Freely Available British and Irish Public Legal Information
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
First-tier Tribunal (Tax)
You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Western Ferries (Clyde) Ltd v Revenue & Customs [2011] UKFTT 243 (TC) (12 April 2011)
URL: http://www.bailii.org/uk/cases/UKFTT/TC/2011/TC01107.html
Cite as: [2011] STI 1843, [2011] SFTD 619, [2011] UKFTT 243 (TC)
[New search] [Printable RTF version] [Help]
Western Ferries (Clyde) Ltd v Revenue & Customs [2011] UKFTT 243 (TC) (12 April 2011)
INCOME TAX/CORPORATION TAX
Other
[2011] UKFTT 243 (TC)
TC01107
Appeal number: SC/3071/2009
Tonnage Tax; whether Appellants operated qualifying ships; whether ships certified for navigation at sea; No; whether vessels used for estuary or harbour crossings- no; whether crossing within a harbour-no; Schedule 22 to the Finance Act 2000; State Aid; Treaty on the Functioning of the European Union Article 107, 108; Community Guidelines on State Aid to Maritime Transport (97/C/205/05); Appeal dismissed.
FIRST-TIER TRIBUNAL
TAX
WESTERN FERRIES (CLYDE) LIMITED Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS Respondents
TRIBUNAL JUDGE: J GORDON REID, QC., F.C.I.Arb.
Member: IAN MALCOLM
Sitting in public at George House, 126 George Street, Edinburgh on 22-26 November 2010 and 18 January 2011
Michael Conlon, QC, and Jonathan Schwarz, Barrister, (both of the English Bar) for the Appellant
Ian Artis, Advocate for the Respondents
© CROWN COPYRIGHT 2011
DECISION
Introduction
Geography
Statutory Framework
Tonnage Tax Regime
7. Schedule 22 to the Finance Act 2000 (“FA2000”), as applied by s.82, provides an alternative regime for calculating the profits of a shipping company for the purposes of corporation tax.[1] Paragraphs 3 and 4 provide that such a company’s tonnage tax profits, where the qualifying company has made the appropriate election, are brought into charge to corporation tax in place of its relevant shipping profits and set out how tonnage tax profits are calculated. A qualifying company is defined as a company which is within the charge to corporation tax, and operates qualifying ships which are strategically and commercially managed in the United Kingdom.[2] Paragraph 19[3] defines qualifying ship inter alia as follows:-
(1) For the purposes of this Schedule a “qualifying ship”, means, subject to sub-paragraph (2), a seagoing ship of 100 tons or more gross tonnage used for-
(a) the carriage of passengers,
(b) the carriage of cargo,
(c) towage, salvage or other marine assistance, or
(d) transport in connection with other services of a kind necessarily provided at sea.
19(2) A vessel is not a qualifying ship for the purposes of this Schedule if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land.
19(3) Sub-paragraph (1) is also subject to paragraph 20 (vessels excluded from being qualifying ships).
19(4) For the purposes of this paragraph a ship is a seagoing ship if it is certificated for navigation at sea by the competent authority of any country or territory.
8. Certain vessels are excluded from being qualifying ships by paragraph 20 which provides:-
20(1) The following kinds of vessel are not qualifying ships for the purposes of this Schedule-
(a) fishing vessels or factory ships;
(b) pleasure craft;
(c) harbour or river ferries;
(d) offshore installations;
(e) tankers dedicated to a particular oil field;
(f) dredgers.
In sub-paragraph 1(c) “harbour or river ferry” means a vessel used for harbour, estuary or river crossings.
Safety of Ships
15. Section 85(1) of the Merchant Shipping Act 1995 empowers the Secretary of State to make regulations for securing the safety of inter alia United Kingdom ships and persons on them and other ships and persons on them while they are within the United Kingdom. To that end, the Secretary of State may make regulations with respect to inter alia the design, construction, maintenance, repair, alteration, inspection, surveying and marking of ships and their machinery and equipment,[4] and the carrying out of any operation involving a ship.
18. The Merchant Shipping (Passenger Ship Construction: Ships of Classes III to VI(A)) Regulations 1998[5] relate to the classification of certain ships. Regulation 2(6) provides inter alia as follows:-
6(a)(i) Subject to subparagraph (ii) below, for the purposes of these Regulations passenger ships shall be arranged in Classes as follows:-
Class III Ships engaged only on voyages in the course of which they are at no time more than 70 miles by sea from their point of departure and not more than 18 miles from the coast of the United Kingdom, and which are at sea only in favourable weather and during restricted periods.
Class IV Ships engaged only on voyages in Category A, B, C, or D waters;
Class V Ships engaged only on voyages in Category A, B, or C waters;
Class VI Ships engaged only on voyages with not more than 250 passengers on board, to sea, or in Category A, B, C, or D waters, in all cases in favourable weather and during restricted periods, in the course of which the ships are at no time more than 15 miles, exclusive of any Category A, B, C, or D waters, from their point of departure nor more than 3 miles from land;
Class VI(A) Ships carrying not more than 50 passengers for a distance of not more than 6 miles on voyages to or from isolated communities on the islands or coast of the United Kingdom and which do not proceed for a distance of more than 3 miles from land; subject to any conditions which the Secretary of State may impose.;
(ii) The above Classes of ships do not include ships engaged on international voyages;
(b)(ii) ....
“sea” does not include any waters of Category A, B, C, or D.
21. Regulation 2(6)(b) provides-
For the purposes of this regulation the following expressions have the following meanings respectively-
“Category A, B, C or D waters” means the waters specified as such in Merchant Shipping Notice No. M.1504, and cognate expressions shall be construed accordingly;
“restricted period” means a period falling wholly within the following limits-
(i) from 1st April to 31st October, both dates inclusive; and
(ii) between one hour before sunrise and one hour after sunset in the case of ships fitted with navigation lights conforming to the collision regulations and between sunrise and sunset in the case of any other ships;
“sea” does not include any waters in Category A, B, C or D
Categories of Waters
22. Section 313(2)(a) of the Merchant Shipping Act 1995 defines United Kingdom Waters as
The sea or other waters within the seaward limits of the territorial sea of the United Kingdom
24. The four categories of waters are as follows:-
Category A: Narrow rivers and canals where the depth of water is generally less than 1.5 metres.
Category B: Wider rivers and canals where the depth of water is generally more than 1.5 metres and where the significant wave height could not be expected to exceed 0.6m at any time
Category C: Tidal rivers and estuaries and large, deep lakes and lochs where the significant Wave height could not be expected to exceed 1.2 metres.
Category D: Tidal rivers and estuaries where the significant wave height could not be expected to exceed 2.0 metres at any time.
25. The Annex to MSN 1758 (M) contains the following entry relating to the Clyde:-
|
“Region and Location |
Category A, B or C |
Category D |
|
The Clyde |
Category C Above Category D waters
|
Outer limit; a line from Skipness to a position one mile south of Garroch Head thence to Farland Head. Inner limit in winter; a line from Cloch Lighthouse to Dunoon Pier. Inner limit in Summer; a line from Bogany Point, Isle of Bute to Skelmorlie Castle and a line from Ardlamont Point to the southern extremity of Ettrick Bay inside the Kyles of Bute Note; The above inner summer limit is extended between 5 June and 5 September (both dates inclusive) by a line from a point two miles off the Ayrshire coast at Skelmorlie Castle to Tomont End, Cumbrae, and a line from Portachur Point, Cumbrae to Inner Brigurd Point, Ayrshire” |
26. The foregoing Merchant Shipping Notice was replaced by MSN 1776(M)[6] on the Categorisation of Waters, which came into force on 1 April 2003. However, the entry relating to the Clyde is in identical terms to the earlier notice. MSN 1776(M) also sets forth the same four categories of waters as were to be found in MSN 1758.
Certification
27. The Merchant Shipping (Survey and Certification) Regulations 1995[7] contain a variety of provisions regulating the certification of United Kingdom ships except pleasure vessels and fishing vessels.
28. A passenger ship is a ship carrying more than 12 passengers.[8] Provision is made for the surveying of passenger ships before they are put into service and periodically thereafter.[9] When the requirements of the survey are met a Passenger Certificate is issued appropriate to the ship’s class where that passenger ship is not engaged in international voyages.[10] The Certificate states the limits (if any) beyond which the ship is not fit to ply, the number of passengers which it is fit to carry, and any condition with which the ship has to comply.[11] A Passenger Certificate endures for up to twelve months.[12] Regulation 22 prohibits passenger ships of certain Classes (including Class VI and VIA) from proceeding on a voyage unless it has been surveyed and has an appropriate Passenger Certificate. Certificates may be issued subject to conditions which have to be complied with before the ship proceeds on a voyage or excursion.
29. In relation to the Shuna only the relevant provisions are a little more complex. On 17 March 1998, Council Directive 98/18/EC on safety rules and standards for passenger ships was issued. This Directive was amended by Directive 2002/25/EC. These Directives were transposed into domestic legislation by the Merchant Shipping (Passenger ships on Domestic Voyages) Regulations 2000[13] and the Merchant Shipping (Passenger ships on Domestic Voyages) Regulations 2003.[14] They came into force on 23 October 2000 and 10 April 2003 respectively. Passenger Ships were arranged in new Classes. These included, per Regulation 3(1)-
Class A ships engaged solely on domestic voyages other than ships of Class B, Class C and Class D;
Class B ships engaged solely on domestic voyages in the course of which they are at no time more than 20 miles from the line of the coast where shipwrecked persons can land, corresponding to the medium tide height;
Class C ships engaged solely on domestic voyages in sea areas where the probability of significant wave heights exceeding 2.5 metres is less than 10% over a one year period for all year round operation, or over a specific restricted period of the year for operation exclusively in such period, in the course of which they are at no time more than 15 miles from a place of refuge, nor more than 5 miles from the line of the coast where shipwrecked persons can land, corresponding to the medium tide height;
Class D ships engaged solely on domestic voyages in sea areas where the probability of significant wave heights exceeding 1.5 metres is less than 10% over a one year period for all year round operation, or over a specific restricted period of the year for operation exclusively in such period, in the course of which they are at no time more than 6 miles from a place of refuge, nor more than 3 miles from the line of the coast, where shipwrecked persons can land, corresponding to the medium tide height.
31. These Regulations applied immediately to new United Kingdom passenger ships. They were applied to existing passenger ships over four years between 2006 and 2010 depending on the age of the ship.[15] This process of harmonisation resulted in two parallel systems being in operation for a number of years. Only the Shuna was affected during the Appellant’s Relevant Period by the harmonisation. The old system applied to the other ships referred to above during the Relevant Period. This was because the old system was preserved by the equivalence procedure of Article 7 of the Directive 98/18/EC.
33. Merchant Shipping Notice MSN 1747(M)[16] sets out in an Annex the geographical extent of EC sea areas C and D identified as applicable in waters around the United Kingdom as is required by Article 4.2 of the 1998 Council Directive[17] on Safety Rules and Standards for Passenger Ships and as noted in Regulation 3(2) of the 2000 Regulations. The Notice adopts the definitions of sea areas set forth in the Directive. These are quoted below.[18]
European Dimension
State Aid
35. Tonnage tax may constitute a state aid and thus may be contrary to the law of the European Union, unless approval had been given by the European Commission.[19] Such approval has been granted. The Commission has issued guidelines setting out its policy in this area.[20]
36. Since 1989, the European Commission has published guidelines on what they consider to be acceptable as State aid for maritime transport. The guidelines applying when the UK introduced Tonnage Tax in 2000 were the "Community Guidelines on State Aid to Maritime Transport" published on 5 July 1997.[21] The guidelines set out the objectives that the Commission wished to achieve by allowing the aid. These were to safeguard EC employment, (both on board and on shore), preserve maritime know-how in the Community, develop maritime skills, and improve safety.
38. The 1997 Guidelines noted that it was relatively expensive to operate EC-registered ships with EC seafarers on board. Third country operators had lower costs and there were no direct or indirect taxes or duties applicable to shipping services to ensure some comparability between EC and non-EC operators’ costs even although there was direct competition between Community-registered ships and third country vessels in international trades and in most trades within the Community.[22]
any aid granted by EC Member States or through State resources in favour of maritime transport
40. At paragraph 3.1 the Guidelines stated that
The objective of State aid within the common maritime transport policy is to promote the competitiveness of the EC fleets in the global shipping market
41. At paragraph 3.2 the Guidelines stated that
Support measures for the maritime sector should, therefore aim primarily at reducing fiscal and other costs and burdens borne by EC shipowners and EC seafarers .... towards levels in line with world norms......
42. In 1999, the UK Government intimated to the European Commission that they proposed to introduce a tonnage tax. By letter dated 2 August 2000,[23] the Commission concluded that
the tonnage tax was an important, necessary and justifiable fiscal measure to reverse the decline of the UK-flagged maritime fleet.[24]
And that
the establishment of the tonnage tax in the UK is in conformity with the Community Guidelines on State aid to maritime transport.[25]
Qualifying Ships are those which are sea-going and over 100 gross tons[26]
Qualifying shipping activities are the transport of goods or passengers, marine assistance or the provision of services necessarily provided at sea[27]
The Commission observed in relation to the objective of the aid that
The regime is a tax measure aimed at the shipping industry. It is designed to promote the competiveness of UK shipping in the global shipping market by creating a positive fiscal environment for shipping in line with other major maritime countries, including other EU Member States.[28]
A ship will qualify for the tonnage tax regime provided that it is seagoing, 100 gross registered tonnes or over and is used for one or more of
the carriage of passengers or cargo by sea;
marine assistance (seagoing towage and salvage)
transport in connection with other services of a kind necessarily provided at sea (vessels such as dredgers would be excluded)[29]
...............
Vessels such as fishing boats and factory support vessels, pleasure craft, harbour and river ferries, floating supermarkets, restaurants and prisons, fixed and floating oil rigs and platforms, floating production storage and off-take facilities, floating storage units and floating accommodation used in the offshore industry, as well as port service vessels, are specifically excluded from the tonnage tax regime.[30]
45. In relation to Article 87(1) of the EC Treaty the Commission pointed out that
Since the tonnage tax scheme outlined above grants aid through State resources in favour of certain undertakings, it threatens to distort competition and could affect trade between Member States. For this reason, this support measure constitutes State aid within the meaning of Article 87(1) of the Treaty.[31]
..........
Under Article 87(3)(c) of the Treaty, aid to facilitate the development of certain economic activities or of certain economic areas may be considered compatible with the common market, where such aid does not adversely affect trading conditions to an extent contrary to the common interest.
The 1997 Community Guidelines on State aid to maritime transport ... give details of aid to shipping companies which may be considered compatible with the common market. These Guidelines define the general objectives of such aid as
safeguarding EC employment (both on board and on shore)
preserving maritime know-how in the Community and developing maritime skills; and
improving safety.
In addition, in paragraph 3 of section 3.1 of the Guidelines, it is explicitly recognised that the issue is not one of competition between Member States but rather one of the lack of competitiveness of the Community fleet with respect to third-country competitors. “Flagging out between Member States is a rare phenomenon. Fiscal competition is mainly an issue between EU Member States on the one hand and third countries on the other, since the cost savings available to shipowners through third country registers are considerable, in comparison with the options available within the Community. Furthermore, profits in shipping, which would be subject to tax, have been depressed in recent years so that the differences between effective rates of tax in the Member States have been marginal considerations.” The Guidelines note that “there seems to be an increasing degree of convergence in Member States’ approaches to shipping aid”. The Netherlands and Germany already have approved tonnage tax regimes in operation.
Fiscal alleviation measures such as the tonnage tax are specifically provided for in paragraph 5 of section 3.1 of the Guidelines and can, in principle, be supported. However, the Guidelines establish certain criteria, in paragraph 8 of section 3.1, which must be met for this purpose. In this respect and as regards the UK tonnage tax, the guidelines make the following points:
“The objective of State aid within the common maritime transport policy is to promote the competitiveness of the EC fleets in the global shipping market. ......[32]
46. In its conclusion, the Commission also noted that, although tonnage tax is not a European tax (such as VAT), there is nevertheless institutional supervision of its operation by the European Commission.[33]
For the purposes of this Regulation, the following shall be considered “maritime transport services between Member states and between Member States and third countries” where they are normally provided for remuneration;
(a) intra-community Shipping services
The carriage of passengers or goods by sea between any port of a Member State and any port or off-shore installation of another Member State;
(b) third-country traffic
The carriage of passengers or goods by sea between the ports of a Member State and ports or off-shore installations of a third country
49. Council Regulation (EEC) No 4056/86 laid down detailed rules for the application of Articles 85 and 86[34] of the Treaty to maritime transport. The preamble contrasted inland transport with maritime transport, and referred to international maritime transport including intra Community transport. The Regulation applied only to international maritime transport services from or to one or more Community ports.[35]
For the purposes of this Regulation:
1 “maritime transport services within a Member State (maritime cabotage)” shall mean services normally provided for remuneration and shall in particular include;
(a) mainland cabotage: the carriage of passengers or goods by sea between ports situated on the mainland or the main territory of one and the same Member State without calls at islands;
(b) off-shore supply services ..........
(c) island cabotage; the carriage of passengers or goods by sea between:
- ports situated on the islands of one and the same Member State;
.......................
Waters
53. Article 2.6 of the Water Framework Directive[36] defines transitional waters as
“bodies of surface water in the vicinity of river mouths which are partially saline in character as a result of their proximity to coastal waters but which are substantially influenced by freshwater flows.”
55. Coastal waters are defined in the same Directive[37] as
surface water on the landward side of a line, every point of which is at a distance of one nautical mile on the seaward side from the nearest point of the baseline from which the breadth of territorial waters is measured, extending where appropriate up to the outer limit of transitional waters.
56. Inland water is there defined[38] as meaning
all standing or flowing water on the surface of the land, and all groundwater on the landward side of the baseline from which the breadth of territorial waters is measured.
57. The Urban Waste Water Directive[39]defines estuary as
the transitional area at the mouth of a river between fresh-water and coastal waters. Member States shall establish their outer (seaward) limits of estuaries for the purposes of this Directive as part of the programme for implementation in accordance with the provisions of Article 17(1) and(2).
58. Coastal waters are defined in Article 2.13 of the 1991 Directive as
the waters outside the low-water line or the outer limit of an estuary
59. The implementing Urban Waste Water Treatment (Scotland) Regulations[40] define an estuary as
the transitional area at the mouth of a river between fresh-water and coastal waters, the outer (seaward) limits of which are shown on the maps kept in accordance with regulation 12.[41]
60. Coastal waters are defined in terms identical to the definition in the Directive.
Sea Area EC/C: Sea areas where the probability of exceeding 2.5m significant wave height is smaller than 10% over a one year period for all year round operation, or over a specific restricted period of the year for operation exclusively in such a period (e.g. summer period operation), not more than 5 miles from the line of the coast, where shipwrecked persons can land, corresponding to the medium tide height.
Sea Area EC/D: Sea areas where the probability of exceeding 1.5m significant wave height is smaller than 10% over a one year period for all year round operation, or over a specific restricted period of the year for operation exclusively in such a period (e.g. summer period operation), not more than 3 miles from the line of the coast, where shipwrecked persons can land, corresponding to the medium tide height.
62. MSN 1747(M) adopts these definitions, as discussed above, and also notes that the term Port Waters within the context of the 1998 Directive and the 2000 Regulations is interpreted by the United Kingdom as having the same meaning as categorised waters. Sea Areas are to be found to seaward of Port Waters. Thus UK categorised waters in MSN 1776(M) are not sea areas in terms of MSN 1747(M). Nor are categorised waters sea.[42]
(4) It is desirable to ensure a greater degree of harmonisation between the conditions for the issuing of supplementary Community inland navigation certificates by Member States for operations on Zone 1 and 2 waterways (estuaries), as well as for operations on Zone 4 waterways.
The Clyde Outer limit:
A line from Skipness to a position one mile south of Garroch Head thence to Farland Head
Inner limit in winter:
a line from Cloch Lighthouse to Dunoon Pier
Inner limit in summer:
A line from Bogany Point, Isle of Bute to Skelmorlie Castle and a line from Adlamore Point to the southern extremity of Ettrick Bay inside the Kyles of Bute.
Note: The above inner summer limit is extended between 5 June and 5 September (both dates inclusive) by a line from a point two miles off the Ayrshire coast at Skelmorlie Castle to Tomont End, Cumbrae, and a line from Portachur Point to Cumbrae to Inner Brigund Point, Ayrshire
65. In relation to Zone 2 there is an entry for the Clyde as follows:-
The Clyde: Above Zone 1 waters
Safety Management Systems
67. A ship must have a safety management system which must be audited. We heard evidence about two types. One is known as ISM and the other DSM. There was, at one stage, a dispute between the parties about which system was appropriate for each of the five ships and whether they had they appropriate system. In the course of submissions, it was accepted by HMRC that each of the ships was issued with certificates under the DSM Code by virtue of the Merchant Shipping (Domestic Passenger Ships) (Safety Management Code) Regulations 2001.[43] These certificates certified that the Safety Management System of each ship had been audited and that it complied with the requirements of the Safety Management Code for Domestic Passenger Ships. The Appellant therefore had the appropriate certification for each ship covering the Relevant Period, namely a Domestic Ship Safety Management Certificate issued following audit in accordance with 2001 Regulations. We need say no more about this aspect of the appeal, beyond noting that the ISM certification appears subsequently to have been required.
Issues
69. Within the essential issue reside three sub-issues as follows:-
1 Whether the Appellant’s ships were certificated for navigation at sea by the competent authority in terms of paragraph 19 of Schedule 22 (the Certification Issue)?
2 Whether the route plied by the Appellant’s ships was an estuary crossing within paragraph 20(4) of Schedule 22 (the Estuary Issue)?
3 Whether the route plied by the Appellant’s ships was a harbour crossing within paragraph 20(4) of Schedule 22 (the Harbour Issue)?
Facts
71. The Statement of Agreed Facts is in the following terms:-
“Background
1. The Appellant Western Ferries (Clyde) Limited (“Western Ferries”) is a company incorporated in Scotland and resident in the United Kingdom (Corporation tax ref 808/28310/02149).
2. Throughout the accounting periods 18 February 2003 to 31 March 2003 and 1 April 2003 to 31 March 2004 (collectively “the relevant period[44]”) the business of Western Ferries was the operation of five ships: the Sound of Sanda (“Sanda”); the Sound of Scalpay (“Scalpay”) the Sound of Sleat (“Sleat”) and the Sound of Scarba (“Scarba”) which were in service throughout the relevant period and the “Sound of Shuna” (“Shuna”) whose keel was laid on 11 October 2002 and delivered to Western Ferries on 30 September 2003.
3. All five ships are and always have been registered in the British Register of Shipping.
4. The ships operate back and forth on the route between Hunters Quay, Dunoon and McInroy’s Point near Gourock depicted in the chart number 2900.1,.5 (Document 453).[45]
5. The ships are each passenger/ro-ro (vehicle) ships and carry road transport in the form of cars, vans or trucks which drive on and off the vessel by their own power plus passengers, either on foot or in their own transport.
6. The Marine and Coastguard Agency (MCA) is the relevant competent authority for certification of Western Ferries’ ships within s 19(4) Schedule 22 FA 2000.
7. Prior to the relevant period Sanda, Scalpay, Sleat and Scarba were certificated by the MCA as Class V ships under the Merchant Shipping (Survey and Certification) Regulations 1995 (SI 1995/1210) (the “Certification Regulations”) as sought by Western Ferries.
8. With a view to qualifying for entry into tonnage tax within Finance Act 2000, Schedule 22, Western Ferries sought certification of Sanda, Scalpay, Sleat and Scarba by the MCA as Class VI ships under the Certification Regulations.
9. Shuna was delivered from the construction yard validly certificated by the MCA as a Class V ship on 30 September 2003 and on 16 December 2003 as a Class D ship under the Merchant Shipping (Passenger Ships on Domestic Voyages) Regulations 2000 and Council Directive 98/18/EC (the “EC Certification Regulations”) - an EC ‘D’ certificate.
10. Throughout the relevant period each of the ships was in possession of a valid United Kingdom Load Line Exemption certificate issued by the MCA under the Merchant Shipping (Load Line) Regulations 1998 (SI 1998/2241) (the “Load Line Regulations”).
11. Throughout the relevant period, each of the ships was in possession of a valid UK Oil Pollution Prevention Certificate issue by the MCA under the Merchant Shipping (Prevention of Oil Pollution) Regulations 1996 (SI1996/2154) (the “Pollution Prevention Regulations”).
12. On 10 February 2004 the company elected to enter tonnage tax with effect from 18 February 2003.
13. The Respondent enquired into the Corporation Tax Self Assessment returns of Western Ferries for the relevant period and concluded the enquiry on the basis that Western Ferries did not qualify for tonnage tax.
14. Western Ferries has appealed against that conclusion.”
72. We make the following additional findings of fact:-
General Background
The Appellant’s Operations
80. All the ships are passenger car roll-on-roll-off (roro) ferries.[46] They are (i) the Sound of Sanda (“Sanda”), built in 1964; it is 403 tons (gross) and 211 tons (deadweight), (ii) the Sound of Scalpay (“Scalpay”), built in 1962; it is the same weight as the Sanda, (iii) the Sound of Sleat (“Sleat”), built in 1961; it is 466 tons (gross) and 224 tons (deadweight), (iv) the Sound of Scarba (“Scarba”), built in 2001; it is 489 tons (gross) and 229 tons (deadweight), and (v) the Sound of Shuna (“Shuna”), built in 2003; it is the same weight as the Scarba. Its keel was laid on 11 October 2002; it was delivered to the Appellant on 30 September 2003. Each vessel is in the order of 50m long and 15m wide; each can accommodate about 40 motor vehicles, depending on their size, and about 240 passengers.
Discussions with HMRC
Findings of Fact in relation to the Certification Issue
84. No one certificate entitles an operator to navigate at sea. A passenger certificate certifies that the ship is fit to ply in the waters for which it is granted. The Appellant required (i) Passenger Certificates under either the Merchant Shipping (Survey & Certification) Regulations 1995[47] or the Merchant Shipping (Passenger Ships on Domestic Voyages) Regulations 2000 (implementing Council Directive 98/18/EC), (ii) Loadline Certificates or loadline exemption certificates under the Merchant Shipping (Load Line) Regulations 1998,[48] (iii) UK oil pollution prevention certificates issued by the MCA under the Merchant Shipping (Prevention of Oil Pollution) Regulations 1996,[49] and (iv) either DSM (i.e. domestic) or ISM (i.e. international) certificates. There is no dispute about (ii), or (iii); the Appellant had the relevant certificates throughout the Relevant Period. In relation to (iv) this, too, is no longer a matter of dispute as noted above.[50]
in Category C waters, within the geographical limits shown and when carrying no more than the maximum number of passengers stated
Under the Heading Plying Limits and Conditions on the certificate was the following:-
MODE 1
BETWEEN McINROY’S POINT AND HUNTER’S QUAY (MODE 1)
MODE 2 & 3
In Summer (1 April to 31 October both dates inclusive) from Hunter’s Quay and return, with the undernoted limits, with no vehicles other than invalid carriages and with no landings or intermediate points
Hunter’s Quay to Ardyne Point
Hunter’s Quay to Rothesay Bay
Hunter’s Quay to Gare Loch
Hunter’s Quay to Gare Loch via Holy Loch
Hunter’s Quay to Loch Long
Hunter’s Quay to north of Great Cumbrae and return following the shoreline of Renfrewshire and Ayrshire ) Between 5 June and 5 September.
....................
Mode 1 authorised 220 passengers (minimum crew 4). Mode 2 authorised 125 (minimum crews 4) and Mode authorised 3 220 (minimum crew 5).
The ship ........... is certified to ply only
a in favourable weather[51]
b during the period from 1 April to 31 October inclusive
c between one hour before sunrise and one hour after sunset if the ship is fitted with navigation lights conforming to the collision regulations, and if not so fitted, between sunrise and sunset.
d within the geographical limits shown and when carrying not more than the maximum number of passengers stated below
Under the Heading Plying Limits and Conditions on the certificate was the following:-
Cruising from Hunter’s Quay or McInroy’s Point to the Ardrossan area (within 3 miles of the Ayrshire or Arran coast, no further south than the southern tip of Brodick Bay.
The Certificate also stated the maximum number of passengers. For Sleat it was 40; for Scanda 24, for Scalpay 24, Scarba 75.
91. The EC(D) Certificate for the Shuna dated 16 December 2003 stated inter alia
Issued under the provisions of the Merchant Shipping (Passenger Ships on Domestic Voyages) Regulations 2000 and confirming compliancy of the vessel ...with the provisions of Council Directive 98/18/EC on safety rules and standards for passenger ship, under the authority of the Government of the United Kingdom of Great Britain and Northern Ireland by the Maritime and Coastguard Agency, an Executive Agency of the Department of Transport.
..............
Class of Ship in accordance with sea areas in which ship is certified to operate D
Maximum Passengers 13
This Certificate is valid until 31 March 2004
A List of Operational Limits was appended to the Certificate and contained the following entries:-
|
Restrictions in Operating Areas |
For making occasional voyages up to a distance of no more than one mile outside Clyde Categorised Waters, nor more than 3 miles from the line of the coast where shipwrecked persons can land, corresponding to the medium tide height |
|
Weather Restrictions |
For operation in restricted period (daylight hours, between 1st April to 31st October “favourable weather”
|
|
Sea State Restrictions |
The wave height is no more than 1.2 metres |
|
Restrictions in Permissible Loads |
No cargo will be carried on board |
|
......................... |
|
|
Other Limitations |
No more than 13 passengers will be carried on board |
93. The value of ships is enhanced by seagoing certification.
94. Certificates were formerly issued annually and renewed each year. At about the end of 2003 or the beginning of 2004, the MCA introduced a system of issuing a combined Class V and VI certificate which covered a five year period but which had to be validated each year.[52]
97. By letter dated 18 May 2007, the MCA informed HMRC inter alia that
... In order to operate at sea the Western Ferries’ ships in question required the following statutory certificates:
a Passenger Certificate Class VI for “existing vessels” and EC(D) Certificate for the new ship “SOUND OF SHUNA”...............
The letter continued:-
While on one hand Western Ferries had repeatedly said that the “sea going” certificates were required for tonnage tax purposes, on the other hand they did say that they vessels might occasionally proceed on such voyages
Findings of Fact in relation to the Estuary Issue
An estuary is a semi-enclosed coastal body of water which has free connection with the open sea and within which sea water is measurably diluted with fresh water derived from land drainage.
100.The Oxford English Dictionary defines estuary to mean
The tidal mouth of a great river, where the tide meets the current of fresh water
101.The International Hydrographic Dictionary under the heading estuary states
That portion of a stream influenced by the tide of the body of water into which it flows.
A bay, as the mouth of a river, where the tide meets the river current.
It defines firth as
A Scottish word: an arm of the sea; an estuary of a river.
102.The Mariners Handbook 8th edition., 2004 and the 9th edition, 2009 defines estuary as
An arm of the sea at the mouth of a tidal river, usually encumbered with shoals where the tidal effect is influenced by the river current.
It defines firth as
An arm of the sea: a river estuary. Used principally in Scotland
An essentially Scottish word with no precise meaning. The Pentland Firth is a straight, the Firth of Forth, Firth of Tay and Solway Firth are seaward extensions of estuaries, the Firth of Lorne is comparable with a fjord.
104.In JE Allen et al 1986 “The environment of the estuary and firth of Clyde” published as Proceedings of the Royal Society of Edinburgh[53] states inter alia that
Geomorphologically, the estuary begins just down-stream of the Erskine Bridge.... Here the river having cut a constricted gorge-like valley across the resistant lava flows that encircle the Clyde Basin upstream begins to widen. The hydrological estuary however extends much further up-river, to the tidal weir just below Stockwell Bridge.... This marks the furthest limit to which, at extreme high tide and low river-flow, salt water penetrates. From this point the estuary extends twenty two miles downstream to Greenock, where the fresh estuarine waters gives (sic) way to marine conditions. The transition from the relatively shallow estuarine waters to deep marine waters occurs (at Greenock) over a distance only c 100m, .... which is unique among British estuaries.
105.In a paper by Elliot and the witness Dr McLusky in 2002, it is stated that
Estuaries have the predominant characteristics of being sites of spatial and temporal continua, for example, environmental variables such as salinity, and biological variables, such as community structure. Because of this, any superimposed classification scheme is likely to be arbitrary and thus with a subjective element. The aim of having widely accepted definitions is to remove some of that subjectivity and to remove ambiguity in discussing estuarine features.
107.The Admiralty Sailing Directions West Coast of Scotland Pilot, issued by the United Kingdom Hydrographic Office, 16th edition 2008, states that
the River Clyde flows into the Firth of Clyde at the Tail of the Bank abreast of Greenock.
3.8 After periods of heavy rain or in the spring when the snow is melting the quantity of water draining into the Firth of Clyde from the land is considerable and will increase the rate and duration of the out-going flow; the in-coming flow will be correspondingly reduced... it is possible that, in exceptional circumstances, the out-going flow may set continuously, especially near to neap tides
110.The Pilotage Directions dated 2 February 2009 state:
“The Inner Pilotage Area means that part of the river and Firth of Clyde including Greenock. The navigable river channels Gareloch, Loch Long and Loch Goil contained within an imaginary line from Kempock Point proceeding in the direction 295°(T) to Strone Point. The Outer Pilotage Area means that part of the Firth of Clyde, Holy Loch and Loch Striven within the area bounded by an imaginary line from Kempock Point proceeding in the direction 295°(T) to Strone Point and The Seaward Limit of Compulsory Pilotage
bodies of surface water in the vicinity of river mouths which are partially saline in character as a result of their proximity to coastal waters but which are substantially influenced by freshwater flows.”.
Such a definition embraces what would generally be regarded as an estuary but also embraces waters which would not be regarded as part of an estuary.
River Clyde- upstream of the tidal weir in Glasgow
Clyde Estuary Glasgow to Greenock
Firth of Clyde Seawards from Greenock
116.Clydeport Operations Ltd[54] take the view (expressed through Captain Bailey) that:-
1 The Clyde river starts at No 1 buoy Greenock and runs east of this to Glasgow.
2 The inner estuary starts at No 1 buoy at Greenock and runs west and then south at Cloch Point.
3 The inner estuary ends at Clydeport’s area of jurisdiction, which is an east/west line through Corrygills Point, south of Brodick on Arran.
4 The outer estuary starts at the limits of Clydeport’s area of jurisdiction, i.e. number 3 above. The outer estuary ends at a line between Mull of Kintyre and Corsewell Point.[55]
120.The Shuna’s sea trials took place in Category C waters.
Findings of Fact in relation to the Harbour Issue
126.Sullivan’s Marine Encyclopaedia 6th edition (produced by the Appellant) defines harbour as
Sometimes called Haven q.v. but not so common commercially. It is an enclosed safe water area deep enough for ships to enter and where they can anchor, berth and shelter for various purposes such as loading, discharging, repairing and other requirements. As the name implies it must be protected in such a way as to give complete security in case of storms, apart from the fact that it must be fully equipped and have the necessary customs sheds and port organisation.
127.The Oxford English Dictionary includes the following definition of harbour
A place of shelter for ships: spec where they may lie close to and sheltered by the or by works extended from it; a haven, a port.
Miscellaneous Findings of Fact
142.The MCA has no role in the administration of tonnage tax (MCA letter 19 November 2007 to HMRC).
143.In 1999, the Scottish Office and after devolution the Scottish Executive (now the Scottish Government) made, over a number of years, grants and granted favourable financial conditions to its maritime companies CalMac and NorthLink for the operation of ferry services on routes between the Scottish mainland and the Hebrides and Northern Isles. The European Commission received complaints about unfair State aid to these publicly owned companies. Following an investigation, the Commission drew the preliminary conclusion that it had doubts as to whether the aid in question or at least some of it constituted public service compensations that were compatible with the common market. The Commission decided to open formal investigation procedures with respect to all financial transactions between the Scottish authorities and CalMac. In paragraph 20 of its report,[56] the Commission notes that
CalMac has virtually no competition on the routes it serves. Its sole competitor, Western Ferries, operates only on the Clyde estuary between Gourock, situated on the upper Firth of Clyde, and Dunoon, located on the Cowal Peninsula...
144.The nature and bounds of an estuary were not discussed in the Commission’s report.
Other Matters relating to Findings of Fact
Submissions
Appellant
148.Mr Conlon reminded us of some basic principles of European law under reference to Article 288 of TFEU, Becker v Finanzamt Munster-Innenstadt (8/81)[57]and Marleasing SA v. La Comercial Internacional de Alimentacion SA[58]He took us through the legislation referred to above and various definitions of the sea, referring to The Salt Union Ltd[59] He pointed out that there was no challenge to the vires of the Merchant Shipping Notices before the Tribunal. Some MSNs contained guidance and some parts have the force of law.
151.He referred to Wilhelmsen[60] which he said recognised that the Tail of the Bank marked the end of the estuary and the beginning of the fairway. He analysed the evidence and submitted that it fell into three categories namely the scientific, the master mariner view point and, the categorisation of waters. Whether the Crossing lies within the estuary was a question of fact for the Tribunal to determine.
HMRC
154.Mr Artis submitted that we should adopt a purposive construction, construing the critical words restrictively. He referred to Article 87 of the EU Treaty pointing out that it is nor foreign law but part of our law. He referred to IDT, British Aggregates & Ors v Commission,[61] Freistat Thuringen v Commission[62]andItalian Republic v Commission of the European Communities.[63] The Community Guidelines and the background to tonnage tax should be taken into account in construing the relevant provisions of Schedule 22. This was particularly important on the Certification Issue. He analysed what the European Union meant by maritime transport in Council Regulations EEC 4055/86. 4056/86 and 3577/92. He also referred to Ministero delle Finanze v In. Co. GE. ‘Srl & Ors[64] Finanzamt Koln-Altstadt v Schumacker[65] and Minsitre de l’economie, des finances et de l’industire v GEMO SA.[66]
156.On the Estuary Issue, he advanced the ordinary meaning with a purposive construction. Exclusions from aid should be given a broad interpretation. He expressly declined to advance any argument on the assumption that part of the Crossing was within the estuary and part outwith it. He referred to R v Secy of State for the Environment,[67] the Salmon Fisheries (Scotland) Act 1868 and later legislation relating to salmon. He relied on the evidence of Captain Bailey and Mr Brown. Mr Artis submitted that the seaward limit of the estuary was the seaward limit of Category D waters i.e. south of Little Cumbrae. EU terminology and Guidelines drew a distinction between maritime transport being carried out at sea and transport by inland waterways.
157.On the Harbour Issue, Mr Artis referred to the ordinary dictionary meaning of harbour and advocated a common sense approach. The modern concept of a harbour is not what it was in former times. He relied on the Harbours Act 1964 section 57, the Merchant Shipping Act 1995 s 313 and Part VI thereof, the Clyde Port Authority Order Confirmation Acts of 1965 and 1969 and the Clyde Port Authority Scheme 1991 Confirmation Order 1992, the Pilotage Act 1987, and the extent of Clydeport’s jurisdiction. The Crossing is within the outer pilotage area in accordance with Directions issued under section 7 of the 1987 Act. Mr Artis also relied on the evidence of Captain Bailey. Ultimately Mr Artis submitted that the whole of the area of the firth of Clyde is a harbour. He referred to R v Hannam.[68]
Discussion
159.We consider each issue in turn.
The Certification Issue
168.It might be said that our conclusion will lead to uncertainty, and that the mere fact of certification, howsoever qualified, by a competent authority would be sufficient and would have the advantage of eliminating any such uncertainty. However, the uncertainty lies within the phrase certificated for navigation at sea. Parliament could have defined with some precision what was meant by that phrase e.g. by cross reference to particular classes of certification in the Merchant Shipping legislation and a requirement that certification by a foreign authority permit navigation at sea in substantially the same terms. It chose not to do so although it did define the phrase offshore installations by reference to the Mineral Workings (Offshore Installations) Act 1971. The result is that each case has to be determined on its own facts. The terms of certificates will have to be examined to determine on which side of the line they lie. On that basis, the intention of Parliament can be given a purposive construction and certification applied not as a matter of form but as a matter of substance. This view is also generally consistent with what constitutes maritime transport for the purposes of various EU instruments described above.[69]
171.We were referred to a number of authorities none of which we found particularly helpful in the process of statutory interpretation. Freistat Thuringen v Commission[70] concerned state aid which the Commission decided was unlawful. Various German public authorities had granted state aid in the form of loans, guarantees and investment allowances in relation to a compact disc production plant and CD accessories established in Albrechts, Thuringia. This formed part of the restructuring of the undertakings of the German Democratic Republic to ensure the transition from a planned economy to a market economy. The regulatory framework for these activities, which the Commission had approved, constituted derogations from the general principle laid down in Article 87(1) EC that State aid is incompatible with the common market. The term privatisation had to be construed narrowly in the context of the aid schemes.[71] The Court of First Instance annulled part of the contested decisions. This case therefore provides some support for a narrow construction to be given to schemes of derogation (here, the Tonnage Tax regime).
172.British Aggregates & Ors v Commission[72] concerned the question whether the Community Guidelines on state aid relating to environmental protection were fulfilled in respect of an initial statutory exemption for Northern Ireland from aggregates levy introduced by the Finance Act 2001 for the rest of the United Kingdom, and subsequently applied to Northern Ireland on a gradual basis, and thereafter on a different basis which resulted in 80% relief being obtained on certain conditions. The Commission approved the levy. The General Court annulled the contested decision of the Commission. In the course of its judgment the Court observed that Member States are allowed to establish
a differentiated tax system for certain products only in so far as that differentiation is compatible with Community Law.[73]
173.Further support for this approach can be found in Finanz Koln-Alnstadt v Schumacker.[74] There, the European Court of Justice considered the compatibility with the Treaty’s freedom of movement provisions of German income tax rules under which taxpayers were treated differently depending on whether they resided within or outwith Germany. In holding that with regard to the free movement of persons within the Community, the Treaty required the abolition of any discrimination based on nationality between workers of the member states, the Court observed at paragraph 21 that
Although, as the Community law stands at present, direct taxation does not as such fall within the purview of the Community, the powers retained by the member states must nevertheless be exercised consistently with Community law........[75]
174.In similar vein, the European Court of Justice made it clear in Minstero delle Finanze v In. Co. GE90 Sri and Ors[76] (which related to the consequences of the incompatibility of a domestic charge or levy with Community law) that
every national court must, in a case within its jurisdiction, apply Community law in its entirety and protect rights which the latter confers on individuals, setting aside any provision of national law which may conflict with it, whether prior or subsequently to the Community rule.[77]
175.The Commission in Thuringen also decided that the member state had to demand repayment of the aid found to be illegal from the beneficiaries thereof.[78] The principles on which recovery is ordered are set out at paragraphs 307-10. The main purpose is to eliminate the distortion of competition caused by the competitive advantage afforded by the unlawful aid. We mention this as there was some suggestion by Mr Conlon that the Appellants could never be ordered to repay anything if the Tonnage Tax regime were to be the subject of infraction proceedings by the Commission. Moreover, University of Sussex v C&CEC[79] concerned inter alia an argument about unlawful state aid, in the context of late repayment of input tax, upon the assumption that domestic time bar provisions applied to payment traders but not to repayment traders. Neuburger J observed under reference to Ideal Toruisme SA v Belgium[80] that the appropriate remedy for the taxpayer was to seek an order that the state aid was stopped and possibly for an order that the beneficiary of the aid pays it back.[81] An argument that this would be difficult to achieve was held to be irrelevant.
176.Minsitre de l’economie, des finances et de l’industire v GEMO SA[82] related to a public carcass collection service which was free to farmers, slaughterhouses and the like and was mandatory. It was paid for by a retail meat purchase tax. GEMO sought reimbursement of payments of the tax on the basis that it was part of an arrangement which constituted state aid. The ECJ held that the system introduced by the French authorities constituted an advantage for French exports and affected intra-Community trade. It was classified as state aid.[83] We did not derive much assistance from this case, which was cited by HMRC.
177.We were also referred to Italy v Commission.[84] There, the Italian Republic sought to annul the Commission’s Decision concerning aid granted by Italy to promote employment. The issue concerned the age limit for workers entering into employment under training and work experience contracts. The Commission’s interpretation of their guidelines authorised such contracts for, broadly, young persons under twenty five years of age. The national authority argued for an older age limit. The ECJ though not bound by the Commission’s approach, followed it.[85] The Court also commented on the recovery of state aid noting that, as a general rule, the Commission will not, save in exceptional circumstances, exceed the bounds of its discretion, if it asks the Member State to recover the sums granted by way of unlawful aid.[86]
178.Our conclusion that the Certification Issue falls to be decided in favour of HMRC is reinforced when one examines more closely the underlying purposes of the tonnage tax regime. In his Budget Statement in March 1999, the Chancellor of the Exchequer, in response to the shipping industry’s proposals, appointed Lord Alexander of Weedon to conduct an independent study of the case for and the design of a lower-rate ring-fenced tonnage tax and additional enhanced training incentives. Lord Alexander reported in July 1999.[87] In his report he notes the decline in the British Shipping Industry and the government’s resolve over a number of years to do something about it. In British Shipping- charting a new course, the Government, in December 1998 set out its policy and objectives for the shipping industry. That document noted that what was required was the sustained recruitment and employment of British seafarers, which in turn depends heavily on the continued participation and viability of British companies in international shipping.[88]
179.Lord Alexander observed[89] that the critical importance of international fiscal competitiveness to the shipping industry was highlighted in Charting a new course. Lord Alexander was clear that for the industry to be internationally competitive it required a virtually tax-exempt and user-friendly fiscal regime. At paragraph 40 he notes that what all parties envisaged was that a package of measures should make the UK shipping industry internationally competitive. He discussed European considerations and said with reference to the 1997 Community Guidelines
The fact that these directions are clearly designed to allow the shipping industries of EU member states to compete internationally provides additional support for the view that a virtually tax-exempt environment is integral to the opportunities for success of a national shipping industry. Without the tax regimes permitted by these or similar guidelines, the countries of the EU would have no prospect of competing internationally for a share of a shipping industry.[90]
180.On the question of eligibility, Lord Alexander’s Report envisaged that qualifying ships would be seagoing.[91] We also refer to the Commission’s Guidelines referred to above. We consider that it is legitimate to have regard to this material in order to determine the true meaning of the words used by Parliament.
181.For many years, courts including the House of Lords and more recently the Supreme Court have taken into account a wide range of materials in order to ascertain the true meaning of statutory enactments. Thus Explanatory Notes, Government White Papers, Reports of Royal Commissions, Law Commission Reports, ministerial statements and the like have all been scrutinised from time to time in order to give a purposive construction to statutory provisions. For example, in Wilson v Dunbar[92] the Inner House had to construe a statutory provision relating to interest on damages. In order to do so the Court considered an Interim Report of the English Law Revision Committee, an analogous Scottish Report, and a statement in Parliament by the sponsor of a Private member’s Bill. In Scottish Widows plc v HMRC[93] Lord President Hamilton observed that taxing statutes have to be construed purposively[94] noting that the context and the scheme of the relevant Act as a whole and its purpose should be regarded. The legislative ancestry of a provision may assist and in some circumstances.[95] These authorities leave us in no doubt that it is legitimate to have regard to the “State aid” background to the enactment of schedule 22 to the FA2000 in order properly to construe the relevant provisions purposively, viewing the applicable facts realistically.
183.We also record that we were referred to The Salt Union Ltd v Wood[96] This was a statutory claim for damages for breach of contract against an employee under the Employers and Workmen Act 1875. The employee was a member of the crew of a steamer which was exclusively used to carry salt upon the rivers Weaver and Mersey from Winsford to Liverpool where it was transferred to ocean-going vessel. Her voyages, so far as upon the Mersey were in tidal waters but did not extend in such tidal waters beyond the limits of the port of Liverpool. The issue was whether the respondent was a workman to which the 1875 Act applied or a seaman to which that Act did not apply, the Merchant Shipping Act of 1854 being the relevant Act under which to proceed. This in turn depended on whether the ship was a sea-going ship. The court held that a sea-going ship was one which does go to sea.[97] The ship, in question, on the facts, did not go to sea. Therefore the 1875 Act applied. The court endeavoured to provide a simple answer to the question in the face of argument that as it was capable of going to sea that was sufficient. That argument was rejected. We do not think this case is much assistance in construing certificated for navigation at sea and determining whether the Class VI and EC(D) certificates fall within that phrase.
The Estuary Issue
186.Dr McLusky is the author of the “The Estuarine Ecosystem”[98] and was until recently the editor of the journal Estuarine Coastal and Shelf Science. He was formerly Head of the Department of Biological Sciences and senior lecturer in Marine Biology at Stirling University. He has written papers on the estuarine environment and ecological systems. He is currently the chief editor of a 12 volume publication Treatise on Estuarine and Coastal Science
189.Dr Hansom is a member of the Earth Systems Research Group and is a former Director the Coastal Research Group at the University of Glasgow. He is a reader there in the Department of Geographical and Earth Sciences. As a geomorphologist, his main interests lie in the understanding and management of coastal environments. He, too, relied on the same EC Directives, the SEPA maps, the SSSI and SPA designated by Scottish Natural Heritage and the Joint Nature Conservation Committee. He also stated that mixing of sea and fresh water occurred at Greenock and that seaward of Greenock the water was essentially saline and barely distinguishable from the sea. He described the process of flocculation induced by the mixing of fresh and salt water, the aggregation of fine silt particles carried by the river into larger and heavier flocs. These heavy particles fall to the bottom in the zone of mixing. Bedload sands are also deposited as the river flow becomes progressively impeded by the tide to form shoals and sand banks, again at the locus of fresh and salt water interaction. In the River Clyde this zone of deposition only occurs at and upstream of the Tail of the Bank, off Greenock. Dr Hansom described the coincidence of mixing zones and deposition zones as a classic and unmistakeable sign of where the tide meets the river current. We accept that evidence.[99] His view was that that both the scientific and operational limit of the Clyde Estuary is at the Tail of the Bank, off Greenock and that the Firth of Clyde is seawards of that point.
194.We were referred to R v Secy of State for the Environment[100] That case related to a challenge by judicial review of the Secretary of State’s decision under the Urban Waste Water (England and Wales) Regulations 1994 of the outer estuarine limits of the Humber and Severn Estuaries. The issue related to the degree of treatment (primary or secondary) required for urban waste water discharged into the two estuaries; secondary treatment is the more stringent and expensive. The Directive did not impose any criteria for determining the outer limits of an estuary boundary. It was noted that there was no definition of an estuary in United Kingdom legislation. It also noted (whether correctly or not) that in Scotland a definition based on salinity had been used traditionally to define the seawards limits of large estuaries.[101] In holding that irrelevant considerations (namely the high costs of waste water treatment) had been taken into account which vitiated the decision, Harrison J held that salinity and topography were relevant considerations.
195.While these may not be the only relevant considerations, they do seem to be, on the material presented to us, the principal matters which repeatedly feature in the discussion of the boundaries of and the definition of an estuary. Thus the OED refers to the tide meeting the current of fresh water. The International Hydrographic Dictionary speaks of the influence of the tide where it meets the river current. The Mariner’s Handbook refers the mouth of the tidal river usually being encumbered by shoals (a form of sandbank reducing the depth of water); Allen refers to the transition from relatively shallow estuarine waters to deep marine waters at Greenock. The policy of the Water Framework Directive is to improve the ecological quality of Community surface waters. This required water bodies with different characteristics to be identified and discretely labelled so that a set of measures, appropriate to bodies of water with particular characteristics could be consistently applied. The Water Framework Directive and the Urban Waste Water Directive and their implementing regulations all have definitions of transitional waters and estuary which refer to the meeting of saline waters and fresh waters.[102]
198.We were not greatly assisted by the references in other statutory provisions to the limits of the Clyde estuary. For example, in the Salmon and Freshwater Fisheries (Consolidation) (Scotland) Act 2003, section 23 deals with the protection of young salmon. Section 36 provides definitions of estuary limits. Where none arise expressly fixed, the estuary limits of a river are to be the natural limits which divide a river (including its estuary) from the sea.[103] Commissioners appointed under the Salmon Fisheries (Scotland) Act 1862 were given power to fix and define for various statutory purposes the natural limits which divide each river in Scotland including its estuary from the sea.[104] The Salmon Fisheries (Scotland) Act 1868 s10 and Schedule B contain deemed Byelaws. Schedule B fixes and defines the limits which divide various rivers including their estuaries from the sea. In relation to the Clyde the limits of the estuary are defined as
a straight Line drawn East from Toward Point Light[105]
200.We should add that we did not find the discussion of and comparison with the Thames estuary and the Solent to be of any real assistance to us. The evidence on these topics was not detailed and our assessment of those chapters of the evidence did not leave us sufficiently confident to make any findings of fact which would at the end of the day be of any use or value in determining any of the three issues before us in this appeal. There is also a very considerable doubt about the admissibility of this chapter of evidence. The function of this appeal is to determine the relevant facts applicable to the Appellant and apply those facts to the law, properly interpreted. Our task is not to hear evidence of the similar circumstances of other taxpayers and complaints that the Appellants should be but are not being treated similarly.[106] We are concerned only with the rights of the present Appellant. We refer also to paragraph 213 below.
201.We were also referred to two Scottish cases for their facts rather than any principle of law. In Trs. of Clyde Navigation v Wilhelmsen[107] the facts concerned a collision between two vessels which took place opposite Fort Matilda. The issue was whether the locus was a narrow channel within the meaning of the Regulations for Preventing Collisions at Sea 1897. The locus was described by the Lord President as part of the fairway of the Clyde. He referred to this part of the river being only half a mile from Fort Matilda Pier to the Roseneath Patch. Lord Johnston noted that the river Clyde ended
technically at Newark Castle near the east end of Port Glasgow but from that point the fairway, whether properly of the river or of the estuary is confined to a comparatively narrow space between Greenock and what is known as “the Bank”- the “Tail of the Bank” or its seaward end, extending as far down as the point opposite Greenock. From the Tail of the Bank to Roseneath Patch is nearly 2.5 miles but though across that space there is a wide stretch of water between Greenock and Helensburgh at the mouth of the Gareloch....
While the description is of some interest, it is reasonably clear that the locus is in the vicinity of Greenock and considerably east of the Crossing. The case sheds no light on any of the issues in the present appeal.
202.In Buchanan v Clyde Lighthouse Trs[108] a vessel struck a sandbank as she was entering Fairlie Harbour, which the Lord Justice Clerk said was on the estuary of the Clyde. Whether that is the same Fairlie which lies south of Largs opposite the Cumbraes is unclear. However the observation is of no assistance to us in determining where lies the seaward limit of the estuary. The limits of the estuary were not in issue in the case.
Harbour Issue
204.In our view, HMRC’s arguments have no merit. We decide this issue in favour of the Appellant.
the area or areas inside the limits of which its statutory powers and duties as a harbour authority are exercisable...
A harbour in its ordinary sense was a place to shelter ships from the violence of the sea, and where ships are brought for commercial purposes to load and unload goods.
212.In our view, far from supporting the HMRC argument, this case goes some way to destroying it. While the Firth of Clyde (whatever its precise boundaries or limits may be) may be within a statutory harbour area, that does not mean it is a harbour in the ordinary sense (or indeed, virtually any other sense) of the word. What is the answer to the question What is the name of the harbour: And if it had a name, where would we be taken if we asked to go there? Dunoon, Gourock, Greenock, Cloch Point, Toward Point? We should also add that the definition of harbour in section 57 of the Harbours Act 1964, also cited by Mr Artis, does not help either. We were also referred to the Clyde Navigation Consolidation Act 1858. However the definitions of the limits of the Harbour of Glasgow (east of the River Kelvin and to the West of Hutchesontown Bridge[109]) or the River Clyde (as far down the said river [Clyde] as to a straight Line drawn from the eastern end of Newark Castle on the South Shore of the said River to the Mouth of Cardross Burn on the North Shore of the said River).[110] Do not assist HMRC. Under the latter definition, the River Clyde lies to the east of the Crossing.
Unfair Treatment
213.There is a theme running through the correspondence that the Appellant has been unfairly treated in comparison with other operators. The evidence of James Cooper and the Red Funnel’s activities were perhaps led with that in mind. Ultimately, however, Mr Conlon did not seek to support his submissions on any of the issues by reference to this chapter of evidence. Insofar as it is admissible at all we do not rely on it.[111] However, it is perhaps appropriate to point out that is said to be a cardinal principle of public administration that all persons in a similar position should be treated similarly.[112] Strasbourg jurisprudence under reference to Article 14 of the Convention and domestic legislation have developed the law relating to discriminatory treatment in public law in recent years. These are not matters which we need to consider for the purposes of this appeal.
Other Evidence
Summary
215.We summarise our decision as follows:-
(1) It is plain that the intention of Parliament must have been to enact a provision which was consistent with the Commission’s views on tonnage tax, which did not fall foul of its Treaty obligations in relation to State aid and which would not lead to infraction proceedings by the Commission against the United Kingdom.
(2) Compliance with paragraph 19(4) is not a matter of form. We must view the facts realistically to see whether they apply to the statutory provisions construed purposively.
(3) The phrase certificated for navigation at sea cannot mean certificated for navigation at sea on an occasional basis, or only a few months or even one day a year, or only in particular weather conditions, or only within a minimal distance from the coast or a port of refuge. Rather, we consider that it means certificated for navigation at sea without any significant restrictions or limitations as to the mode, location or circumstances of navigation imposed by the certifying authority.
(4) The statutory tonnage tax regime does not in any real sense impose a fiscal liability on the taxpayer. Rather, it exempts certain of his profits from liability to mainstream corporation tax, and substitutes a regime which appears to impose minimal liability; putting it another way it relieves the taxpayer of a substantial fiscal liability.
(5) The authorities demonstrate the potency of the law of the European Union where it forms part of the landscape or context of a national legislative provision, whether in the foreground for example in the form of a Directive or in the background in the form of Treaty obligations and related guidelines or similar material.
(6) The certification of the Appellant’s ships contained significant restrictions and limitations. Accordingly, the Appellant’s ships were not certificated for navigation at sea by the competent authority in terms of paragraph 19 of Schedule 22 (the Certification Issue).
(7) The burden of the evidence, which we accept, points to the seaward end of the estuary being at or about the Tail of the Bank or to put it more broadly in the vicinity of Greenock. Accordingly, the Crossing does not lie to any extent within the Clyde estuary. We do not consider that the statutory functions of Clydeport Operations Ltd or various definitions of harbour in other statutory provisions have any significant bearing on the proper construction of the phrase harbour, estuary or river crossings in paragraph 20(4) of Schedule 22.
(8) The route plied by the Appellant’s ships was not an estuary crossing within paragraph 20(4) of Schedule 22 (the Estuary Issue)
(9) Hunter’s Quay and McInroy’s Point are not two terminals or points of embarkation within a single harbour. The Crossing is therefore not a harbour crossing with the meaning of Schedule 22.
(10) The route plied by the Appellant’s ships was not a harbour crossing within paragraph 20(4) of Schedule 22 (the Harbour Issue).
Disposal
J GORDON REID, QC., F.C.I.Arb.
TRIBUNAL JUDGE
RELEASE DATE: 12 APRIL 2011
APPENDIX/
APPENDIX
Western Ferries SC/3071/2009
Locations Referred to in the Decision
Most of the locations can be found on Admiralty Chart 2131 Firth of Clyde and Loch Fyne
Alphabetical Order
Albert Bridge 55˚51’.2N, 004˚14’.9W
Ardlamont Point 55˚49’.6N, 005˚12’.3W
Ardrossan 55˚39’N, 004˚49’W
Ardyne Point 55˚52’.2N, 005˚02’.7W
Arran 55˚35’N, 005˚15’W
Baron’s Point 55˚59’.3N, 004˚51’.1W
Bogany Point 55˚50’.8N, 005˚01’.5W
Brodick Bay 55˚35’N, 005˚09’W
Cardross Burn 55˚57’.6N, 004˚39’.4W
Cloch Point 55˚56’.5N, 004˚52’.2W
Corrygills Point 55˚34’.3N, 005˚06’.4W
Corsewell Point 55˚00’.5N, 005˚09’.6W
Cowal Peninsula 55˚56’N, 005˚00’W
Craigendoran Pier 55˚59’.7N, 004˚42’.9W
Dumbarton 55˚56’N, 004˚33’W
Dunoon Pier 55˚56’.8N, 004˚55’.3W
Erskine Bridge 55˚55’.2N, 004˚27’.8W
Ettrick Bay 55˚50’N, 005˚09’W
Fairlie 55˚45’N, 004˚51’W
Farland Head 55˚41’.7N, 004˚54’.0W
Fort Matilda 55˚57’.8N, 004˚47’.4W
Gareloch 56˚01’N, 004˚48’W
Garroch Head 55˚42’.4N, 004˚58’.8W
Gourock 55˚57’N, 004˚51’W
Great Cumbrae 55˚46’N, 004˚55’W
Greenock 55˚57’N, 004˚45’W
Helensburgh 56˚01’N, 004˚44W
Holy Loch 55˚59’N, 004˚55’W
Hunter’s Quay 55˚38’.3N, 004˚54’.5W
Hunterston 55˚43’N, 004˚54’W
Inner Brigund Point 55˚43’.7N, 004˚53’.6W
Kempock Point 55˚57’.8N, 004˚49’.1W
Kilcreggan 55˚59’N, 004˚50’W
Largs 55˚48’N, 004˚52’W
Little Cumbrae 55˚43’N, 004˚57’W
Loch Goil 56˚07’N, 004˚54’W
Loch Long 56˚00’N, 004 53’W
Loch Ranza 55o 43’ N, 005o18’ W
Loch Striven 55˚54’N, 005˚04’W
McInroy’s Point 55˚57’.1N, 004˚51’.3W
Mull of Kintyre 55˚18’N, 005˚48’W
Newark Castle 55˚56’.1N, 004˚40’.7W
Port Glasgow 55˚56’N, 004˚41’W
Portachur Point 55˚44’.6N, 004˚56’.9W
River Kelvin 55˚52’.0N, 004˚18’.5W
Rosneath Patch 55˚59’N, 005˚13’W
Rothesay Bay 55˚51’N, 005˚03’W
Skelmorlie Castle 55˚51’.1N, 004˚53’.1W
Skipness 55˚45’.9N, 005˚19’.7W
Stockwell Bridge 55˚51’.2N, 004˚15’.1W
Strone Point 55˚59’.0N, 004˚54’.0W
Tail of the Bank 55˚57’N, 004˚45’W
Tormont End 55˚47’.6N, 004˚54’.1W
Toward Point 55˚51’.6N, 004˚57’.3W
Order Moving Downstream
Albert Bridge 55˚51’.2N, 004˚14’.9W
Stockwell Bridge 55˚51’.2N, 004˚15’.1W
River Kelvin 55˚52’.0N, 004˚18’.5W
Erskine Bridge 55˚55’.2N, 004˚27’.8W
Dumbarton 55˚56’N, 004˚33’W
Cardross Burn 55˚57’.6N, 004˚39’.4W
Newark Castle 55˚56’.1N, 004˚40’.7W
Port Glasgow 55˚56’N, 004˚41’W
Tail of the Bank 55˚57’N, 004˚45’W
Craigendoran Pier 55˚59’.7N, 004˚42’.9W
Helensburgh 56˚01’N, 004˚44W
Greenock 55˚57’N, 004˚45’W
Gareloch 56˚01’N, 004˚48’W
Rosneath Patch 55˚59’N, 005˚13’W
Fort Matilda 55˚57’.8N, 004˚47’.4W
Kempock Point 55˚57’.8N, 004˚49’.1W
Kilcreggan 55˚59’N, 004˚50’W
Gourock 55˚57’N, 004˚51’W
McInroy’s Point 55˚57’.1N, 004˚51’.3W
Baron’s Point 55˚59’.3N, 004˚51’.1W
Loch Long 56˚00’N, 004 53’W
Loch Goil 56˚07’N, 004˚54’W
Strone Point 55˚59’.0N, 004˚54’.0W
Holy Loch 55˚59’N, 004˚55’W
Hunter’s Quay 55˚38’.3N, 004˚54’.5W
Cloch Point 55˚56’.5N, 004˚52’.2W
Dunoon Pier 55˚56’.8N, 004˚55’.3W
Cowal Peninsula 55˚56’N, 005˚00’W
Toward Point 55˚51’.6N, 004˚57’.3W
Ardyne Point 55˚52’.2N, 005˚02’.7W
Loch Striven 55˚54’N, 005˚04’W
Skelmorlie Castle 55˚51’.1N, 004˚53’.1W
Rothesay Bay 55˚51’N, 005˚03’W
Bogany Point 55˚50’.8N, 005˚01’.5W
Largs 55˚48’N, 004˚52’W
Tormont End 55˚47’.6N, 004˚54’.1W
Great Cumbrae 55˚46’N, 004˚55’W
Fairlie 55˚45’N, 004˚51’W
Portachur Point 55˚44’.6N, 004˚56’.9W
Inner Brigund Point 55˚43’.7N, 004˚53’.6W
Hunterston 55˚43’N, 004˚54’W
Little Cumbrae 55˚43’N, 004˚57’W
Garroch Head 55˚42’.4N, 004˚58’.8W
Ettrick Bay 55˚50’N, 005˚09’W
Ardlamont Point 55˚49’.6N, 005˚12’.3W
Skipness 55˚45’.9N, 005˚19’.7W
Loch Ranza 55o 43’ N, 005o18’ W
Farland Head 55˚41’.7N, 004˚54’.0W
Ardrossan 55˚39’N, 004˚49’W
Brodick Bay 55˚35’N, 005˚09’W
Corrygills Point 55˚34’.3N, 005˚06’.4W
Arran 55˚35’N, 005˚15’W
Mull of Kintyre 55˚18’N, 005˚48’W
Corsewell Point 55˚00’.5N005˚09’.6W
Lines Mentioned in the Decision
Limit of estuary – scientific a line from Greenock (55˚57.3’N, 004˚45.6’W)
to (55˚59.2’N, 004˚44.1’W)
to Craigendoran (55˚59’.7N, 004˚42’.9W)
Limit of estuary – SEPA a line from Cloch Point (55˚56’.5N, 004˚52’.2W)
toBaron’s Point (55˚59’.3N, 004˚51’.1W)
Western Ferries route a line from McInroy’s Point (55˚57’.1N, 004˚51’.3W)
to Hunter’s Quay (55˚38’.3N, 004˚54’.5W)
Inner limit of Category D water (winter) a line from Cloch Point (55˚56’.5N, 004˚52’.2W)
to Dunoon Pier (55˚56’.8N, 004˚55’.3W)
Inner limit of Category D water (summer) a line from Skelmorlie Castle (55˚51’.1N, 004˚53’.1W)
to Bogany Point (55˚50’.8N, 005˚01’.5W)
Outer limit of Category D water a line from Farland Head (55˚41’.7N, 004˚54’.0W)
to 1 mile south of Garroch Head (55˚42’.4N, 004˚58’.8W)
to Skipness (55˚45’.9N, 005˚19’.7W)
…………………………………………..
[1] Paragraph 1
[2] Paragraph 16
[3] The definition of qualifying ship in paragraph 147 simply refers back to paragraphs 19-22
[4] Section 85(3)(a) and (c)
[5] SI 1998/2515
[6] All current Merchant Shipping Notices can be found on the Maritime and Coastguard Agency website, where the full text can be downloaded.
[7] SI No 1210
[8] Regulation 1(1)
[9] Regulation 4
[10] Regulation 11
[11] Regulation 12
[12] Regulation 13(3)
[13] SI No 2687
[14] SI No 771
[15] Regulation 4; the various existing Regulations applicable to the old system ceased to apply gradually over that same period depending on the age of the passenger ship
[16] Which came into force on 23 October 2000- see paragraph 10.
[17] 1998 /18/EC
[18] at paragraph 60
[19] See now Treaty on the Functioning of the European Union (“TFEU”) Article 107 (formerly Article 87 of the EC Treaty)
[20] 97/C205/05
[21] 97/C/205/05
[22] Article 1.1
[23] ref SG(2000)D/105768
[24] Page 20
[25] page 20
[26] page 2
[27] page 2
[28] page 3
[29] page 7
[30] Page 7
[31] page 12
[32] Pages 12-13
[33] Articles 107 and 108 TFEU (Articles 87 and 88 EC Treaty)
[34] Which relate to distortion of competition, abuse of dominant position and state aid. See now TFEU Articles 105 and 106
[35] Article 1.2
[36] 2000/60/EC 23 October 2000
[37] Article 2.6
[38] Article 2.3
[39] 91/271/EEC Article 2.12
[40] SI 1994 No 2842; these regulations have been amended but it is unnecessary to identify the amendments. The same definitions are to be found in the equivalent English provisions (Urban Waste Water Treatment (England and Wales) Regulations 1994 SI No 2841 (also amended)
[41] Regulation 12 obliges SEPA to keep such maps; in England it is the National Rivers Authority
[42] See paragraph 4 of MSN 1776(M)
[43] SI No 2001/3209
[44] We have capitalised this phrase elsewhere
[45] We have referred to this elsewhere as the Crossing
[46] For example the Sanda is registered as a Passenger Ferry in the British Registry of Shipping and Seamen
[47] SI No 1995/1210
[48] SI No 1998/2241
[49] SI No 1996/2154,
[50] at paragraph 66
[51] Favourable weather is defined as fine clear settled weather with a sea state such as to cause only moderate rolling and/or pitching
[52]Whatever the technical or practical difference between the two systems does not seem to us to matter for present purposes.
[53] Volume 90B pages 1-539
[54] See paragraph 129 below
[55] The result of this view is that the Crossing lies within the Clyde Estuary.
[56] Procedures Relating to the Implementation of the Competition Policy –subsidies to CalMac and NorthLink for maritime transport services in Scotland OJ 23/5/08; 2008/C126/07
[57](1982) ECR 53 (ECJ)
[58] 1992 1 CMLR 305; see paragraph 8
[59]1893 QBD 370
[60] See paragraph 201 below.
[61] Case T-359/04 9/9/10 (General Court)
[62] 2005 ECR II-4179
[63] ECR 2002 I-02289
[64] 2001 1CMLR 31
[66] Case C-126/01 20/11/03
[67] 1996 Env. LR 248
[68] 1886 2 TLR 234
[69] at paragraphs 46-50.
[70] 2005 ECR II-4179
[71] Paragraphs 168 and 176
[72] Case T-359/04 9/9/10 (General Court)
[73] Paragraph 68
[75] Paragraph 21
[76] 2001 1 CMLR 31
[77] Paragraph 20
[78] Paragraph 54,
[79] 2001 STC 1495, one of the cases produced for our consideration.
[80] 2001 STC 1386
[81] Paragraph 97
[82] Case C-126/01 20/11/03
[83] Paragraphs 43 and 44.
[84] ECR I- 2289 Case C-310/99
[85] Paragraphs 52 and 59
[86] Paragraph 99
[87] See http://archive.treasury.gov.uk/docs/1999/alexreport.html
[88] Paragraph 16 of the Report.
[89] Paragraph 18
[90] Paragraph 42
[91] Paragraph 92
[92] 2008 SC
[94] Paragraph 46
[95] Paragraph 48, 61, 62
[96] 1893 QBD 370
[97] At 374
[98] Published by Oxford University Press
[99] See findings of fact at paragraphs 116-118 above.
[100] 1996 Env. LR 248
[101] at 256
[102] See paragraphs 52, 56 and 58 above.
[103] Section 36(2)
[104] Section 6(1)
[105] This would place the crossing between Hunter’s Quay and McInroy’s Point well within the Clyde Estuary
[106] See CIR v National Federation of Small Businesses Ltd 55 1982 AC 617 at 633C-D, 646G-647B
[107] 1915 SC 392
[108] 1884 11 R 531
[109] We understand that this bridge was replaced by the Albert Bridge in about 1871.
[110] Sections 74 and 75
[111] See paragraph 199 above.
[112]Middlebrook Mushrooms Ltd v Agricultural Wages Board of England and Wales2004 EWHC 1447 paragraph 74; and Ruchdeschel & Co v Hauptzollampt Hamburg-St Annen 1979 2 CMLR 445