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Cite as: [2000] EWHC Admin 327

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
CROWN OFFICE LIST


Case Nos CO/3546/98
& CO 1217/99.


Royal Courts of Justice
Strand
London WC2A 2LL

Friday 14th April 2000

B e f o r e
THE HON. MR JUSTICE CARNWATH
R -V- COMMISSIONERS OF CUSTOMS AND EXCISE
EX PARTE F & I SERVICES LTD
AND
F & I SERVICES LIMITED
-V-
COMMISSIONERS OF CUSTOMS AND EXCISE
__________
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
__________

Mr Michael Kent QC and Mr Rupert Anderson (instructed by Solicitors of HM Customs and Excise New Kings Beam House 22 Upper Ground London SE1 9PJ) appeared on behalf of HM Commissioners of Customs and Excise.
Mr Roderick Cordara QC and Miss Perdita Cargill-Thompson (instructed by Messrs Hutchinson Mainprice & Co, 80- Ebury Street London SW1W 9QD appeared on behalf of F & I Services Ltd
__________
Judgment
As Approved by the Court
Crown Copyright ©


THE HON. MR JUSTICE CARNWATH:
Part I - The Appeal
Introduction
1. I have before me an appeal from a decision of the VAT Tribunal (Mr Nicol and Mr Khan) dated 26th February 1999. (The related application for judicial review against the Commissioners of Customs and Excise will be considered in Part II.) The facts relevant to the appeal are fully set out in the Tribunal's decision and it is unnecessary to do more than summarise them.
2. The appeal concerned a proposed scheme, whereby books of vouchers would be sold to car dealers for them to offer to purchasers of cars. Each voucher was for a specified sum which could be used towards the purchase of goods or services with a named retailer (for instance The Sock Shop or Harvester Restaurants), or of mechanical breakdown insurance provided through the car dealer. The total nominal value of the vouchers in each book was approximately £2,200. They were sold to car dealers for the price of £10.40 each, and by the car dealers to their customers at a nominal price of £300, included as part of the overall price of the car (there is a dispute whether it represents the true price for the vouchers). The scheme was devised by the appellants ("F&I") who had an established business relationship with a car dealer network. They arranged for a company called Entertainment Publications Ltd ("EP") to design and produce the voucher booklet and to contract with the retailers named in the vouchers.
3. It was accepted by F&I that VAT was chargeable on the supply of books to the car-dealers, but it was hoped to avoid VAT on the supply by the dealers to their customers. The Customs initially expressed the view that no liability to VAT would arise at that stage, but they subsequently changed their position (the judicial review proceedings arise out of that change of position). The VAT Tribunal agreed with the Customs' revised view, and dismissed the appeal.
4. In this court, Mr Cordara for F&I challenges the Tribunal's conclusion. He relies on what he calls three "overlapping" arguments:-
(a) the provision of the voucher books is relieved from tax by reason of Schedule 6 para 5 of the VAT Act;
(b) Alternatively, the vouchers should be treated as pre-payment for the goods or services received by the customer from the retailer - the supply of the vouchers is not the moment of final consumption and does not in itself give rise to a tax charge;
(c) In the further alternative, the supply of the voucher books is an exempt supply of a financial service (Article 13B (d) 3 & 5 of the Sixth Directive).
Legislation
5. Schedule 6 of the VAT Act is headed "Valuation: Special Cases". It is introduced by section 19(1) which provides that "the value of any supply of goods or services" is to be determined in accordance with that section and Schedule 6. Para 5 of Schedule 6 provides:
"Where a right to receive goods or services for an amount stated on any token, stamp or voucher is granted for a consideration, the consideration shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds that amount."
6. Turning to the Sixth Directive, Article 11 contains provisions relating to the "taxable amount", which generally includes -
"Everything which constitutes consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies...".
In my judgment in Customs and Excise Commissioners -v- Bugeja [2000] STC1, I reviewed in some detail the European and English case law relating to non-monetary consideration. It is unnecessary to repeat that review.
7. Article 13 of the Directive deals with exemptions. Section B provides that:
"Member states shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse"
The transactions so exempted include the following under paragraph (d):-
3. Transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring; ....
5. Transactions, including negotiation, excluding management and safe keeping, in shares, interest in companies or associations, debentures and other securities...".
VAT at time of use
8. Although not directly in issue in this appeal, it is necessary to have some regard to the way in which the vouchers are treated for VAT purposes at their time of presentation by customers to the various retailers. Both parties accept that there needs to be a measure of reciprocity in the treatment of the vouchers at the stages respectively of sale to the customers and use by them. This is necessary to avoid the supply represented by the vouchers, on the one hand, being subject to double taxation, or on the other hand falling out of the tax net altogether.
9. This point can be illustrated by reference to the example of a book token, which both parties regard as falling within para 5 of Schedule 6. The sale of a book token does not attract any liability to account for VAT at that stage; but when it is used to purchase a book the nominal value of the book token is treated as a part of the consideration on which VAT is charged. In commercial terms there is only one transaction, the sale of the book; the issue of the book token is treated as a stage in that transaction.
10. In this case F&I argue that the vouchers are equivalent to book tokens, and that, accordingly, they attract no liability to VAT at the time they are sold to the customers; but, as a corollary, the face value of the vouchers should be brought into account as part of the consideration, when they are used. By contrast, the Customs say that VAT is chargeable on the supply to the customers, but not at the time of use by them; they cannot be regarded as part of the consideration at that stage, since, unlike book tokens, they have no value to the retailers.
11. It also has to be borne in mind that this aspect of the appellant's submissions involves parties not before the Court (the retailers) being potentially subject to a more onerous burden of VAT than would be the case on the Customs' view. To meet this point, the appellants have obtained letters from a number of typical retailers explaining that they are content with this aspect of the scheme.
Customs Guidance
12. By way of further background, it is helpful to bear in mind that business promotion schemes, involving vouchers for gifts and discounts, come in a number of forms. A booklet issued by Customs and Excise in 1994 - "Business Promotion Schemes" (VAT Notice 700/794) - distinguishes between "money-off coupons" and "face/cash value vouchers".
13. Money-off coupons are "coupons used to offer to the public a reduction in the price of future purchases". The person supplying the coupons is advised:
"...The sale of discount coupons...entitling the holder to discounts on purchase from you has the same VAT liability as the goods/services purchased. If you are a retailer the monies received from such a sale of coupons are to be included in your daily gross takings."
The retailer to whom the voucher is presented is told:
"At the time the coupon is redeemed by the customer you should only include in your daily gross taking the payment made."
14. The other form of voucher is described in these terms:
"Basically, these are vouchers which are commonly called 'gift vouchers'. They show a cash value and are normally sold at, or below, face value and can be used without further payment. There is no VAT due on their sale unless sold for an amount greater than the face value. VAT is only due on the excess above face value... When redeemed for goods or services these vouchers are consideration (payment). The redemption value is the full face value".
15. The Customs consider that the vouchers in this case should be regarded as "money-off coupons", within this categorisation.
Schedule 6 Para 5
16. The tribunal held that the first issue was concluded against the appellant by the Court of Appeal decision in Customs and Excise Commissioners -v- Granton Marketing Ltd [1996] STC 1049. Granton produced discount cards which were purchased by the public either directly or through intermediaries. Every "Granton card" carried the name of a particular restaurant and entitled the cardholder, when he ordered a meal, not to be charged for one of the main courses served, or for one bottle of wine. The Court of Appeal held that Schedule 6 para 5 had no application. The Customs had submitted:
"The card confers on the cardholder no 'right' in the sense intended by that paragraph as against the restaurant at all. Alternatively if it does confer any such right, it is no more that an entitlement to a discount on the bill when qualifying meals are supplied. There are therefore no 'goods or services' received for 'amount stated' on the token or voucher."
The Court of Appeal (per Waite LJ) found this submission "wholly persuasive". The judgment continued:
"The only 'right' conferred by the card on the cardholder vis-à-vis the restaurant is a right to pay less (by an amount equivalent to one main course or one bottle as the case may be) than the full price for a two course meal for two and the wine served with it. The cardholder has no right to be supplied, merely by virtue of his ownership of the card, with any particular goods and services by the restaurant, which may refuse to serve him on the ground, for example, that the restaurant is closing early, or is full. His only right is to be allowed the appropriate reduction in price if and when he is served with a meal of the required size." (p 1053).
17. On its face, that is indeed conclusive against the appellants in this case. The vouchers do not entitle the bearer to any particular goods, but simply to a reduction in the price.
18. However, Mr Cordara makes three points which he says entitle me to distinguish or not follow Granton :-
(1) The common assumption before the Court of Appeal was that the effect of upholding the appeal would be that the cards fell out of the VAT net altogether; that is not the effect of his submissions in the present case.
(2) The Court of Appeal's interpretation, requiring that there should be a right to particular goods, is too narrow since it would, for example, exclude book tokens from the scope of Schedule 6 para 5.
(3) More generally, the Court of Appeal was not addressed on the wider arguments based on the Sixth Directive.
19. The last point I will deal with separately under Mr Cordara's third submission. As to the second point, Mr Kent does not seek to argue that paragraph 5 requires the coupon to confer a right to particular goods. To this extent, he accepts that the passage cited above from the Court of Appeal may go too far (and further than was necessary for the decision). The key distinction is between vouchers which can be exchanged for goods without further payment, and vouchers which can only be used by way of discount or part payment. As Tucker J said at first instance ([1995] STC 510, 512):
"The essential feature of vouchers in the present case is, in my opinion, that they cannot be used for the obtaining of food and wine unless the customer also pays for something else....The effect of using the voucher is to obtain, not goods or services, but a reduction in the bill."
20. The first point requires a little more explanation. It is true that one of the factors which may have influenced the Court of Appeal in Granton was that, on the taxpayer's arguments, the discount cards would fall out of tax altogether. It was apparently common ground in the Court of Appeal that, at the time of purchase of the meal, the consideration for VAT purposes would be the discounted price, without any addition to represent the nominal value of the card (see p 1053 A-B). On this point there seems to have been a change of view by the Commissioners since the Tribunal. Tucker J records that previously the Commissioners had considered that the retailer should be liable to VAT on the discounted element, but this was now acknowledged to be an erroneous view (see [1995] STC 510 at 512G).
21. Mr Cordara now submits that the common assumption that there would be no VAT on the discounted element was wrong, or in any event does not apply to this case. He relies on the principle in Naturally Yours Cosmetics -v- Customs Commissioners [1988] STC 879. In that case, any hostess organising a promotional party for the company was rewarded by the gift of a pot of cream. For VAT purposes, it was held that the company received consideration in the form of the promotional services, and that the monetary value of that consideration was equivalent to the price attributed by the parties to the pot of cream. In the present case, by analogy, Mr Cordara argues that the retailers received consideration in the form of the promotional benefits of the scheme, which, on each individual transaction, is equivalent to the nominal value of the voucher presented. He relies on the Tribunal's finding (para 6):
"The retailers were aware that in return for agreeing to be named in the vouchers, they were receiving the benefit of EP Ltd Services in disseminating the vouchers and thus giving advertising services to the retailer, in addition to any monetary consideration that the transaction might generate."
He says that this finding of fact undermines the validity of the Tribunal's subsequent conclusion (p51):
"... The retailer does not receive consideration for the reduction in his charges on redemption of the vouchers from the third party, EP Ltd under the Naturally Yours Cosmetics principle. The direct link which is required is absent in this case as between what EP Ltd does and the purchase of a meal or goods by the customer."
22. I do not see any inconsistency. The earlier passage merely acknowledges that the retailers do get a general benefit from their involvement in the scheme. On the other hand, they get no specific benefit, when the customer presents a voucher on an individual purchase. There is no direct link between the supply of goods at that point and the overall benefit they get from participation in the scheme. In Naturally Yours Cosmetics, by contrast, the gift (of a pot of cream) was a reward for the specific service of organising a private party.
23. Accordingly, I agree with the Tribunal that this issue is concluded against the taxpayer by Granton. I would have reached the same view even if not constrained by that authority. (I should add that there was a suggestion before the Tribunal that the vouchers for breakdown insurance might be in a different category, but this failed on the facts (decision para 24)).
Prepayment
24. Mr Cordara's second submission is that the payment received upon supply of a book of vouchers should be analysed "as pre- or part- payment of the price of the goods finally received by the customer from the retailer". The consequence would be that VAT liability would follow that of the goods or services finally supplied (standard rated, zero rated or exempt). He relies by way of analogy on British Railways Board -v- Customs and Excise [1977] STC 221, in which it was held that a payment for a student railcard should be treated as part payment in advance for the later supply of transport and should therefore be zero rated.
25. He accepts that the consequence of this is that the Commissioners will have to wait until the vouchers are presented in order to know how to tax them, but he says that is not an exceptional position in the context of VAT.
26. The Tribunal dealt with this briefly.
"In our view the payment of £300 by the customer, or whatever sum it happens to be, cannot in reality be regarded as a pre-payment of any sum between £1.50 and £2,200; in any event, the redemption of the voucher involves no payment of any nature to the retailer, only a reduction in what the retailer will receive for his retail sales."
27. I agree. It seems to me wholly artificial to treat whatever the car dealer receives for the vouchers as a "pre-payment" of sums due to retailers, if only because none of the money ever reaches them.
Exempt financial transaction.
28. Mr Cordara's third submission is that the sale of the books of vouchers to the customers should be treated as a financial service, within the categories defined by Article 13B(d) (3) and (5) of the Sixth Directive (given effect in the English law by Schedule 9 of the VAT Act Group 5). In essence, he asked me to regard the vouchers as constituting a form of money or security for money. He relied on two authorities as supporting this approach, one a recent decision of the VAT Tribunal in Kingfisher -v- Customs and Excise (21.12.99), and the other a decision of the Dutch Supreme Court.
29. The Kingfisher case concerned arrangements between a number of High Street retailers, including Woolworth's, and a credit company (Provident). Customers were able to buy vouchers from the credit company, which had a face value printed on them and a statement authorising retailers to charge the face value to the company's account. When buying goods, the customer could present the voucher to the retailer, who would recover from the credit company a cheque for the face value, less an agreed percentage. The Tribunal (Stephen Oliver QC) held that the service supplied by the credit company was dealing with a "security for money". He said this:
"The word security when used without qualification or in a context that demands a narrow or specific construction, has a wide meaning. The voucher, when presented by the customer to the participating retailer, evidences Provident's obligation to meet the price of the goods purchased by the customer to the extent of the face value of the vouchers. As such it is a security within the wide meaning of that word. Moreover Provident's services have similar features to the services supplied by credit card companies, and credit cards are referred to in note 4 to Group 5."
Whether or not that is the correct analysis of those facts, it does not help the appellant in this case. As the Tribunal found, the voucher in that case evidenced an obligation to pay money. In this case, the voucher does not represent an obligation to pay anything. It is worthless in the hands of the retailer.
30. The Dutch case was relied on by Mr Cordara before the Tribunal in the present case. They found some difficulty in ascertaining, from the unofficial translations put in front of them, the precise implications of the decision of the Dutch Supreme Court in that case. I share their difficulty. It appears that there had been a resolution of the State Secretary of Finance on 22nd December 1992, regarding the VAT treatment of gift vouchers. The resolution appears to have been designed to resolve uncertainties about how VAT should be applied to gift vouchers other than vouchers for books and gramophone records, for which special regulations had been made. It indicated that such vouchers were properly regarded as securities under the VAT Directive Article 13.
31. Against this background, an appeal against a VAT assessment had been made by a business which supplied what were called "A-cards". The holder of such a card was entitled to a reduction on orders placed in restaurants listed on the card. The retailer, who gave a discount on presentation of an A-card, was not entitled to any reimbursement. The point at issue in the lower courts was stated to be whether the A-card could be regarded as "negotiable paper", as stipulated in the provisions relating to financial services. But reliance was also placed on the terms of the 1992 resolution, because the cards were said to be similar to the gift vouchers there referred to.
32. The Amsterdam Court upheld the Inspector's decision that the transactions were not financial services, apparently taking the view that the provisions relied on applied to instruments which fulfilled a function comparable to that of a cheque in a payment transaction. This decision was reversed by the Supreme Court in a judgment given on 15th July 1998. The available statement of their reasons is very brief, and it is not clear whether or not this is merely a summary of a fuller judgment. The Court held:
"(The judgment below) is incorrect, since according to the facts given... the A-card can be used as (partial) payment for food and drink. The resolution states that in such cases, no VAT is due on the supply of gift vouchers and that VAT is due only when the gift voucher is used for payment for goods or services. Defence (4) therefore rightly objects to the violation of the aforementioned resolution."
In view of this conclusion, the Court said, the "remaining defences" required no treatment. Unfortunately, it is not clear from the papers before me what precisely the other defences comprised. However, it seems likely that they included the specific issue, based on the construction of the Directive, as to whether the cards were "negotiable paper". The Supreme Court appears to have considered it unnecessary to deal with that issue, since they were able to dispose of the case on the basis of the violation of the resolution.
33. It is true of course that VAT is a European tax, and therefore should be administered consistently throughout the EU area. A fully reasoned decision of the Netherlands Supreme Court, on the construction of a provision of the VAT Directive, would no doubt be entitled to considerable respect. However, as I read it, this is not a decision on the construction of the Directive itself, but is based entirely on the wording of the Minister's resolution. I have no information as to what status that resolution had in Dutch law, nor what principles the Supreme Court was applying in giving effect to it. Nor do I have any information as to whether the position taken by the Dutch authorities reflects practice elsewhere in the Community. Accordingly, I do not gain any assistance from that decision.
34. The Tribunal rejected the submission based on the Directive, because:
"If the retailer is, as we have found, doing no more than giving a discount, it follows that the voucher is not a security for payment, since no payment is involved."
Again, I agree. The voucher was worthless in the hands of the retailer. I find it difficult, therefore, to see how it can be regarded as in any sense a transaction concerning payment, or a security, within the meaning of the Directive.
Conclusion on appeal
35. For the above reasons the appeal fails. In substance, I agree with the Tribunal's reasons for upholding the assessments. I do not find it necessary to refer the matter to the European Court. In the light of the Granton decision, and for the reasons I have given, the position appears to me to be clear.
Part II - Judicial Review
Introduction
36. I have already referred to the essential facts which underlie the judicial review application. The statements by the Customs relied on as giving clearance for the scheme were in two letters of 18th November 1997 and 3rd March 1998, both signed by Miss Sellick on behalf of the Customs. It is claimed that these gave an unqualified assurance that, by virtue of Schedule 6 paragraph 5, the car-dealers would not need to account for VAT on the sale of the voucher books, provided they were sold at or below their face-value. I agree that this is the effect of the letters. I will deal below with the limited issue which arises as to whether there was full disclosure by F&I.
37. The Customs' change of position was notified by letter dated 24th June 1998. There was a meeting on 6th July 1998, at which representatives of F&I attempted to persuade the Customs to go back to their previous view, and at which they informed them of the financial consequences of the change of position. However, on 17th July the Customs reconfirmed their position, but indicated that they would allow a period of 30 days before their changed view was put into effect (that is, until 16th August 1998).
38. In the form 86A it is claimed that following the initial clearance, F&I spent in excess of £350,000 in preparing for the launch of the scheme. That included engaging EP, making arrangements with retailers interested in appearing in the voucher book, commissioning the design, recruiting car dealers in addition to those with which F&I already had a relationship, training representatives who would sell voucher books to car dealers, and so on. It is said that 17,000 of the voucher books were distributed. It is also claimed that the scheme would have generated substantial profits for F&I. Following the change of position, VAT became chargeable on the sale of the voucher books at 17.5%. It is claimed that this rendered unviable the sale of the remaining 33,000 booklets held by F&I at that time.
39. It is unnecessary at this stage to look at the detail of these claims. There is no reason to doubt that substantial work was undertaken in reliance on the clearances given by Miss Sellick. If it is held that the Customs are in some way liable to recoup this expense, or compensate for loss of profits, the precise figures will have to be determined later.
Adequacy of disclosure
40. As I have indicated, there is a potential issue as to whether full disclosure was made on behalf of F&I prior to the first ruling in November 1997. A letter from Arthur Anderson (for F&I), dated 25th October 1997, described the scheme in summary. It said:
"The product itself will be a book of vouchers, each with a face value. The voucher can be used by the purchaser, as a contribution towards the purchase of various goods and services."
There was an appendix which described the steps in the arrangement, the first of which was:
"EP Ltd has designed and produced the product, i.e. the voucher booklet. EP Ltd contracts with suppliers (typically restaurants and High Street stores) to enable it to issue vouchers which can be exchanged in return for the suppliers' goods and services, to a specified value."
41. This was the information on which Miss Sellick's first ruling was based. Mr Kent suggests that the description is potentially misleading, since it implies that these are gift vouchers which can be exchanged for goods without further payment, rather than discount vouchers.
42. Thereafter, a more detailed account was given by Arthur Anderson on 6th February 1998. That letter confirmed that the vouchers would be supplied in the manner outlined in the appendix to the previous letter, but it gave further information, including a statement that -
"the vouchers will be exchanged in part/full payment for mechanical breakdown insurance to cover the recently acquired second-hand motor vehicle".
With the letter was enclosed a "mock-up" of the voucher booklet. The second ruling on 3rd March was based on the information in this letter.
43. In these proceedings, there is an affidavit by Trevor Lewis, the Policy Adviser for the relevant directorate in Customs. He suggests that the letter of 25th October was ambiguous on the "critical question" of whether the vouchers conferred a right to receive goods or merely a discount. However, he accepts that -
"With the benefit of hindsight it would have been preferable for the local office to seek specific clarification of the ambiguities ....., since the precise nature of the rights conferred by the vouchers was not identified, or to have sought guidance from headquarters".
He accepts that was not done before the letter of 18th November was written. He continues:
"But matters did not rest there. Arthur Anderson wrote a further letter dated 6th February 1998 to Miss Sellick. That letter enclosed a mock-up of the voucher booklet and it is clear from the wording on these vouchers that they can only be used to obtain a discount on the price of certain goods and services and therefore fall outside the terms of paragraph 5 of Schedule 6 to the VAT Act. Certainly by that point at least, it is accepted that Miss Sellick was in possession of sufficient facts to enable her to reach a correct conclusion as to the VAT consequences of the scheme. Unfortunately she did not, and in her letter of 3rd March 1998 she confirmed the erroneous view expressed by her in her previous letter of 18th November 1997. Thus the local VAT office made the same error and expressed an incorrect view on the law to Arthur Anderson. It may be that the error arose by reason of the original ambiguities, which were not specifically addressed in the second Arthur Anderson letter (which again uses ambiguous phrases such as 'be exchanged in part/full payment'), albeit the necessary information was available from the mock-up vouchers." (emphasis added).
44. It is therefore common ground that, by the time of the second ruling, the Customs had all the information necessary to make a correct ruling. Whether there was adequate information at the time of the first ruling may affect the amount of compensation, if a right is established, but does not affect the principle.
Legal basis of claim
45. The Form 86A in its original form asserts that the decision to withdraw the previous rulings giving clearance to the scheme was "unfair so as to amount to an abuse of power". The relief sought is an order of certiorari to quash the decision, or a declaration that it was an abuse of power; and a prohibition or injunction to prevent the Customs from making an assessment or imposing penalties on a basis departing from the earlier letters, so far as concerns the 50,000 voucher books which F&I had purchased in reliance on those representations or the 17,000 voucher booklets which car dealers had contracted to purchase.
46. In the alternative there is claim to damages. The legal foundation of this is stated at paragraph 46 of the Form 86A:-
"If an applicant reasonably acts upon a clearance given by the respondents and has thereby incurred expenditure and loss, fairness demands that the applicant be compensated by the respondents. A refusal to do so would also constitute an abuse of power: see Matrix Securities -v- IRC [1994] STC 272 at 284 per Lord Griffiths."
47. At the hearing before me the applicant applied to amend the Form 86A, to include a claim based on negligence, as follows:-
"46A Where the Commissioners, being in possession of the relevant facts, assume an obligation to provide specific advice to a particular tax payer in response to a specific enquiry (and in particular to advise that taxpayer of the fiscal treatment that the Commissioners would apply to a particular arrangement), a duty of care arises to exercise reasonable care and skill in the giving of that advice. Where the Commissioners fail to exercise proper care and skill in giving that advice, a liability in negligence will arise.
52A The Respondents have failed to exercise proper care and skill in that Miss Sellick's unequivocal rulings were made carelessly and without any, alternatively proper, regard to the Commissioner's settled policy at the time of the rulings (as is shown by the fact and circumstances of the subsequent withdrawal of her rulings (rulings described by the Commissioners as plainly wrong))."
48. Mr Kent for the Customs did not object to this amendment. He indicated that the Customs would welcome a ruling whether such a claim could be made. However, he submitted that I would not be able, in the context of these proceedings, to do more than decide whether a common law duty of care could in principle arise on the facts alleged; and that he would wish to reserve issues of reliance, contributory negligence, and other detailed questions on the facts. (Of course, in view of the way the issue of negligence has arisen, there has been no opportunity for pleadings on such issues.) In effect he was asking me to deal with this on a "strike-out" basis. In those circumstances, I indicated that I would defer a decision whether to allow the amendment, until my judgment on the main issues.
Effect of tax clearance
49. The principles applying to such clearances given by the tax authorities are now well-established. For present purposes it is sufficient to take the summary of the law as given by Lord Browne-Wilkinson in Matrix Securities -v- IRC, [1994] STC 272, 292.
"It is now established that, in certain circumstances, it is an abuse of power for the Revenue to seek to extract tax contrary to an advance clearance given by the Revenue. In such circumstances, the taxpayers can by way of judicial review apply for an order preventing the Revenue from seeking to enforce the tax legislation in a sense contrary to the assurance given (see Preston -v- IRC [1985] AC 835). But the courts can only restrain the Revenue from carrying out their duties to enforce taxation obligations imposed by legislation where the assurances given by the Revenue make it unfair to contend for a different tax consequence, as a result of which unfairness the exercise of their statutory powers by the Revenue would constitute an abuse of power (see [1985] AC 835 at 864 per Lord Templeman). It is further established that if the taxpayer, in seeking advance clearance, has not made a full disclosure of the relevant circumstances, the Revenue are not acting unfairly, and therefore are not abusing their powers, if they go back on an advance clearance which they have only given in ignorance of the relevant circumstances (see [1985] AC 835 at 867 per Lord Templeman, and R -v- IRC, ex p MFK Underwriting Agencies Ltd [1990] 1 WLR 1545".
50. In that case the applicant had obtained what it thought to be clearance from the Revenue for a complex scheme, whose effectiveness depended on whether investors would qualify for capital allowances. The Inspector initially gave a favourable assurance, but that was subsequently withdrawn. The House of Lords held that the Revenue was not bound by the initial assurance, either because the Revenue had not been given full and accurate information, or because the Revenue had made it clear that it would not regard itself as bound by clearances given at local level.
51. The claim to compensation, as formulated in the Form 86A, is based on a passage in Lord Griffiths' speech. He agreed that on the facts no abuse of power had been established, but added (p 284):-
"If, however, the applicant had been entitled to rely on the clearance given by the inspector and had spent money in promoting the scheme before the clearance was withdrawn, then it seems to me that fairness demands that the applicant should reimbursed for out-of-pocket expense and it could be regarded as an abuse of power for the Revenue to do so. This point does not have to be decided in this appeal but I mention it because this aspect of the argument only surfaced towards the end of the hearing and the Revenue strenuously resisted any liability to compensate the applicant in such circumstances."
I shall need to consider below to what extent that obiter dictum represents the law.
52. It is clear, in any event, that the mere fact that the advice turns out to be wrong in law does not by itself entitle the Customs to go back on it. That was made clear in R -v- IRC ex parte MFK, referred to with approval by the House of Lords in Matrix Securities. In that case the applicants claimed to have relied on assurances by officials of the Revenue that the "indexation uplift", reflected in the sale price of certain bonds, would be taxed as capital gain and not as income. The Court clearly regarded it as a proper exercise of the Revenue's managerial discretion to give advice of that kind, and to treat it as binding, even if on mature consideration it turned out to be wrong in law (see per Bingham LJ at p891J - 892H). It is of course only when the advice turns out to be wrong that the binding effect of the advice becomes relevant. As Judge J said:
"The Revenue is not bound to give any guidance at all. If however the taxpayer approaches the Revenue with clear and precise proposals about the future conduct of his fiscal affairs and receives an unequivocal statement about how they will be treated for tax purposes if implemented, the Revenue should in my judgment be subject to judicial review on grounds of unfair abuse of power if it peremptorily decides that it will not be bound by such statements when the taxpayer has relied on them." (p890 J to 897 A).
The applicant only failed in that case because the Revenue's statements were not sufficiently specific.
53. On the other hand, it is necessary to bear in mind, as Lord Browne-Wilkinson emphasised, that the test is one of fairness, not only to the tax-payer, but also to the Customs and to the general body of tax-payers. In this context, two points need to be made.
54. First, although it is the policy of the Customs to give advice, as part of its general function of care and management of VAT, and to regard itself normally as bound by the advice it gives, it is relevant to consider the terms in which that policy is stated. Thus, the VAT Enquiries Guide (VAT Notice 700/51/95) says:
"You can write to ask for our view on how a particular transaction that has occurred, or is due to occur shortly, should be treated for VAT. This is a decision on which you can rely: if developments such as court or tribunal rulings change the tax position later, we will only ask you to pay any extra VAT from the date we tell you of the new position, or could otherwise reasonably expect you to know."
Thus, the legitimate expectation is not that the clearance will be treated as binding come-what-may; but that, if there is a change in the understanding of the legal position, it will not be treated as retrospective. Although the reference is to a change resulting from a court or tribunal ruling, that is by way of example. A bona fide change of legal opinion within the Customs might be expected to have the same result. (In this case, of course, there was no change of legal opinion within the Customs; but that fact is relevant to the issue of negligence, rather than to the extent of any legitimate expectation created by a clearance itself).
55. Secondly, the need for such a limitation is reinforced when one considers the implications for tax-payers other than the person relying on the clearance. In this case, unlike those considered above, the effect of the Miss Sellick's ruling was, not simply to lift a VAT burden from one group of tax-payers (the car-dealers), but to impose it on another (the participating retailers). Although there is evidence that the second group were in practice content, the Customs could not bind them to accept that position.
The present case
56. In the present case, Miss Sellick's statements were clear, unqualified and clearly intended to be relied on. Although some criticism can be made of the information supplied by Arthur Anderson in October 1997, by the time of the second letter of 3rd March 1998, there is no dispute that the Customs had all the information they required to assess the matter. F&I incurred substantial expenditure in reliance on that clearance, before they were notified of the change of position. In principle, therefore, the foundation for an obligation of fairness, in accordance with the cases referred to above, is established.
57. The real problem comes when one considers the nature of the remedies which might be granted. During the course of the argument, Mr Cordara recognised the difficulty of pursuing the forms of relief claimed in the original Form 86A, drafted in September 1998. The scheme, in its then form, had to be brought to an end within 30 days of the Customs' letter of 17th July 1998. Mr Cordara did not seek to persuade me that quashing that decision, or prohibiting its implementation, could now, almost two years later, enable the original scheme to be rescued.
58. For this reason, no doubt, the skeleton argument concentrates on the case for some form of monetary compensation. At this point he runs into the fundamental difficulty that, under English law at present, there is no right to damages for unlawful administrative action. Lord Griffiths' statement, which was the only authority to which Mr Cordara was able to refer, does not contradict that clear position. At most, it supports the proposition that absence of compensation may be a factor which entitles the Court to hold that a change of position by a public authority constitutes an abuse of power. That statement was not in any sense part of the ratio of the decision, and it was not adopted by any of the other members of the House of Lords.
59. Mr Cordara was not able to point me to any later authority in which Lord Griffiths' statement has been applied or even commented upon. There is perhaps a hint of the same idea in the recent decision of the Court of Appeal in R -v- North and East Devon H.A. ex parte Coughlan [2000] 2 WLR 622. This contains an important review of the principles of abuse of power applying to assurances by public authorities. At one point the Court refers to the need to consider such issues with due respect for the independent policy role of the authority:
"The Court's task ..... is then limited to asking whether the application of the policy to an individual who has been led to expect something different is a just exercise of power. In many cases the authority will already have considered this and made appropriate exceptions ... or resolved to pay compensation where money alone will suffice. But where no such accommodation is made, it is for the Court to say whether the consequent frustration of the individual's expectation is so unfair as to be a misuse of the authority's power." (para 82 - emphasis added).
60. Mr Kent, on behalf of the Commissioners, respectfully questions the correctness of Lord Griffiths' dictum. If, he submits, there is no private law entitlement to compensation, a refusal to pay cannot be characterised as an abuse. In any event, it is premature to base any conclusion on a refusal by the Customs to pay such compensation. No formal request for compensation has been made, or refused. Furthermore, a complaint of unfairness would be a proper matter for investigation by the Parliamentary Commissioner for Administration or the Adjudicator for Customs and Exercise, either of whom would be able to recommend compensation. In their letter before action (30th June 1998), F&I's solicitors reserved the right to make such a complaint.
61. In addition he questions whether, on the facts of this case, fairness demands a compensatory remedy. As he says, the burden of the applicant's complaint is that withdrawal of the original ruling rendered the scheme no longer economically viable. However, on analysis, viability depended, not merely on establishing that no VAT would arise on the supply of the voucher-books, but also on a substantial consideration (assumed to be £300) being attributed to their supply. Miss Sellick's letters covered the first point, but gave no assurance on the second. The Customs do not accept that £300, which is many times the price paid for the books by the car-dealers, is the correct price. This issue was not determined by the Tribunal, and remains outstanding.
Conclusion
62. In my view, this part of the claim must fail. Mr Cordara has not established a legal basis for his claim for compensation, which is the only form of remedy which is of practical value to F&I. I would accept that an offer of compensation, or the means to obtain it, may be a factor in considering the fairness of administrative action. Insofar as Lord Griffiths was suggesting some legal entitlement going beyond that, I cannot with respect see any foundation for it in the existing law. This of course is without prejudice to any complaint which may be made to the Parliamentary Commissioner or to the Adjudicator.
63. I agree with Mr Kent that, if a basis for the claim were established in principle, it would be necessary to consider the issues he raises as to the true consideration for the supply of the voucher books by the dealers. However, in view of the conclusion I have reached on the legal issue, it is unnecessary to consider this further.
Negligence
64. Mr Cordara says that there is a prima facie case of negligence against the Customs, because Miss Sellick gave her ruling, without making sure that it was in accordance with the Customs' current view of the law. Had she taken the precaution of consulting Policy Division or more senior officers, she would not have given the advice she did. He gave me a brief survey of a number of authorities on liability in tort for negligent mis-statement, from Hedley Byrne -v- Heller [1964] AC 465 to Harris -v- Evans [1998] 1 WLR 285. I was not referred to any authority relating to negligent advice by tax authorities.
65. Harris -v- Evans is of some assistance, as illustrating the modern approach to the issue of negligent advice in the context of the performance of statutory functions. It concerned advice, given by a Health and Safety Executive officer, on the requirements of the Executive for the organisation of safe bungee-jumping. The advice subsequently turned out to have been unduly onerous, in the light of the policy of the Executive at the time. The plaintiff claimed damages for the unnecessary cost incurred in complying with the advice. His claim failed. Sir Richard Scott V-C referred to the leading judgment of Lord Browne-Wilkinson in X -v- Bedfordshire CC [1995] 2AC 633, 739, where he said:
"...The question whether there is such a Common Law duty and if so its ambit, must be profoundly influenced by the statutory framework within which the acts complained of were done.. A Common Law duty of care cannot be imposed on a statutory duty if the observance of such Common Law duty of care would be inconsistent with, have a tendency to discourage, the due performance by the local authority of its statutory duties."
In the instant case, it was held that the claim failed, because to impose a duty of care in such circumstances would -
"be seriously detrimental to the proper discharge by enforcing authorities of their responsibilities in respect of public health and safety".
66. That indicates the general approach. However, the context - that of a regulatory scheme in the interests of public safety - was very different. It provides no direct analogy for this case.
67. Since then, the decision of the European Court of Human Rights in Osman -v- United Kingdom (Times 5.11.98) has thrown some doubt on the approach of the Common Law to the imposition of duties in tort on public authorities. That decision, in turn, has been the subject of critical comment by the House of Lords in Barrett -v- Enfield LBC [1999] 3 WLR 79. This area of the law is currently being considered further by their Lordships in Phelps -v- Hillingdon LBC ([1999] 1 WLR 500 in the CA). Meanwhile, X -v- Bedfordshire CC (under the title Z -v- United Kingdom) is itself before the European Court of Human Rights.
68. As to the use of the strike-out power in such circumstances I refer to what Lord Browne-Wilkinson said in Barrett (at p 83), summarising similar statements (made with the agreement of the rest of the House) in the Bedfordshire case:
"I pointed out that unless it was possible to give a certain answer to the question whether the plaintiff's claim would succeed, the case was inappropriate for striking out. I further said that in an area of the law which was uncertain and developing ... it is not normally appropriate to strike out. In my judgment it is of great importance that such development should be on the basis of actual facts assumed (possibly wrongly) to be true for the purpose of the strike out."
Similar statements were made by the House in the recent case of W1-6(AP) v Essex CC (16th March 2000).
69. Although this is not technically a strike-out application, the same approach should in my view apply. This is a developing area of the law. Given this fluid state, it is not possible in my judgment to say that a claim against the Customs could never succeed in respect of negligent advice by its officials. Nor do I think it would be helpful to attempt to decide such a novel issue in circumstances where, although the gist of the complaint is reasonably clear, the detailed circumstances, both as to the arrangements within the Customs for referring matters up the chain, and in relation to the reliance by the applicants, are not even pleaded.
70. I had some doubts as to whether it was appropriate to allow this claim to be raised in judicial review proceedings at all at this late stage. However, since Mr Kent does not object to the amendment as such, it seems to me that the right thing to do is simply to allow the amendment and direct that this matter continue as though begun by writ. I will hear the parties on any appropriate directions for the future conduct of this issue.
Summary of Conclusions
71. For the reasons given, the appeal fails. The application for judicial review is dismissed, save that the claim for damages for negligence will continue as though begun by writ, and I will give appropriate directions for its further conduct.

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