CAPITAL ONE DEVELOPMENTS LIMITED v COMMISSIONERS FOR CUSTOMS & EXCISE [ 2002] EWHC 197 (Ch)
[1]MR JUSTICE NEUBERGER : Introduction This is an application by Capital One Developments Limited, ("the claimants)" for an order that the Commissioners for Customs and Excise ("the Commissioners") pay them a sum of nearly £8 million, which is currently the subject of a bona fide disputed claim by the claimant before the VAT and Duties Tribunal ("the Tribunal"). The application raises questions relating to the court's jurisdiction to make an interim order for payment of input VAT which is subject to a disputed claim pending the resolution of the dispute by the Tribunal. The Facts[2]The claimants together with other companies in the Capital One group ("the group"), entered into a series of transactions designed to optimise the VAT position of the group in relation to the construction of a building at Station Road, Nottingham. As a result of these transactions and the construction of the building, the claimant made a VAT return for the period 4/2000 seeking a payment of about £8 million. The Commissioners rejected this claim on 27 July 2001. The claimants appealed that decision to the Tribunal to whom such appeals are directed by section 83 of the Value Added Tax 1994 ("the 1994 Act"). It appears that this appeal may well be heard in about three months time, with an estimate of ten days.[3]The facts and principles on which the substantive claim to the £8 million is made and resisted are not relevant for the purposes of this application. It is sufficient to say that each party accepts that the other party has a reasonable arguable case and that at least if the facts are determined by the Tribunal favourably to the Commissioners, the issues of law are agreed to justify a reference to the European Court of Justice ("the ECJ").[4]In March 2001, before it issued the appeal to the Tribunal, the claimants sought payment of the £8 million from the Commissioners on the basis that, if the claimants' contention was correct, they were being wrongly deprived of a substantial sum which they could profitably employ, and if the claimants' contention turned out to be wrong the repayment of the £8 million to the Commissioners would be guaranteed by a bank in the Capital One group. This request was rejected by the Commissioners. After further discussions the claimants issued the present application which effectively repeats the proposal of March 2001. The Prima Facie Position[5]The order sought by the claimants is an interim order in the sense that it would result in something happening, namely money being paid for a potentially temporary period in that the order would effectively be rescinded -- indeed, its effect reversed -- in the event of the decision of the Tribunal being adverse to the claimants.[6]At first sight, therefore, the claimants' case suffers from two defects. First, the court should not grant interim relief where it has no jurisdiction to grant final relief. Secondly, in any event, the court should not order a payment of money where the defendant's liability is disputed, save in accordance with principle applicable to an interim payment, which cannot be invoked by the claimants here.[7]So far as the first point is concerned, it appears to me that, at any rate in general, a court cannot grant an interlocutory injunction where there is no substantive action which it could entertain. That is well illustrated by the fact that if no claim form has been issued when an interim injunction is sought, the court will invariably require, as a condition of granting the interim injunction, an undertaking to issue a claim form. In this connection, it is true that the terms of section 37 of the Supreme Court Act 1981, which empower the court to grant an injunction, are very wide indeed. However, I do not think that they would enable the court normally to make an interlocutory order where there are no facts which would enable it to entertain an action in connection with the issue: see, for instance, Siskina [1979] AC 210, 254E.[8]Section 24(1)(a) of the Civil Jurisdiction and Judgments Act 1982 specifically empowers the court to grant interim relief in a "case where the issue to be tried relates to the jurisdiction of the court to entertain the appeal and that section 25(1) of the same Act gives the court power to grant interim relief, even where there are no proceedings on foot. However, it appears to me that the very existence of these statutory provisions indicates that, in their absence, the court would have no jurisdiction to grant such orders.[9]Section 25(1) of the 1982 Act has no application here. It is concerned with cases falling within the Brussels or Lugano Conventions. Section 24(1)(a) has no application because the court would have no jurisdiction to determine the issue as to the liability of the Commissioners for payment of the £8 million. That is because that is the very issue which the 1994 Act has directed be determined by the Tribunal: see the discussion in Glaxo Group Plc v Inland Revenue Commissioners [1995] STC 1075, 1080H-1084C per Robert Walker J.[10]As to the second point, while it may be wrong to suggest that it is an absolute principle, it seems to me that it would require very special facts before a court would be prepared to use its powers to grant an interim injunction to order that a payment of a disputed sum from a defendant to the claimant on the basis that it will be repaid if the claimant lost.[11]Payment into court to protect a fund or to protect a claimant, or a freezing order to protect the claimant is one thing. Payment of a deposited sum to the claimant before judgment, which the claimant may have to pay back if it fails, is quite another. As Mr Jonathan Peacock QC, who appears for the Commissioners, says, the CPR specifically deals with interim payment orders: see rule 25.7. Before any such interim payment order can be made, the court must be satisfied that the claimant will recover judgment for the sum which is to be paid over to it: see CPR rule 25.7(1)(c) and Schott Kem Ltd v Bentley [1991] 1 QB 61,71E-F, per Neill LJ. The Issues "The right to deduct shall arise at the time when the deductible tax becomes chargeable." "Where for a given tax period the amount of authorised deductions exceeds the amount of tax due, the member states may either make a refund or carry the excess forward to the following period according to the conditions they shall determine. However, member states may refuse to refund or carry forward if the amount of the excess is insignificant."(1) A taxable person shall - (a) in respect of supplies made by him; and …. account for and pay VAT by reference to such periods at such time and in such manner as may be determined by or under regulations and regulations may make different provisions for different circumstances.(2) Subject to the provisions of this section he is entitled at the end of each prescribed period to a credit for so much of his input tax as is allowable under section 26 and then to deduct that amount from any output tax that is due to him.(3) If either no output tax is due at the end of the period or the amount of credit exceeds that of the output tax then subject to subsections (4) and (5) below the amount of the credit or, as the case may be, the amount of the excess shall be paid to the taxable person by the Commissioners. An amount which if due under this subsection is referred to in this Act as a VAT credit." (a) Molenheide does not apply to the present application; (b) Whether or not that is right, the procedure adopted by the claimants is wrong; they should have applied for judicial review, and therefore this court should not grant the relief sought; (c) Even if the court does have power to grant the application, it should not do so. I shall consider those three questions in turn. Does Molenheide apply? "45. As regards next the effects which the principle of proportionality may have in this context, it must be emphasised that whilst member states may in principle adopt such measures, it is nonetheless the case that those measures are liable to have an impact on the national authority's obligation to make an immediate refund under Article 18(4) of the Sixth Directive. 46. Thus in accordance with the principle of proportionality the member states must employ a means which, whilst enabling them effectively to attain the objective pursued by their domestic laws are the least detrimental the objectives and the principles laid down by the community legislation. 47. Accordingly, while it is legitimate for the measures adopted by the member states to seek to preserve the rights of the Treasury as effectively as possible, they must not go further than is necessary for that purpose. They may not, therefore, be used in such a way that they would have the effect of systematically undermining the right to deduct VAT, which is a fundamental principle of the common system of VAT established by the relevant community legislation. 48. The answer to be given in that regard must therefore be that the principle of proportionality is applicable to the national measures which like those at issue in the main proceedings are adopted by a member state in the exercise of its powers relating to VAT since if those measures go further than necessary in order to attain their objective they would undermine the principles of the common system of VAT and in particular the rules governing deductions which constitute an essential component of that system." "56. Consequently, provisions of laws or regulations should prevent the judge hearing attachment proceedings from lifting in whole or in part the retention of the refundable VAT balance, even though there is evidence before him which would prima facie justify the conclusion that the findings of the official reports drawn up by the administrative authority were incorrect, should be regarded as going further than is necessary in order to ensure effective recovery and would adversely affect to a disproportionate extent the right of deduction. 57. Similarly, provisions of laws or regulations which would make it impossible for the court adjudicating on the substance of the case to lift in whole or in part the retention of the refundable VAT payments before the decision on the substance of the case become definitive would be disproportionate. 58. Third, the plaintiffs observe that it is impossible for a taxable person to request a court to adopt in place of the retention a different protective measure which is sufficient to protect the interests of the Treasury and it is less onerous for the taxable person, such as, for example, the provision of a bond or bank guarantee. Such a possibility is open only to the tax authority and is entirely a matter of its discretion. …. 61 it must be observed that the exercise of effective judicial review of the kind described above, in particular if both the court adjudicating on the substance of the case and the judge hearing attachment proceedings were able to grant the taxable person at his request and at any stage of the procedure a total or partial lifting of the retention would suffice to eliminate any lack of proportionality in the calculation of the amounts retained, in particular as far as penalties are concerned." Procedure: Judicial Review "The single most important difference between judicial review and civil suit [is] the differing time limits." "36. When considering whether proceedings can continue, the nature of the claim can be relevant. If the court is required to perform a reviewing role on what is being claimed as a discretionary remedy, whether it be a prerogative remedy or an injunction or declaration, the position is different from when the claim is for damages or a sum of money for breach of contract or a tort, irrespective of the procedure adopted. Delay in bringing the proceedings for a discretionary remedy has always been a factor which the court could take into account in deciding whether it should grant that remedy. Delay can now be taken into account on an application for summary judgment under CPR Part 24 if its effect means that the claim has no real prospect of success. 37. Similarly, if what is being claimed could affect the public generally, the approach of the court would be stricter and the proceedings only affect the immediate parties. It must not be forgotten the court can extend time to bring proceedings under RSC Order 53. The intention of the CPR is to harmonise procedures so far as possible and to avoid barren procedural disputes which generate satellite litigation." (1) Although this is an application for payment of money, it is, in my view, a claim for a "discretionary prerogative remedy" not for "breach of contract or a tort". It is therefore more clearly inappropriate for a civil suit, and more clearly appropriate for judicial review, than the claim in Clark [2000] 1 WLR 1988 . (2) The claim was brought within the time limit specified in CPR Rule 54.5. Unlike in Clark, therefore, no question of abuse of process could be raised against the claimants in that connection. (3) The claim is before a Judge who does not sit in the Administrative Court and has only incidental experience of administrative law cases.(4) While all the evidence which the claimants would wish to adduce on a judicial review application is, I understand, before the court, Mr Peacock tells me that it is likely that, if the claimants had proceeded by way of judicial review the Commissioners would have put in further evidence. Given that, in a judicial review, the reasoning behind the Commissioners' decision would have been under scrutiny, that point seems to me to have some force.(5) There is a danger that if I dismiss the application on the ground that it is brought in the wrong forum it will now be too late for the claimants to seek judicial review as they will be out of time for doing so. Conclusions (1) The claimants have a real prospect of success in their appeal on the substantive issue, as is conceded by the Commissioners. (2) The claimants will, on the face of it, be able to make good use of the £8 million as part of the working capital of the Capital One group. (3) A substantial sum of money is involved and if the claimants are entitled to it, it can be said to be particularly harsh to deprive them of it. (4) The claimants suggest that they can earn around 16% per annum on their working capital which, says Mr Patchett-Joyce, is substantially more than they are likely to be paid by way of interest by the Tribunal under section 84(8) of the 1994 Act. (5) The claimants and the group are plainly good for the return of the £8 million to the Commissioners if they lose the appeal, and they have made it clear that they will pay interest on the money while they have it, if they have to return it. (1) The Commissioners have a real prospect of successfully resisting the claimants' claim before the Tribunal, as the claimants accept. (2) The decision, whether or not to pay the £8 million on an interim basis to the claimants, is one primarily for the Commissioners. This court should not interfere with that decision unless it can be shown to have been based on irrelevant material, or that the Commissioners have ignored relevant material or have reached a conclusion that they could not reasonably have reached (always taking into account proportionality). (3) There is no presumption that an interim payment should be made. Mojenheide does not apply in that connection. As mentioned, that is well illustrated by the point, that, if the Commissioners succeed before the Tribunal on the substantive issue, then it could be said to be positively inimical to the principle of neutrality and the principles of VAT, invoked by the ECJ that the claimants should have the £8 million, even for a time, if it turns out that the provisions of the Sixth Directive mean that they should not have had the money. (4) There is no evidence of particular need, let alone urgency, on the part of the claimants for the £8 million. Not surprisingly, they would prefer to have the money rather than not have it, but no specific special facts are relied on beyond those to which I have referred. (5) The claimants have a right to seek interest from the Tribunal, and no doubt the Tribunal can and, if it thinks right to do so, will take into account the arguments on which the claimants rely for the payment now of the £8 million, and in particular their contention that they could earn 16% per annum on it. Whether the Tribunal should take that into account and, if so, the way in which they take it into account would obviously be a matter for them. But I do not see as a matter of principle why it is not something which the taxpayer can rely on, particularly once the Commissioners have been made aware of it.(6) This is not a case where the Commissioners have been said to have been guilty of, or even to have contributed to, any delay so far as the appeal procedure is concerned.(7) Although the claimant group represents a very good covenant, the claimants can be even more sure that the £8 million will be paid to them if the Commissioners lose before the Tribunal, than the Commissioners can be sure of repayment of £8 million if the claimants lose.(8) The claim for payment has been outstanding for significantly more than a year and the Tribunal's decision is likely to be forthcoming in less than nine months.(9) Although by no means conclusively governing this application, it is not irrelevant to bear in mind that the normal approach adopted by the court on interlocutory applications would lead to this application being dismissed - (a) as an interim payment application it cannot succeed: see CPR 25.7(1)(c) as discussed above; (b) as an application for an interlocutory injunction, the claim could only succeed if it was justified on grounds of "urgency" or "the interests of justice": see CPR 25.2(2)(b) relating to interlocutory injunctions. No question of urgency arises, and it seems to me difficult to say, in light of the factors I have mentioned, that the interests of justice would justify an order for payment; (c) the court is significantly less ready to grant an interim mandatory injunction (which is what this would be) than an interim prohibitory injunction; (d) in cases where the balance of justice or balance of convenience is pretty finely balanced, the court will normally retain the status quo, and in this case the status quo is the money not being paid. have been claimed by the claimants, and (c) that in general the breakdown looks reasonable, I think making a large deduction would be unfair on the Commissioners. It is rough justice, as I say, but I think the correct figure to award is £17,000. That is the figure I award by way of costs.
Cited in 2 later judgments