Scottish Court of Session Decisions

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2015] CSIH 40

XA166/14

OPINION OF LADY CLARK OF CALTON

in the application

by

TAYLOR CLARK LEISURE PLC

Applicant;

and

THE COMMISSONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS

Respondents:

against

a decision of and refusal of leave to appeal by the Upper Tribunal (Tax and Chancery Chamber)

Act:  Simpson QC;  Burness Paul LLP

Alt:  Young QC;  Office of the Advocate General

26 May 2015

History
[1]        The history is set out in detail in the decision of the First-tier Tribunal (“the FTT”) dated 19 December 2012 (2013) UKFTT 792 (TC).  I take a summary of the history, which I have revised, from the decision of the Upper Tribunal (“the UT”).   

[2]        From at least 1973 the applicant owned and operated a number of business and leisure facilities in England and Scotland including, in particular, bingo halls, cinemas and multi-use complexes.  Turnover from this part of the applicant’s business was largely generated from a variety of bingo games and from various types of gaming machines.  As from 1 April 1990 the applicant undertook a group reorganisation.  Leisurebrite Limited (“Carlton”) was incorporated on 28 March 1990 as a wholly owned subsidiary of the applicant.  (It changed its name to CAC Leisure PLC in 1991, to Carlton Clubs PLC in 1997, and to Carlton Clubs Ltd in December 2010.)  With effect from 1 April 1990 the applicant transferred to Carlton its bingo halls, cinemas and multi-use complexes and assets and liabilities related thereto (“the 1990 Agreement”).  From that date Carlton generated the turnover from those activities. 

[3]        Between 1973 and 2009 the applicant was the representative member of a VAT group.  Carlton was a member of the VAT group between 1990 and 1998.  During the period 1973 to 1998 the applicant overdeclared output tax (on the erroneous understanding that income from certain gaming machines, bingo machines and main stage bingo for cash prizes was not exempt).  The decision in Fleming t/a Bodycraft v Revenue and Customs Commissioners [2012] UKHL 2, [2008] STC 324 led to the enactment of the Finance Act 2008, section 121.  In terms thereof claims for output tax overpaid (known as “Fleming” claims) in any prescribed accounting period ending before 4 December 2006 could be made until 31 March 2009.

[4]        Carlton made four Fleming claims to the respondents before 31 March 2009.  The claims are fully described in the FTT’s decision. 

[5]        The first claim was made in November 2007.  The respondents processed it for repayment to Carlton but by mistake repaid the monies to the applicant.  On 7 July 2009 the respondents issued assessments to the applicant for recovery of the sums paid.  The applicant requested a review.  The review confirmed the assessments.  On 28 February 2011 the applicant appealed to the FTT. 

[6]        The remaining Fleming claims were also based upon letters submitted by Carlton in November 2007.  The respondents rejected these claims and Carlton appealed to the FTT.  After the expiry of the time-bar period, the applicant requested that the claims in these appeals should be repaid to it.  By a decision dated 4 May 2011 the respondents intimated that those claims would not be paid to the applicant.  The applicant appealed to the FTT. 

The decision of the First-tier Tribunal dated 19 December 2012

[7]        The FTT recognised that the case has a complex factual and legal background.  Two preliminary issues were identified (paragraph 48).  The first issue related to the question whether the claims are time-barred.  The second issue related to entitlement to receive repayment of VAT overpaid and whether the applicant was so entitled.  The FTT answered both the time-bar and entitlement issues in favour of the respondents.  The applicant appealed to the Upper Tribunal.       

The decision of the Upper Tribunal dated 8 September 2014
[8]        The history of the litigation on appeal is explained by the judge of the UT in paragraphs 9 to 11: 

“The respondents defended the FTT’s decision on the time-bar issue.  They did not fully support the decision on the entitlement issue.  On the third day of the hearing they indicated that they wished to consider their position on it having regard to two decisions of differently constituted FTTs which had just been released (MG Rover Group Ltd v HMRC;  BMW (UK) Holdings Ltd v The Commissioners for Her Majesty’s Revenue and Customs [2014] UKFIT 327 (TC) and Standard Chartered plc v HMRC;  Lloyds Banking Group Plc v The Commissioners for Her Majesty’s Revenue and Customs [2014] UKFTT 316 9TC)).  Thereafter the parties made further written submissions. 

Both parties supported the reasoning of the FTT in Standard Chartered plc v The Commissioners for Her Majesty’s Revenue and Customs.  Neither sought to support the observations and reasoning of the FTT in MG Rover Group Ltd v The Commissioners for Her Majesty’s Revenue and Customs insofar as they differed from the approach of the FTT in Standard Chartered.  Contrary to the view expressed by the FTT in the present case, the respondents accepted that in relation to overpayment between 1 April 1990 and 3 December 1996, the appellant, as the VAT group representative member (and following disbandment of the VAT group, as the last representative member), had been the person entitled to claim and receive payment.  However since the appellant made no claim by 31 March 2009 its claims were time-barred.  The respondents’ position in relation to the period 1973-1990 was that the appellant would have been the person entitled to claim repayment had it not been for the 1990 Agreement.  They maintained that the effect of intimation of the 1990 Agreement was that as from January 2009 Carlton acquired from the appellant the right to receive repayment of the 1973-1990 overpaid VAT.  The appellant submitted that the 1990 Agreement had not assigned that right to receive overpaid VAT;  and that, even if it had, the appellant (as the VAT group representative member at all material times) had remained the person entitled to claim and receive the VAT overpaid in that period. 

In the result the only contentious matters concerning the entitlement issue were (i) whether on a proper construction of the 1990 Agreement the appellant had assigned to Carlton the right to claim overpaid VAT for the period 1973-1990;  (ii) whether, notwithstanding such an assignation, the appellant (as the VAT group representative member) had remained the person entitled to claim and receive overpaid VAT.”

[9]        Having heard the submissions of parties, the judge of the Upper Tribunal agreed with the reasoning in Standard Chartered Plc and concluded that the FTT fell into error in relation to the entitlement issue.  Contrary to the FTT decision, the judge of the UT concluded that the applicant was, as the VAT group representative member (and following disbandment of the VAT group, as the last representative member), the person entitled to claim and receive repayment;  and that the FTT was wrong to hold that the applicant was not the entitled person. 

[10]      The judge of the Upper Tribunal also concluded that the FTT was in error in its conclusion about assignation. 

[11]      In relation to time-bar the judge concluded in paragraph 29: 

“In my opinion the FTT were correct to decide that the appellant’s claims are time‑barred.  I am in very substantial agreement with their reasoning on this issue.  (However, I disagree with the observations in paragraph 67 anent the position on disbandment and the suggested agency relationship:  see paragraph 36 infra).” 

The application for leave to appeal to the Court of Session
[12]      On 29 October 2014, the judge of the UT refused review and refused permission to the applicant to appeal.  The applicant now seeks leave to appeal from this court.  The application for leave bears to be against the decision of the UT dated 29 October 2014 refusing leave to appeal and the substantive decision of the UT dated 8 September 2014.  In my opinion I require to decide only whether to grant leave to appeal from the substantive decision dated 8 September 2014 as this is the effective decision. 

[13]      The application for leave to appeal is set out in detail in form 40.2.  There are two grounds of appeal.  The first ground relies on Carlton and the applicant being the same “single taxable person” for VAT purposes and seeks to focus the time-bar question in this way: 

“Can the VAT group, represented by the applicant, rely on the claims for repayment of VAT overpaid by the VAT group, when the claims were made in time but were made by another member of the same VAT group?”

At the heart of this question is the concept of the VAT group and its legal implications.  The applicant seeks to argue that the group members may have individual and separate legal personalities from time to time but as a matter of VAT law they are one and the same.  On this premise, the applicant seeks to argue that the claims made by Carlton, after they left the VAT group and made by Carlton on their own behalf, nevertheless were sufficient and adequate claims by or on behalf of the VAT group and that the applicant as representative member of the VAT group, is entitled to rely on the claims to despite time-bar.   

[14]      The second ground of appeal which is presented as an alternative to the first ground of appeal proceeds on the basis that Carlton and the applicant are different legal persons for VAT purposes and puts forward a construction of section 80 of the Value Added Tax Act 1994 in favour of the applicant succeeding. 
[15]      The test for leave to appeal is governed by rule of court 41.57 which states: 

“(1) This rule applies where an application is made to the court under section 13(4) of the Tribunals, Courts and Enforcement Act 2007 for permission to appeal a decision of the Upper Tribunal which falls within section 13(7) of that Act and for which the relevant appellate court is the Court of Session.

(2) Permission shall not be granted on the application unless the court considers that –

(a)        the proposed appeal would raise some important point of           principle;         or

(b)        there is some other compelling reason for the court to hear the                       appeal.”

[16]      I have considered carefully the written submissions for the applicant and respondents as expanded in oral submissions by counsel.  I am grateful to counsel for their assistance.  In the course of his oral submission, counsel for the applicant restricted the application and did not seek to argue the case under rule of court 41.57(2)(b).  He submitted that the two grounds of appeal which were presented in the alternative raise some important point of principle. 

[17]      I note the analysis of the FTT predated the judgment of the court in Case C-7/13 Skandia America Corp (USA), filial Sverige v Skatteverket 17 September 2014 and Standard Chartered Plc v HMRC;  Lloyds Banking Group v HMRC  [2014] UKFTT 316.   In my opinion both these cases have important implications for the decision making in this case.  The FTT in considering the general issues appeared to have relied on concepts of legal personality familiar to us in domestic law assisted by analysis drawn from the law of agency and assignation.  I note also that the approach of the UT judge is that the time-bar issue raises relatively straightforward issues about the interpretation of section 80 and its application to the facts of the case.  I consider however that the issues raised are more complex.  The implications which flow from the judgment in Skandia America Corp (USA) deserve detailed examination.  In a VAT group there may exist companies with separate legal personality in domestic law.  These legal persons form the members of the VAT group but the treatment of the VAT group as a single taxable person in community law may have important legal consequences in circumstances where there is no retrospective unravelling of the effect of the single taxable person fiction.  In my opinion, the concept and legal implications of the fictional single taxable person (the VAT group) which is to be treated in law as if it were a single taxable person raises issues to be resolved not only for entitlement but for time-bar also.  The question arises whether a claim made by a company with a seperate legal personality in domestic law at the time the claim is made, after it has left a VAT group but relating to a period when it was a member of the VAT group in respect of supplies which it had originated during its period of membership, is to be given any legal effect and if so what effect.  Standing the decision about entitlement in this case, it appears the claim by Carlton cannot benefit Carlton but the applicant submits it can benefit the VAT group which was in existence at the relevant period and has the entitlement to repayment.  In the context of this application I do not accept the submissions by counsel for the respondents that such a legal issue cannot be advanced because the findings in fact made by the UTT in this case are not challenged.  As I understand the case, it is not disputed by the applicant for the purposes of the appeal that, as found by the LTT, the claims were made not by the applicant but by Carlton on its own behalf.  The resolution of the legal issues raised in the first ground of appeal in my opinion depend on the correct understanding of the nature and concept of a VAT group.  The applicant submits that for VAT purposes, there is only one entity, the group itself and that the members of the group are “trading departments” of the group.  According to the applicant it follows that a claim by a group member (even if no longer a member of the group) for VAT overpaid during the relevant period of the group’s existence as a matter of law can only be a claim for and on behalf of the group as a whole as there is no other legal person for these purposes to which the claim can relate. 

[18]      The judge of the Upper Tribunal states that this is a new issue of law raised by the applicant.  I consider that the legal issues are foreshadowed in the earlier submissions of the applicant in this case.  But even if it is a new issue of law, I consider that the issues in the case and the history of the case are so complex that the issue of law should be determined by this court after full submissions. 

[19]      It was submitted on behalf of the respondents that the issues raised do not raise some important point of principle of general importance.  I accept that the factual circumstances of this case are unusual and specific to the parties.  Nevertheless in my opinion there are still important issues which are unclear about the nature of the actings of companies with legal personality within a group both before and after changes in the VAT group.  I consider that the first ground of appeal does raise an important point of principle which is of general importance and that the applicant has a real prospect of success in relation to the first ground of appeal. 

[20]      The second ground of appeal is an alternative to the first ground of appeal and proceeds on the hypothesis that Carlton and the applicant are different legal persons for VAT purposes.  I am not persuaded that the second ground of the appeal meets the relevant test.  The second ground is founded on submissions about statutory construction applying principles well recognised in domestic law.  The issues appear to have been considered both before the FTT and the UTT and rejected.  I find the reasoning of the UT compelling in relation to this.    

Decision
[21]      For these reasons therefore I grant the applicant leave to appeal in respect of the first ground of appeal only.