC submits that the correct, alternatively in any event a reasonable, conclusion is the one to which the Tribunal came.

c) As set out in paragraph 12(iii)(b) above, he accepts the inapplicability of the 'always speaking doctrine', but he submits that the Tribunal did and/or would have come to the same conclusion in any event even without reliance upon it. He relies both on the Tribunal's conclusions as to the fundamental purpose of SFM in paragraph 94 of the Decision and on a purposive construction of the Note, by reference to the purpose of the Sixth Directive to allow VAT exemption for education, in reliance on Marleasing SA v La Comercial Internacional de Alimentación SA [1990] ECR I-4135; this he submits to be only another exposition of the manner, and the correct manner, in which the Tribunal approached its decision.

iv) This is carried through into Mr Peacock QC's answer to Mr Hyam's submission on construction of the exemption. He accepts the principles of SUFA, but contends that it and the other cases relied upon by Mr Hyam have no relevance. He submits that they all relate to the restrictive construction which is necessary before there can be a decision that the services being supplied fall within the exemption for certain activities in the public interest within Article 13A. Once it is shown that the relevant services being supplied fall within those activities in the public interest (such as university education, as here) then, if anything, the strict construction would be the other way, for the provision of Article 13A is mandatory that "Member States shall exempt the following under conditions which they shall lay down ..." There is no need, he submits, to apply the same restrictive construction (and perhaps an obligation in the opposite direction) in relation to the definition chosen by the Member State (college of a university) which gives effect to the required exemption. The decision in Bulthuis is understandable, given that the taxpayer was not a body i.e. not the relevant type of legal person, but is submitted to be of no assistance on the facts of this case. Rather Mr Peacock QC relied upon dicta of Mummery LJ in Customs and Excise Commissioners v Civil Service Motoring Association Ltd [1998] STC 111 (CA) at 116 ("the Court should not adopt an interpretation of Article 13B(d) which 'would restrict the exemption in a way which is not supported by the wording of the provision in question'"): and on Blasi v Finanzant München 1 [1998] STC 336 (European Court) at 345 para 21. and EC Commission v France [2001] 1 CMLR 48 1244 (European Court) at para 21, 26.

The Rival Features.

15. The Appellants' primary case is that SFM is not governed by public law and/or is not a college for the purpose of Note 1(b). If that be right, then the issue as to whether it is or is not a college of ULH does not arise. If it does, then a college of a university must, like the elephant, be recognised, if not defined. Fifteen features have been put forward by the two parties as indicators relevant to this case and this process. Of these, eight are relied upon by the Appellants as positive in their favour, and outweighing the seven features relied upon by SFM: further the first four are said to be determinative.

The Appellants' Indicators

16. They are as follows:

i) Presence (or in this case absence) of a foundation document establishing the college as part of the University by way of constitutional link.

The Appellants say that this is a necessary requirement for a college to be of the university. SFM agrees that there must be some specific relationship. In his Supplementary Skeleton, in fact, Mr Hyam for the Appellants articulated the necessity that the college must belong to the university by defining it as something that it possesses or which is in a 'specified relationship' to it; which perhaps suggested something less than a 'constitutional link'. In this case SFM asserts a sufficient relationship by reference to the (unsigned) MOC, upon which both parties operated. A college, SFM submits, may be an integral part of the university or it may have a looser relationship such as, as here, shared fees, shared training and management and a contractual framework.

ii) Absence of independence (not so in this case).

This too is said by the Appellants to be a necessary condition. SFM is here a wholly independent legal entity (and a member of a group of companies).

iii) Financial dependence or interdependence (again not so here).

Also said by the Appellants to be necessary. A college of a university should be financially dependent upon the university (and/or upon Government funding) or at any rate, like the colleges of Oxbridge, financially interdependent.

iv) Absence of distributable profit (not so here).

This again is said by the Appellants to be a necessary pre-condition. SFM submits that this would be relevant to qualification within Note 1(e) and not relevant to 1(b).

v) Entitlement to public funding (not so here).

SFM is a private college. There was no evidence as to whether the University College Buckingham, which I understand to be a private university, has any entitlement to public funding. The issue appears to go rather to whether the college is governed by public law or subject to the Education Acts than as to whether it is or is not a college of a university, but the implication may be that it is the less likely that a college which is not entitled to public funding can be said to be of a university which is.

vi) Permanent links between the college and the university (not so here).

The Appellants say that the college must be integrated into the administrative system of the university. SFM has had associations (though exclusively and successively) with three different universities in five years.

vii) Physical proximity to the university of which it is said to be part (not so here).

SFM is based in London and is said to form part of ULH, based in Lincolnshire and Humberside. Mr Hyam points to the other SFM centres, such as in Hong Kong, to which SFM's response is that the only centre or campus being considered here for the purpose of VAT is the London campus, whatever may be the status of the others. SFM points to the features which apply to the students, irrespective of their presence in London rather than in Hull and Lincoln, set out as features (xii) to (xiv) below. Additionally there is some provision for interchange of students (who are all members of ULH) between SFM and ULH 'proper'. I refer to the passages in the MOC quoted at paragraph 4 above, in paragraph 3 of the section headed RESPONSIBILITIES OF THE UNIVERSITY, and to the quoted paragraphs in respect of what occurs on termination and/or in the event of force majeure. These provisions formed the basis of oral evidence that was given. Mr Carr (Day 1 Page 105) stated that ULH would still have full responsibility, in the event of termination of the relationship, on the basis that SFM students were ULH students, to "teach out those students in place of SFM ... [and] ... complete the students' course ... by transferring them to Lincolnshire or sending the faculty down to London". Further, although there would be no right for any student to have automatic transfer to a different programme (Day 1, p107-8) he confirmed that students of Economics at ULH could and did transfer from ULH to SFM (Day 2, p3). As to geographical proximity, SFM points to the different definition in s.235 of the Education Act 1998 (albeit for quite different purposes) of a college "in a university", to submit that college "of a university" does not necessarily carry a geographical connotation.

viii) Obligation to offer a minimum number of university places.

This is of course absent in this case. All students are overseas students. SFM submits that this would be a very relevant indicator of the college's not being governed by public law and/or not within the Education Acts, but is not a material factor as to whether it is a college of a university.

SFM's Indicators.

17. While accepting the arguable relevance of all the Appellant's features, though not the conclusivity of any of them, SFM put forward its own seven features. None of them are in issue; the Appellants accept that all of them are arguably relevant, but, as set out above, submit that they are all outweighed in the final balance, and particularly so in the light of the fact that the first four of their own features, all of which are absent, are submitted to be conclusive.

ix). Having a similar purpose to that of the university.

That is the provision of university education to its students.

x) Providing courses which lead to a degree from the university.

xi) Having such courses supervised by the university, and quality standardsregulated by the university.

xii) Admitting students as members of the university, with university identity cards.

xiii) Submitting those students to disciplinary regulations and requirements of the university.

xiv) Entitling successful students to receive a degree from the university at the university degree

ceremonies.

xv) Being described as an Associate/Affiliated College of the university. SFM accepts this could not be enough itself, as it would amount to pulling oneself up by one's own boot straps. It relies on the fact that, as appears from the evidence of Professor Corfield (albeit that it was pointed out that there was no evidence adduced from an actual officer of ULH, although Professor Corfield did not retire from ULH until after the relationship had commenced to operate), the description of SFM as an associate college was known to, and may be said to have been agreed or approved, at any rate de facto, by ULH. The Appellents however rely on the very use of the words associate before college, together with the reluctance of Mr Carr to accept the applicability of the word college of without the prefixing of the word associate, that such very coyness and circumlocution underlined the reality that SFM was not a college of ULH.

Conclusion

18. On the issue of 'defining out', referred to in paragraph 14(ii) above, both sides have referred to the case of Pilgrims Language Courses Ltd v Customs and Excise Commissioners [1999] STC 874. I do not consider that this case assists me. It does not further the Appellants' case, for in Pilgrims the Commissioners' case for exclusion of certain suppliers was not successful. Mr Peacock QC refers to the passage in Schiemann LJ's judgment at 886c-d:

"1. Member States are under an obligation to exempt certain supplies by certain organisations.

2. In the education field this obligation applies to the provision of education by bodies governed by public law and by organisations (defined organisations) defined by Member States 'as having similar objects'. It has been common ground in argument that member states are at liberty not to define any organisations, even though they do 'have similar objects'. Similarly it has been common ground that member states are at liberty to define organisations in such a way that where an organisation carries out several of the activities set out in Article 13A(1)(i) some of them are excluded. Thus, education could be included but not vocational training. I would not wish to be taken as necessarily assenting to what appears to be common ground between the parties, but there is no need in this judgment to elaborate why I have hesitations."

However this does not seem to me to help SFM either. If the Appellants are right that they can exclude, and have excluded, SFM, by excluding it from Note 1(b) and confining it to Note 1(e), and thus ruling it out because it is profit-making, then the United Kingdom has simply exercised its power under Article 13A(2)(a), which it must, irrespective of any common ground in Pilgrims, be its entitlement to have done. The question is whether it has done so.

19. I am not persuaded by the Appellants' submission about the dichotomy. They may be right that Notes 1(b) - though surely also 1(a) and (c) and (d) - at least primarily relate to public law bodies, and 1(e) - and 1(f) - to those that are not, but I do not conclude that there is sufficient of a linkage between 1(b) and 1(e) to found the bedrock of the Appellant's argument; nor certainly to reach the conclusion (which seems to me to be the necessary implication of Mr Hyam's submissions) that the United Kingdom has made an Article 13A(2)(a) condition as to non profit-making in relation to every organisation other than those governed by public law. Whereas it is of course right that such a condition can only be applied to non-public law bodies, it does not follow that it must be assumed to have been made in respect of all non-public law bodies.
20. In my judgment had the draftsman wished to effect what the Appellants contend, there would have been a plain way of going about it:

i) The words "governed by public law" could have been, and were not, added at the end of Note 1(b).

ii) There could similarly have been added, and were not, in Note 1(b) the words "within the meaning of the Education Act or Acts", as was done in Notes 1(a) and 1(c).

iii) There could have been, and were not, added at the end of Note 1(b) the words "provided that such college is precluded from distributing etc" as per Note 1(e).

This would have achieved, in the case of (i) the dichotomy alleged: in the case of (ii) a restrictive definition of college: and in the case of (iii) the position that if there were a college which fell within Note 1(b) although not governed by public law, then it would be defined out, like all other non-public bodies, by the Member State's power to do so within Article 13A(2)(a).

21. I note that the words used in Note 1(b) are "any college". I accept Mr Hyam's submission that this cannot mean "any old college", but it does support at least the following:

i) that colleges are not limited to those within the Education Acts;

ii) that an associated or affiliated college is not ruled out.

22. Thus I conclude that the weighing exercise is and was the correct approach. It is obvious that the Tribunal was influenced by the always speaking doctrine, which it is now agreed was inapt, but was its decision wholly flawed as a result and must the Tribunal's conclusion fall away?

i) I do not conclude that the first four factors set out in paragraph 16 above, which the Appellants relied upon as necessary pre-conditions of a college being of a university, are indeed such. They are plainly necessary pre-conditions if the question is whether the college is governed by public law and/or within the Education Acts, but on the question as to whether a particular college is a college of a university, I conclude that they are, albeit important features, simply four of the factors to be considered.

ii) Given my conclusions that no words are to be read into Note 1(b), I consider that the Tribunal was amply entitled to decide, on the balancing of the fifteen features to which I have referred, that, on the facts of this case, SFM was a college of ULH. I do not in the event consider that I need to decide which side's arguments as to restrictive construction are the more apt, on the one hand the limitations on the eye of the needle through which all exemptions must pass, and on the other hand the obligation on the Member State (subject to any conditions it may impose) to give the exemptions to those providing supplies in the public interest, such as education. There would in my judgment be no objection had the United Kingdom imposed a different or more restrictive test, but, given that the test that they have set down is one simply as to whether a particular college is a college of a university, I conclude that the Tribunal was entitled, after weighing up the factors, to be influenced at the end of the day by the fact that the "fundamental purpose of [SFM] is to provide education services leading to the award of a university degree" by ULH.

iii) Applying the Edwards v Bairstow test, I do not consider that the only reasonable conclusion on the facts found is inconsistent with the determination to which the tribunal came.

23. It is important and right to point out that there was no suggestion at all in this case that the MOC agreement, or the relationship between SFM and ULH, was a sham, or constructed simply for the purposes of evading or avoiding VAT. If it is considered, as was urged upon me, that a decision in favour of SFM could open the floodgates for artificial relationships said to be based upon the outcome in this case, that will not necessarily follow, because each case must be decided upon its own facts: but if necessary there can be consideration of a simple amendment to the Notes to add one or all of the additional wordings, whose absence I have pointed out in paragraph 20 above.
24. I am satisfied that the decision to which the Tribunal came cannot, even after full reconsideration of the evidence and the inferences to be drawn from that evidence, be challenged; and that notwithstanding the Tribunal's reliance on the always speaking doctrine, the conclusion to which it came was open to it, and, indeed, that, upon the further carrying out of the exercise of weighing up the factors set out above, its conclusion was a wholly reasonable one.