Neutral Citation Number: [2007] EWHC 1955 (Ch)
Case No: CH/2007/APP/0135
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE VAT & DUTIES TRIBUNAL

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 10/08/2007

Before:

MR JUSTICE DAVID RICHARDS
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Between:

	The Commissioners for HM Revenue & Customs	Appellants	
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	Tallington Lakes Limited	Respondent	

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Nicola Shaw (instructed by HM Revenue & Customs Solicitors) for the Appellants
Neil Morgan (director of Tallington Lakes Ltd) for the Respondent

Hearing dates: 29 June 2007
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Judgment

The Honourable Mr Justice David Richards: 

1.	This is an appeal by the Commissioners for HM Revenue and Customs (HMRC) against a Decision of the VAT & Duties Tribunal (Miss J C Gort and Mr T A Marsh) released on 9 January 2007, that supplies of caravan pitches by the respondent, Tallington Lakes Limited (the company), were for VAT purposes, exempt supplies of land and not standard rated supplies of seasonal pitches for caravans. On this appeal and before the Tribunal, HMRC appeared by counsel and the company was represented by a director, Neil Morgan, who also gave evidence before the Tribunal.
2.	The appeal concerns a voluntary disclosure made by the company on 22 July 2004 for a repayment of VAT amounting to £128,613 paid by the company on pitch rents for the period 1 January 2001 to 31 December 2003 and an assessment to tax of £16,083 and interest for the period 03/04.
3.	The basis for the voluntary disclosure was that the company considered that the nature of the supply of the caravan pitches was an exempt supply of land and accordingly that no VAT should be payable in respect of the pitch rents. It completed its VAT return for the period 03/04 on the basis that it was making exempt supplies of land and submitted a voluntary disclosure to recover VAT which had historically been accounted for in respect of the rents.
4.	The background facts are conveniently set out in paragraph 2-4 of the Tribunal’s decision:
“2.	The [company] owns a property known as Tallington Lakes which is a large area of some 350 acres, 200 acres of which is lake. Originally gravel had been extracted from the site in the 1940s and 50s.  In the late 1970s or early 1980s the site was acquired in order to be used for water skiing, and that use continues to this day, although today such use is ancillary. From the mid 1980s the land became used as a caravan site, and planning permission was granted for 385 caravans. At present about 225 caravans are on the site. The issue of planning permission is complicated and it is a matter which we will set out in more detail below.
3.	The [company] operates a leisure complex at Tallington Lakes, and, inter alia grants licences to owners of static caravans to occupy concrete pitches which it provides. It was registered for VAT with effect from 1 January 1982.  At some point an accountant working for the company agreed that VAT at the standard rate should be charged on the granting of the licences, and it was in respect of those payments that the voluntary disclosure was made.  
4.	The pitches are provided to private individuals, each of whom owns his or her own caravan or mobile home. The [company] is also in the business of selling mobile homes and in addition lets off a small portion of the site for use by touring caravans and campers, for which there are some 70 pitches in a separate area. There are 6 caravans which are rented out for holiday accommodation, which again are treated differently for tax purposes. These are on the same site as the pitches available for touring caravans. There is on this side a shower block and amenities for use by the owners of the touring caravans and the people who rent the caravans from the company, which is near to the office and is under the control of the staff there. The pitches which are the subject of this appeal are scattered throughout an area which is mainly around the lake, along about three miles of road.  There is a restaurant and a bar facility in the middle of the site for everybody’s use. The mobile homes themselves are anchored by metal straps and chains, and have the towing bar and the wheels removed. They are permanently connected to the electricity mains and to a gas supply.  There is a permanent BT connection.”
5.	The relevant statutory provisions are contained in the Value Added Tax Act 1994. Supplies which are exempt from VAT are listed in schedule 9, and item 1 of group 1 exempts the grant of any interest in or right over land other than certain categories including:  
“(f)     the provision of seasonal pitches for caravans, and the grant of facilities at caravan parks to persons for whom such pitches are provided;”
“Seasonal pitch” is defined by note 14 to item 1 as follows:
“(14)     A seasonal pitch is a pitch—
(a)     which is provided for a period of less than a year, or
(b)    which is provided for a year or a period longer than a year but which the person to whom it is provided is prevented by the terms of any covenant, statutory planning consent or similar permission from occupying by living in a caravan at all times throughout the period for which the pitch is provided…”
6.	This legislation is derived from article 13B(b) of the Sixth Directive (77/388/EEC) which exempts supplies by way of leasing of “immovable property”: 
“Without prejudice to other Community provisions, 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: 
… 
(b)	the leasing or letting of immovable property excluding: 
(1) the provision of accommodation, as defined in the laws of Member States in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites…
Member States may apply further exclusions to the scope of this exemption;”
7.	In Colaingrove Ltd v Customs and Excise Commissioners [2004] STC 712, the Court of Appeal held that the closing words of article 13B(b) (the tailpiece member state option) entitled the United Kingdom to provide for the supply of “seasonal pitches” (as defined) as an exclusion from the general exemption for the leasing or letting of land from VAT.
8.	On this appeal HMRC submits that the Tribunal made errors of law, including a failure to construe and apply correctly the definition of seasonal pitch, and made findings of fact which could not be supported on the evidence.
9.	HMRC’s case before the Tribunal and on this appeal is that the pitches supplied by the company fall within the definition of seasonal pitches because of both the terms and conditions on which they were supplied and because of the terms of the relevant planning permissions. These prevented occupation by living in caravans or mobile homes on the pitches for the whole of February each year.
10.	The evidence before the Tribunal as regards relevant permissions for the periods in issue comprised principally an annex to a site licence issued under section 3 of the Caravan Sites and Control of Development 1960 and a letter dated 22 March 2005 from the Development Control Services department of the local authority to HMRC. The site licence in evidence was issued in 2003, although in paragraph 8 of its decision the Tribunal refers to a licence being granted in the 1980’s. One of the conditions on the face of the licence is that “static holiday caravans shall be sited in accordance with Annex A which forms part of this licence.”
11.	Annex A to the site licence sets out planning permissions for use of the company’s land as a caravan site granted under Part III of the Town and Country Planning Act 1990. The annex lists seven permissions applicable to twelve areas. The local authority’s letter states that three of the permissions were subject to a planning condition that “No caravan on the site shall be occupied between 31 January and 1 March in any year”.
12.	The tribunal found that the planning condition applied to three areas of the total site. In so finding, HMRC submits that the Tribunal overlooked that the annex demonstrates that the three permissions in question (reference numbers SK92/1328, SK 93/0189 and SOO/0407) apply to seven out of the 12 areas. I agree with this submission. The total number of caravans permitted on those sites is 258 out of a permitted maximum of 385. There is no challenge to the Tribunal’s acceptance of the company’s evidence that one of the areas, with a permitted maximum of 52 caravans, had never been used.
13.	Licences to occupy caravan pitches were granted by the company for a period of twelve months, renewable on 1 April each year. The unchallenged evidence before the Tribunal was that they were granted under standard terms and conditions, of which clause 7 provided:
“The Licensee and all persons occupying the mobile home shall occupy the home for private residential purposes only and no trade or business of any description shall be carried out in or from it. In accordance with the planning permission no mobile home shall be occupied during the month of February. The mobile home may be used as a principal private residence.”
14.	The Tribunal held that neither the planning condition nor clause 7 of the terms and conditions was enforceable and that accordingly the licencees were not prevented by either from occupying the pitches throughout the year. The provision of the pitches was not therefore within paragraph (f) of the exception to item 1 of group 1, schedule 9 and was therefore exempt from VAT. In reaching this conclusion, the Tribunal found the following facts:
(i) At no time had the local authority attempted to enforce the planning condition.
(ii) The local authority has for many years been aware of the residential occupation of the pitches contrary to the limitation of the site licence under the Caravans and Control Development Act 1960 to “static holiday caravans.”
(iii) “We find it completely improbable that, given the sheer number of occupiers who say that they have occupied their pitches as a private residence, and the length of time so many of them have been there, that the Council could claim to have been unaware of the residential use to which the pitches were put and this would have put the Council on notice about the possibility of their being occupied during February.”
(iv) Clause 7 of the licence, prohibiting occupation during February in each year, was at no time enforced by the company.
15.	The tribunal’s conclusions are contained in paragraphs 48-54 of its Decision. There are a number of elements leading to the final conclusion which may be summarised as follows:
(i) Breach of the planning condition is subject to a 4-year period for enforcement action.
(ii) Accordingly, on the basis of the findings of fact at (ii) and (iii) above, no enforcement action could be taken by the local authority for breach of the planning condition by the time of the grants of the licences relevant in this case.
(iii) On the basis of the finding of fact at (iii) above, the planning condition had lapsed and the local authority must be deemed to have acquiesced in its lapse.
(iv) Clause 7 of the terms and conditions of the licence stated the restrictions on occupation in February to be “in accordance with the planning permission” and therefore, on the proper construction of clause 7, if the planning condition lapsed, the restriction ceased to apply.
(v) In any event, the restriction in clause 7 applied only to those pitches in areas which were subject to the planning condition.
(vi) By reason of the renewal of licences over many years and the lack of any attempt to enforce clause 7 of the terms and conditions over those years, clause 7 must be taken to have been varied by the deletion of the restriction on occupation during February.
16.	HMRC challenges each of these findings and each of the legal conclusions. But their primary submission is that it is unnecessary to consider most of them. They submit that the issue should be decided exclusively by reference to the express terms of the planning permissions and the express terms of the terms and conditions. As the planning permissions for some areas of the site contain the February restriction and as the February restriction in the terms and conditions is applicable, as they submit, to the whole site, the pitches are “seasonal pitches” as defined. It is irrelevant that the restrictions may be unenforceable for any reason, if that is indeed the case. They submit that the operative words of note 14(b) (“prevented by the terms of any covenant, statutory planning consent…”) are directed at the relevant express terms, not with their enforceability. An introduction of an enquiry into issues of enforcement and enforceability takes away the advantage of an easily-applied objective test and adds significant practical difficulties. They point out also that the relevant time for deciding an exemption from VAT is when the invoice is rendered or payment is made. Whether VAT is chargeable on the supply of an annual pitch licence cannot depend on what may occur during the year.
17.	I do not accept the entirety of this submission as HMRC seeks to apply it to the facts of this case. I take first the terms and conditions applicable to the licences granted by the company.
18.	The issue here is not whether the February restriction would be enforceable during the year of a licence or whether some estoppel might prevent its enforcement. The issue is whether it formed part of the terms and conditions at all, applicable to the annual licenses granted in the periods in question. Counsel for HMRC accepted that the presence of the words of the February restriction on the page of the terms and conditions was not conclusive. If the evidence established that on the grant of a licence there had been an oral variation to exclude the February restriction, counsel accepted that the licence would not be subject to it. Likewise, in my judgment, if the prior conduct of the parties leads to the conclusion that the renewal of a licence must have been on terms that the February restriction was excluded, the licensee would likewise not be subject to any contractual restriction on occupation. In such circumstances, it would be the reverse of the true state of affairs to say that the licensee was “prevented by the terms of any covenant” from living in a caravan on the pitch during February.
19.	Turning to the planning condition, it is a vital feature of planning conditions that they are enforceable for a limited period of time, four years in some cases and ten years in others. Once the period for enforcement has expired, without enforcement action being taken, the planning condition is a dead letter. It remains on the face of the planning permission, but it ceases to have any effect. In such a case, it would again be the reverse of the true state of affairs to say that a licensee of a pitch is “prevented by the terms of any…planning consent” from living in a caravan on the pitch in February. This conclusion does not open the way to complex factual investigations. Either enforcement action has been taken in the relevant period or it has not. The knowledge or attitude of the planning authority is irrelevant.
20.	It is convenient to deal here with a submission made by Mr Morgan on behalf of the company on the appeal but not before the Tribunal. He drew attention to the word “covenant” in note 14(b) and submitted that the standard terms and conditions were not “covenants”. He submitted that a covenant is a formal binding agreement, executed and signed by both parties, and that before they could constitute a covenant, the standard terms and conditions would have to be executed or signed by a licensee. I do not accept this submission. It was common ground before the Tribunal that the standard terms and conditions, subject to any issue of variation, applied to the annual licences. They were therefore incorporated into and formed part of the annual license and it is not necessary that they should have been separately signed by the parties in order to constitute “covenants” for these purposes.
21.	I turn back therefore to the Tribunal’s findings of fact and the conclusions of law which are challenged by HMRC.
22.	I deal first with the findings and conclusions which relate to the planning condition. The finding that there had never been any enforcement action was based on Mr Morgan’s evidence. HMRC objects that Mr Morgan did not purchase the company until April 2004 and that he did not indicate that he had any knowledge of the company’s business before then. However, it is clear that Mr Morgan researched the position as regards the company’s planning and other consents. Moreover, the evidence of Valerie Green, to which I refer below, makes it unlikely that there was ever any enforcement action. When their evidence is combined with the absence of any evidence to suggest that there had been any enforcement action, the Tribunal was justified in making this finding.
23.	It is unnecessary to consider the findings as to the local authority’s knowledge of breaches of the terms of planning covenants, including whether it was put on notice about the possibility of caravans being lived in during February. Knowledge or the lack of it on the part of the local authority is irrelevant to whether it can take enforcement action, which depends only on whether the relevant period for enforcement has expired. Likewise, there is no basis for a suggestion that the planning condition “lapsed” as a result of any knowledge on the part of the local authority. It remained enforceable until the end of the relevant enforcement period.
24.	The Tribunal’s decision that enforcement action was subject to a four-year limitation was expressed to be based on Mr Morgan’s evidence. HMRC rightly objects that this was an issue of law. The relevant provision is section 171B (1)-(3) of the Town and Country Planning Act 1990 which provides:
“(1) Where there has been a breach of planning control consisting in the carrying out without planning permission of building, engineering, mining or other operations in, on, over or under land, no enforcement action may be taken after the end of the period of four years beginning with the date on which the operations were substantially completed. 
(2) Where there has been a breach of planning control consisting in the change of use of any building to use as a single dwellinghouse, no enforcement action may be taken after the end of the period of four years beginning with the date of the breach. 
(3) In the case of any other breach of planning control, no enforcement action may be taken after the end of the period of ten years beginning with the date of the breach.”
Breach of the planning condition prohibiting occupation during February in any year does not fall within sub-section (1) or (2) and is therefore subject to the 10-year period specified in sub-section (3). In the case of a recurring periodic condition such as this, there is not a new breach each year that occupation in February occurs contrary to the condition. The limitation period expires at the end of ten years of recurring breach: see R (on the application of North Devon DC) v First Secretary of State [2004] EWHC 578 (Admin).
25.	The two relevant permissions are SK92/1328 and SK93/0189. The Tribunal records in paragraph 10 of its decision that the unchallenged evidence of Mr Morgan was that the reference numbers indicated that they were granted in 1992 and 1993 respectively, although on the basis of information which Mr Morgan sought to put before the court on the appeal the permissions were granted a little later, on 26 October 1993 and 4 January 1994 respectively. On those dates, the 10-year enforcement periods would both have expired on 1 March 2004 (i.e. 10 years after the end of the first February to which the restriction applied, assuming as the Tribunal held that a breach was committed in that period and in each succeeding period).
26.	It follows that during the period relevant to this appeal the planning condition remained enforceable as regards those areas of the site to which it applied. Leaving aside the standard terms and conditions, and looking only at the planning condition, it means that all the pitches in those areas were seasonal pitches within note 14(b) during the relevant period.
27.	I turn therefore to consider the effect of clause 7 of the standard terms and conditions. The Tribunal’s finding that the company never enforced the February restriction was fully justified by the unchallenged statement of Valerie Green. She has been the general manager of the company since 1991. She stated:
“6. The previous Plot Licence conditions contained a mistake in that they required caravan owners not to occupy during the month of February.
7. This condition has never been enforced by any member of staff and it has never had any material effect. Residents continued living in their caravans throughout the year including February.
8. In any event, we, (all of the staff at Tallington), actually thought that the restriction was not to sleep in some of the caravans overnight during February. In other words, residents could continue to occupy some of the caravans throughout the day in February, but could not sleep overnight. We always thought that this situation, with apparently some of the residents able to occupy during the day in February but not stay overnight, whilst the remainder of the residents were able to occupy and stay overnight in February, as exceptionally silly. Hence we ignored it and so did all of the residents.”
28.	The Tribunal held that the February restriction in clause 7 was dependant on the existence of an enforceable planning condition, by reason of the words “In accordance with the planning permission”. It therefore held that, as the planning condition had ceased to be enforceable, the February restriction had ceased to apply. Leaving aside whether this is the correct construction of clause 7, this conclusion cannot stand in the light of my decision that the planning condition had not ceased to be enforceable. 
29.	It was also the view of the Tribunal that, as a matter of construction of clause 7, it applied only to those pitches in areas which were subject to the planning condition. In my judgment, that is not the correct construction of clause 7. The standard terms and conditions, including clause 7, applied to all licences granted to occupy pitches, irrespective of the part of the site on which a pitch was situated. There is no indication that the February restriction, unlike the rest of clause 7 and the remaining clauses, was to apply to only some mobile homes, depending on their exact location. Licencees of pitches on areas to which the planning condition applied would be justifiably astonished to find that they alone were precluded by the licence terms from living in their mobile homes during February. This was not reflected in a differential pricing structure. In my view, the reference to “no mobile home” in the February restriction means just that. The words “in accordance with the planning permission” do not qualify the restriction that follows, but explains the reason for it.
30.	There remains the Tribunal’s decision that repeated renewals of pitch licences without any enforcement by the company of the February restriction over many years means that the February restriction had, as a result of the parties conduct, ceased to apply by the time of the renewals in the relevant period. I have already said that changes to standard terms can in cases such as this be inferred from a course of conduct by the parties. Essentially the court is identifying the parties’ common intention and where the only reasonable inference from their conduct is an unspoken decision or assumption that a particular term should not apply, the term will not form part of the contract. It would not, however, be a reasonable inference if the deletion of the clause would be prejudicial to one party and their prior conduct was explained on some other basis. In this case, it would be highly prejudicial to the company to lose the benefit of the February restriction in clause 7, while still being subject to the planning condition. If enforcement action was taken against it, it would be unable to remedy the breach of the planning condition without being in breach of contract to the relevant licensees. It is not readily to be inferred that the company would intend to put itself in that position. Clause 7 refers to planning permission as the reason for the restriction and, at least while any planning condition continued to apply, a licensee could not reasonably assume that the company intended to deprive itself of the protection of clause 7. The company’s prior conduct in not enforcing the February restriction was readily explicable by the absence of any enforcement action.
31.	I conclude therefore that the Tribunal’s decision cannot stand and that HMRC’s appeal should be allowed. Both the contractual and planning restrictions on occupation during February applied during the relevant period, with the result that the company was providing “seasonal pitches”. VAT was therefore chargeable on the grant of the pitch licences.
32.	Mr Morgan repeated before me submissions which he had made to the Tribunal that to be classified as a seasonal pitch, a caravan pitch must be restricted to holiday use (or at least “seasonal” use in the ordinary sense for the word), unlike the company’s pitches which were let expressly on terms that the mobile home on the pitch could be used as a principal private residence. Like the Tribunal, I do not consider this to be well-founded as a matter of construction of schedule 9 to the 1994 Act which distinguishes between “holiday accommodation” and “seasonal pitches”. Seasonality, as defined in Note 14, has been chosen as the criterion for caravan pitches. Mr Morgan also relied before me, as he had before the Tribunal, on Ashworth v Customs and Excise Commissioners [1994] VATTR 275. That case was concerned with item 1(e) of schedule 9, not with “seasonal pitches”, and with issues of improper discrimination.
33.	In this connection Mr Morgan relied before the Tribunal on paragraph 4.1 of VAT Notice (701/20/04) which is set out in paragraph 4.1 of the Tribunal’s decision. Mr Morgan also drew my attention to it, although I think he accepted that he could not rely on it on this appeal. The Tribunal correctly accepted HMRC’s submission that the Notice is not a statement of law and so could not provide a basis for an appeal to the Tribunal. They did, however, record a finding of fact that the company had fulfilled the requirements for exemption as set out in the Notice, including that the site is not a holiday site. HMRC’s position is that the company did not comply with those requirements, in particular because the site is held out for holiday use. As the Notice cannot be used on the appeal to the Tribunal or on this appeal as a basis for the company’s case, I will record simply that the Tribunal’s findings on this have no significance.
34.	HMRC had a separate but limited ground of appeal, which does not arise in view of my conclusions on the main ground of appeal. HMRC submitted that the company’s claim for repayment of VAT in respect of the two earliest periods (03/01 and 06/01) were made outside the three-year period for such claims under section 80 of the 1994 Act. Therefore, under section 80(7), HMRC is not liable to repay any sum paid by way of VAT in respect of those periods.
35.	In July 2004, when the company made its claim for repayment of VAT, section 80(1) and (4) provided as follows:
“(1) Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not VAT due to them, they shall be liable to repay the amount to him.
(4) The Commissioners shall not be liable, on a claim made under this section, to repay any amount paid to them more than three years before the making of the claim.”
36.	Sub-section (4) had been added by the Finance Act 1997 with effect from 18 July 1996, and Mr Morgan relied on the decisions of the Court of Appeal in Fleming v Customs and Excise Commissioners [2006] STC 864 and Conde Nast Publications Ltd v Customs and Excise Commissioners [2006] STC 1721 to submit that HMRC could not rely on the time limit in section 80(4). Those cases concerned the validity of the imposition of a retrospective time limit, without adequate transitional arrangements, on claims which could previously have been made for repayment of input tax. They do not affect the validity of a time limit on claims, such as the claims in the present case, which can arise only after the introduction of the time limit.
37.	The three year time limit ran from the time when the relevant VAT was paid to HMRC. It appears from page 32 of HMRC’s Tribunal Bundle that the returns for periods 03/01 and 06/01, and presumably the VAT payments, were received by HMRC on 27 April 2001 and 27 July 2001. The claim for repayment was received by HMRC on 22 July 2004 (see page 70 of the bundle). It follows that in any event the claim for period 03/01, but not that for period 06/01, was out of time.
38.	There is one final point. The hearing before the Tribunal, and its Decision, proceeded on the basis that the form of the standard terms and conditions put before the Tribunal was the relevant form throughout the period in issue. At the hearing of the appeal before me, Mr Morgan informed me that he had just noticed the code “V5.2 07.04.04” on the form and speculated that the form containing the February restriction in clause 7 had not been adopted until April 2004. Following the hearing, Mr Morgan sent me a different version of the terms and conditions with the code “V5 29.03.99”, which contains a restriction in different terms as follows:
“In accordance with the planning permission any caravan which is not permanently sited and connected to site draining shall not be used for overnight occupation during the month of February.”
In his letter, Mr Morgan said that this version was in effect before April 2004. He requested that, if I was in favour of HMRC on their appeal, I should remit the matter back to the Tribunal for further consideration and findings of fact.
39.	I will give both parties liberty to make submissions on this request, either when this judgment is handed down or (as may be more convenient) at a later hearing.