England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE VAT & DUTIES TRIBUNAL

		Royal Courts of Justice Strand, London, WC2A 2LL
		25/10/2005

Mr Justice Warren

Introduction

1. On 9 April 2003, the appellant company, Baines & Ernst Limited ("B&E") submitted a voluntary disclosure to the Commissioners of Customs and Excise ("the Commissioners") seeking repayment of £5,969,399 (later reduced to £5,851,579) which it had paid as VAT which was not due. The claim related to the excess of output tax declared over input tax for the 3 years January 2000 to December 2002 not, it is to be noted, the entirety of the output tax. The disclosure was submitted following the Commissioners' acceptance (following the decision of the Tribunal in Debt Management Associated Ltd v C&E Tribunal Decision 17880) that the debt management services provided by B&E, which had previously been standard-rated, were exempt. The Commissioners rejected the disclosure on 21 August 2003, and confirmed the rejection on 15 October 2003, on the basis that B&E would be unjustly enriched were they to act on it. On 23 September 2004, the Value Added Tax and Duties Tribunal ("the Tribunal") dismissed B&E's appeal against that rejection. B&E now appeals against the decision of the Tribunal.
2. B&E's debt management service was available to individuals who found themselves unable to repay debts on their creditors' agreed terms. The service consisted, first, in an initial service of negotiating with the creditors an agreed plan of repayments which the client could afford, and, secondly, in a management service of collecting monthly payments from the client for distribution among his creditors. Payment to B&E consisted of two components: (i) an initial flat-rate fee equal to the amount of the monthly payment which it was established the client could afford and (ii) a further monthly management fee calculated as a percentage of the monthly payment to creditors.
3. Initially, the Commissioners rejected the voluntary disclosure in its entirety. Shortly before the Tribunal hearing, they accepted (for reasons which I will come to later) liability in relation to the VAT paid in respect of the initial fee. Before turning to the facts of the case and the criticisms of the Tribunal's decision, I propose to consider the statutory provision at the centre of the debate and the relevant case law (both of the ECJ and the domestic courts) in relation to the key elements viz (i) the concept of "passing on" of the tax burden (ii) establishing that enrichment would occur (iii) that it would be unjust and (iv) the burden of proof in relation to those elements.
4. The last of these has taken on great significance because, according to B&E, the Tribunal had no evidence before it on which it could reach the conclusion that B&E had suffered no economic loss even if it is accepted that the VAT had been passed on to its clients. In particular, it is said that, even if it proved to the satisfaction of the Tribunal that there has been passing on of the charge, that is not sufficient prima facie evidence to establish unjust enrichment even in the absence of any claim and evidence of damage caused to the taxpayer. In order to examine that proposition properly, I will need to set out some fairly extensive citation of authority.

Section 80 Value Added Tax Act 1994 and "unjust enrichment"

5. It is not disputed that VAT was paid which was not due. The Commissioners reject the claim for payment under section 80(3):

"It shall be a defence, in relation to a claim under this section, that repayment of an amount would unjustly enrich the claimant"

6. The concept of "unjust enrichment" is not defined in the legislation. It is a concept which is informed by the jurisprudence of the ECJ as well as by decisions of our own courts concerning section 80(3). It is a different concept from that of "unjust enrichment" as that phrase is used by restitutionary lawyers in the context of our own domestic law under which a person could never be said to be unjustly enriched by return to him of money paid away in error, in particular by repayment of tax which was not due.
7. I note in passing that there is nothing in the EU VAT legislation which requires or expressly authorises a defence such as that contained in section 80(3). Nonetheless, the defence is clearly recognised by the ECJ. It is said on behalf of B&E that "unjust enrichment" as used in section 80(3) is a domestic law concept and one which is only "tolerated" by the ECJ. I do not gain assistance from that. Of course, I have to determine the scope of the defence by reference to the words used in the sub-section, but in doing so I take account of the jurisprudence of the ECJ and interpret the phrase in a way which is consistent with that jurisprudence. As to the ECJ simply "tolerating" the defence, I prefer to say that the ECJ recognises that in certain circumstances it is appropriate that the State should not need to repay tax wrongfully collected and to avoid labels intended as signposts designed to lead one along a particular path.
8. In the case of San Giorgio (Amministrazione della Finanze della Stato v SpA San Giorgio) (Case 61/79) [1980] ECR 1205, the Plaintiff SpA San Giorgio, was required to pay health inspection charges which were levied contrary to Community law on the importation of dairy products from other Member States. In reviewing some early decisions, the Court said this at pp 3612-3:

"13. However, as the Court has also recognised in previous decisions….. Community law does not prevent a national legal system from disallowing the repayment of charges which have been unduly levied where to do so would entail unjust enrichment of the recipients. There is nothing in Community law therefore to prevent courts from taking account, under their national law, of the fact that the unduly levied charges have been incorporated in the price of the goods and thus passed on to the purchasers. Thus national legislative provisions which prevent the reimbursement of taxes, charges and duties levied in breach of Community law cannot be regarded as contrary to Community law where it is established that the person required to pay such charges has actually passed them on to other persons.

14. On the other hand, any requirement of proof which has the effect of making it virtually impossible or excessively difficult to secure the repayment of charges levied contrary to Community law would be incompatible with Community law. That is so particularly in the case of presumptions or rules of evidence intended to place on the taxpayer the burden of establishing that the charges unduly paid have not been passed on to other persons or of special limitations concerning the form of evidence to be adduced, such as the exclusion of any find of evidence other than documentary evidence. Once it is established that the levying of the charge is incompatible with Community law, the court must be free to decide whether or not the burden of the charge has been passed on, wholly or in part, to other persons.

15. In a market economy based on freedom of competition, the question whether, and if so to what extent, a fiscal charge imposed on an importer has actually been passed on in subsequent transactions involves a degree of uncertainty for which the person obliged to pay a charge contrary to Community law cannot be systematically held responsible."

9. It is to be noted that these observations were made in the context of a case where the national legislation created a presumption that a charge had been passed on in the absence of documentary proof to the contrary, a requirement which had led to one of the questions asked of the ECJ namely "Whether the requirement of negative documentary proof, the sole condition to which the aforesaid national law subjects the repayment of charges unduly levied, renders 'the exercise of rights which national courts are under a duty to protect virtually impossible'."
10. Michailidis (Kapniki Mikhailidis AE v Idrima Kinonikon Asphaliseon (IKA)) concerned the imposition by Greece of a charge on tobacco products exported to other Members States which was not levied on tobacco for domestic consumption or on imports from other Member States. The charge was held (in answer to the first question raised) to be contrary to Community law. The second question as formulated by the national court is not, to my mind, entirely easy to understand. It was, however, reformulated in substance by the Court as follows (see para 27 of the Judgment): (i) whether Community law allows a Member State to refuse to refund charges levied in breach of Community law when it has been established that the refund would involve unjust enrichment and (ii) how proof of unjust enrichment may be established. There has, through the cases, perhaps been some confusion about how the words "passing on" of a charge to tax are being used. In Michailidis, however, the Court appears to use "passing on" as the first step in a two-stage process. First, it has to be established that the charge has been passed on; secondly, it has to be established that the taxpayer has thereby been unjustly enriched which would not be the case if, for instance, there had been a reduction in the volume of sales (and thereby of profits) as a result of the wrongful levying of the charge. Since the judgment contains a helpful (and reasonably recent) summary of the Community law approach, I set out paragraphs 28 to 42 in full:

"28. Mikhailidis submits that it should not have to bear the burden of proof. The Commission, which supports Mikhailidis on this point, observes that, according to the case-law of the Court, there is no presumption that taxes have been passed on to third parties and that it is not for the taxable person to prove the contrary.

29. By contrast, the IKA and the Greek Government contend (i) that a Member State is entitled to refuse to refund a charge levied in breach of Community law if it is established that that would give rise to unjust enrichment and (ii) that inasmuch as Mikhailidis has failed to show that the levying of the disputed charge caused an increase in the price of the products and a reduction in the volume of sales, it must be inferred that refunding the charge entails unjust enrichment. Therefore, the IKA and the Greek Government maintain that the competent authorities are not obliged to refund the disputed charge to the plaintiff in the main proceedings.

30. As a preliminary point, it is apparent from well-established case-law that the right to a refund of charges levied in a Member State in breach of rules of Community law is the consequence of, and complement to, the rights conferred on individuals by the Community provisions prohibiting charges having an effect equivalent to customs duties. The Member State is therefore obliged in principle to repay charges levied in breach of Community law (Case 199/82 Amministrazione delle Finanze dello Stato v San Giorgio [1983] ECR 3595, paragraph 12; and, most recently, Case C-343/96 Dilexport v Amministrazione delle Finanze dello Stato [1999] ECR I-579, paragraph 23).

31. As regards the first part of the second question, it is settled case-law that the protection of rights guaranteed in the matter by Community law does not require an order for the recovery of charges improperly levied to be granted in conditions which would involve the unjust enrichment of those entitled (see, in particular, Case 68/79 Just v Danish Ministry for Fiscal Affairs [1980] ECR 501, paragraph 26).

32. It is therefore for the national courts to determine, in the light of the facts of each case, whether the burden of the charge has been transferred in whole or in part by the trader to other persons and, if so, whether reimbursement to the trader would amount to unjust enrichment (see, inter alia, Joined Cases C-192/95 to C-218/95 Comateb and Others v Directeur Général des Douanes et Droits Indirects [1997] ECR I-165, paragraph 23).

33. However, a Member State may resist repayment to the trader of a charge levied in breach of Community law only where it is established that the charge has been borne in its entirety by someone other than the trader and that reimbursement of the latter would constitute unjust enrichment. It follows that if the burden of the charge has been passed on only in part, it is for the national authorities to repay the trader the amount not passed on (Comateb, paragraphs 27 and 28).

34. Furthermore, even where it is established that the burden of the charge has been passed on in whole or in part to third parties, repayment to the trader of the amount thus passed on does not necessarily entail his unjust enrichment (Comateb, paragraph 29).

35. The Court has already observed on several occasions that it would be compatible with the principles of Community law for courts before which claims for repayment were brought to take into consideration the damage which the trader concerned might have suffered because measures such as the disputed charge had the effect of restricting the volume of exports (Just, paragraph 26; and Comateb, paragraph 30).

36. As regards the second part of the second question, it should be borne in mind that any rules of evidence which have the effect of making it virtually impossible or excessively difficult to secure repayment of charges levied in breach of Community law are incompatible with Community law. That is so particularly in the case of presumptions or rules of evidence intended to place upon the taxpayer the burden of establishing that the charges unduly paid have not been passed on to other persons or of special limitations concerning the form of the evidence to be adduced, such as the exclusion of any kind of evidence other than documentary evidence (San Giorgio, cited at paragraph 14 above).

37. In that regard, Community law precludes a Member State from making repayment of customs duties and taxes contrary to Community law subject to a condition, such as the requirement that such duties or taxes have not been passed on to third parties, which the plaintiff must show he has satisfied (Dilexport, paragraph 54).

38. Therefore, if under national law it were for Mikhailidis to show, as the IKA and the Greek Government maintain should be the case, that the disputed charge caused an increase in the price of the products and a reduction in the volume of exports, the provisions in question would have to be considered contrary to Community law (see, to that effect, Dilexport, paragraph 52).

39. As regards proof as to whether the disputed charge has been passed on to third parties, Mikhailidis asserts that the question at issue in the main proceedings is whether the national court should base its findings solely on the documents provided by the competent authorities, which Mikhailidis had been obliged to submit to them for the purposes of paying the disputed charge, or whether it should also take into account the documents exchanged with the undertakings with which Mikhailidis entered into contracts.

40. Although the question of whether a tax has been passed on is a question of fact falling within the jurisdiction of the national court and although it is for that court alone to evaluate the evidence to that effect, the rules of evidence must not have the effect of making it virtually impossible or excessively difficult to secure repayment of a charge levied in breach of Community law.

41. It follows that, if the national court were confined to evaluating the evidence adduced by the competent authorities and were not able to take account of evidence submitted to it by the trader concerned in order to show that, notwithstanding the authorities' allegations to the contrary, the charge has not actually been passed on, or at least not entirely, the provisions in question would have to be considered contrary to Community law, given that the taxpayer must always be in a position to enforce the rights conferred on him by Community law.

42. Therefore the answer to the second question must be that, although Community law does not preclude a Member State from refusing repayment of charges levied in breach of its provisions where it is established that repayment would entail unjust enrichment, it does preclude any presumption or rule of evidence intended to shift to the trader concerned the burden of proving that the charges unduly paid have not been passed on to other persons and to prevent him from adducing evidence in order to refute any allegation that the charges have been passed on."

11. Since reliance is placed on it by B&E, I should refer also to the Opinion of the Advocate General (Fennelly), in particular paragraphs 39 and 40. These paragraphs are in terms directed at evidence in relation to passing on and in that context have this to say:

Paragraph 39 repeats that rules of evidence which have the effect of making it virtually impossible or excessively difficult to secure repayment are in breach of Community law so that a presumption that the charge has been passed on so that the trader is required to rebut that presumption to recover the charge is prohibited; but, quoting the Court in Dilexport "If on the other hand,…..it is for the administration to show, by any form of evidence generally accepted by national law, that the charge was passed on to other persons, the provisions in question are not to be considered contrary to Community law."

Paragraph 40 includes the following: "However, since the question whether a charge has been passed on constitutes a question of fact, it is for the national court to determine the documentary evidence which may be relied to establish if it has occurred. The application of national rules of evidence remains subject, of course, to the overriding Community-law requirement that vindication by the taxpayer of rights derived from Community law must always remain possible. To my mind, the fundamental principle of Community law requiring effective protection of Community rights requires that the evidence, documentary or otherwise, adduced by a national fiscal administration seeking to resist reimbursement must be cogent and probative and may not be based on mere presumptions….."

12. I note at this point that, in Comateb too, the Court recognised that, even where passing on had been established, the trader may have suffered damage as a result of the very fact that he has passed on the charge because the increase in price thereby brought about has led to a decrease in sales. The Court went on to say at paragraphs 32 and 33 ([1997] ECR I-165 at 191) as follows:

"32. In such circumstances, the trader may justly claim that, although the charge has been passed on to the purchaser, the inclusion of that charge in the cost price has, by increasing the price of the goods and reducing sales, caused him damage which excludes, in whole or in part, any unjust enrichment which would otherwise be caused by reimbursement.

33. It follows that where domestic law permits the trader to plead such damage in the main proceedings, it is for the national court to give such effect to the claim as may be appropriate."

It seems to me that the Court was, again, there envisaging that it is national law which controls the procedure and rules of evidence for establishing the claim, although of course those rules would have to comply with the principle of effectiveness in order adequately to protect the trader in relation to the enforcement of his rights under Community law.

13. The last (and most recent) decision in the ECJ which I mention is Weber's Wine World (Weber's Wine World Handels GmbH v Abgabenberufungskommission Wien) (Case C-147/01). This case concerned a duty on alcoholic beverages imposed in breach of Community law. In paragraphs 93 to 102, the Court dealt with the "relationship between the passing-on of the duty on alcoholic beverages and unjust enrichment", in summary:

The general principle and its exception is identified (ie obligation to make repayment; defence that charge borne by someone other than taxable person and reimbursement would constitute unjust enrichment). That exception, being a restriction on a subjective right derived from the Community legal order, is to be interpreted restrictively "taking account in particular of the fact that passing on a charge to the consumer does not necessarily neutralise the economic effects of the tax on the taxable person". The question whether there has been actual passing on, even in the case of an indirect tax which is intended to be passed on to the final consumer, is a question of fact to be determined by the national court. It may be quite probable that the charge has been passed on, but the numerous factors which determine commercial strategy vary from one case to another so that it is virtually impossible to determine how they each affect the passing on of the charge. Even where the charge is passed on, repayment to the trader does not necessarily entail his unjust enrichment. Even where the charge is wholly incorporated in the price, the taxable person may suffer as the result of a fall in the volume of his sales (see paragraph 35 of Michailidis for example). Accordingly, "the existence and the degree of unjust enrichment……can be established only following an economic analysis in which all the relevant circumstances are taken into account" so that consequently "Community law precludes a Member State from refusing to repay to a trader a charge levied in breach of Community law on the sole ground that the charge was included in that trader's retail selling price and then passed on to third parties, which necessarily means that repayment of the charge would entail unjust enrichment of the trader.

The conclusion (paragraph 102) on this point is that the rules of Community law "preclude national rules which refuse – a point which falls to be determined by the national court – repayment of a charge incompatible with Community law on the sole ground that the charge was passed on to third parties, without requiring that the degree of unjust enrichment that repayment of the charge would entail for the trader be established". I add that the establishment of that unjust enrichment is a matter for national law and its rules of evidence, which rules, for this purpose, must themselves be compatible with the requirements of Community law and in particular, the principle of effectiveness (ie the national rules must not render virtually impossible or excessively difficult the exercise of Community law rights).

14. Moses J dealt with unjust enrichment in part of his decision in Marks and Spencer plc v CEC [1999] STC 205 starting at p236f. He restates (see p237h) one established proposition in this way:

"The defence of unjust enrichment requires consideration not only of the question whether the taxpayer has passed on the overpaid tax to a customer but also whether by passing on the charge it has suffered damage, for example by reducing sales in consequence of the increase in price or maintaining sales by having to reduce the price, or losing profits which it would otherwise have received had the overcharged tax not been imposed……."

15. He then went on to deal with the burden of proof. The Commissioners accepted before Moses J, as they accept before me, that the legal burden of proving unjust enrichment lies on them. After making some observations (to which I will return) to the effect that it is unlikely that the Commissioners would usually experience any difficulty in showing that VAT had been passed on (see at p238a-c), Moses J considered at some length the burden of proving that, as a consequence of passing on, the trader has suffered damage. The opposing arguments were:

a. Those of Marks and Spencer to the effect that the burden is at all times on the Commissioners so that, unless the Tribunal is satisfied that no damage occurred, in cannot establish the defence of unjust enrichment. If the evidence is such that the Tribunal cannot decide one way or the other whether damage has been suffered, the taxpayer should succeed.

b. Those of the Commissioners to the effect that, once they establish that tax has been passed on, it is for the trader to establish that, in doing so, it has suffered damage. Although the legal burden remains with them, the evidential burden passes to the trader once passing on has been established.

16. In dealing with the arguments, Moses J referred to the opinion of the Advocate-General (Sir Gordon Slynn) in Les Fils de Jules Bianco SA and J Girard Fils SA v Directeur general de duoanes et droits indirects (Joined cases 331/85, 376/85 [1988] ECR 1099 (and other cases) to the effect that the evidentiary burden may shift during a case ("[The administration] may, however, produce evidence which points to there being a passing-on or unjust enrichment sufficient to call for rebuttal by the claimant. The evidentiary burden may thus, as is commonplace, shift during the case") and refers paragraph 32 of the judgment in Comateb emphasising the reference to the trader claiming that the passing on of the charge has caused him damage. He then states (at p 239b) the position as he saw it in this way:

"It seems to me obvious that in cases where the commissioners have established that a wrongly-charged tax was passed on and that is all the evidence in the case then the commissioners will succeed. But if the taxpayer asserts that it has suffered damage in passing on the excessive charge and produces material on which that assertion is based then the tribunal will have to consider that material and decide whether, in the light of that material, the commissioners have made good the defence of unjust enrichment. I am not sure it assists to speak of an evidential 'burden of proof'. It is no more than a, possibly, convenient shorthand designed to indicate that unless the trader asserts that it has been damaged and provides some material for the tribunal of fact to consider, the commissioners will succeed merely by proving that the tax was passed on. There is, perhaps, a danger in referring to shifts in the burden of proof. A reference to that shift may obscure the proposition that it is for the commissioners to prove unjust enrichment if they can and that burden never shifts. In raising the issue of damage in consequence of having passed on the burden of a wrongly-charged tax and producing material to support that assertion, in my judgment, the trader does not take upon itself any burden of proving that it was not unjustly enriched. The reason such a trader must assert damage and provide some material on which to base the assertion is because, absent any such material, there would be no evidence to rebut the defence of unjust enrichment established, prima facie, by the evidence of the commissioners that the tax was passed on.

In my judgment the tribunal correctly stated the proper approach to the burden of proof ([1997] V&DR 85 at 91, para 10):

'We start by reviewing the evidence adduced by the Commissioners to determine whether they have raised a prima facie case of unjust enrichment ie, a case which, in the absence of any evidence to the contrary, would satisfy us that repayment would unjustly enrich Marks & Spencer. If the Commissioners have failed to satisfy us of that, we can dismiss the defence. But if the Commissioners have satisfied us that there is a prima facie case of unjust enrichment, we go on and examine the evidence presented by Marks & Spencer who will necessarily have the detailed facts and figures. With all the facts and figures placed before us we revisit the issue and once again ask whether "on the evidence as a whole" the Commissioners have satisfied us of their defence.'"

In endorsing the tribunal's approach to the burden of proof Moses J raises one caveat in the passage just cited which he deals with in a later passage of his judgment set out below. That endorsement is unsurprising given Moses J's analysis of the burden of proof. It is to be noted that his view is, that in the absence of any assertion of damage by the trader, there would be no evidence to rebut the defence of unjust enrichment established prima facie by the evidence that tax was passed on. The tribunal did not, however, go quite that far: what it said was that a prima facie case of unjust enrichment was necessary (the burden being on the Commissioners) but it did not say (at least expressly) that evidence of passing on would of itself be sufficient prima facie evidence of unjust enrichment.

17. In dealing with Marks and Spencer's submission that it is very difficult if not impossible for the Commissioners ever to prove unjust enrichment once the issue as to whether damage has been suffered is raised and after considering a number of statements by the ECJ and the Advocate General (Mancini), Moses J said this (at p241b):

"In my judgment the Court of Justice has never endorsed a rule that it is impossible to prove unjust enrichment. Were that so s 80 would have misfired. However, I do think that importance should be attached to the observation of the court in San Giorgio ([1983] ECR 3595 at 3613, para 15) which I have cited above. A trader seeking repayment who accepts that it did pass on the charge, or is faced with evidence that that was so, must assert that passing on the tax caused damage and must provide material on which to base that assertion. But the tribunal of fact must bear in mind that in making that assertion the trader may, at least until the three-year cap was introduced, be forced into the position providing material relevant to a time when it did not suspect and had no reason to suspect that it might be overpaying tax and, thus, have any need to prepare a claim for repayment. Any difficulty that a trader has in providing such material either because of lapse of time or because of the complexity of determining whether, in fact, the passing on of a charge affected profits or sales and caused damage should be viewed sympathetically. Lacunae in the evidence should not be considered to the detriment of the trader. It was, after all, the taxing authority which caused the problem in the first place. Thus, it seems to me, if, after considering all the evidence, there is uncertainty or absence of detail, that should not be held against the trader. It seems to me that it is those considerations which led to the comment made by the court in San Giorgio.

For those reasons I am concerned at the reference by the tribunal ([1997] V&DR 85 at 91, para 10) to 'Marks & Spencer who will necessarily have the detailed facts and figures [emphasis added].' I shall go on, when considering the decision in more detail, to see whether that led the tribunal into error in consideration of all the evidence. But I observe, at this stage, that the tribunal ought not to place reliance upon any failure to produce detailed facts and figures when that failure will normally be the fault of the taxing authority which levied a charge to which it was not entitled. A tribunal should only conclude that the defence of unjust enrichment is made out where the evidence satisfies it that a repayment will cause unjust enrichment."

18. Moses J's decision was, of course, before the ECJ gave its judgment in Michailidis. B&E submit that his approach is, in the light of Michailidis, flawed and that the Commissioners must produce proof of unjust enrichment over and above the mere fact of passing on.
19. In CEC v National Westminster Bank plc [2003] STC 1072, a decision of Jacob J, the question of onus of proof arose again and was discussed by the Judge. He referred to Moses J's consideration of the question, citing, however, not the whole of the passage I have set out in paragraph 16 above but only what the quote within Moses J's judgment of what the tribunal had said. Jacob J then cited some passages from the Opinion of the Advocate General (Jacobs) in Weber's Wine World (a summary which he records as being essentially the same as the view of Moses J).
20. Jacob J concluded this way (see para [27]): One starts with no presumption of unjust enrichment, assembles the evidence and reaches a fair decision taking into account reasonable inferences from the known facts.
21. Since B&E rely in particular on paragraph 60 and 61 of the Opinion of the Advocate General in Weber's Wine World, (paragraph 60 being quoted in Jacob J's judgment too) I set them out in full:

"60. In that context, it is in my view desirable to clarify the case-law by pointing out that, whilst Community law precludes any presumption of unjust enrichment to be refuted by the claimant, it does not preclude the possibility of drawing reasonable inferences from existing evidence. Without such a possibility, the balance might be tilted so far in favour of the claimant as to render the justified aim of preventing unjust enrichment in practice impossible to achieve. It must be possible for the deciding body to take all available relevant evidence into consideration and reach a fair decision taking full account of whatever likelihood there may be that the claimant bore any part of the burden of the tax or suffered any economic loss as a result of its imposition.

61. To conclude on this aspect, the national court must examine whether, in the context of the national procedural system viewed as a whole, the disputed amendment has the effect in practice of establishing a presumption that the economic burden of the beverage tax was passed on to customers unless the trader can prove otherwise. Such a situation would be contrary to Community law, and could be cured only by disapplying the disputed rule or by interpreting it in such a way that it did not have that effect."

22. CEC v National Westminster Bank plc was heard well after the judgment in Michailidis had been delivered. It is not clear from the case report whether Michailidis was cited to the judge. It was, however referred to in the Opinion of the Advocate General in Weber's Wine World (which Opinion, in turn, was referred to by Jacob J): it must be taken that the Advocate General, at least, considered that everything he said in his Opinion was consistent with Michailidis. In particular, he regarded it as correct that reasonable inferences could be drawn from existing evidence. Moses J, in the passage which I have set out at paragraph 16 gives effect to that principle when he says that proof of passing on is prima facie evidence of unjust enrichment which, in the absence of any evidence in rebuttal, affords the Commissioners a defence.
23. There is nothing in the judgment in Michailidis or in the Opinion of the Advocate General which leads me to doubt the correctness of the approach of Moses J in Marks and Spencer even although it may go further than that of the tribunal in that case and further than it was strictly necessary for him to decide (since, in that case, there was evidence which went to the damages issue and was not restricted solely to the passing on issue). But Michailidis does no more than state established principle to the effect that presumptions or rules of evidence must not be allowed to operate which would pass the burden of proving unjust enrichment to the taxpayer. It is something very different, and recognised as permissible, for a court to draw inferences from established facts. It may often, perhaps usually, be the case that the evidence which establishes passing on is of itself enough, in the absence of any contrary evidence, to enable the Tribunal to infer that there has been unjust enrichment because there has been no economic loss. I say often or usually rather than always because I do not dismiss the possibility of a factual situation in which such an inference could not properly be drawn, although it is not easy to see why a Tribunal would fail to draw the inference in the absence of any countervailing material. An inference of fact leading to the conclusion that there is unjust enrichment is not, in my judgment, equivalent to a presumption of undue enrichment.
24. The taxpayer, to succeed in defeating the defence of unjust enrichment has then, in my judgment, to do something to resist the inference which arises once passing on has been established. I do not consider that it is enough simply for the trader simply to say "Although passing on is established, I do not accept that I have not suffered any loss and you must prove it." Faced with nothing more than that, the evidential position is no different from that where the trader says nothing. He has to do more, in my view. There are at least two things he could do. First, he could produce some material which gives rise to a doubt whether there has been unjust enrichment; that would have to be sufficient – and not much may be needed - to displace the inference which would otherwise be drawn so that the Commissioners would then have to prove that there was no economic loss (but bearing in mind the possibility drawing of reasonable inferences from established facts thus preventing the tilting of the balance too far in favour of the trader: see again the Opinion of the Advocate General in Weber's Wine World at paragraph 60 (see paragraph 19) which I adopt). Secondly, he could produce a justification of his inability to produce facts and figures which would establish his case. In those circumstances, the Tribunal may consider that the inference which could otherwise be drawn should not be drawn. It is, after all, the taxing authority which has been at fault in levying tax when it should not have done. If the taxpayer is unable to assert his right because he no longer has the evidence, or did not take steps to record information which would have enabled him to establish economic loss, then to disentitle him from obtaining recovery of the tax because he is thereby unable to rebut the inference of unjust enrichment could very well breach the principle of effectiveness. In this context, see Marks and Spencer at p241 quoted in paragraph 17 above.
25. This is also consistent with the approach of Jacob J in CEC v National Westminster Bank plc. The Judge held (see paragraph [38]) that the Tribunal had failed to address the key question – what in the light of all the known facts would have been the financial position of Lombard if the undue tax had not been imposed? The reasoning of the Tribunal was so flawed as to amount to an error of law. Even so, the Judge decided that he should not remit the matter for rehearing. He stated that Lombard had every opportunity to advance a case of real economic loss notwithstanding that it had passed on the extra cost, or that it had not managed to pass on that cost because it actually made a true loss on the transaction. Lombard knew, he said, that there was enough evidence of passing on to shift the evidential burden back to show it had failed to pass on the cost or had suffered economic damage. Lombard, he said "have already had one fair crack of the whip".
26. In my judgment, there is nothing in the decision in Weber's Wine World, any more than in the decision in Michailidis, which leads to different conclusions from those expressed by Moses J and Jacob J. I should, however, in that context deal with two passages from the judgment of the ECJ in Weber's Wine World which could not, of course, have been taken into account by Jacob J since the ECJ had not given that judgment before Jacob J's decision.
27. First, at paragraphs 100 and 101, the Court says that "…the existence and the degree of unjust enrichment which repayment of a charge….entails....can be established only following an economic analysis in which the relevant circumstances are taken into account" and "Consequently, Community law precludes a Member State from refusing to repay to a trader….on the sole ground that the charge was included in that trader's retail selling price and thus passed on to third parties, without requiring that the degree of unjust enrichment that the repayment of the charge would entail for the trader be established". Secondly, at paragraph 114 the Court says "It is for the national court to determine whether, in the absence of a statutory presumption, the tax authority's practice has the effect of establishing such a presumption of unjust enrichment.
28. These passages do not, I consider, require an economic analysis to be carried out in all cases, either to establish passing on or to establish that there is no economic loss. What clearly is prohibited is (i) a statutory presumption or rule of evidence which is either irrebuttable or which can be rebutted only in certain ways or (ii) a rule of evidence which prescribes what is and what is not admissible in determining whether there has been unjust enrichment: the parties must be entitled to carry out an economic analysis and bring evidence of its results. In my judgment, the drawing of inferences from the proved or admitted facts is not a presumption or rule of evidence which falls foul of Community law. However, the inference – that there has been unjust enrichment - which might be drawn from the fact of passing on and the evidence which establishes that there has been passing on may be easily displaced. If, for instance, a trader (a) asserts that he has suffered economic loss of a particular sort and (b) produces some evidence which supports that assertion, the Commissioner must then produce evidence of their own which is sufficient to persuade the Tribunal that there has been unjust enrichment (eg by showing that there has been no economic loss on that ground); that is something which may require a full economic analysis, at least of some parts of the trader's business.
29. Nor do I consider that it is incumbent on the Commissioners to address, without prompting from the trader, each and every aspect of the business which might conceivably result in economic loss to the trader and to show that, on the facts, no such loss has arisen, no doubt requiring a full economic analysis of the entire business and its place in the market. In the absence of such a prompt, and some, albeit slight, evidence to support the assertion of loss, the Tribunal should be entitled to draw inferences from the fact of passing on that repayment would give rise to unjust enrichment. In my judgment (a matter for me in accordance with paragraph 114 of Weber's Wine World), an inference of this sort does not have the effect of establishing a presumption of unjust enrichment or amount to a rule of evidence equivalent to a presumption in breach of Community law.
30. Similar considerations apply, I think, even at the earlier stage of passing on. The Commissioners might be able to establish a prima facie case of passing on without the need to conduct a full economic analysis; the taxpayer would then, in my view, need to assert that, nonetheless, identified economic factors indicate that that conclusion is wrong and to produce some evidence in support of the assertion and thus to force the Commissioners into a fuller investigation of those identified factors.
31. I return, then, to the observation of Moses J mentioned in paragraph 15 above to the effect that it is unlikely that the Commissioners would usually experience any difficulty in showing that VAT had been passed on. In saying that, he expressly acknowledged that there is no presumption that VAT had been passed on. Indeed, the jurisprudence of the ECJ shows that the mere fact that a charge is included in the price which the customer pays is not, by itself, sufficient to establish passing on. Mr Cordara, on behalf of B&E, says it is a heresy to suggest that the mere fact that VAT is expressly included in the price which a customer pays is sufficient to establish passing on. He gives, as an example, the change in the VAT regime when the rules relating to duty-free goods in airport altered. A retailer might decide to absorb some or all of the VAT which became chargeable and, had he put up a sign saying "Prices now include VAT but the total price is held at the pre-VAT level for 6 months", then passing on would not have occurred.
32. However, the fact that a presumption of passing on is not permitted by Community law does not mean that it is not possible to draw inferences about passing on from the available evidence. In that context, the contracts between B&E and its clients, and the terms of those contracts, are not simply to be ignored; they are material factors to be taken into account as part of the factual matrix relevant to the question whether VAT has been passed on. Indeed, just as the fact of passing on may lead to an inference that there has been unjust enrichment if the taxpayer produces no evidence at all to challenge that conclusion, so too, the existence of a contract which states the cost of a supply of services to a customer is £X plus VAT at standard rate may justify an inference that VAT is passed on if the taxpayer produces no evidence at all to suggest that it has not been passed on. I do not consider that the ECJ had in mind an inference of this sort when it was considering the nature of presumptions and rules of evidence which were incompatible with Community law in the context of establishing unjust enrichment.
33. At this stage, I wish to make one observation about the concept of passing on in a VAT case. The leading ECJ authorities are not to do with VAT, a tax which has two special features not present in all of the other taxes under consideration. Those two features are first that it is part of the design of the tax, as Moses J notes, that its burden is to be borne by the supplier's customer; and secondly that the trader can set input tax against output tax in assessing what he actually pays to the Commissioners. Accordingly, when it later transpires that a trader who has been accounting for VAT on his outputs (after deducting tax on his inputs) should have been exempt, his overpayment in respect of which he can claim repayment under section 80 will reflect (as it does in the present case) his net position; he cannot claim repayment of the whole of his output tax without giving credit for that which he has already deducted ie his input tax. In the context of an unjust enrichment defence, it must be remembered that the two-stage approach (passing on/economic loss) is really only a technique for arriving at an answer to the single question: Would the trader be unjustly enriched? One must not, therefore, blindly apply that approach as it has been developed in non-VAT cases without remembering the two special features of VAT which I have mentioned.

The Case before the Tribunal and its Decision

34. The Tribunal's findings of fact are contained in paragraphs 4 to 33 of the Decision. The evidence consisted of witness statements and oral evidence from Mr Cochrane, a director of B&E and Mr Kirkland, a senior Customs officer and two bundles of documents. I annex, for completeness and so that later references to them can be easily understood, a copy of those paragraphs as a Schedule to this Judgment. Its summary of the law is found at paragraphs 34 to 37.
35. It is for the Tribunal to draw inferences of fact from its primary findings. It is not the function of an appellate court, generally speaking, to substitute its own inferences from those primary findings; it should not do so unless the inferences actually drawn by the Tribunal could not properly be drawn: see Furniss v Dawson [1984] STC 153 at p167 b-e. This is especially so in a case such as the present where significant aspects of the evidence of Mr Cochrane, a director of B&E, were rejected by the Tribunal.
36. Further, it must be borne in mind that the appeal to me is permitted only on points of law including, of course, an appeal based on the familiar and oft cited Edwards v Bairstow test in relation to findings of fact which no tribunal properly directed could have reached. Moreover, in addressing the findings and decision of the Tribunal, it must be borne in mind that it was concerned to address the arguments put before it by Mr Milne QC on behalf of B&E; it had to make findings of fact relevant to those submissions. B&E's case on this appeal is put somewhat differently from how it was put to the Tribunal. To the extent that criticisms are made of its findings (or rather lack of findings) of fact it is important to consider those criticisms in the light of the issues as presented to the Tribunal. If and to the extent the Tribunal's findings of fact are inadequate to deal with any new points of law raised on behalf of B&E, I will need, later in this judgment, to decide whether I should allow those new points to be raised on this appeal and if so whether the matter should be remitted to the Tribunal to make further findings.
37. I therefore propose to examine what the issues before the Tribunal were. B&E's skeleton before the Tribunal set out what it was anticipated that the evidence would establish, an anticipation which was not, in significant respects, fulfilled.

a. B&E fixed its on-going monthly management fee at 17.625% on commencing business because that was the gross fee being charged at the time by Gregory Pennington, then the dominant company in the market. [Comment: 17.625% being, it should be noted, 15% plus VAT at 17.5%. And see the findings of fact in paragraph 8 of the Decision and the comment on (e) below]

b. B&E never contemplated charging less than 17.5% [the figure in the skeleton: but probably an error for 17.625%] and has in fact continued charging 17.625% until the date of the Tribunal hearing some 18 months after it was established that the fees were exempt from VAT as Mr Cochrane (the leading light in B&E and as to whom more later) had always believed. [Comment: It is clear from the discussion at paragraphs 25 to 29 of the Decision that the Tribunal rejected the contention that B&E never contemplated charging less than 17.625%]

c. The market is not at all sensitive to the rates of fees, and customers were content to pay 17.625% regardless of the VAT position (being more interested in the quality of service and ease of access). [Comment: As I understand it, apart from d. below, the only "evidence" for that was Mr Cochrane's assertion to that effect. The Tribunal made no express finding on the point.]

d. This is demonstrated by the fact that B&E increased its market share while charging 17.625% during a period when Gregory Pennington were only charging 15%. [Comment: This submission is not recorded in the Decision. There is not any record of the length of the period referred to. Nor is there any record of evidence (if there was any) which would have shown whether, at that stage and for that limited period, persons in the market at which B&E aimed (for instance by its advertising) would have known of Gregory Pennington's lower fees.]

e. No mention of VAT was made to a customer when B&E first started trading (ie customers were just told that the rate of monthly management fee was 17.625%) and it was only in 2001 when the OFT asked B&E to clarify its terms and conditions that the words "including VAT" were inserted. [Comment: This was an error which Mr Milne corrected at the outset of the hearing: see paragraph 10 of the Decision. The relevant finding of the Tribunal is at paragraph 8.]

f. B&E has by far the largest share of the market despite the fact that certain smaller competitors have slightly reduced their rates.

38. The skeleton then, at paragraph 6, asserted B&E's primary conclusion: that if B&E had never been required to pay VAT, it would have continued to charge 17.625% as its monthly management fee (as indeed it had done to the date of the hearing) and would thus have made extra profits exactly equal to the amount it had to pay to the Commissioners. This appears to me to be an assertion that VAT was not passed on rather than an allegation of economic loss assuming VAT was passed on. Whether that is right or wrong, it is clear is that B&E's case was (i) that its net position was worse by the amount of VAT it had to pay (ie after allowing for input tax) and (ii) that such net position would established on the basis of its expected outcome on factual issues. Reliance was placed in the Tribunal decision in Mr and Mrs King (Case 17822). But in that case there was a clear finding of fact that the appellants (who ran a riding school) were charging amounts which they would have charged even if they had realised that some of their supplies were exempt. In fact, B&E failed to persuade the Tribunal that that was the position in the present case.
39. The Tribunal recorded Mr Milne's submissions which, no doubt, he adjusted slightly to reflect the way in which the evidence had come out. But they were essentially the same as those in his skeleton. Although economic loss did then feature, it did so as the "flip side" of the passing on coin ie B&E suffered loss of profits equal to the amount of VAT wrongly paid because it would have charged the total amount it in fact charged regardless of the VAT position. Thus the submissions, recorded in paragraph 38 to 43, were as follows:

a. B&E had charged the same rate for management throughout the period and contended that its gross sales would not have differed had its supplies been exempt from VAT. The most cogent evidence for that being what had happened since B&E's supplies were accepted as exempt, the fee being maintained at 17.625%. If the exempt ruling had been received in 1999, B&E's subsequent profits would have been exactly the same except enhanced by VAT.

b. Mr Milne explained the main part of B&E's case as one of loss of profits, submitting that it should be held against it that important decisions had been taken informally; nor should any lack of evidence (see Marks and Spencer at p241 which I have quoted at paragraph 17 above). In consumer protection terms, the price of a product was what the consumer had to pay. Throughout its existence, B&E had charged management fees at the rate of 17.625%.

c. Mr Milne submitted that it was important to look at B&E's input tax situation (a matter I will return to later), for the figures showed that it would have had to continue charging 17.625% (or thereabouts) in 2002 when input tax more or less equalled output tax, otherwise it would have been losing profits and possibly gone into loss.

d. Mr Milne submitted that the charging provision introduced in 2001 (17.625 per cent including VAT) meant 17.625 per cent "including VAT if any", the phrasing being totally irrelevant to the clients. The last thing that B&E would have done with an exempt ruling would have been to reduce its fees to 17.625%

e. Finally Mr Milne submitted that it was unnecessary for the Tribunal to indulge in conjecture as to what B&E might have charged: in the real world it would have continued to charge 17.625%. If B&E had been exempt it would have made extra profits of £5.9m.

40. What the Tribunal does not record is any submission in relation to economic loss. However, this is touched on in paragraph 32 to 34 of Mr Cochrane's witness statement before the Tribunal. Whilst VAT was being charged, clients had to have a minimum monthly sum of £140 available in order to be taken on B&E. Similarly, the minimum monthly payment (including VAT) had been £29; the removal of VAT allowed B&E to reduce its minimum fee to £25. These two factors allowed B&E to take on clients who, previously, they would have turned away. He assessed the potential increase in gross revenue at 20%. Mr Cochrane was cross-examined on these paragraphs; the Tribunal's Note records "Now have loss of profits case – para 33". No reference is made in the Decision to that aspect; but nor can I see any reference to it in the Tribunal's Notes of Mr Milne's submissions.
41. The Commissioners, in their skeleton argument, identified the key issues before the Tribunal as being whether B&E had passed on the burden of VAT associated with monthly fees to its customers, their position being that it had been passed on. Initially, the Commissioners had maintained that the initial fee, too, had been passed on but, by the time of the hearing, had conceded that it had not been. B&E submit before me that there is no difference in principle between in the initial fee and the monthly management fee, thus lending support to their contentions on this appeal. I shall return to that argument later.
42. B&E's primary case was, it can be seen, identified (correctly in my view at that stage) by the Commissioners as being that the VAT was not passed on to customers. It was expressly noted in the Commissioner's skeleton that B&E was not advancing an alternative (but contradictory) case that it did pass on the VAT to its customers, rather than absorb it itself, but that it had suffered damage as a result. It does not appear from the record of Mr Milne's submissions that B&E disagreed with the Commissioners' understanding of its case. So the position before the Tribunal was that the Commissioners did not understand that any allegations of loss were being made let alone that there was any evidence from B&E which they would have to meet on the point): B&E's case was that there was no passing on and the issue was whether or not that was so. To the extent that B&E was alleging that it had suffered loss, that was only because it would have continued to charge 17.625% as its management fee and its profits would thereby have been increased if the VAT exempt status of its supplies had been recognised. If B&E now chose to call that economic loss rather than passing on, so be it: but the Tribunal's findings would then be equally relevant to the new way of putting it as they are to its findings on passing on.
43. The submissions on behalf of the Commissioners at the hearing are recorded by the Tribunal in paragraphs 44 to 50 of the Decision. The submissions, as recorded, proceed on the same basis as the skeleton, viz that the issue is whether VAT was passed on or not. I should record, in summary form, the gist of the important submissions:

a. The burden of proving unjust enrichment lay, it was accepted, on the Commissioners which required them to show, on balance, that VAT had been passed on: it could not be presumed. It did not follow from the fact that no mention was made to clients of VAT that it had not been passed on. [paragraph 44]

b. The documentary evidence clearly indicated that throughout the disclosure period, B&E charged 15% plus VAT. Even when fees were set at 17.625% that was mathematically the same a 15% plus VAT. [paragraph 45]

c. The Tribunal should deal with the appeal on the hypothesis that B&E did not, and never intended, to charge 17.625% for its management services; the Tribunal should look forward from 1996 rather than backwards from 2003 to see the true picture of what had happened to B&E and to discern its pricing policy. Doing so, Mr Mantle, for the Commissioners, submitted that in a free market B&E's charges would never have reached 17.625%. It simply copied Gregory Pennington in its charging so that in a VAT free world it would probably have charged 15% or 15% plus irrecoverable input tax. B&E continued to charge and account for VAT on the basis of charges of 17.625% inclusive of VAT and that remained the case until its charges were accepted as exempt. [paragraph 48]

d. Mr Mantle said that Mr Milne's best point was that B&E continued to charge management fees at 17.625% once its supplies had been accepted as exempt. But he observed that, by then, clients of both Gregory Pennington and B&E had been paying a total of 17.625% and were used to it and it could be inferred that they were prepared to bear it. In any event, B&E was a different company in 2003 from what it was in 2000: it was bigger, had more market share and more employees. That might have enabled it to do things which it could not have done in 2000 when it was smaller.

e. Mr Mantle invited the Tribunal to find that B&E would not have charged 17.625% for its management services in the disclosure period had those services been exempt; and to determine that the case was not one of loss of profits. [Comment: The Note of the Tribunal records that Mr Mantle asked for a negative conclusion that the fee would not have been 17.625%; and that he also submitted that the fee would have been 15% or 15% plus a figure to compensate for input tax. It is a criticism now made by B&E that the Tribunal did not expressly deal with that submission.]

44. It is not entirely clear from this record of the parties' submissions whether the case was being dealt with solely as one concerned with passing on, or whether, assuming passing on, there was an issue about economic loss. The Tribunal's conclusions, which I come to in a moment, do not draw that distinction clearly. Ultimately, it may make no difference since the single question is: Have the Commissioners established unjust enrichment? And its division into issues of passing on and economic loss represents, as I have said, a technique for arriving at an answer. But what is clear from the Decision (and the skeleton arguments prepared for the Tribunal hearing) is this. First, the argument which all concerned considered was determinative of the issue of unjust enrichment was whether B&E would have charged a management fee of 17.625% if it had been exempt; and secondly, that all concerned appear to have treating this as an all or nothing question ie the choice was between 17.625% and either 15% or 15% plus an additional percentage to cover input tax, it not being suggested on behalf of B&E that it might have charge something between those two figures. Jumping ahead, I note here that, although I can see the force in the argument that an allowanced should be made for input tax, in practice B&E has in fact set its actual input tax against its output tax. It is not suggested that the Commissioners will seek to recover the input tax which should not have been deducted. This point was not debated in front of me, but it would seem to me that, if the Commissioners sought to do so, then the defence to B&E's claim based on unjust enrichment would, to the extent of that input tax, be defeated.

The Decision

45. The Tribunal's conclusions are to be found in paragraphs 51 to 60 of the Decision.
46. In paragraph 54, the Tribunal states that it is clear from the findings of fact that the VAT charged under the terms and conditions of the contract in use from 1996 to 1999 was passed on to its clients; likewise in the contract in use from 2001 to 2003. B&E's voluntary disclosure is not relevant to the first of those periods; but it is perhaps instructive to consider why the Tribunal might have reached that conclusion in relation to that period as it may throw light on its approach to the period in dispute (January 2000 to December 2002) part of which is covered by the contract in use from 2001 to 2003. I return to that later. But before doing so, I look at what the Tribunal said expressly about the period covered by the contract in use from late 1999 to early 2001. The Tribunal says this (in paragraph 55):

"Although I earlier found that the charging clause relating to management fees was simply an alternative way of B&E expressing the fact that it charged 15 per cent plus VAT, it does not necessarily mean that the VAT was passed on to its clients. However, as I have also found that introduction of the new clause meant that B&E continued to charge its client tax, it appears to me logically to follow that it did pass on the tax."

47. Up to that stage, the Tribunal appears to be looking solely at the question of passing on, accepting the two stage approach that it is necessary to show both passing on and no economic loss. But then the Tribunal moved on to consider the economic position and, since it had already decided that there was passing on – apparently for the reasons already given in paragraphs 51 to 54 in the light of its findings of fact - to consider loss of profits.
48. Accordingly, we find the Tribunal, at paragraph 56 as it were in an aside, referring to the Opinion of the Advocate General (Jacobs) where it is pointed out that, whilst it is not for the taxpayer to prove that there has not been passing on, the tax authorities cannot be expected to prove that the burden has been passed on without the taxable person's co-operation and access to such relevant records as he may have kept. By extension, the Tribunal considered, those observations must also apply to a claim for loss of profits. I am not clear why this point is being made by the Tribunal since it does not appear to have been relied on in any way by the Tribunal (although I note from the documents in the appeal bundle that it had been necessary for the Commissioners to make a disclosure application).
49. The Tribunal [see paragraph 57] then rejected Mr Milne's argument that this was simply a case where B&E's profits would have been £5.9m more had it not had to pay VAT, and effectively accepted the argument of Mr Mantle for the Commissioners. It expressed the judgment that

"in a free market B&E's management charges would not have reached 17.625%. At the outset it simply copied GP's operation. In 1999, it rephrased its contracts but, as I earlier found, that did not represent a change in price, nor did it mean that its clients did not pay VAT."

50. There is a finding that B&E represented to its clients and their creditors that its charges were 15% plus VAT; they were not 17.625%. This is, I think, important because the management fee charged by B&E was a matter of significance not only to the client but also to his creditors. The fee impacts not only on the debtor but also on the creditors. This is because the debtor was to pay each month a total payment (including VAT) which he could afford, a figure which the creditors agreed to be appropriate. If the fee properly should not have included VAT, it is not immediately apparent that, as between B&E and the creditors, the fee should remain at 17.625%, the entire VAT element remaining with B&E rather than the whole or part of it increasing the amount available to creditors.
51. In paragraph 60, the Tribunal says this:

"In my judgment, B&E passed on the whole burden of VAT to its clients and itself suffered no concomitant loss; it would not have charged management fees of 17.625 per cent in the disclosure period had its services been exempt from VAT. It follows that it would be unjustly enriched if I were to allow its appeal."

52. That, I think, is a clear finding of fact, and not just a restatement of what has gone before. There has been some dispute about what the Tribunal meant when it said that B&E had passed on the whole burden of VAT. Did the Tribunal mean (as Mr Cordara contends) the entirety of the VAT which B&E's customers had to pay had been passed on, in effect putting the emphasis on "whole"? Or did it mean (as Mr Mantle contends) the net amount which B&E for which B&E had to account to the Commissioners after deducting input tax? I will need to return to this in addressing B&E's criticisms of the Decision.

B&E's criticisms of the Tribunal

53. In his skeleton argument, Mr Cordara identified six suggested errors (he calls them "the First Error" etc) on the part of the Tribunal:

a. The Tribunal thought that if B&E stated that its prices were "15% plus VAT" or "17.625% including VAT", it followed that it had passed on the tax. B&E say this is incorrect both in fact and law ["the First Error"]

b. The Tribunal was wrong to conclude that B&E stated that B&E "charged" its customers "15% plus VAT". It was irrelevant (the First Error) and also inaccurate because

i. It ignored the fact that for many customers the relevant monthly charge was " the minimum charge" ie a flat sum of £29 and

ii. The charge was rounded to the nearest pound – and was not therefore 17.625% but a round number

["the Second Error"]

c. The Tribunal failed to take proper account of the fact that the VAT on the initial charge was not passed on though its contractual origin was materially indistinguishable from the subsequent payments ["the Third Error"]

d. The Tribunal, in its analysis, used the concept of a "free market" to describe the hypothetical environment in which no VAT had been charged by B&E. As part of that, assumptions were made about the VAT affairs and conduct of at least one of B&E's competitors. These were unproven and untested. They were also irrelevant. This was the wrong comparator. B&E's position should be compared with what it would have been had the unlawful tax not been levied in the period in question and not had the Commissioners never levied VAT on some or all of B&E's competitors before and during that period. ["the Fourth Error"]

e. In any case, the Tribunal failed to make any adequate findings as to what B&E's charges would have been in its supposed "free market" beyond saying that they would not have reached 17.625%. The Tribunal seems to have decided that there would be some unjust enrichment and therefore the claim failed in toto. This was a fundamental non sequitur. To sustain its conclusions, the Tribunal would have needed to decide what B&E's charges would have been but for the unlawful imposition of VAT, then calculate the effect on turnover of the change in price and finally calculate from those two numbers by what extent, if any, B&E had gained from being forced to account for VAT. It should only have embarked on such a reconstruction of the history of the business if it were confident on the balance of probabilities that it could work out reliably what would have happened. The burden in relation to all these matters rested with the Commissioners who had adduced no evidence in relation to them. If the Tribunal was left in doubt as to this figure, it had no option but to allow the appeal. The evidence which the Tribunal accepted did not support any such finding. ["the Fifth Error"].

f. The Tribunal's conclusion that B&E passed on the whole of the burden but suffered no concomitant loss:

iii. Was inconsistent with its finding that B&E would have reduced its charges to win market share (because that suggests a price sensitive market, but if that is so, it is inconceivable that B&E suffered no loss by reason of the imposition of VAT)

iv. Was unsupported by any evidence

v. Was inconsistent with B&E's having sought from 2000 onwards exempt status.

["the Sixth Error"]

54. In relation to the six errors, Mr Cordara's arguments are in essence to be found in his skeleton argument and were, of course, enlarged on in oral submissions. Although dealt with separately in the skeleton, the suggested errors overlap and it is not possible to consider them in isolation. I therefore set out the arguments on all of them before turning to deal with them.

The First Error

55. It is said, correctly, by Mr Cordara that passing on is a very different concept from "informing the customer that VAT is being charged/paid/accounted for". He also says that the exercise with which the court must grapple with is an assessment of the economic impact of the tax. The presence of the VAT references in the contracts did not absolve the Tribunal from doing so. The necessary enquiry is complex if it is to be done properly. It can be seen, he says, that the passing on of the economic impact of the tax is separate from representations as to whether the supplier is "charging" VAT or "accounting to C&E for VAT".
56. In particular, Mr Cordara describes as a fundamental error the attempt by the Tribunal in paragraph 16 of the Decision to draw a distinction between "charging VAT" and "accounting for VAT". He says that ECJ jurisprudence involves no such distinction: rather it mandates an assessment of economic impact. He describes it as strange that the Tribunal should have thought (as appears from paragraph 16 of the Decision) that the fact that B&E continued to account for VAT reflects a recognition on its part that it was still charging 15% plus VAT even if it was not explicitly informing its clients of that, this argument tending to circularity.
57. He submits that it is for the Commissioners to prove that the economic burden of the tax has been passed on to customers; it would make a nonsense of that to say that accounting for an unlawful tax was a recognition by the taxpayer that it was "charging" its customers the tax.
58. He submits that any test as to what the customer might have understood to be going on would be an undesirable and impracticable test (as well as contrary to Community law). In particular, it was to be noted that it makes no difference to a non-VAT registered customer (as all of B&E's customers were) whether B&E were accounting for VAT or not. The key matter for the customer is what he has to pay: so far as he is concerned, VAT is simply another overhead of the supplier which is reflected in the price.
59. Finally, in relation to the First Error, he submits that the Tribunal was wrong to hold against B&E (as it did in paragraph 59 of the Decision) that B&E "represented" that its charges were subject to VAT. If anything, a taxpayer who is absorbing the economic burden of VAT is particularly likely to advertise the fact.

The Second Error

60. Four points are made:

a. During the fist half of the period for which the claim is made (start 2000 to late 2001) B&E used a contract which did not mention VAT at all. Accordingly, in this period, there was no "representation" that VAT was being accounted for so that the Tribunal's approach collapses

b. During the entire period, there was a minimum fee of £29 which many customers paid. The Tribunal's representation based approach can have no application here.

c. The charge was always rounded to the nearest pound – it was therefore not 17.625% exactly. Again, the Tribunal's representation based approach can have no application here.

d. The fact that there is, as is now acknowledged by the Commissioners, no unjust enrichment in relation to the refund of VAT paid on the initial fee undermined the Tribunal's representation based approach (see under the Third Error below).

The Third Error

61. No unjust enrichment was present in connection with the refund by the Commissioners of the VAT wrongly charged and accounted for on the initial monthly payments to B&E. Save as to amount, Mr Cordara says that these were contractually indistinguishable in substance from the later monthly payments. It is therefore hard, he says, to see how the Tribunal could be satisfied that the Commissioners had discharged their burden of proof. The two fees were not capable of being split: the customer signed up for both.
62. The conclusion of the Tribunal that B&E passed on all of the burden of VAT on the later monthly charged cannot easily be explained in the context of the Commissioners' admission that B&E absorbed all of the burden of VAT on the first monthly charge. The Tribunal did not even attempt to do so. This, it is said, is not only the basis of a very significant internal inconsistency, it is also a piece of hard evidence which flatly contradicts the conclusions reached by the Tribunal rendering it erroneous as a matter of law.

The Fourth Error

63. This relates to the "free market" comparator. It was, it is said, incumbent on the Tribunal to decide whether B&E would have charged different prices for its services for all or any part of the period 2000 to 2003 and further whether it had suffered or would suffer any loss. To decide that question, it should have asked what B&E would have charged in the period 2000- 2002 if the Commissioners had not demanded VAT. It did not so do.
64. Instead (referring to paragraph 48 and 57 of the Decision) Mr Cordara says that the Tribunal compared B&E's position with what its position would have been in an (unspecified) free market but which seems to refer back to Mr Mantle's submissions as recorded in paragraph 48. This, submits Mr Cordara, appears to have been a hypothetical world in which the Commissioners had never imposed VAT on any competitors in the market: that in principle is wrong because (i) one should only look at the period in question and (ii) one should only look at the taxpayer in question.
65. Further, there was no systematic investigation of the competitors' tax affairs, or the precise working of the market. In any event, the argument is circular. It amounts to no more than saying "A and B are competitors; if B had never been charged VAT, its prices would have been lower and so A's prices would have been lower since it would have been competing with B". But B would be met with exactly the same argument (substituting A for B and vice versa) if it were to bring a section 80 claim.
66. It is said that there was no evidential basis for the argument. No-one from any of the alleged competitors gave evidence nor was any credible evidence given of their affairs
67. Nonetheless, the Tribunal concluded that "in a free market, B&E's management charged would not have reached 17.625%". To the Tribunal is then attributed the following reasoning:

a. (the first point): Had the Commissioners not charge VAT on Gregory Pennington (a competitor) that firm would have "charged" less than 17.625% in 1996;

b. (the second point): but for the Commissioners wrongly making Gregory Penning charge VAT, B&E would not have charged 17.625% but would have charged whatever Gregory Penning were charging.

68. As to the first, point, Mr Cordara goes on to say that there was no evidence to support the point, the burden being on the Commissioners to show what Gregory Pennington would have done. And some more detailed points were made about what Gregory Penning might or might not have charged. The point is also made that B&E's customers were not VAT registered and it would have made no a jot of difference to them what percentage of the fee was made up of tax, utility bills, advertising, VAT or profit.
69. As to the second point, it is said that it is wrong to take account of the benefits to B&E of a decision by the Commissioners in 1996, outside the period 2000 to 2003. Further, it should not be assumed, in the hypothetical model, that B&E would have known what its competitors were doing or that it would simply do the same thing, particularly as its market share grew. For instance, when exemption was finally granted, it did not reduce its prices. Finally, it should not be assumed that it is safe simply to treat the hypothetical period as starting with a clean exempt ruling. The later in the story that VAT status was clarified, the more the market will have got used to higher prices and so the less likelihood of lower prices in a subsequent VAT free environment. The hypothetical exercise, we are reminded, is being carried out to discover a fact namely whether there will be unjust enrichment if the tax is refunded; cross-checks of the sort discussed are necessary to ensure that the refusal to restore can be reached with complete confidence that no injustice is being done.

The Fifth Error

70. This relates to the alleged failure by the Tribunal to establish what B&E's charges would have been in a free market, a point which arises only if the Fourth Error is not accepted as a complete answer to the Tribunal's determination.
71. The principal argument is that the Tribunal did not decide what B&E's charges would have been, only that they would not have reached 17.625%. It had to make a decision on the point in order to determine that all of the benefit of reduced taxation was passed on to customers. The Tribunal never made the factual finding needed in order to justify its overall conclusion. In any event, there was no evidence before the Tribunal to justify the conclusion. It is true that the Tribunal did not make such a factual finding, but it did not, in my judgment need to go as far as Mr Cordara now says even if an economic analysis were necessary. It would be enough for the Tribunal to decide that B&E's charges would not have exceeded the Equilibrium Fee next described.
72. It is submitted that the Commissioners, in order to answer the question What would B&E have charged?, had to establish (i) an Equilibrium Fee (percentage and fixed minimum) at which loss of recovery of input tax is balanced by an increase in price and (ii) that B&E would have been compelled by the market to charge a lower monthly fee than the Equilibrium Fee and/or that it would not have been willing or able to charge a higher fee. The Commissioners did not even attempt to calculate the first and abandoned its efforts to establish what the norm charge for the market might be.
73. Reliance is also placed on the following facts:

a. There was no evidence, from which inferences might be drawn, of B&E having initially raised its prices on the imposition of VAT: this is so because it was treated as taxable from the start of its business.

b. There was no basis for assuming anything as to B&E's margin from references to VAT in its contractual material.

c. Following acceptance of its exempt status by the Commissioners, B&E did not reduce its prices. It did not appear to have suffered commercially.

d. B&E's growth continued unchecked through the period 1999 to 2002, which suggests that B&E had chosen its price levels keenly.

e. B&E enjoyed such growth even though Gregory Penning reduced their fees for a period in 1999 (when it the Commissioners had treated it as exempt).

f. Accordingly, there is no basis on which any reasonable conclusion could be reached that there had been passing on, either at all or of anything approaching the full 17.5%.

g. Nor was there any basis for concluding that, had B&E's price been lower for any reason, that it would not have had even greater turnover and a resultant in crease in profits.

The Sixth Error

74. A number of suggested difficulties are identified:

a. If the Tribunal was correct that B&E would have reduced its charges to win market share from Gregory Pennington then, unless that attempt were wholly unsuccessful, it would have increased its turnover even more than it did. The Tribunal did not make any findings. But given its conclusions that there was no economic loss, the Tribunal would have needed to reach the conclusion that the attempt would have been entirely unsuccessful. There was no evidence on this point and the conclusion is contrary to reason. [Comment: what the Tribunal said was that there was no concomitant loss; it had in mind, I consider, what has been called the "flip side" of passing on (ie there is a loss which simply reflects the fact that output tax or some of it has not been passed on and not the other economic consequences (if any) resulting from the wrongful imposition of VAT eg reduced turnover and therefore reduced profit.]

b. If the attempt to gain market share were unsuccessful, would not B&E, it is asked, have abandoned the attempt and increased its charge back to where they were? If the attempt was successful, the Tribunal needed to evaluate what additional profits B&E would have generated. [Comment: this is speculation. Another view might be that competitors too would have reduced their charges so that a reduction in price by B&E would have been needed to preserve its existing market share.]

c. The conclusion of the Tribunal that B&E passed on the whole burden and suffered no concomitant loss does not explain why it sought (continually) to obtain VAT exempt status for itself. The only point in seeking to obtain exempt status would be (a) to maintain charges at the same gross level, reduce the effective tax rate and increase margin; or (b) reduce charges, maintain the same effective tax rate and keep margins the same in pursuit of volume. If the market were price insensitive, B&E would make money following (a); if the market were price sensitive, as the Tribunal appeared to think, B&E would make money following option (b). Either way, the imposition of VAT would have caused a loss and unjust enrichment would not be made out. The Tribunal wholly failed to attempt to calculate, and the Commissioners had adduced no evidence as to, what effect growing the market would have had. Rather, the Tribunal's decision is in effect that B&E was spending money on professional advisers in 2000 in order to seek to persuade the Commissioners to grant it exempt status, for no commercial gain whatever. There was no evidence to support such an inherently improbable finding.

75. There is one further matter on which B&E rely to attack the Tribunal's decision. It is said that section 80 requires not only enrichment but that the enrichment should be unjust – and there is nothing unjust, it is said, in B&E receiving a repayment of the VAT which it has been charged. This amounts to saying that there is nothing unjust in receiving a windfall. This was not, so far as I can detect, an argument even hinted at before the Tribunal. It is said that the unjust enrichment defence, although not prohibited by Community law, is introduced by each Member State in its own way and is a matter of domestic law. It is said that there is no separate finding by the Tribunal that there would have been anything per se unjust about the restoration of funds to B&E – and that no such finding could have been made.
76. I shall deal with this matter at once. I reject the submission. It is clear, and has not been contested, that the defence in section 80(2) should be interpreted in the light of the jurisprudence of the ECJ. It is, in my judgment, designed to allow the Commissioners to resist recovery of tax where the taxpayer has been enriched but where it would not be unfair to require him to make good what might be described as a windfall profit. Any other interpretation would render the defence almost without substance since it is hard to think of many cases where there would otherwise be injustice in allowing the taxpayer to retain his windfall.
77. I turn now to the six Errors, but not in the order in which they are listed. I start with the Third Error. I do not accept Mr Cordara's submissions on this. B&E's service had two principal components: firstly, the ascertainment of what the customer could afford to pay each month and the negotiation of that amount with the customer's creditors and secondly the management of the debt repayments out of the monthly amount. The initial charge was an amount equal to the monthly payment so ascertained. Since B&E had to account for VAT on the initial charge, its charge was expressed as a smaller amount plus VAT which totalled the amount of the monthly charge.
78. There is no reason to think that B&E would have charged anything other than the full monthly payment even if the supply had been treated as exempt: it was not a matter of concern to creditors (who saw not a penny of that initial payment) and there is no reason to think that the formula for ascertaining the initial payment would have been any different if the supply had been treated as exempt. B&E's own position (see for instance the letter dated 22 April 2004 from Horwarth Clark Whitehill on behalf of B&E to HM Customs & Excise) draws a clear distinction between the initial payment and subsequent monthly payments. I do not need to decide whether the Commissioners were correct in accepting that no case of unjust enrichment arose (although I think that they were correct). But what I am clear about is that their acceptance of that position is in no way inconsistent with, or even helpful in determining, the correct treatment of the later monthly payments.
79. The First, Second and Fourth to Sixth Errors raise a number of issues which were not raised before the Tribunal. In particular, there was not before the Tribunal, as there is now, a case of economic loss other than (i) what is described as the flip side of the passing on (ie there is a loss which simply reflects the fact that output tax or some of it has not been passed on) and (ii) a possible loss of turnover as a result of the minimum figure of disposable income below which B&E would not take on an individual as a client.
80. I note again that B&E's case before the Tribunal was presented as essentially an "all or nothing" case in the light of a price insensitive market: it was said that the market was willing to pay a fee of 17.625% and was not concerned whether that price included VAT any more than whether it reflected B&E's general overheads. The arguments, both of fact and law, addressed to the Tribunal which I have recorded above, were of much narrower scope than B&E now seek to raise. I propose therefore to address first the question whether the Tribunal could properly have reached the conclusion which it did on the material and arguments before it.
81. The Tribunal has spent a considerable part of the Decision looking at the contracts with clients and their effects. There is no doubt that, at all relevant times, B&E accounted for VAT on its fees. The contracts in use from 1996 to late 1999 and from 2001 onwards (until VAT ceased to be chargeable) expressly referred to VAT, the latter referring to a percentage (or flat rate sum) "including VAT". The contracts for the intervening period made no reference to VAT. The Tribunal, in all cases, decided that B&E "charged" VAT on its fees and did not simply "account" for its fees. This distinction could be relevant as between B&E and its client. On the one hand, a fee of "£X plus VAT" shows clearly that B&E is charging VAT and, if (as happened) VAT is shown to have been incorrectly levied, the client might well (subject to possible defences such as change of position) have a claim to recover the VAT element of the fee which he had paid. On the other hand, if the fee had been "£X (including VAT if any)" perhaps with additional wording making it clear that B&E would retain the full £X if VAT turned out not to be leviable, then B&E would not be liable to make any refund. The Tribunal has held, and could not be challenged in its decision, that all of the contracts fall into the first category.
82. It is an entirely different question whether the burden of the VAT has been borne by B&E or by the client. If it were the case, as B&E alleged before the Tribunal, that the fee would have been 17.625% (or £29) even if the supplies had been treated as exempt from the beginning, then B&E would have borne the charge or, to put it another way, the charge would not have been passed on. This is so even though it can be said that VAT has been both "charged" and "accounted for". The bald fact, standing by itself, that VAT has been charged could at most give rise to an inference that the charge had been passed on; but it would, as I have said in considering the judgment of Moses J in Marks and Spencer, be one which it would be easy to rebut if the principle of effectiveness and the jurisprudence of the ECJ in relation to the burden of proof on passing on are to be observed.
83. There is a clear finding of fact (and one which there is no ground to challenge) that B&E fixed its initial charges in 1996 by copying Gregory Pennington. There was no evidence before the Tribunal of any sophisticated economic analysis on the part of B&E in fixing those fees, although it would not be surprising to find that B&E had satisfied itself that, at that level of fee, it would have a viable business. There was no evidence before the Tribunal of any such analysis being carried out by B&E at any time. If the Commissioners are able, on the evidence actually presented to the Tribunal, to establish facts from which the Tribunal could properly infer that there was passing on, then the absence of a detailed financial analysis is not, for reasons I have already given, sufficient to defeat the Commissioners.
84. Until late 1999, B&E continued to use a form of contract with clients which provided for a fee of 17.625% (subject to rounding in some case, an aspect which I do not consider affects the matter) with a minimum fee of £25 which was expressed not to include VAT. The fee (in cases other than those where the minimum fee was charged) was a percentage of the monthly payment which B&E agreed with the debtor and creditors, being the monthly amount which the client could realistically afford to pay. The fee (including VAT) was deducted from the monthly payment before the balance was paid over to creditors.
85. In 1999, for a period, some at least of Gregory Pennington's services were treated as exempt; it charged clients 15%. That is some evidence that Gregory Pennington had been passing on the VAT to its clients prior to the period just referred to. Certainly, in the absence of any other evidence, the Tribunal would have been entitled to draw an inference to that effect.
86. Mr Mantle submits that this is sufficient material which would have entitled the Tribunal to reach the conclusion that B&E was passing on the charge too. I agree with that so far as concerns the period in 1999 during which Gregory Pennington charged 15% without the addition of VAT. Up to that time, Gregory Pennington remained a considerably larger player in the market than B&E. B&E had set its charges by reference to Gregory Pennington's charges and, it might properly be inferred, Gregory Pennington was passing on the charge. The inference could properly be drawn that B&E too was passing on the charge or, if this is something different, that it, too, would have charged 15% (or possibly 15% plus an amount to recoup irrecoverable input tax) and not 17.625% in cases not subject to the flat rate charge of £25 plus VAT.
87. This analysis could account for the conclusion drawn in paragraph 54 of the Decision that it was "quite plain from my findings of fact" that VAT was passed on by B&E from 1996 to late 1999. It is also consistent with the conclusion in the first two sentences of paragraph 58 of the Decision:

"It is quite plain from the evidence, and I find, that by 1999 B&E was intent of expanding at as rapid a rate as possible, and determined to replace GP as market leader. Against that background, I agree with Mr Mantle that it is inconceivable that B&E would not have completed on price with GP had it known that GP was charging exempt management fees of 15%."

Nonetheless, it is my reading of paragraph 54, in the light of other parts of the Decision, that the Tribunal was relying very heavily indeed, in reaching its conclusion, on the fact that the contracts and communication with clients and creditors, showed a fee being charged at 15% with VAT added to it.

88. That reading is supported by what the Tribunal has to say (again in paragraph 54 and before making the observations which I have just quoted from paragraph 58)) about the period from 2001 to 2003: "Likewise, in the contract in use from 2001 to 2003, the VAT was passed on". The Tribunal is, there, focussing on the terms of the contract which expressly described the fee as including VAT.
89. This contrasts with paragraph 55 of the Decision where the Tribunal addresses the contract in use from late 1999 to early 2001 which did not refer to VAT. In paragraph 55, the Tribunal refers to its earlier finding that the contract provision was simply an alternative way of B&E expressing the fact that it charged 15% plus VAT "it does not necessarily mean that the VAT was passed on to its clients. However, as I have also found that the introduction of the new clause meant that B&E continued to charge its clients tax, it appears to me logically to follow that it did pass on the tax." With respect, it does not follow logically at all. It is a question of fact in all cases. If VAT was being passed on in the period from 1996 to late 1999, then the factors which led to that conclusion may have continued to subsist after 1999 and might lead to the same conclusion thereafter; in the absence of evidence of any change of circumstance, then those factors might be assumed to continue. The mere change in the form of the contract might well be regarded as an irrelevance.
90. Turning then to the period 2001 to 2003, it is difficult, if not impossible, to apply the analysis which I have identified in relation to the period from 1996 to late 1999 as offering possible support for the conclusion that there was passing on in this later period. This is because there is no evidence to support an inference that Gregory Pennington was itself passing on VAT in that period still less a finding of fact that it actually did so. The Tribunal has not drawn the inference that, because it charged only 15% in 1999, that it would have done so in 2001 and for my part I doubt that it could properly have done so. Even if one accepts without question the final sentence in paragraph 58 of the Decision ("All the evidence points to B&E having kept the rate of its management charges under continual review in the disclosure period, if necessary with a view to their being reduced to complete with GP and other debt management agencies.") there is nothing to establish what Gregory Pennington would in fact have charged if the exempt nature of its supplies had been established too. The Tribunal seems as though it is confusing what happened to Gregory Pennington in 1999 with what might have happened in 2001 to 2003.
91. Further, by 2001, there is no reason to think that B&E would simply be blindly following Gregory Pennington's pricing structure. By that time, B&E had become the market leader with a far greater share of the market than Gregory Pennington. It may well be the case, as the Tribunal finds in paragraph 58 of the Decision as just quoted, that B&E kept their charges under constant review in the disclosure period, but I have serious doubts whether the Tribunal could properly have reached the conclusion, on the evidence, that B&E would have reduced its prices in order to compete (in contrast with doing so for other reasons). I do not need to decide that in the light of lack of evidence about what Gregory Pennington might itself have done in a VAT free environment.
92. What might be said in support of the Tribunal's decision is that, since it can be inferred that B&E would have charged only 15% in 1999 had its supplies been treated as exempt, that such inference can be made in relation to later periods unless and until the evidence demonstrates that such an inference should not be made.
93. The Tribunal records Mr Milne's submission that the best evidence of what B&E would have done is what it actually did: that is to say to continue charging at 17.625% when its supplies were accepted by the Commissioners as exempt, a submission which Mr Mantle regarded as Mr Milne's best submission. It is, to my mind, a powerful submission. Mr Mantle's response is recorded at paragraph 43d above. The Tribunal does not deal expressly with that submission or Mr Mantle's response (unless it is to be regarded as subsumed in the general acceptance of his arguments in paragraph 57 of the Decision). It was an important and significant argument which it would have been better for the Tribunal to have dealt with expressly.
94. It can be seen that Mr Milne and Mr Mantle had entirely different approaches. Mr Milne started with what actually happened in 2003 and projected backwards; Mr Mantle started with 1996 and looked forward but did so in order to see what would have happened in an environment where B&E's supplies had always been treated as exempt. Thus:

a. On Mr Mantle's approach, it is to be supposed that VAT had not been imposed on B&E (and presumably its competitors) at all. He starts with the proposition (which for reasons already considered, it one which the Tribunal could properly have reached) that B&E's fee in 1996 to late 1999 would have been 15% (or possibly 15% plus and amount to recoup for irrecoverable input tax). That enables him to argue that there was nothing thereafter which, in that continuing environment of exempt supplies by B&E, would have led B&E to start charging more than 15% (or 15% plus irrecoverable input tax). He would, I think, have to accept that his argument leads to the conclusion that where VAT had never been charged on B&E's fees, there would have been no reason to think that those fees would have increased above the 15% (or 15% plus) level even in 2003 when, in fact, a VAT-free fee of 17.625% started to be paid. His approach, therefore, is to assume, contrary to the facts, for the whole of the disclosure period (and before) that B&E's services were exempt.

b. Mr Milne's approach is to start with what actually happened in 2003 ie that a VAT-free fee of 17.625% was charged on its being established that B&E's services were exempt supplies. That enables him (and now Mr Cordara) to argue that, in an earlier period, the same approach would have been taken. Take as a concrete example the second VAT period for B&E in mid of 2002, when its supplies were still wrongly being treated by the Commissioners as subject to VAT. If the incorrectness of that treatment had been established in early 2002, then a VAT-free fee of 17.625% could have been charged for that second VAT period and all later periods. Accordingly, it can be argued that B&E has in fact borne the VAT for that second period (and later periods prior to the establishment of the correct treatment).

95. In principle, the approach of Mr Milne and Mr Cordara is, in my judgment to be preferred. It must be remembered that the underlying question which needs to be answered is whether B&E would be unjustly enriched if it were to recover the tax for which it has accounted and which it is otherwise entitled to recover. Thus, looking at the example given in the preceding paragraph, if B&E had made a voluntary disclosure in respect of that second VAT period only, and if it establishes that it would have charged a VAT-free fee of 17.625%, then, prima facie, there is nothing unjust in its being able to recover the VAT for which it has actually accounted (ie after allowing for input tax). It seems to me that it right to say that B&E would have borne the tax and had not passed it on.
96. But suppose that the evidence establishes that B&E would have charged only 15% had its supplies always been treated as exempt from 1996 onwards and that it would not have increased its charges at any time up to and including the second VAT period in 2002 mentioned in the example. Does that entitle the Commissioners to say, in relation to the example, that B&E would be unjustly enriched if the tax for which it has accounted were repaid? In my judgment it does not. I consider that B&E is entitled to rely on the facts as they were and not as they might have been had the correct VAT treatment been applied all along. Of course, there has to be an element of hypothesis in order to see what might have happened if the tax which is reclaimed had not been charged in the first place; but it would not be right, I consider, to extend the hypothesis further than is necessary. It could not, I think, be said that, once B&E actually commenced charging 17.625% without having to account for VAT that it was somehow being enriched on the basis that, if the correct VAT treatment had been applied all along, its fees would have remained at some lower level. Similarly, I do not think that B&E can be said to be obtaining unjust enrichment when it seeks to recover the tax which it has paid in respect of an accounting period when, taking the facts as they actually were at the beginning of that period, it is established on the evidence that it would have charged a VAT-free fee of 17.625%.
97. The position is more complicated in the present case than in the example because the disclosure period covers a number of VAT periods. It might be said that, by making a claim for repayment in respect of early 2000, B&E must proceed on the hypothesis that, for the whole of the disclosure period, its supplies had been treated as exempt. Since (on Mr Mantle's approach) B&E's fees would have been 15% (or 15% plus an allowance for irrecoverable input tax) at the beginning of 2000, it is not then permissible, on this approach, to judge what would have happened in say mid-2002 (as in the example) by reference to what B&E would have done if (as was the actual fact) its supplies were being treated as chargeable up to an including early 2002. In my judgment, however, this factor does not affect the position. The question whether B&E has suffered the burden of tax in a later period should be assessed by reference to the comparison between what actually happened in fact and what would have happened if tax had not been wrongly charged in respect of that period.
98. This important difference of approach is reflected in Mr Mantle's argument in response to Mr Milne's submission that what B&E did when its supplies were accepted as exempt is a good indicator of what it would have done if it had not been wrongly charged to tax in the disclosure period in the first place. It has two strands: clients were used to paying 17.625%; and B&E was a different company. I consider them in turn:

1. It is true that clients of B&E and Gregory Pennington had been paying 17.625% for some time by the time that B&E began to charge a fee of 17.625% which did not include VAT. It is said that they were used to it and it could be inferred that they were prepared to bear it. So far as existing clients were concerned, I accept that that might be correct. But new clients, if they had any idea at all of what had been charged in the past, would surely look at the fee being demanded without consideration of what had happened in the past. I think that very little weight indeed could properly have been given to this strand of the argument.

2. It may be that, at the beginning of the disclosure period (ie early 2000) B&E was a materially different company from what it was in 2003 when for the first time, it was charging fees of 17.625% which were free of VAT. But from the turnover figures, it can be seen that the huge growth in business occurred during 2000 and 2001 - a turnover of £21.5m being achieved in 2001, getting on for three time as much as Gregory Pennington in the same period. B&E, at latest by the beginning of 2002, was, I consider, far closer to being the company it was when it first started charging a VAT-free fee of 17.625% than to the company it was at the beginning of the disclosure period. Bearing in mind the burden of proof on the Commissioners to show passing on, it seems to me that it was incumbent on them to satisfy the Tribunal on the totality of the evidence that Mr Milne's argument should be rejected for the entirety of the disclosure period; and that if they could show that Mr Milne's argument should be rejected only in relation to an earlier, but not a later, part of the disclosure period, then the Commissioner's should fail in respect of that later part.

3. In relation to this last point, there is also the question which Mr Cordara asks: If there was no economic advantage to B&E in achieving exempt status for its supplies, why did it put energy into persuading the Commissioners that that was the correct treatment? The Tribunal did not answer that question because the argument was not, as far as I can see, put to it. One answer might be that it did so because it considered that it could continue charging 17.625% and thus increase its profits by the amount of VAT less irrecoverable input tax (and in relation to input tax, it might be able to modify its business methods to reduce its taxable inputs). But another reason might be that it thought it could reduce its charges and increase its market share even further. This is all speculation: no relevant findings of fact were made and no argument was addressed.

99. The Tribunal's reasoning in its conclusions (paragraphs 51 to 61 of the Decision) is sparse. It is not easy to see precisely what submissions it accepted. However, it seems reasonably clear from paragraphs 57 and 58 that the Tribunal adopted the approach which Mr Mantle had advocated and which I have considered above ie it took the position in 1996 and moved forward to what would have happened if B&E's supplies had always been treated as exempt. For the reasons given, I consider that that is a wrong approach.
100. It should also be noted that, even adopting that approach, the Tribunal does not make an express determination that B&E's fees would have been only 15% or even 15% plus an allowance for irrecoverable input tax (which Mr Mantle had submitted would have been the position and which he asked the Tribunal to determine). It simply states (both in paragraphs 57 and 60) that management charges would not have reached, or that B&E would not have charged, 17.625%. I appreciate that B&E's case was really an all-or-nothing case (ie that B&E's profits were reduced by the amount of the VAT which it had actually paid after allowing for input tax); in saying what it did, the Tribunal was, as I see it, simply rejecting that case. However, having rejected B&E's arguments, I do consider that it would have been far better if the Tribunal had made some finding as to the level of B&E's hypothetical charges even if only that they would not have exceeded 15% plus an allowance in respect of irrecoverable input tax.
101. In the absence of such a finding, the Commissioners rely on what is said in paragraph 60 of the Decisions "In my judgment, B&E passed on the whole of the burden of VAT to its clients and itself suffered no concomitant loss". Even that statement has caused controversy. Mr Cordara says that the reference is to the whole of the VAT levied on B&E's supplies whilst Mr Mantle says it is a reference to the net amount after allowance for input tax. I have already discussed (see paragraph 33) whether, generally speaking, the concept of passing on in a VAT context is concerned with output tax alone or with the net position after allowance for input tax. It seems to me, however, that the Tribunal considered that the whole of the burden of output tax was passed on in the sense that B&E did not bear any of that tax (and that was so whatever the level of input tax). That is consistent with the treatment afforded by the Tribunal in paragraph 31 of the Decision (to which I will come in a moment) concerning input tax and the emphasis (in paragraph 59) again on the representation to clients by B&E that this charges were 15% plus VAT. In other words, the Tribunal was not using the concept of passing on in relation only to the net position after deduction of input tax.
102. As to input tax, B&E made the point (both in Mr Cochrane's evidence and in submissions (see paragraph 39c)) that, if its supplies had been treated as exempt, it would have been unable to recover input tax. This would have been a charge on profits and may have resulted in a loss during part of the disclosure period. Accordingly, it would be obvious that B&E would not simply charge 15%. The Tribunal accepted that losses might have been incurred and recognised that, in the first year of the disclosure period, output tax and input tax were little different.
103. However, the Tribunal considered it relevant that B&E's services were in fact treated as taxable "so that different considerations apply" (see paragraph 31 of the Decision). During the first part of the disclosure period, input tax and output tax were little different. In the later part of the disclosure period, output tax exceeded input tax, the Tribunal inferring that this was because B&E continued to obtain advantage from earlier expenditure on advertising etc and thus had to spend little, if anything, on expansion in the latter part of the period. Mr Mantle's submission was that VAT status had an impact on what inputs a taxpayer purchased: had B&E's supplies been exempt, B&E would probably have used less advertising. It is not possible to tell whether the Tribunal accepted that submission or not: the nearest one gets is "I believe the submissions of Mr Mantle to have considerable force". However, even if one were to accept that some reduction in input tax would have been achieved, it does not follow that B&E's fees would have been as low as 15% or 15% plus some allowance for irrecoverable input tax. But equally, it does not follow from the fact that B&E would have wanted, taking one year with another, to recover its input tax (as any other overhead) through the level of its charges, that those charges would have been as high as 17.625%.
104. One difficulty, in terms of the impact of input tax in the context of this appeal, is that Mr Milne's argument on input tax was being used to bolster his main submission that B&E would have charged 17.625% - it was being used to show that fees would not simply have been reduced to 15%. He was not arguing – at least there is no record of such an argument in his skeleton or in the Decision itself – that considerations of input tax alone would have led B&E to set a level of charging, which, during the disclosure period, would have resulted in an increased profit. For example, suppose that input tax considerations would have led to a fee level of 16.5% rather than 15% (ie attributing 1.5% to irrecoverable input tax) but that actual input tax in the disclosure period was less than that amount (suppose it amounted to only 1% of the 16.5%) then the difference (ie 0.5%) would represent additional profit and it could be said that the VAT actually (and wrongly) charged as output tax was not passed on to that extent. Since that was not argued, there is no finding of fact in relation to it, although as I have already mentioned, Mr Mantle had, on the basis of other arguments, submitted that the fee would have been 15% or 15% plus a figure to compensate for input tax (see paragraph 44e above).
105. In the light of the above discussion, my conclusion is that the Tribunal's decision that the whole VAT (whether it intended to mean the gross amount or the net amount) was passed on cannot stand. The Tribunal applied, in my judgment, an incorrect approach to the questions it had to answer as I have explained in paragraphs 94 to 99 above. In particular, the result of adopting that wrong approach was that it failed to give any, or any proper, weight to the fact that B&E adopted a fee of 17.625% when the exempt status of its supplies was established. That was a very powerful piece of evidence. The reasons which the Tribunal gave, insofar as they can be ascertained from the Decision, for rejecting that evidence as a conclusive indicator of what B&E would have done earlier in the disclosure period do not, in my view, stand up to scrutiny for the later parts of the disclosure period at least from the beginning of 2002.
106. However, in relation to the earlier parts of the disclosure period, to late 1999, the evidence of what B&E did when VAT ceased to be chargeable on its supplies is not of such great significance. Indeed, as I have said (see paragraph 86 above) I consider that the Tribunal could reasonably have inferred that B&E would have charged only 15% in 1999 if its supplies had then been treated as exempt. I am nonetheless left with the uncomfortable impression that the Tribunal did not reach its conclusion on the basis of such inference but because it considered that the terms of the contracts with clients, expressly stating that VAT was charged on the fee of 15%, necessarily led to the conclusion that the VAT was passed on. While it may be the case that, in the absence of any other factors, it is correct to infer from such a contract that VAT is passed on, there was sufficient material before the Tribunal, in my judgment, to throw the evidential burden back onto the Commissioners to show that there was passing on; but that means that the Tribunal would have needed to rely on the inference to which I have just referred.
107. In relation to the period between late 1999 and the beginning of 2002, the position is unclear. It is for the Tribunal to judge, as a matter of fact, whether the inference (assuming that such an inference is, in fact, drawn) that B&E would have charged only 15% (so that VAT was passed on in 1999) is one which should continue to be drawn and, if so, for how long bearing in mind in particular (a) that by 2002 it would, in my judgment, be impossible properly to find (on the evidence at present recorded in the Decision or available from the documents before the Tribunal) that B&E would not have charged 17.625% if its supplies had been treated as exempt and (b) that B&E was attempting to obtain exempt status for its supplies, something it must have had an economic reason for doing (although it is for the Tribunal to decide what weight to give to that). The Tribunal will need also to determine, if it is satisfied that there was passing on at all, whether the fee which B&E would have charged in the disclosure period (or different parts of the disclosure period) if its supplies had been treated as exempt would have resulted in only part of the VAT being passed on (eg if the hypothetical charge included an amount in respect of input tax which exceeded the actual input tax for the relevant part of the period).
108. That, of course, is not an end of the matter because Mr Cordara effectively seeks to raise a raft of new arguments which were not put to the Tribunal.
109. In relation to the First Error, he says that an economic analysis is necessary: the Tribunal must grapple with an assessment of the economic impact of the tax. I have already discussed at length the need, or lack of need, for such economic analysis. In the absence of one, the Tribunal is entitled to draw inferences from the evidence in fact before it. Neither party saw fit to produce any economic analysis. It would not be appropriate now to allow B&E to reopen the case to the extent of admitting a whole mass of evidence from each side which it was not thought appropriate to commission for the Tribunal. Similar considerations apply in relation to Mr Cordara's submissions in relation to the First Error.
110. Mr Cordara also seeks to raise in relation to the Sixth Error a new economic loss case which is not simply the "flip side" of the passing on argument, but is an allegation of loss of profit as a result of reduced market share. Further, he criticised the Tribunal for failing to take any account of the impact of VAT on the minimum monthly disposable sum of £140 which a client had to be able to show before B&E would take him on. The argument is now raised that, in the VAT-free environment, the entry level has been reduced from £140 and a minimum charge of £25 rather than £29 has been introduced, enabling B&E to service persons who would not previously have been eligible, and thus to increase its profits, Mr Cochrane's evidence being that a gross turnover increase of 20% would have been achieved. The loss of that profit is an economic loss which flows from the wrong tax treatment of B&E's supplies. In my judgment, it is too late to run any new points when the Commissioners were not alerted to them in time to adduce the necessary economic evidence before the Tribunal. It is not appropriate now to reopen the case to the extent of permitting such a case to be run and new evidence admitted.
111. However, the issue of the entry level and minimum charge gives rise to more problems. Although this aspect was raised by Mr Cochrane in his evidence (and the Tribunal's notes record that an economic loss case was therefore being raised), Mr Cochrane did not, in his witness statement, go on to assert a loss of profit let alone to put a figure on it. Nor does it appear that Mr Milne made anything of it in his submissions. The burden is, however, on the Commissioners to establish unjust enrichment. The Tribunal therefore needed to be satisfied that B&E in fact suffered no loss as a result of minimum entry level/minimum charge point or, that if it did suffer some loss, a maximum figure could be put on that loss (with the unjust enrichment allegation being rejected to the extent of that loss); otherwise, the Commissioners will not have fulfilled the burden on them.
112. In all the circumstances, the appeal is allowed. I will hear Counsel further on the precise relief which I should order and in particular whether or not the case should be remitted to the Tribunal.
The SCHEDULE Paragraphs 4 to 33 of the Decision
113. I make the following findings of fact from the parol evidence of Mr R B Cochrane, a director of B&E, Mr C J Kirkland, a senior Customs officer, and the contents of two bundles of copy documents provided by the parties. (Unless otherwise stated, all page references to documents relate to the main bundle).
114. B&E was formed in 1996 as a debt collection agency. As such, it made standard-rated supplies and registered for VAT. But not long after beginning trading, on its share capital being acquired by Mr J O'Neill, it changed to providing the debt management services referred to at para 2 above. When the change took place it contacted its local VAT office for advice as to its future liability to tax. It was informed that all aspects of debt management services were standard-rated supplies. The company acted on that advice, and continued to charge VAT on its services.
115. Mr O'Neill knew nothing about debt management services and therefore initially decided to follow the practices of the then leader in the industry, Gregory Pennington Ltd ("GP"). GP operated, and continues to operate, a service seemingly identical in all material respects to that of B&E. Mr O'Neill obtained a copy of the terms and conditions on which GP dealt with its clients, and instructed solicitors to plagiarise them for B&E's own use.
116. In particular, as Mr O'Neill had no idea what to charge for B&E's new services, it followed GP's example in charging 15 per cent plus VAT (i.e. 17.625% in total) of clients' disposable incomes for "on-going management services," and a flat rate negotiation fee (including VAT) equal to a client's first monthly payment.
117. The plagiarised form of GP's charging clause for management fees, used by B&E from 1996 until late 1999, took the following form:

"6.1. Unless we agree otherwise with you we will take from each monthly payment under the Monthly Payment Plan a fee equal to 15% of the periodic payment under the Monthly Payment Plan. This figure is subject to a minimum fee of £25 per month and does not include VAT, which we have to charge by law. (At present this total sum amounts to 17.625%)."

118. The terms and conditions of B&E's contract defined Monthly Payment Plan as one produced by it in consultation with the client "by which you can pay off your creditors out of your disposable income at rates you can afford. The Monthly Payment Plan will let you make monthly payments to us and will take account of your creditors and our Fees. It will not take account of any matters you have not told us about… It will also take account of the differing requirements of your different Creditors, if there is more than one".
119. (Until the hearing, B&E had not produced to the Commissioners a copy of the contract it used in its early years of trading, and had maintained that until 1999 its charging clause for management fees was in terms indicating that clients were simply charged 17.625 per cent, and ignored all reference to VAT. Mr Milne QC, for B&E, apologised for its having misled the Commissioners).
120. When Mr Cochrane became a co-director of B&E with Mr O'Neill in 1997, he assumed particular responsibility for finance and administrative matters. He acquired 40 per cent of its ordinary share capital, Mr O'Neill continuing to hold the remaining 60 per cent.
121. Mr Cochrane also claimed that in 1998 or 1999 he identified as a "specific problem" the possibility either that B&E's VAT status, or the standard rate of tax, might change during the course of a repayment plan, increasing or, less likely, decreasing its liability to tax, with a resultant impact on profits. He maintained that since all clients were individuals, and thus not VAT registered, "their only interest was in the gross cost to them of the service provided, so we worded the contract in such a way that the fee payable to the company would remain the same no matter what the applicable VAT rate". Further, Mr Cochrane added, the company, or perhaps I should say Mr O'Neill as principal shareholder, decided that its management fees should not then, or in the future, fall below 17.625 per cent, whether liable to VAT or not, and irrespective of any price reductions its competitors might make in the event of fees being found to be exempt from VAT: it had determined not to compete with its competitors on price, but rather on service. I shall deal with that decision shortly.
122. At some time very late in 1999, B&E introduced a new form of contract containing the following sub clause relating to management charges:

"6. How you pay us.

6a. Unless we agree otherwise, we will deduct, from payments we issue to your creditors, a fee equal to 17.625% of the monthly payment you make to us under the monthly payment plan. However, we have a minimum fee of £29. The actual amount of our fee is shown in the monthly payment plan."

123. Following introduction of the new contract, Mr Cochrane maintained that, on a client entering into it, B&E dispatched his "Credit Commitment and Financial Statement Details" to him and to his creditors (pp 47-48), but, he contended, the details sent to creditors differed from those sent to the client in one, very important, respect. In the section dealing with credit commitments in the creditor's copy, B&E's management fee was shown as "15% + VAT", whereas in the client's copy it was simply shown as 17.625 per cent. Mr Cochrane's evidence on the point was less than convincing, so that I am not satisfied on the balance of probabilities that both forms were in use, or, if they were, they were dispatched as Mr Cochrane claimed.
124. When Mr Kirkland paid a control visit to B&E in January 2000 the sample Monthly Payment Plan with which he was provided (p.72) showed the management fee to be 15 per cent plus VAT. Mr Kirkland's Visit Report (pp. 88-89) confirmed that B&E was charging its clients 15 per cent plus VAT for management services.
125. Reading the clause set out in para 13 above in the context of the whole of the evidence, but particularly in the light of that in the penultimate and last preceding paragraphs, in my judgment it was simply an alternative way of expressing the fact that B&E continued to charge 15 per cent plus VAT for its management services. It did not represent a change in price: nor did it represent a change whereby B&E, although accounting for VAT on supplies, did not charge its clients tax. The very fact that B&E continued to account for VAT reflects a recognition on its part that it was still charging 15 per cent plus VAT, even if it was not explicitly informing its clients of the fact.
126. Also in 1999 B&E sought further advice from the Commissioners as to the VAT liability of its services, maintaining that they were exempt. With its correspondence B&E submitted a form of contract intended for use by a new subsidiary company. The contract included a charging clause for management services identical to that at para 13 above except that the rate of charge was 17.5 per cent. As the new subsidiary never traded, B&E did not introduce the 17.5 per cent charge rate. It was not until 25 August the following year that the Commissioners rejected its claim for exemption (letter p.35). However, when they eventually did so, they admitted that there was an argument for exempting B&E's collection and money handling services which might have been persuasive had not those services been but an element in a "larger administrative service". B&E could have appealed the Commissioners' decision to the tribunal, but did not do so.
127. Unknown to B&E, at sometime in 1999 for a limited, undisclosed period the Commissioners accepted that at least some of GP's services were exempt. During that period GP charged its clients 15 per cent for management services.
128. Mr Cochrane maintained that the market was not at all sensitive to the rates of fees, claiming that that was demonstrated by B&E having increased its market share whilst charging 17.625 per cent during the period GP was making exempt supplies and charging 15 per cent management fees. He explained that from having no market share in 1996 when GP had 80 per cent of the market, B&E had overtaken it by 2001. He added, "Indeed, the only price resistance we have experienced is from those who believed that a service such as ours should always be provided free of charge to the consumer". Whilst accepting that B&E increased its market share as claimed, I am unable to accept Mr Cochrane's statement for early in 2001 the Office of Fair Trading ("the OFT") wrote to B&E following complaints about the manner in which it presented its charges (see p.160 of the main bundle and pp.32-33 of the supplemental bundle) and pointed out that under the Unfair Terms in Consumer Contracts Regulations 1999 "unfair terms are not binding on consumers".
129. The OFT indicated that it would not take court action against B&E if it were to withdraw or amend its terms and conditions to include, inter alia, in a prominent position on the front page of its contract a statement of its fees and show how they were made up. In evidence, Mr Cochrane said, and I accept, that the OFT would not accept terms which included no reference to VAT; the OFT required all references to fees to have added "plus VAT". But in the event, in a contract introduced early in 2001, B&E answered the question, "How much do our services cost?", as follows:

"You will pay us an initial fee and then a monthly management fee. The initial fee is an amount equal to a single payment under your monthly payment plan as at the time you sign these terms of business. This payment includes VAT …

The monthly management fee is equal to 17.625% (including VAT), rounded to the nearest pound, of each monthly payment plan. However, you will have to pay us at least our minimum monthly fee of £29 (including VAT). We collect the monthly fee when we pay your creditors."

130. In my judgment, both those clauses, whether read separately or together, would quite clearly have indicated to a client of B&E that he was paying fees for its services which included VAT. And when read in conjunction with Mr Cochrane's admission that the OFT required all reference to fees to be "plus VAT", notwithstanding that the terms introduced were not strictly those so required, I also find that such clients were charged VAT: it was not merely being accounted for by B&E. I am unwilling to read the term "including VAT" as "including VAT (if any)", as Mr Milne submitted I should. (see para 42 below). Further I am unable to accept that the words "including VAT" were inserted solely to indicate to clients that they would not be expected to bear the burden of any change in the VAT position, as B&E claimed. (Even as late as 8 April 2003, in what appeared to be a standard letter addressed to a Mr Saxby, a client of B&E, (p.128), and which Mr Cochrane was unable to explain either in terms of origin or content, B&E specifically stated that it charged its clients VAT on management fees).
131. There matters rested until, in Debt Management Associates Ltd v CEC (2002) Decision No 17880, the tribunal decided that negotiation and management services in all respects identical to those of B&E were two discrete exempt services. The Commissioners then accepted that B&E's services were also exempt and de-registered it for tax. That resulted in B&E making the voluntary disclosure out of which its appeal arises, and increasing its charging terms for management to 17.625 per cent.
132. Having dealt with the charging terms B&E used between 1996 and 2003, I must now deal with other aspects of its business that may impact on its claim. First, I should explain that B&E's business expanded at a phenomenal rate in the period in question. In the year to 30 June 1997 turnover was a mere £16,095; by 2002 it had increased to £24,277,434.
133. The turnover comparison between B&E and GP in the years between 1996 and 2002 was as follows:

	1996	1997	1998	1999	2000	2001	2002
B&E	0	16,095	388,937	1,727,923	6,148,240	21,512,740	24,277,434
G|P	2,800,000	2,800,000	2,800,000	2,800,000	6,270,809	7,945, 545	9,558,671

134. It will be recalled that in 1998 or 1999 B&E claimed to have decided under no circumstances in future to reduce its management fees below 17.625 per cent, whether exclusive or inclusive of VAT (see para 12 above). But in a discussion paper produced in December 2002 (pp 118-122), in proposals which incidentally were never effected, B&E invited creditors to consider the following "alternative approach" to dealing with debtors:

"Our proposal is that creditors should commit to write off any balance of a client's debt if that client makes 72 payments or repays at least 90% of his total debt, whichever occurs first. We believe that this arrangement would have a dramatic effect on client longevity since it offers the client a far greater potential benefit than just having the fee paid. We believe that the result of this concession would be to reduce the current decay rate by at least 2/3.

We recognise that this concession by creditors would be of benefit to Baines & Ernst, so we would be willing to reduce the management fee retained on debts to creditors accepting this arrangement to 10% rather than the existing 15%, thus increasing the actual amounts paid to participating creditors." (emphasis added)

135. (I understand the phrase "decay rate" to be used to describe the rate at which contracts are terminated. Apparently, after about 2 years, most clients of B&E's choose to make their own arrangements for repayment with creditors, or continue repayment direct on the terms arranged by B&E).
136. The creditors addressed in the discussion paper were not local traders but major organisations and companies such as Barclaycard and Co-op Bank. Since each would be concerned to recover its own debt as quickly as possible, it would undoubtedly consider most carefully the whole of any proposed repayment package put to it, having the power to reject the whole package. It is against that background that I turn to consider B&E's conditional proposal to reduce its management fees from 15 per cent to 10 per cent.
137. I am quite sure that the reference to existing management fees of 15 per cent in the discussion paper was deliberate, and no mere error on the part of B&E. The paper was addressed to a group with the ability effectively to determine its level of fees, and it was essential that B&E presented a case showing those fees to be reasonable. (Indeed, in evidence, Mr Cochrane admitted that creditors were consulted about B&E's level of charges). I find that it represented to creditors that its management fees in December 2002 were 15 per cent, albeit subject to VAT. The proposal to reduce fees from 15 per cent to 10 per cent clearly indicated a willingness substantially to reduce its management fee level if creditors were prepared to create conditions likely to increase the length of the term clients would remain committed to B&E (estimated to increase from 22 months to 43 months).
138. I find that, after B&E changed its contract terms in 1999, it continued to charge its clients 15 per cent plus VAT for management services until it de-registered for VAT.
139. I do, however, accept that B&E charged new clients management fees of 17.625 per cent after the Commissioners accepted that its services were VAT exempt, and continues to charge at that rate. But I am unable to accept that B&E necessarily would have continued to charge at 17.625 per cent irrespective of an adverse effect on its business of a change in rate by a major competitor, being told by creditors that its charges were too high and had to be reduced, or being faced either with the possible consequences of the OFT re-opening its case on the presentation of its charges, or with a client claiming its contract terms to be unfair. (Those consequences, I remind myself, include unfair terms not binding on consumers). I find that B&E now has by far the largest share of the debt management market and maintains its dominant position despite the fact that certain of its smaller competitors have reduced their rates slightly below the 17.625 per cent rate. I should also add that B&E produced a discussion document dated 17 October 2002 (p. 111) entitled, "Subject: reduce our management fee" which was on the agenda for a board meeting on 21 November 2002 (minutes pp. 114-115) as was an agreement between Debt Management Associates and Barclaycard offering free management services to clients which would have been of obvious concern to the B&E board. No evidence was adduced to indicate that the proposals in the document at p. 111 were acted upon.
140. Mr Cochrane gave as another reason B&E would never have reduced its management fees from 17.625 per cent to 15 per cent the fact that it would have found itself making losses. I accept that it was most unlikely that it would have done so had its fees in the disclosure period been exempt from VAT, for its irrecoverable input tax would then have been a charge on profits and may well have resulted in losses. But in the period with which I am concerned, its services were throughout treated as fully taxable, so that different considerations apply. As B&E's voluntary disclosure shows, during the first year of the disclosure period, input tax and output tax were little different, due mainly, I infer from the whole of the evidence, to B&E having spent very large sums in advertising its services, and on other items that contributed to its very rapid expansion. In the year to 30 June 2001 B&E increased its turnover from approximately £6 million to over £21 million, and overtook GP as market leader. In the last two years of the disclosure period output tax was considerably in excess of input tax, again I infer from the whole of the evidence, because B&E continued to obtain advantage from earlier expenditure on advertising etc and thus had to spend little, if anything, on further expansion in the latter part of the disclosure period.
141. Mr Cochrane freely admitted that, were I to allow the appeal, B&E intended to return to its clients none of the moneys to be repaid. Referring to contracts entered into up to and including 1999, he maintained that the company could not refund moneys estimated at £1.7 million to persons on those contracts in the voluntary disclosure period as it did not know where they were. I am unable to accept that, without making any attempt to contact them, it is unaware of the whereabouts of all such persons; a single standard letter to former clients would produce some responses on which B&E could act. And, Mr Cochrane added, B&E would not be refunding moneys to those who contracted with it from 1999 onwards as they had not been charged VAT. In my judgment, all of B&E's clients, whether pre- or post 1999 would be entitled to the return of moneys it charged as VAT which was not due were I to allow the appeal, they, as I have already found, having been charged the tax in question.
142. I might also observe that the instant case differs from those cases involving retailers for B&E entered into individual contracts with clients and must necessarily have known their names and addresses, whereas retailers were unlikely to be able to identify individual customers.