First-tier Tribunal (Tax)

[2011] UKFTT 282 (TC)

TC01144

Appeal number: MAN/2006/0120

Reference to CJEU – application for permission to appeal to Upper Tribunal – application for stay of order for reference pending determination

FIRST-TIER TRIBUNAL

TAX

GRATTAN PLC (No 2) Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: JUDGE ROGER BERNER

JULIAN STAFFORD (Member)

Sitting in public, with restrictions for part of the hearing, at 45 Bedford Square, London WC1 on 8 April 2011

Paul Lasok QC and Rebecca Haynes, instructed by KPMG LLP, for the Appellant

Jonathan Swift QC and Peter Mantle, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.       By our decision released on 12 January 2011 [2011] UKFTT 31 (TC) we decided, firstly, to refer to the Court of Justice of the European Union (“CJEU”) a question (“the pre-1 January 1978 question”) as to whether, in relation to the period before 1 January 1978, by virtue of Article 8(a) of the Second Council Directive of 11 April 1967 (67/228/EEC) and/or the principles of fiscal neutrality and of equal treatment, taxable persons have a directly enforceable right to account for VAT in respect of supplies of goods by reference to the consideration that is actually received by the supplier (that is, reduced by any discount or reduction).

2.       Secondly, we decided that we would stay the proceedings in this appeal in respect of the substantive issue whether there is an EU law right to compound interest pending the determination of that question by the CJEU following the reference by the High Court in Littlewoods Retail Limited v Revenue and Customs Commissioners (see [2010] STC 2072 for the substantive judgment, and [2010] EWHC 2771 for the referral judgment).

3.       However, finally, in the light of the arguments that had been raised before us and the reference that had been made in Littlewoods of a question (Question 4) which, assuming that it is found that an EU law right to compound interest does exist, asks whether the principle of effectiveness requires disapplication of the statutory restrictions on such a remedy on any of the available domestic law remedies, or whether the principle can be satisfied by disapplication in respect of only one of those remedies, we decided that we should refer further questions (“the compound interest jurisdiction questions”) to the CJEU referable to Grattan’s own position, which was not addressed by the Littlewoods reference.

4.       Those further questions, which also depend on whether an EU law right to compound interest is found to exist, we suggested should encompass (a) whether the principle of effectiveness and/or of equivalence requires the remedy to be a single remedy for both the reimbursement of the principal sums overpaid and for the use value of the overpayment and/or interest, (b) whether, in circumstances where there are alternative remedies under domestic law, it is breach of the principle of effectiveness and/or equivalence for the remedy or remedies not to be in the statutory provisions governing the making of the principal reimbursement claims and the appeals from the administrative decisions on those claims and (c) whether it is a breach of the principle of effectiveness and/or equivalence to require a claimant to pursue the principal reimbursement claim and the claim for simple interest in one set of proceedings before the tribunal and the balance of the remedy required by EU law in respect of the use value of the overpayment and/or interest in separate proceedings before the High Court.

5.       We reserved the final form of the reference pending further representations on that, and on the precise form of the questions to be put to the CJEU.  Judge Berner gave directions on 10 January 2011 for further case management in this respect, including the right for either party to request a hearing to settle the form of reference.  That hearing was held on 8 April 2011.  We heard representations as to the form of the reference and the questions to be referred to the CJEU, both as regards the pre-1 January 1978 question, and also the compound interest jurisdiction questions.  We are considering those representations and, subject to this decision, will settle the form of reference shortly.

6.       This decision relates not to the form of the reference, but to an application by HMRC for a stay of the making of the reference on the compound interest jurisdiction question until after the application by HMRC for permission to appeal against our decision to refer that question has been determined.  HMRC’s position is that the reference should not be transmitted until both the application for permission to appeal has been determined and any consequent appeal to the Upper Tribunal (Tax and Chancery) has been heard and determined.  Grattan by contrast submits that the reference should be made immediately, and that no stay should be granted.

7.       Prior to the hearing on 8 April 2011, Judge Berner had, on 31 March 2011, considered, and refused, an application made by HMRC to the First-tier Tribunal for permission to appeal to the Upper Tribunal against the tribunal’s decision to refer the compound interest jurisdiction questions to the CJEU.  In refusing permission Judge Berner acknowledged that, subject to permission, there was a right of appeal to the Upper Tribunal against a decision to make a reference, on a point of law.  However, on the grounds put forward by HMRC, the judge concluded that the arguments were not sufficiently arguable, or had a reasonable prospect of succeeding, such that permission should be granted by the First-tier Tribunal.  This refusal means that HMRC may apply to the Upper Tribunal for permission to appeal, and we understood at the hearing that they intended to do so.

8.       Since the decision on 31 March 2011 to refuse permission to appeal there has been a significant development, namely the release by the Court of Appeal of its judgment on the appellants’ application in John Wilkins (Motor Engineers) Ltd and others v Revenue and Customs Commissioners [reference], which the court heard on 22 March 2011.  That application, in the appeal from the Upper Tribunal decision in that case (to which we referred in our own decision) was essentially for a reference to be made by the court to the CJEU of questions, so far as they related to compound interest, to similar effect as the questions referred on the substantive issue in Littlewoods, and in relation to the jurisdiction issue, to similar effect as the proposed compound interest jurisdiction questions that we had decided to refer.

9.       We are grateful to the Court of Appeal for having granted to HMRC permission to disclose to the tribunal a copy of the embargoed judgment so that it was available to us at the hearing on 8 April 2011.  This enabled us to consider it, in a part of our hearing that we directed was restricted to those who also had a right to see the embargoed judgment.

10.    The Court of Appeal in Wilkins refused the appellants’ application.  In relation to the question going to jurisdiction in respect of a compound interest claim, in essence, as appears from the judgment of Etherton LJ, with whom Lord Neuberger MR and Longmore LJ agreed, the court decided that it was not appropriate to refer that question to the CJEU.  It was held that the Marleasing principle[1] and the EU principles of effectiveness and equivalence are well-established and well-defined in case law.  Whilst their application to the facts of any particular case may be difficult, in the absence of some special feature such difficulty cannot warrant a reference to the CJEU.  The interpretation of national legislation is a matter for the national court to decide, and the national court will usually be better placed than the CJEU to decide whether, and the extent to which, the Marleasing principle and the principles of effectiveness and equivalence require national legislation to be interpreted or, in any event, applied in a particular way, bearing in mind the language of the legislation and the policy and principles underlying it.  The court did not consider that there was any special feature in the case that would warrant a reference.  It also observed that it would be strange for a reference to be ordered before the merits had been considered in a first appeal from the Upper Tribunal (which in Wilkins had been the first instance tribunal) or by any other appellate court in any case dealing with the same issues.

11.    As we had done, the Court of Appeal considered Question 4 in Littlewoods.  We had based our decision to refer questions on jurisdiction partly on the fact that Question 4 had been referred by Vos J.  That question related to the operation of the principle of effectiveness in the ascertainment of the appropriate remedy under domestic law, but confined itself to the restitutionary remedies available in that case.  Mr Justice Vos had remarked in Littlewoods that there was a possibility that the CJEU would, if requested to do so, provide further insight into the application of the principle of effectiveness; we adopted the same view in relation to the questions that arose in Grattan on the availability of remedies under the Value Added Tax Act 1994 and in the tribunal.

12.    The Court of Appeal decided, in contrast, that Littlewoods Question 4, although raising an issue about the application of the principle of effectiveness, concerns a distinct general principle of EU law, which had never been the subject of decision by the CJEU.  This was of a quite different character to the issues in the appellants’ proposed question (analogous to that we decided to refer) which, the court said, concerned the application of undisputed principles to particular facts.

13.    In the light of all this it falls to us now to decide whether to accede to HMRC’s application for a stay, or, as Grattan urges us, to make an immediate reference notwithstanding the application by HMRC to the Upper Tribunal for permission to appeal.

14.    Our power to direct a stay derives from rule 5(3)(l) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, which enables us to suspend the effect of our decision to make a reference to the CJEU pending the determination of HMRC’s application to the Upper Tribunal for permission to appeal, and the determination of the appeal itself.  That gives us a discretion which we must exercise judicially, having regard to the overriding objective (in rule 2) of fairness and justice.  Although we were referred to certain elements of the Civil Procedure Rules, in particular CPR 68.3, which provides that the reference will not, unless the court orders otherwise, be made until the time for appealing the reference has expired or the application for permission to appeal has been refused, or any appeal has been determined, the CPR, whilst in some circumstances instructive, does not apply to the Tribunal as such, and we do not regard CPR 68.3, nor any contrary practice that might have developed in the courts, as material to our own decision.

15.    This tribunal having refused permission to appeal, the question whether we have made an error of law is not, at this stage, one on which we should comment.  That is a question that now falls to be considered by the Upper Tribunal, firstly on an application for permission to appeal, and if such permission is granted, on the appeal itself.  The only question for us is whether, in all the circumstances of this case, we should stay our own reference pending a determination by the Upper Tribunal.

16.    In this respect Dr Lasok pointed out that the judgment of the Court of Appeal in Wilkins was on a preliminary application, and the refusal to refer was an exercise of procedural discretion.  That was to be contrasted with Grattan’s own position, where the decision to refer had been on a substantive hearing of the issues.  That may be right, but it seems to us that, following this tribunal’s own refusal to give HMRC permission to appeal, the basis of the Court of Appeal’s judgment, and whether there is an error of law, or arguably an error of law, in our own decision is now an issue that can be considered only by the Upper Tribunal.  The very fact of the Court of Appeal judgment is, however, a factor that we must consider in deciding whether to defer the making of our own reference.

17.    Dr Lasok referred us to Royscot Leasing Limited and others v Commissioners of Customs and Excise [1999] 1 CMLR 903 in support of an argument that it was more convenient for matters now to be dealt with by the CJEU, and, essentially, that the effect of HMRC’s application was to create satellite litigation.  Royscot was concerned with an application to withdraw a reference made by the Court of Appeal on the ground that the questions referred had been determined by another decision of the then ECJ.  That application was objected to on the grounds that the case was distinguishable, and that certain arguments had not been raised in the earlier case before the ECJ.  The court refused the application that the reference be withdrawn.  It reasoned that a contested hearing was not manifestly a more convenient way of dealing with the situation created by a new decision from the ECJ than taking the same point before that very court.  This was a form of satellite litigation which the courts in principle tend to discourage.

18.    It does not seem to us that any analogy can be drawn between this case and that of Royscot.  An application for permission to appeal to the Upper Tribunal, and any consequent appeal cannot, in our view, be considered to be satellite litigation.  The Upper Tribunal will not be making the same decision that would require to be made by the CJEU, although no doubt it will hear arguments that would also feature in any proceedings in Luxembourg.  It will be deciding, firstly, whether there is an arguable case that the tribunal has made an error of law, such that it will grant permission to appeal, and secondly, if permission is granted, whether the tribunal did make an error of law in deciding to make a reference.  That question is a discrete question from that which the CJEU would be asked to consider, and cannot in our view be characterised as satellite litigation.

19.    The question of the jurisdiction of a court or tribunal to refer questions to the CJEU was considered by the ECJ in the case of Civil Proceedings concerning Cartesio Oktakό és Szolgáltatό bt (Case C-210/06) [2008] ECR I-09641, [2009] All ER (EC) 269.  In summary, the relevant principles set out by the court were as follows (paras 88-97):

(1)        National courts have the widest discretion in referring matters to the CJEU if they consider that a case pending before them raises questions involving interpretation of provisions of community law.

(2)        Article 234 of the EC treaty (now Article 267) does not preclude decisions of such a court by which questions are referred to the CJEU for a preliminary ruling from remaining subject to the remedies available under national law.  From this we conclude that rights of appeal are preserved.

(3)        However, in the interests of clarity and certainty, the CJEU must abide by the decision to refer, which must have its full effect so long as it has not been revoked.  However, we consider that this does not preclude the referring court from suspending the effect of its own decision to refer.

(4)        The system of references is a dialogue between the referring court and the CJEU, independent of any initiative by the parties, the initiation of which (and we infer the suspension of which) depends entirely on the national court’s assessment of whether a reference is appropriate and necessary.

(5)        Whilst the outcome of an appeal cannot limit the jurisdiction of the referring court to make a reference to the CJEU if it considers that the case before it raises questions on the interpretation of community law necessitating a ruling by the CJEU, there is nothing to preclude a stay – even a mandatory stay under national law – pending a ruling by the appellate court.

(6)        Where rules of national law apply which relate to the right of appeal against a decision making a reference for a preliminary ruling, and under those rules the main proceedings remain pending before the referring court in their entirety, the order for reference alone being the subject of a limited appeal, the autonomous jurisdiction which Article 234 EC confers on the referring court to make a reference to the CJEU would be called into question if – by varying the order for reference, by setting it aside and by ordering the referring court to resume the proceedings – the appellate court could prevent to referring court from exercising the right, conferred on it by the EC treaty, to make a reference to the court.

(7)        It is for the referring court alone to draw proper inferences from a judgment delivered on an appeal against its decision to refer and, in particular, to come to a conclusion as to whether it is appropriate to maintain the reference for a preliminary ruling, or to amend it or to withdraw it.

20.    It can thus be seen that, although the decision to make a reference remains, even after an appeal against the order for reference, one for the referring court, there is nothing to preclude a stay, whether mandatory or discretionary, pending such an appeal, and following the appeal it is for the referring court to consider the appeal judgment and then to reach a conclusion on the reference.  The discretion to make or maintain a reference accordingly remains with this tribunal, having regard to what the Upper Tribunal might say on an appeal to it.  We accept that, as Parker J said in Lord Bethell v Sabena [1983] 3 CMLR 1 (at [12]), a case to which we were referred by Dr Lasok, where a discretion is conferred on a court, that discretion cannot be fettered, but a discretion is not in our view fettered if in the exercise of it a court takes into account what has been said by a higher court.

21.    In the light of all this, in particular the possible impact of the Court of Appeal’s judgment on the reference issue in Wilkins, which is a matter for the Upper Tribunal to consider on HMRC’s application for permission to appeal, and on any subsequent appeal, we consider that the proper course in these circumstances is for us to grant the limited stay or suspension of our decision which is sought by HMRC.  We have considered whether a stay would prejudice Grattan to such an extent that it would be wrong to exercise our discretion in such a manner, but, having regard to the circumstances that now exist, we cannot so conclude.

22.    It is right that the mere fact of an application for permission to appeal would, in normal circumstances, on its own not be sufficient to justify a stay.  A stay is, as Sullivan LJ said in DEFRA v Downs [2009] EWCA Civ 257, an exception rather than the rule, and solid grounds have to be put forward.  If those grounds are then established, the court must undertake a balancing exercise weighing the risks of injustice to each side if a stay is or is not granted.  In this case, were it not to have been for the Court of Appeal judgment in Wilkins, it would, we perceive, have been difficult for HMRC to persuade us that there were solid grounds for a stay.  But in making our own decision to refer we did not have the benefit of that judgment, and it is only right therefore, in the interests of justice, that the Upper Tribunal should be given the opportunity of considering it before this tribunal makes a final decision on the order for reference.

23.    The only other matter that we need to consider is the prejudice, if any, that will be brought about by delay.  In pursuit of the overriding objective the tribunal is enjoined by rule 2 to avoid delay, but only so far as this is compatible with proper consideration of the issues.  There is an issue here, namely, in particular in the light of Wilkins, whether the tribunal, in deciding to make the reference, made an error of law.  That issue, with the benefit of the Court of Appeal’s judgment, can for the first time only be considered by the Upper Tribunal.  Delay in the making of a reference is in these circumstances, in our view, justified by the need to ensure that the issues have been properly considered, by the appellate tribunal in this case.

24.    Delay could, we accept, potentially be minimised by an immediate referral, subject to withdrawal if the tribunal were minded to take that step in the light of any decision of the Upper Tribunal.  But we do not consider that, in the circumstances of this case, and for the reasons we have set out, such a course would be appropriate.  If it were to be the case that the Upper Tribunal decided that this tribunal would be making an error of law in referring the compound interest jurisdiction questions to the CJEU, it would have been entirely inappropriate for such a reference to have been made, in the circumstances that have arisen in this case, without first the Upper Tribunal having been given the opportunity to consider that question, and this tribunal then to have reflected on what the Upper Tribunal has to say.

25.    For these reasons, we grant the application of HMRC for a stay, and we suspend the effect of our decision to refer the compound interest questions pending the determination by the Upper Tribunal of HMRC’s application for permission to appeal in that respect.  We are satisfied that this is the only extent to which we are required to grant a stay.  If the Upper Tribunal does give permission, any application for a further stay or suspension pending the appeal itself can be considered by the Upper Tribunal.  As we have described, Cartesio confirms that proceedings may be stayed pending an appeal without that having to be in the discretion of the referring court.

26.    Referral of the pre-1 January 1978 question is unaffected by the stay in respect of the compound interest questions.  We shall settle that reference and send it to the CJEU as soon as practicable.