England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
Chancery Division

		Royal Courts of Justice Strand London
		Thursday, 5 December 2002

Thursday, 5 December 2002

J U D G M E N T

THE VICE-CHANCELLOR:

1. This is the appeal of the Commissioners of Customs and Excise under section 11(1) of the Tribunal and Enquiries Act 1992 from the decision of the VAT and Duties Tribunal made on 31 May 2002 allowing the appeal of Venuebest Limited from the decision of the Commissioners contained in a letter of 13 October 2000.
2. The issue arises from the terms of the EC 6th Council Directive 77/388/EEC as applied in this country by the VAT Act 1994, Schedule 9, Item 1(h). Those provisions are in the following respective terms. The directive, Article 13(B) which is headed "Other Exemptions", so far as relevant, provides:

"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 the exemptions and of preventing any possible evasion, avoidance or abuse;

(b) the leasing or letting of immovable property,

excluding (ii) the letting of premises and sites for parking vehicles."

3. The VAT Act 1994 provides in section 31 for exemptions to be those set out in schedule 9. Schedule 9, group 1, provides so far as relevant, as follows:

"1. The grant of any interest in, or right over land, or of any licence to occupy the land, other than…

(h) the grant of facilities for parking a vehicle."

4. By a lease dated 3 May 1999 the respondent, Venuebest, let a site to a partnership comprising a Mr and Mrs Locke, trading as Leicester Central Car Parks, for three years at a monthly rent of £2,500. The Commissioners contend that such letting was the grant of facilities for parking vehicles and seek to charge VAT on the rent paid under it. Venuebest says that the lease was merely the grant of an interest in land, and so exempt.
5. The other facts may be shortly stated. The site in question is a plot of land in Free School Lane, Leicester. At some time before October 1995 a company called Shires Limited acquired a lease of the site and carried on from it the businesses of car hire and car parking. In October 1995 a company called 4 Hire Limited took an assignment of the lease from Shires Limited. 4 Hire continued to carry on the business of car rental and contract car parking. Shortly thereafter, 4 Hire entered into an agreement with Leicester Central Car Park for them to carry on a pay-and-display parking business on the site.
6. On 23 December 1997, a lease of the site from Barton Transport Plc to 4 Hire was concluded in succession to the earlier lease that 4 Hire had enjoyed. The successor lease was for six years from 29 September 1997 at an initial rent of £21,800, but subject to an upward only annual rent review. It contained a covenant restricting 4 Hire and its successors in title from using the site for any purpose other than as a vehicle parking, hire and maintenance depot.
7. On 29 April 1999, 4 Hire assigned the residue of the term to Venuebest. Venuebest covenanted with 4 Hire to observe and perform the covenants contained in the lease which, of course, included the user covenant to which I have referred.
8. On 3 May 1999 there was concluded the agreement between Venuebest and Leicester Central Car Park to which I earlier referred. It is described as a lease and, by it, Venuebest demised the site to Leicester Central Car Park for a term of three years at a monthly rent of £2,500. The plan attached to it showed the site but has marked on it, "Excluding all reserved spaces, MW." The terms of the lease were those normally to be found in a lease for unrestricted purposes. The Tribunal found that the working relationship was such that Leicester Central Car Park might use such spaces as were, from time to time, free for its pay-and-display business, the other spaces being reserved to Mr Winterburn, denoted by the initials "MW", a director of 4 Hire.
9. As I have indicated, the decision of the Commissioners of Customs and Excise was dated 13 October 2000 and Venuebest appealed to the VAT and Duties Tribunal. The decision of the Tribunal was that the supply was an exempt supply of land only. The Tribunal recorded the concession on behalf of the Commissioners of Customs and Excise that the supply from Venuebest to Leicester Central Car Park was of an interest in or right over land or of a licence to occupy land.
10. In paragraphs 7 and 10 they describe the position on the land. In paragraph 7 they dealt with the position as in 1995 when, and I quote from page 25 of the bundle at paragraph 7:

"…Mr Lock told us, there were only about ten spaces let out by 4 Hire on contract hire but this has increased by about that number each year until now when of the 90 plus available spaces, up to 70 are at any one time let on contract hire."

Then in paragraph 10 the tribunal recorded the following:

"The working relationship between the two [that is to say, Venuebest and Leicester Central Car Park] is that, as stated, the Appellant operates a contract parking business under partnership and pay and display business. Priority for the spaces is given to the Appellant and there is available to the partnership only such spaces as are at any given time not needed by the Appellant. The Appellant grants contracts for parking for varying length periods and the contracts themselves can be for either five day or seven day parking. Some spaces are thus used for both contract and pay and display parking on different days of the week. There are no set spaces reserved for the Appellant's contract parking, all spaces on the site being available for the Appellant's use. To differentiate those spaces not available for pay and display, the Appellant erects signage to show the spaces reserved for contract parking which, where appropriate, will indicate the availability of an otherwise reserved space for pay and display at weekends."

11. The Tribunal went on to record that the nature of the supply must be determined by examining the legal and contractual relationship between Venuebest and Leicester Central Car Park, and by what that relationship itself was governed. They recorded that the Commissioners of Customs and Excise did not dispute the contention of Leicester Central Car Park that such relationship must be ascertained from the terms of the lease, and did not assert that the lease was a sham.
12. At paragraph 22 of their decision, the Tribunal continued as follows, and I quote from page 29:

"Given this and the Commissioners' concession, the nature of the supply from the Appellant to the partnership must be determined by the wording of this agreement. What was supplied to the partnership under the tenancy agreement was 'all those premises known as The Yard'. This is quite clearly an unfettered grant of an interest in land. The demised premises are the entire yard over which by virtue of Clause 1 of the landlord's obligations, the tenant has the right to hold and occupy in its entirety without interruption or disturbance from the landlord."

13. They continued in paragraph 24 as follows:

"What was supplied to the partnership was in the first place an exempt supply of an interest in land, as conceded by Mrs Preston. [She was appearing for the Commissioners of Customs and Excise.] As to whether this amounts to 'the grant of facilities for parking a vehicle' regard again must be had to the terms of the agreement as this is the document which governs the legal relations between the parties. What is granted is the land itself. There is no reference to the grant of car parking facilities. Although the agreement must be construed against the factual matrix known at the time (i.e. that it was used and it was intended it would continue to be used as a car park), the partnership has, under the terms of the agreement, an unfettered use of the land. There is no restriction upon the use to which the partnership would put the land, other than storage. The fact that when taken over by 4 Hire it was laid out 'in a casual way' (Mr Lock in cross-examination) as a car park is immaterial because there is no restriction on change of user. It is perfectly clear from the written terms of the agreement that the partnership could do precisely what they wanted with the land. They could continue to use it as a car park or they could have abandoned that use as soon as they took the lease. The effect of the lease is that the Appellant has given away occupation of the land to the partnership for three years. Upon a proper interpretation of the agreement, the Appellant has in reality transferred to the partnership the right to choose who parks where, so effectively it is with the consent of the partnership that the Appellant continues to carry on its business from The Yard. There is thus quite clearly an implicit signed agreement between the parties under which the partnership allows the Appellant to use such spaces as it wishes to do for its own business. It is not a matter for us to determine the precise nature of that signed agreement or reservation back to the Appellant."

14. In paragraph 25 they concluded:

"In summary the VAT status of the supply has to be determined by reference to what was actually supplied - in this case, under the terms of the agreement, a piece of land. On a proper construction of the document which sets out the legal and contractual relationship between the parties, the Appellant provides to the partnership a supply of land, a supply from which the partnership then provides its customers with parking facilities. The Appellant's supply to the partnership is thus in our view an exempt supply of land."

15. The case for the Commissioners of Customs and Excise is quite simply this. They submit that the nature of the supply by Venuebest is to be ascertained from all the facts and circumstances of the case. They submit that the terms of the tenancy agreement alone do not reflect all those facts and they submit that, had all the facts been considered, in particular those recorded at paragraph 24 of its decision, the Tribunal could, and would, have considered that the grant was of facilities for parking cars.
16. Counsel for Venuebest observes that the appeal to this court is on a point of law only. He submits that the conclusion of the Tribunal was one of fact in respect of which there is no misdirection and no right of this court to interfere with the view which they formed.
17. Counsel, however, helpfully referred me to three cases. In the first, Svenska Staten v Stockholm Lindopark AV, European Court Reports 2001, 1, 493. At paragraph 26 the European Court of Justice pointed out that:

"According to the case law of the Court of Justice, in order to determine the nature of a tactical transaction, regard must be had to all the circumstances in which the transaction in question takes place in order to identify its characteristic features."

18. The second case of which the full title is Slatte Ministariat v Henrikson, to which I shall refer as "Hendrikson" [1990] Simons Tax Cases 768, concerned the same provisions in the 6th Council Directive with which I am concerned. The question was whether the letting of premises and sites for parking vehicles in the exclusion from the exemption encompassed the letting of blocks of garages built in conjunction with the development of some 37 x one family houses. The European Court of Justice held that it did. The basis of their decision is apparent from the following paragraphs of the judgment. The first is paragraph 9 where the Court recorded that:

"The taxpayer contends that the phrase, 'premises and sites for parking vehicles' in Article 13(B)(b) encompasses only open spaces for the short-term parking of vehicles. On the other hand, the Danish government considers that that phrase, given its normal meaning, encompasses any space in which motor vehicles may be placed or parked, regardless of whether it is open, covered or situated in a building. For its part, the Commission argues that, taken in its context, that phrase includes closed garages with the exception of those which form an undivided part of a letting of immovable property which is, itself, exempt."

19. In paragraphs 10 and 11 the Court went on to consider the various different language versions with which I do not think I am concerned. In paragraph 12 the Court continued:

"Account should be taken in that regard of the fact that the phrase, 'excluding the letting of premises and sites for the parking of vehicles' in Article 13(B)(b) of the Directive introduces an exception to the exemption laid down in that provision in regard to the leasing or letting of immovable properties. It thus places the transactions which it encompasses under the general rules of the Directive which make all taxable transactions subject to tax, except where exemptions are expressly provided for. That provision thus cannot be interpreted restrictively as meaning that only open parking places to the exclusion of closed garages come within the scope."

20. In paragraphs 14 to 17, the Court said this:

"14. However, it should be pointed out that the phrase, 'leasing or letting of immovable property' which is the subject of the exemption laid down in Article 13(B)(b) of the 6th Directive, necessarily also encompasses, in addition to the letting of the property which is the principal subject of the transaction, the letting of all property which is accessory to it.

15. Thus the letting of premises and sites for parking vehicles cannot be excluded from the exemption where the letting thereof is closely linked to the letting of immovable property to be used for another purpose, such as residential or commercial property, which is itself exempt, so that the two lettings constitute a single economic transaction.

16. That is so on the one hand if the parking place and the immovable property to be used for another purpose and a part of the single complex and, on the other, if both properties are let to the tenant by the same landlord.

17. The answer to the first question should therefore be that Article 13(B)(b) of the 6th Directive must be interpreted as meaning that the phrase, 'premises and sites for parking vehicles' covers the letting of all places designed to be used for parking vehicles, including closed garages, but that such lettings cannot be excluded from the exemption in favour of the leasing or letting of movable property if they are closely linked to lettings of immovable property for another purpose which are, themselves, exempt from Value Added Tax."

Thus the effect of that decision is to enjoin the National Court to consider whether the land in question is designed for the parking of vehicles.

21. The third case to which I was referred is The Commissioners of Customs and Excise v Trinity Factoring Services Limited [1994] Simons Tax Cases 504. The facts of that case appear sufficiently from the headnote which I now read:

"In the course of its business of managing and renting properties in Edinburgh, Trinity Factoring Services Limited ("the company") leased out a number of lock-up garages and converted stables which could be used for the parking of vehicles or for other purposes such as storage. A prospective lessee was asked to state the purpose for which he wished to use the garage or stable. Where a lessee stated that he intended to use the property for parking a vehicle, the company charged and accounted for VAT on the rent. If the lessee stated that he intended to use the property for storage, the company treated the supply as exempt. The Commissioners took the view that whatever the stated intention of the lessee, since the properties could be used for parking a vehicle and the lease did not expressly prohibit such use, the supply had to be treated as the grant of facilities for parking a vehicle, which was excluded from the exemption under item 1(g) of Rule 1, Schedule 6 to the Value Added Tax Act 1983. The Tribunal allowed the company's appeal against an assessment to under-declare the VAT raised on that basis. It applied the test of whether the property had been made available, expressly or by necessary implication, to a person for the sole or principal use of parking a vehicle, and concluded that the purpose of the letting could be ascertained by reference to the agreement reached between the company and a lessee before the supply was made."

From that decision, the Commissioners' appeal to the second division of the Inner House of the Court of Session sitting as the Court of Exchequer in Scotland. The decision of that court, whilst not strictly binding on me, is of course entitled to the greatest possible respect and I will follow it unless I am convinced that it was wrong.

22. The Lord Justice Clerk, giving the judgment of the court, considered that the starting point must be a consideration of the land in question, though the purpose to which it might be put was to be ascertained from the terms of the lease. He continued at page 508, between (A) and (B):

"If it had been stated in the lease that the subjects could only be used for the purposes of domestic storage, then we agree that this would have been an exempt supply. However, where subjects consisting of a lock-up garage or converted stables are let, prima facie, the plain implication must be that facilities have been granted for parking a vehicle. Moreover, even if, prior to entering into the lease, parties had agreed that the purpose of the letting was domestic storage, that would not have precluded the customer from using the facilities for parking vehicles. Even in the case of those leases which bore the statement used for domestic storage, or used for storage, there was nothing in the terms of the lease which restricted the use of the subjects to that particular purpose. In our opinion, where a lease is granted of a lock-up garage or converted stable in unqualified terms, the necessary implication is that there has been a grant of facilities for parking a vehicle. That implication arises from the nature of the premises. In our opinion, the Tribunal erred in holding that the fact that the company and its customers had agreed the purpose of letting prior to the time of supply meant that there had been no grant of facilities for the parking of vehicles. In our opinion, the purpose of the letting must be ascertained by reference to the terms of the lease, having regard to the nature of the subjects and not from any prior agreement which may have been entered into by the company's customers. Whatever had been agreed, there was nothing in the terms of the lease which would preclude the customer from using the premises for what was the implied use, namely parking for a vehicle."

23. It appears from the decision of the Tribunal that they were not referred to either Svenska or Trinity Factoring, although they were referred to a Tribunal decision in which Trinity Factoring was applied. It appears also that they were referred to Henrikson but they did not mention that decision in any part of their reasoning.
24. In my view, it is plain that in paragraph 24 of their decision the Tribunal made two errors of law. First, they did not consider the implication to be derived from the nature of the land in question as required by both Henrikson and Trinity Factoring. Second, instead of that they sought a stipulation in the lease limiting the use of the land to car parking, which is the opposite of what Trinity Factoring shows to be relevant, namely, whether or not there was a prohibition on using it for that purpose.
25. The facts as found by the Tribunal were that the site was laid out for car parking and had been used for that purpose for at least five years. There was no restriction in the lease precluding such a use; indeed, it was one of the uses it expressly permitted. But as Trinity Factoring shows, that is not the point. The plain implication, as in Trinity Factoring, is that the site has been let for parking purposes as required by the Directive, and is the grant of an interest in land comprising facilities for parking a vehicle as required by the VAT Act.
26. I cannot accept the submission of counsel for Venuebest that the decision was one of fact alone which this Court cannot disturb. On the facts found by the Tribunal, they reached a conclusion which, had they been properly directed, neither they nor any other reasonable tribunal could have reached. Nor can I accept the submission of counsel for Venuebest that the provisions in question relate only to those who provide the facility for parking a vehicle to the ultimate customer or motorist. What matters, as is indicated by the language of the Directive and the Act is the grant of the facilities, not the type of person who ultimately makes use of them.
27. For those short reasons, I allow this appeal.
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