United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2007] UKVAT V20196

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City of Belfast Warehousing Ltd v Revenue & Customs [2007] UKVAT V20196 (12 June 2007)

20196

Value added tax – Input tax – Supply of goods and services – Deductibility of items claimed as input tax – Supply of professional legal services – Solicitors instructed Counsel briefed. Taxpayer the subject of company law proceedings – Petition to wind-up the company and for relief under Article 452 of the Companies [Northern Ireland] Order 1986 – Unfair prejudice – Shareholders joined to the proceedings – Whether professional legal services were supplied to the company or to the shareholders – Value Added Tax Act, s.24[1].

BELFAST TRIBUNAL CENTRE

CITY OF BELFAST WAREHOUSING LIMITED Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: ALISTAIR F W DEVLIN (Chairman)

ANTHONY HENNESSEY FCA

MISS P GORDON

Sitting in public in Belfast on 23 February 2007

for the Appellant Mark Orr Q.C. instructed by L'Estrange & Brett, solicitors

for the Respondents Nigel Bird of counsel, instructed by the solicitor for HM Revenue & Customs

© CROWN COPYRIGHT 2007


 


DECISION

The appeal

1. This is an appeal by City of Belfast Warehousing Limited ["the Appellant"] against a decision on the part of the Respondent to disallow to the Appellant input tax in the sum of £335,397.00.

Background of the Appellant

2. The Appellant is a member of a group of companies now known as the Golf Holdings group of companies. Within the group of companies are City of Belfast Warehousing Limited, that is the Appellant, and also Wine Inns Limited and James E. McCabe & Co. Limited. Two members of the group of companies, namely the Appellant and Wine Inns Limited have a group registration for VAT purposes, and the Appellant is and has been at all material times the representative member for that group registration.
3. The business which now forms part of the Golf Holdings group of companies first originated in the early 1970s. Its origins were in a relatively small unincorporated business known as Paul Hunt & Co. The nature of the business has always been concerned with and is still concerned with the sale and supply of food and beverages principally within the licensed trade. The Appellant for its part was then first incorporated in February 1979. An associated business operating bars and off licences was subsequently incorporated and known as Wine Inns Limited.
4. By the mid 1980s, the business had grown substantially. The Appellant's business was to act as a wholesaler of goods, principally alcoholic drinks, for the licensed trade That company also provided an administrative function for the benefit of the other companies in the group. Mr Paul Hunt was the principal shareholder in the Appellant company, owning 66% of the shares in that company; Patrick McCormack owned 25% of the shares, and Robert Davis owned the remaining 10%
5. By the mid 1980s, Wine Inns Limited held a portfolio of off-licence premises trading under the name 'Winemark'. Through these outlets, Wine Inns Limited carried on its business as a seller of off license alcoholic beverage type products. Wine Inns also owned approximately one hundred sets of licensed premises which it operated throughout Northern Ireland. Of the shareholding in Wine Inns Limited, Paul Hunt owned 45% of the shares, Patrick McCormack another 45%, and the remaining 10% of the shareholding was held by James Hunt otherwise known as Seamus Hunt. A further company, namely James E. McCabe & Co. Limited had been acquired in September 1983. Its business was to operate a distribution function for the other two companies in the group by supplying the various Winemark stores and other licensed premises with stock. In James E. McCabe & Co. Limited, the shares were held as to 45% by Paul Hunt, as to a further 45% by Patrick McCormack, and as to the remaining 10% by Robert Davis. By early 2000, the group had an annual turnover of approximately £130 million, and employed 1300 employees.

Background to the appeal

6. In February 2000 Patrick McCormack filed a Winding-Up Petition with the High Court of Justice in Northern Ireland ["the Petition"] under the provisions of the Insolvency [Northern Ireland] Order 1989 and under the provisions of the Companies [Northern Ireland] Order 1986. In the Petition, Mr McCormack complained that the affairs of the company had been and were continuing to be conducted in a manner which was unfairly prejudicial to his interests as a minority shareholder. The Petition also requested that Wine Inns Limited should be wound up. The Petition included a number of serious and adverse allegations about the way in which not only Wine Inns Limited, but also the Appellant and James E. McCabe & Co. Limited, had allegedly been operated by its directors and managers. The litigation initiated by the Petition was subsequently extended so as to encompass the other two companies in the group of companies.
7. The Board of Directors of the Appellant ["the Board"] made arrangements for a well known locally based firm of solicitors namely Messrs L'Estrange & Brett to act in the proceedings on behalf of each of the three companies named in the proceedings, and upon whom the proceedings had been served. That firm instructed counsel both Senior Counsel and Junior Counsel to act on behalf of the three companies in connection with the defence of the proceedings
8. Other firms of solicitors, three further firms in total, also then became involved in the defence of the proceedings. The firm of Mills Selig came on record for Paul Hunt and acted for him in the defence of the proceedings. That firm briefed counsel both Senior and Junior Counsel to act on behalf of Paul Hunt in the defence of the proceedings initiated on foot of the Petition. The firm of James J. Macaulay similarly came on record for Robert Davis and acted for him in the defence of the proceedings. That firm also briefed counsel both Senior and Junior Counsel to act on behalf of Robert Davis in the defence of the proceedings initiated on foot of the Petition. Furthermore, the firm of Jones & Company came on record for Seamus Hunt and acted for him in the defence of the proceedings. That firm briefed counsel both Senior and Junior Counsel to act on behalf of Seamus Hunt in the defence of the proceedings.
9. Ultimately, the litigation extended so as to encompass a number of contested hearings. These took place both in the Chancery Division of the High Court of Justice in Northern Ireland, and also in the Court of Appeal. The proceedings were ultimately resolved by means of a settlement negotiated between the parties. The three firms of solicitors instructed on behalf of Paul Hunt, Robert Davis and Seamus Hunt thereafter submitted bill of costs, which inclusive of counsels' fees amounted as follows. The firm of Mills Selig submitted a bill in the total sum of £742,539.00 inclusive of counsels' fees. The firm of James J. Macaulay submitted a bill in the total sum of £668,185.00 inclusive of counsels' fees. The firm of Jones & Co., submitted a bill in the sum of £505,836.00 inclusive of counsels' fees. The total amount of the legal costs incurred by these three firms on behalf of Messrs Hunt, Davis and Hunt therefore amounted to £1,916,560.00 [net of VAT].
10. Following a visit made to the Appellant's offices on 10^th November 2004 by a representative of the Respondents, an assessment of tax was raised on 30^th November 2004 by the Respondents in the sum of £335,397 plus interest. This assessment was raised by reason of the fact that the Respondents formed the view that the Appellant had wrongly reclaimed input tax in that same amount in the quarters 06/02, 09/02, 12/02 and 03/03 in respect of the professional legal fees. The Respondent made a request for this decision to be reviewed.
11. By letter dated 14^th July 2005 in a request for local reconsideration of the decision already notified, Mr Stewart Wilson, the company secretary of the Appellant sought to persuade the Respondent to reconsider its decision in the following terms:

'One of the Directors applied to the High Court to wind up the various group

companies making various allegations of mismanagement in his petition.

If this had not been defended then the companies would have been required

to cease trading and for all the assets to be sold off. The remaining Directors

and Shareholders of the companies believed it was proper for them to defend

the petition and protect the capability of the businesses to trade.

As part of the defence of the petition legal advice was required. This was extensive and detailed given the size and complexity of the businesses and the nature of the litigation. It was completely justified in the view of the majority of the Directors and Shareholders considering the clear threat to the business.

The final settlement involved no findings of mismanagement as had originally been alleged, avoided the winding up of the companies and was finalised by the reorganisation of the group and its shareholders. One director resigned with the acquisition of his shares by other Directors.

Undoubtedly, the overwhelming majority of the costs in question were incurred in defending an action which directly affected and was bound up with the existence of the business. We believe the input tax has been correctly recovered…..'.

12. Mr Colin Stockman, a Review Officer of the Respondents duly replied by letter dated 28 November 2005 in the following terms:

'The basis for my decision rests with the High Court summary applied by Justice Latham in the case of Frederick William Rosner –v- HM Customs and Excise in that you have not demonstrated that there is a clear nexus between the expenditure incurred [legal costs] and the purpose of this business.

It is simply not enough to assert the contention that any legal costs were directly attributable to the continued existence and benefit of the company. In order to pass the nexus test referred to in Rosner there should be a direct reference between the expense incurred and the purpose of the business.

The fact that each Director was separately represented and invoiced along with the representation of the Company Group indicates that these legal expenses were incurred as part of the individual personal capacities of each Director, and not for the purpose of the business.

Accordingly, I must inform you that I have decided to uphold this assessment in full. Should you wish to appeal against this decision you will need to apply to the independent VAT Tribunal for an extension of time in which to serve any appeal'.

It is as against the decision to uphold the assessment in the sum of £335,397.00 that the Appellant now appeals to this Tribunal. The grounds of the Appellant's appeal are stated in its Notice of Appeal to this Tribunal to be as follows:

'The sum assessed relates to input tax raised on 30.11.04 incurred by the registered person [and/or] is recoverable in full with the exception of a small proportion [in the region of £15,000 of VAT] which relates to an exempt supply'

The legal costs incurred by the Appellant itself in the instructing of its own firm of solicitors, and in connection with their briefing of counsel do not form any part of this appeal.

The witnesses

13. Mr Stewart Wilson, Company Secretary to the Appellant, and also to the two other companies in the group of companies gave evidence to the Tribunal by means of a written statement and he moreover attended for cross-examination and was cross examined. The Tribunal also received evidence from Mr Paul O'Hagan, an officer of the Respondents by means of a written statement. On the basis of that evidence and the cross examination of Mr Wilson, the Tribunal found the following facts to be established, above and beyond that is those facts already outlined above, which were not in dispute between the parties.
14. Each of the three firms of solicitors retained on behalf of Paul Hunt, Robert Davis and Seamus Hunt, that is the firms of Mills Selig, James J. Macaulay & Co., and Jones & Co., provided their bills of costs directly to the respective shareholders for whom they were on record. These bills of costs included not only details of the solicitors' professional fees incurred, but also those of counsel. The three bills of costs, incorporating three sets of counsels' fees had then been passed on to Mr Wilson by the three shareholders for payment. The Appellant had itself, through its Board of Directors appointed and retained its own firm of solicitors, Messrs L,Estrange & Brett, who had instructed to act on behalf of the Appellant in the proceedings. It was to that firm, and to the counsel instructed by that firm on its behalf that the Appellant gave its instructions in connection with the proceedings
15. The Appellant itself had not instructed any of the other firms of solicitors or counsel who subsequently became involved in the defence of the proceedings on behalf of Messrs Hunt, Davis and Hunt. The Board of Directors of the Appellant was not involved in assisting any of the three firms engaged. Nor was the Appellant at any stage under contract to pay any of the professional fees incurred by any of these firms.
16. The Appellant's own legal costs and counsels' fees were presented to it by the firm of Messrs L,Estrange & Brett, and were duly discharged by the Appellant to that firm. The other three sets of fees were passed on to the Appellant by the three directors who had been represented in the proceedings by those three firms, and it was the Appellant's Board which subsequently took the decision that these three sets of additional fees should also be discharged by the Appellant. Of the two undated bills of costs submitted by Jones & Co., one was directed to Wine Inns Limited, the other was directed to Seamus Hunt. Of two bills of costs submitted by the firm of James J. Macaulay, one dated 18 June 2002 was directed to Wine Inns Limited, the other however dated 6 September 2002 was directed to Robert Davis at Wine Inns Limited, Duncrue Place, Belfast. So far as the various bills of costs submitted by Mills Selig are concerned, a total of six invoices were before the Tribunal. Of these, four dated from late May 2002 and were directed to Paul Hunt Esq. Two further invoices, one of which was dated 28 May 2002 and the other of which was dated 15 November 2002 were each directed to Paul Hunt Esq., but also marked as being payable by City of Belfast Warehousing Limited.

The relevant legal principles

17. Section 24[1] of the Value Added Tax Act 1994 provides that input tax in relation to a taxable person means:

'[a] VAT on the supply to him of any goods or services;

[b] ……………….

[c] ……………….

being [in each case] goods or services used or to be used for the purpose of any business carried on or to be carried on by him.'

18. It was common case as between the parties to this appeal that, applying the above provision to the facts of this case, the implications of section 24[1] of the 1994 Act were as follows. Both parties accepted that in order for the Appellant to be able to properly recover input tax, it was going to be necessary for the Appellant in this appeal to be able to show not only that the relevant services, in this instance professional legal services, were supplied to it, but also that the relevant professional legal services were used for the purpose of the Appellant's business.
19. The parties accordingly agreed that on the facts of this particular case two principal question arose for determination by this Tribunal: firstly, was the relevant supply of professional legal services a supply to the Appellant and, secondly, if it was, was the service thus supplied used for the purpose of any business carried on by the Appellant. Using the analysis which has been widely adopted in previous similar cases, it is convenient to call the former question the 'To whom?' question, and the latter the 'Purpose' question.

Submissions of the parties

20. For the Respondent, Mr Nigel Bird submitted that the Appellant had failed to fulfil the requirements of either question as outlined above. On the issue of the 'To whom?' question, he submitted that on the facts of the matter, it was clear that the services in question had been supplied not to the Appellant itself, but rather to three shareholders of the Appellant in their capacity as defendants to proceedings which their former fellow shareholder Mr Patrick McCormick had initiated in order to sort out a shareholders' dispute. He sought to draw attention to the nature of the proceedings which had been initiated. He sought to analyse the proceedings in question as amounting principally to 'unfair prejudice' proceedings under Article 452 of the Companies [Northern Ireland] Order 1986. Such proceedings, it was submitted, are generally a means whereby a dispute between the various members of a company can be resolved between the members. The role of the company itself in such proceedings, he submitted, was generally to take as little involvement in the proceedings as possible, save and except insofar as it might for the parties to the proceedings or the Court to be assisted with such matters as discovery.
21. Mr Bird also drew attention to the manner in which a number of the bills of costs and counsels' fee notes had been drafted, and to whom they had been addressed and directed, namely to the shareholders themselves, rather than to the Appellant. In addition he sought to place reliance upon the fact that the Appellant was not and never had been under any obligation to discharge the cost of the services in question or any part thereof. The Appellant had simply elected so to do.
22. He submitted that the three shareholders in question had properly been joined to the proceedings in their capacity as shareholders of the Appellant. They had required and had obtained professional legal advice and assistance in that capacity, not in any capacity as directors of the Appellant. The correct answer, it was submitted to the question as to who the services had been provided had to be that the services had been provided to the shareholders, and not to the Appellant. If the Tribunal found in favour of the Respondent on the issue of 'To whom?' the services in question had been provided, that Mr Bird submitted was simply an end of the matter. It was only if the Tribunal were minded, inspite of his submissions to the contrary, to find that the services in question has in fact been provided not to the shareholders themselves but rather to the Appellant, that in such circumstances the second question namely as to what was the purpose for which the services in question had been provided arose.
23. On the 'Purpose' question, Mr Bird submitted that the Appellant would fail in any event. He relied upon the decision in Customs and Excise Commissioners –v- Rosner [1994] STC 228. He submitted that the decision in Rosner was authority for the proposition that for the VAT element of legal expenses incurred in relation to court proceedings to be able to qualify as input tax, there had to be a clear nexus as between the matter in relation to which the expenditure had been incurred, and the business itself. The mere fact that the business in question would have benefited from the expenditure was not the test. The true test, it was submitted, was as to whether the expenditure was directly referable to the purpose of the business. In the present case, whilst there might be an argument as to whether and if so to what extent the expenditure in question might have benefited the business of the Appellant that was not ultimately the issue. Since, in the present case, as it was submitted, there was no sufficient nexus as between the expenditure and the business of the Appellant, the appeal failed on the 'Purpose' question also. Mr Bird also cited and relied upon the decision in Commissioners for Her Majesty's Revenue and Customs-v- Jeancharm Limited [trading as Beaver International] [2005] EWHC 839.
24. For the Appellant, Mr Mark Orr Q.C. submitted that both questions had been satisfactorily addressed by the Appellant and were satisfactorily made out on the evidence adduced before the Tribunal. He referred the Tribunal to the preliminary written judgment delivered at a relatively early stage of the winding-up proceedings, and submitted that these proceedings had not been ordinary or run of the mill proceedings under Article 452 of the Companies [Northern Ireland] Order 1986. In such proceedings it was not normal, he submitted, for the petitioner to seek the winding-up of the company to which the proceedings related. In these proceedings, that particular form of relief was sought. In those circumstances, it was submitted, it was proper that the other parties to the proceedings namely Messrs Hunt, Davis and Hunt should move to have that application struck out, which is the course of action which they pursued via the firms of solicitors retained. The company, it was submitted, although a necessary and proper party to the proceedings, could not itself have initiated such an application. That course of action, it was submitted, could only have been pursued by the other shareholders involved in the proceedings.
25. Mr Orr accordingly submitted that these proceedings, although certainly initiated by Mr McCormick, the petitioner, under Article 452 of the 1986 Order, should very much be regarded as a special instance and example of such proceedings. He asked the Court to accept that Messrs Hunt, Davis and Hunt had regarded the petition as potentially having a disastrous adverse impact not only upon the Appellant itself, but also upon various different aspects of its business: its suppliers, its employees, its retail stores, its creditors. For that reason, and also by reason of the fact that many of the Appellant's licences held as part of its business, would have been held in the name of the Appellant, the very existence and future of which was now under serious threat, it was submitted that it was entirely proper for the three shareholders to become involved in the defence of the proceedings, and for them to instruct firms of solicitors on their behalf, in order that the interests of the Appellant might as a result be best safeguarded. For these reasons, it was submitted, the supply of legal services effected by the three firms of solicitors engaged by Messrs Hunt, Davis and Hunt had been a supply to the Appellant.
26. Mr Orr also relied upon the decision in the Jeancharm case, and upon the decision in Customs & Excise Commissioners –v- Redrow Group plc [1999] STC 161. He relied upon the decision in these cases as authority for the proposition that it was not necessary for him to have to show that the supply in question was one exclusively made to the Appellant. The supply in question could, he submitted, properly be a supply to both the company itself and also to the shareholders, and this would be sufficient for the requirements of section 24[1] to be satisfied.
27. Mr Orr further argued that whilst the Appellant might not have been under a pre-existing obligation to discharge the costs of the legal services supplied by each of the three firms of solicitors and three sets of counsel engaged, it had assumed a liability to that effect. It had assumed that liability, he argued, because as the evidence before the Tribunal showed, the Appellant itself had been satisfied that it was for the benefit of the Appellant for it so to do. The Appellant had received a service, and a benefit, and had assumed a responsibility to pay for it; that he submitted was sufficient to enable the service in question to have been one supplied to the company itself, at least in part.
28. On the issue of the 'Purpose' question, Mr Orr submitted that where, as he submitted here applied, there was a clear and immediate nexus as between the services supplied, and the business for whose benefit they were so supplied, the purpose question was also satisfied.

Decision

29. For the reasons set out below, the Tribunal is satisfied on the basis of the evidence adduced before it, and also on the basis of the arguments presented and developed before it that the extensive and no doubt complex professional legal services which were supplied by the three solicitors firms of Mills Selig, James J. Macaulay and Jones & Co., and which were also supplied by the three sets of junior and senior counsel whom those firms engaged at the total cost of £1,916,560 [net of VAT] were ultimately services which were supplied not to the Appellant, but were instead supplied in their entirety to the three shareholders whose interests were respectfully represented by them in the proceedings.
30. The following seem to the Tribunal to be the most significant factors in this case militating in favour of this finding. There is no evidence whatsoever before the Tribunal to indicate that the Appellant was in any way involved in the choice of any of the three firms of solicitors engaged, or in the furnishing of the initial instructions to any of the three firms of solicitors involved. All three firms appear to have been both selected and instructed by the three individual shareholders themselves.
31. The Tribunal is also satisfied that it will similarly have been the three shareholders themselves who will have given detailed instructions, information and assistance to the three firms of solicitors engaged respectively on their behalf No evidence whatsoever is before the Tribunal to suggest that the Appellant itself in any way assisted any of the three firms of solicitors or three sets of counsel involved, other than in terms of such minimal logistical assistance as it would in the circumstances have it was proper for it so to do as regards, for example, the making available for discovery purposes of relevant internally held company related documentation. The same assistance would however presumably have been available to the petitioner also.
32. Nor is there any evidence before the Tribunal to suggest that the Appellant in any way influenced or was in a position to influence the conduct of any of the firms of solicitors or sets of counsel in the decisions taken by them concerning their defence of the proceedings.
33. The drafting and actual contents of the various bills of costs also seem to the Tribunal to give some further support to the proposition that the legal services in question were in reality intended to be provided and were provided to the shareholders themselves rather than to the Appellant. Of the two undated bills of costs submitted by Jones & Co., one was directed to Wine Inns Limited, the other was directed to Seamus Hunt. Of two bills of costs submitted by the firm of James J. Macaulay, one dated 18 June 2002 was directed to Wine Inns Limited, the other however dated 6 September 2002 was directed to Robert Davis at Wine Inns Limited, Duncrue Place, Belfast. So far as the various bills of costs submitted by Mills Selig are concerned, a total of six invoices were before the Tribunal. Of these, four dated from late May 2002 and were directed to Paul Hunt Esq. Two further invoices, one of which was dated 28 May 2002 and the other of which was dated 15 November 2002 were each directed to Paul Hunt Esq., but also marked as being payable by City of Belfast Warehousing Limited.
34. In the view of this Tribunal the decision of the House of Lords in Customs and Excise Commissioners –v- Redrow Group plc [1999] STC 161 is central to a proper understanding of the true essence of this present dispute, and also central to its proper resolution. In that case, Redrow was part of a group of companies involved in the construction of private housing, and was the representative member of that group for the purpose of VAT. The group operated a sales incentive scheme whereby it paid the fees inclusive of VAT of those estate agents who were instructed to sell the existing homes of house purchasers, provided those house purchasers went on to purchase a Redrow group house. Redrow chose the agents, instructed them to value the prospective purchaser's existing home, and to handle its sale. Redrow as the taxpayer claimed input tax in respect of the VAT on the agents' fees paid by it arguing that it instructed the agents, and that their services had been supplied not only to the house purchasers, but also to it. The commissioners disallowed the claim to input tax, on the basis that the services supplied by the agents had only been supplied to the purchasers, and not also to Redrow. The taxpayer's appeal was allowed by a VAT Tribunal, which found as a matter of fact that the fees paid by the taxpayer to the agents were part of the costs of selling its homes, and were therefore expenditure incurred by Redrow in connection with its business. In Redrow therefore, at first instance, there was a finding of fact in favour of the taxpayer on the issue of the 'Purpose' question. The only outstanding question which remained on appeal was as to whether the fees paid by the taxpayer to the agents did or did not amount to expenditure incurred in the supply of services by the agents to Redrow. The commissioners contended that they did not, and only amounted to expenditure incurred in the supply of services to third parties, namely the house purchasers. As Lord Hope observed at page 165:

'The tribunal held that the fees paid to the estate agents were part of Redrow's cost components in the sale of its homes. On the facts it is beyond dispute that this expenditure was in connection with Redrow's business activities.

The critical question is whether the expenditure was incurred in the supply by the estate agents of services to Redrow'.

Further on in his judgment at page 166, Lord Hope further observed:

'Questions such as who benefits from the service or who is the consumer of it are not helpful The answers are likely to differ according to the interest which various people may have in the transaction. The matter has to be looked at from the standpoint of the person who is claiming the deduction by way of input tax. Was something being done for him for which, in the course or furtherance of a business carried on by him, he has had to pay a consideration which has attracted VAT? The fact that someone else, in this case, the prospective purchaser, also received a service as part of the same transaction does not deprive the person who instructed the service and who has had to pay for it of the benefit of the deduction'.

In his judgment Lord Millett at page 171 agreed that the proper starting point for any analysis on the question as to whom a service had been provided was the taxpayer, and his claim to deduct tax:

'……one should start with the taxpayer's claim to deduct tax. He must identify the payment of which the tax to be deducted formed part; if the goods or services are to be paid for by someone else he has no claim to deduction.

Once the taxpayer has identified the payment the question to be asked is: did he obtain anything – anything at all – used or to be used for the purposes of his business in return for that payment? This will normally consist of the supply of goods or services to the taxpayer. But it may equally well consist of the right to have goods delivered or services rendered to a third party. The grant of such a right is a supply of services. In the present case Redrow did not merely derive a benefit from the services which the agents supplied to the householders and for which it paid. It chose the agents and instructed them. In return for the payment of their fees it obtained a contractual right to have the householders' homes valued and marketed, to monitor the agents' performance and maintain pressure for a quick sale, and to override any alteration in the agents' instructions which the householders might be minded to give. Everything which the agents did was done at Redrow's request and in accordance with its instructions and, in the events which happened, at its expense. The doing of those acts constituted a supply of services to Redrow.'

35. There many significant and marked differences as between the facts of the Redrow case, and those of the matter presently before this Tribunal. In Redrow, the agents were selected by Redrow itself; here, it was the three shareholders who, so far as the Tribunal has been able to ascertain, selected each of the three firms of solicitors retained. In Redrow, the agents once retained, received their instructions from Redrow; here it was the shareholders themselves who furnished such instructions. In Redrow, the work which the agents undertook was the work which Redrow instructed them to carry out; here, it was ultimately the shareholders who decided what instructions their solicitors should receive, and what steps should be requested to be carried out on their behalf. Moreover, in the Redrow case, it was the taxpayer itself which, subject to conditions, was obliged to pay the agents' fees. In the present instance, that was not the position. In the present case, the Appellant was certainly not under any obligation to discharge the solicitors' fees, nor those of counsel. The Appellant chose so to do. Certainly the Tribunal understands why the Appellant might well consider it appropriate for it to have discharged those fees and expenses, and the Tribunal for its part makes no criticism of the Appellant for its decision to have done so. However, the fact remains that the Appellant was not under any obligation to discharge the solicitors' fees, nor the fees of counsel, nor any part of proportion of them; the Appellant simply elected so to do.
36. The Tribunal is certainly satisfied that the Appellant may properly be said to have derived a benefit from the professional legal services which were supplied by the three firms of solicitors and three sets of counsel engaged in the defence of the proceedings initiated by the petitioner, Mr McCormick. That is however not the issue which the Tribunal is required to address for the purposes of section 24[1] of the 1994 Act.
37. Nor does the Tribunal accept the suggestion that since in the proceedings initiated by him the petitioner elected to seek both a winding-up of the companies concerned and in the alternative relied under Article 452 of the Companies [Northern Ireland] Order 1986, the proceedings were in any particular respect a special case. The Tribunal sees nothing in the particular nature or circumstances of those proceedings which should properly persuade it to in any way depart or detract from the application of the principles outlined above.
38. The Tribunal finds that all of the professional legal services supplied to the value of £1,916,500.00 [net of VAT] were supplied not to the Appellant at all, but rather were supplied in their entirety to the Appellant's three shareholders, namely Paul Hunt, Robert Davis and Seamus Hunt. In order to have succeeded in this appeal the Appellant had to show first, on what has been referred to as the 'To whom?' question, that the services in question had been supplied to it, and secondly the Appellant had to show that the services were used or were to be used for the purpose of its business, that is the 'Purpose' question.
39. The Tribunal has concluded that on the first of these two questions, the Appellant has failed. On that basis, the second question, that is the so-called 'Purpose' question does not, it seems to us, arise at all. Therefore, for the reasons set out above, this appeal is dismissed.

ALISTAIR F W DEVLIN

CHAIRMAN

RELEASED: 12 June 2007

LON/2006/0020