[2011] UKFTT 282 (TC)
TC01144
Appeal number:
MAN/2006/0120
Reference
to CJEU – application for permission to appeal to Upper Tribunal – application
for stay of order for reference pending determination
FIRST-TIER TRIBUNAL
TAX
GRATTAN
PLC (No 2) Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
JUDGE ROGER BERNER
JULIAN
STAFFORD (Member)
Sitting in public, with
restrictions for part of the hearing, at 45 Bedford Square, London WC1 on 8
April 2011
Paul Lasok QC and Rebecca
Haynes, instructed by KPMG LLP, for the Appellant
Jonathan Swift QC and Peter
Mantle, instructed by the General Counsel and Solicitor to HM Revenue and
Customs, for the Respondents
© CROWN COPYRIGHT
2011
DECISION
1. By
our decision released on 12 January 2011 [2011] UKFTT 31 (TC) we decided,
firstly, to refer to the Court of Justice of the European Union (“CJEU”) a
question (“the pre-1 January 1978 question”) as to whether, in relation to the period
before 1 January 1978, by virtue of Article 8(a) of the Second Council
Directive of 11 April 1967 (67/228/EEC) and/or the principles of fiscal
neutrality and of equal treatment, taxable persons have a directly enforceable
right to account for VAT in respect of supplies of goods by reference to the
consideration that is actually received by the supplier (that is, reduced by
any discount or reduction).
2. Secondly,
we decided that we would stay the proceedings in this appeal in respect of the
substantive issue whether there is an EU law right to compound interest pending
the determination of that question by the CJEU following the reference by the
High Court in Littlewoods Retail Limited v Revenue and Customs Commissioners
(see [2010] STC 2072 for the substantive judgment, and [2010] EWHC 2771 for the
referral judgment).
3. However,
finally, in the light of the arguments that had been raised before us and the
reference that had been made in Littlewoods of a question (Question 4)
which, assuming that it is found that an EU law right to compound interest does
exist, asks whether the principle of effectiveness requires disapplication of
the statutory restrictions on such a remedy on any of the available domestic
law remedies, or whether the principle can be satisfied by disapplication in
respect of only one of those remedies, we decided that we should refer further
questions (“the compound interest jurisdiction questions”) to the CJEU
referable to Grattan’s own position, which was not addressed by the Littlewoods
reference.
4. Those
further questions, which also depend on whether an EU law right to compound
interest is found to exist, we suggested should encompass (a) whether the
principle of effectiveness and/or of equivalence requires the remedy to be a
single remedy for both the reimbursement of the principal sums overpaid and for
the use value of the overpayment and/or interest, (b) whether, in circumstances
where there are alternative remedies under domestic law, it is breach of the
principle of effectiveness and/or equivalence for the remedy or remedies not to
be in the statutory provisions governing the making of the principal
reimbursement claims and the appeals from the administrative decisions on those
claims and (c) whether it is a breach of the principle of effectiveness and/or
equivalence to require a claimant to pursue the principal reimbursement claim
and the claim for simple interest in one set of proceedings before the tribunal
and the balance of the remedy required by EU law in respect of the use value of
the overpayment and/or interest in separate proceedings before the High Court.
5. We
reserved the final form of the reference pending further representations on
that, and on the precise form of the questions to be put to the CJEU. Judge
Berner gave directions on 10 January 2011 for further case management in this
respect, including the right for either party to request a hearing to settle
the form of reference. That hearing was held on 8 April 2011. We heard
representations as to the form of the reference and the questions to be
referred to the CJEU, both as regards the pre-1 January 1978 question, and also
the compound interest jurisdiction questions. We are considering those
representations and, subject to this decision, will settle the form of reference
shortly.
6. This
decision relates not to the form of the reference, but to an application by
HMRC for a stay of the making of the reference on the compound interest
jurisdiction question until after the application by HMRC for permission to
appeal against our decision to refer that question has been determined. HMRC’s
position is that the reference should not be transmitted until both the
application for permission to appeal has been determined and any consequent
appeal to the Upper Tribunal (Tax and Chancery) has been heard and determined.
Grattan by contrast submits that the reference should be made immediately, and
that no stay should be granted.
7. Prior
to the hearing on 8 April 2011, Judge Berner had, on 31 March 2011, considered,
and refused, an application made by HMRC to the First-tier Tribunal for
permission to appeal to the Upper Tribunal against the tribunal’s decision to
refer the compound interest jurisdiction questions to the CJEU. In refusing
permission Judge Berner acknowledged that, subject to permission, there was a
right of appeal to the Upper Tribunal against a decision to make a reference,
on a point of law. However, on the grounds put forward by HMRC, the judge
concluded that the arguments were not sufficiently arguable, or had a reasonable
prospect of succeeding, such that permission should be granted by the
First-tier Tribunal. This refusal means that HMRC may apply to the Upper
Tribunal for permission to appeal, and we understood at the hearing that they
intended to do so.
8. Since
the decision on 31 March 2011 to refuse permission to appeal there has been a
significant development, namely the release by the Court of Appeal of its
judgment on the appellants’ application in John Wilkins (Motor Engineers)
Ltd and others v Revenue and Customs Commissioners [reference], which the
court heard on 22 March 2011. That application, in the appeal from the Upper
Tribunal decision in that case (to which we referred in our own decision) was
essentially for a reference to be made by the court to the CJEU of questions,
so far as they related to compound interest, to similar effect as the questions
referred on the substantive issue in Littlewoods, and in relation to the
jurisdiction issue, to similar effect as the proposed compound interest
jurisdiction questions that we had decided to refer.
9. We
are grateful to the Court of Appeal for having granted to HMRC permission to
disclose to the tribunal a copy of the embargoed judgment so that it was
available to us at the hearing on 8 April 2011. This enabled us to consider
it, in a part of our hearing that we directed was restricted to those who also
had a right to see the embargoed judgment.
10. The Court of
Appeal in Wilkins refused the appellants’ application. In relation to
the question going to jurisdiction in respect of a compound interest claim, in
essence, as appears from the judgment of Etherton LJ, with whom Lord Neuberger
MR and Longmore LJ agreed, the court decided that it was not appropriate to
refer that question to the CJEU. It was held that the Marleasing
principle
and the EU principles of effectiveness and equivalence are well-established and
well-defined in case law. Whilst their application to the facts of any
particular case may be difficult, in the absence of some special feature such
difficulty cannot warrant a reference to the CJEU. The interpretation of
national legislation is a matter for the national court to decide, and the
national court will usually be better placed than the CJEU to decide whether,
and the extent to which, the Marleasing principle and the principles of
effectiveness and equivalence require national legislation to be interpreted
or, in any event, applied in a particular way, bearing in mind the language of
the legislation and the policy and principles underlying it. The court did not
consider that there was any special feature in the case that would warrant a
reference. It also observed that it would be strange for a reference to be
ordered before the merits had been considered in a first appeal from the Upper
Tribunal (which in Wilkins had been the first instance tribunal) or by
any other appellate court in any case dealing with the same issues.
11. As we had done,
the Court of Appeal considered Question 4 in Littlewoods. We had based
our decision to refer questions on jurisdiction partly on the fact that
Question 4 had been referred by Vos J. That question related to the operation
of the principle of effectiveness in the ascertainment of the appropriate
remedy under domestic law, but confined itself to the restitutionary remedies
available in that case. Mr Justice Vos had remarked in Littlewoods that
there was a possibility that the CJEU would, if requested to do so, provide
further insight into the application of the principle of effectiveness; we
adopted the same view in relation to the questions that arose in Grattan
on the availability of remedies under the Value Added Tax Act 1994 and in the
tribunal.
12. The Court of
Appeal decided, in contrast, that Littlewoods Question 4, although
raising an issue about the application of the principle of effectiveness,
concerns a distinct general principle of EU law, which had never been the
subject of decision by the CJEU. This was of a quite different character to
the issues in the appellants’ proposed question (analogous to that we decided
to refer) which, the court said, concerned the application of undisputed
principles to particular facts.
13. In the light of
all this it falls to us now to decide whether to accede to HMRC’s application
for a stay, or, as Grattan urges us, to make an immediate reference
notwithstanding the application by HMRC to the Upper Tribunal for permission to
appeal.
14. Our power to
direct a stay derives from rule 5(3)(l) of the Tribunal Procedure (First-tier
Tribunal) (Tax Chamber) Rules 2009, which enables us to suspend the effect of
our decision to make a reference to the CJEU pending the determination of
HMRC’s application to the Upper Tribunal for permission to appeal, and the
determination of the appeal itself. That gives us a discretion which we must
exercise judicially, having regard to the overriding objective (in rule 2) of
fairness and justice. Although we were referred to certain elements of the
Civil Procedure Rules, in particular CPR 68.3, which provides that the
reference will not, unless the court orders otherwise, be made until the time
for appealing the reference has expired or the application for permission to
appeal has been refused, or any appeal has been determined, the CPR, whilst in
some circumstances instructive, does not apply to the Tribunal as such, and we
do not regard CPR 68.3, nor any contrary practice that might have developed in
the courts, as material to our own decision.
15. This tribunal
having refused permission to appeal, the question whether we have made an error
of law is not, at this stage, one on which we should comment. That is a
question that now falls to be considered by the Upper Tribunal, firstly on an
application for permission to appeal, and if such permission is granted, on the
appeal itself. The only question for us is whether, in all the circumstances
of this case, we should stay our own reference pending a determination by the
Upper Tribunal.
16. In this respect
Dr Lasok pointed out that the judgment of the Court of Appeal in Wilkins
was on a preliminary application, and the refusal to refer was an exercise of
procedural discretion. That was to be contrasted with Grattan’s own position,
where the decision to refer had been on a substantive hearing of the issues.
That may be right, but it seems to us that, following this tribunal’s own
refusal to give HMRC permission to appeal, the basis of the Court of Appeal’s
judgment, and whether there is an error of law, or arguably an error of law, in
our own decision is now an issue that can be considered only by the Upper
Tribunal. The very fact of the Court of Appeal judgment is, however, a factor
that we must consider in deciding whether to defer the making of our own
reference.
17. Dr Lasok
referred us to Royscot Leasing Limited and others v Commissioners of Customs
and Excise [1999] 1 CMLR 903 in support of an argument that it was more
convenient for matters now to be dealt with by the CJEU, and, essentially, that
the effect of HMRC’s application was to create satellite litigation. Royscot
was concerned with an application to withdraw a reference made by the Court of
Appeal on the ground that the questions referred had been determined by another
decision of the then ECJ. That application was objected to on the grounds that
the case was distinguishable, and that certain arguments had not been raised in
the earlier case before the ECJ. The court refused the application that the
reference be withdrawn. It reasoned that a contested hearing was not
manifestly a more convenient way of dealing with the situation created by a new
decision from the ECJ than taking the same point before that very court. This
was a form of satellite litigation which the courts in principle tend to
discourage.
18. It does not seem
to us that any analogy can be drawn between this case and that of Royscot.
An application for permission to appeal to the Upper Tribunal, and any
consequent appeal cannot, in our view, be considered to be satellite
litigation. The Upper Tribunal will not be making the same decision that would
require to be made by the CJEU, although no doubt it will hear arguments that
would also feature in any proceedings in Luxembourg. It will be deciding,
firstly, whether there is an arguable case that the tribunal has made an error
of law, such that it will grant permission to appeal, and secondly, if
permission is granted, whether the tribunal did make an error of law in
deciding to make a reference. That question is a discrete question from that
which the CJEU would be asked to consider, and cannot in our view be
characterised as satellite litigation.
19. The question of
the jurisdiction of a court or tribunal to refer questions to the CJEU was
considered by the ECJ in the case of Civil Proceedings concerning Cartesio
Oktakό és Szolgáltatό bt (Case C-210/06) [2008] ECR
I-09641, [2009] All ER (EC) 269. In summary, the relevant principles set out
by the court were as follows (paras 88-97):
(1)
National courts have the widest discretion in referring matters to the
CJEU if they consider that a case pending before them raises questions
involving interpretation of provisions of community law.
(2)
Article 234 of the EC treaty (now Article 267) does not preclude
decisions of such a court by which questions are referred to the CJEU for a
preliminary ruling from remaining subject to the remedies available under
national law. From this we conclude that rights of appeal are preserved.
(3)
However, in the interests of clarity and certainty, the CJEU must abide
by the decision to refer, which must have its full effect so long as it has not
been revoked. However, we consider that this does not preclude the referring
court from suspending the effect of its own decision to refer.
(4)
The system of references is a dialogue between the referring court and
the CJEU, independent of any initiative by the parties, the initiation of which
(and we infer the suspension of which) depends entirely on the national court’s
assessment of whether a reference is appropriate and necessary.
(5)
Whilst the outcome of an appeal cannot limit the jurisdiction of the
referring court to make a reference to the CJEU if it considers that the case
before it raises questions on the interpretation of community law necessitating
a ruling by the CJEU, there is nothing to preclude a stay – even a mandatory
stay under national law – pending a ruling by the appellate court.
(6)
Where rules of national law apply which relate to the right of appeal
against a decision making a reference for a preliminary ruling, and under those
rules the main proceedings remain pending before the referring court in their
entirety, the order for reference alone being the subject of a limited appeal,
the autonomous jurisdiction which Article 234 EC confers on the referring court
to make a reference to the CJEU would be called into question if – by varying
the order for reference, by setting it aside and by ordering the referring
court to resume the proceedings – the appellate court could prevent to
referring court from exercising the right, conferred on it by the EC treaty, to
make a reference to the court.
(7)
It is for the referring court alone to draw proper inferences from a
judgment delivered on an appeal against its decision to refer and, in
particular, to come to a conclusion as to whether it is appropriate to maintain
the reference for a preliminary ruling, or to amend it or to withdraw it.
20. It can thus be
seen that, although the decision to make a reference remains, even after an
appeal against the order for reference, one for the referring court, there is
nothing to preclude a stay, whether mandatory or discretionary, pending such an
appeal, and following the appeal it is for the referring court to consider the
appeal judgment and then to reach a conclusion on the reference. The
discretion to make or maintain a reference accordingly remains with this
tribunal, having regard to what the Upper Tribunal might say on an appeal to
it. We accept that, as Parker J said in Lord Bethell v Sabena [1983] 3
CMLR 1 (at [12]), a case to which we were referred by Dr Lasok, where a
discretion is conferred on a court, that discretion cannot be fettered, but a
discretion is not in our view fettered if in the exercise of it a court takes
into account what has been said by a higher court.
21. In the light of
all this, in particular the possible impact of the Court of Appeal’s judgment
on the reference issue in Wilkins, which is a matter for the Upper
Tribunal to consider on HMRC’s application for permission to appeal, and on any
subsequent appeal, we consider that the proper course in these circumstances is
for us to grant the limited stay or suspension of our decision which is sought
by HMRC. We have considered whether a stay would prejudice Grattan to such an
extent that it would be wrong to exercise our discretion in such a manner, but,
having regard to the circumstances that now exist, we cannot so conclude.
22. It is right that
the mere fact of an application for permission to appeal would, in normal
circumstances, on its own not be sufficient to justify a stay. A stay is, as
Sullivan LJ said in DEFRA v Downs [2009] EWCA Civ 257, an exception
rather than the rule, and solid grounds have to be put forward. If those
grounds are then established, the court must undertake a balancing exercise
weighing the risks of injustice to each side if a stay is or is not granted.
In this case, were it not to have been for the Court of Appeal judgment in Wilkins,
it would, we perceive, have been difficult for HMRC to persuade us that there
were solid grounds for a stay. But in making our own decision to refer we did
not have the benefit of that judgment, and it is only right therefore, in the
interests of justice, that the Upper Tribunal should be given the opportunity
of considering it before this tribunal makes a final decision on the order for
reference.
23. The only other
matter that we need to consider is the prejudice, if any, that will be brought
about by delay. In pursuit of the overriding objective the tribunal is
enjoined by rule 2 to avoid delay, but only so far as this is compatible with
proper consideration of the issues. There is an issue here, namely, in
particular in the light of Wilkins, whether the tribunal, in deciding to
make the reference, made an error of law. That issue, with the benefit of the
Court of Appeal’s judgment, can for the first time only be considered by the
Upper Tribunal. Delay in the making of a reference is in these circumstances,
in our view, justified by the need to ensure that the issues have been properly
considered, by the appellate tribunal in this case.
24. Delay could, we
accept, potentially be minimised by an immediate referral, subject to
withdrawal if the tribunal were minded to take that step in the light of any
decision of the Upper Tribunal. But we do not consider that, in the
circumstances of this case, and for the reasons we have set out, such a course
would be appropriate. If it were to be the case that the Upper Tribunal
decided that this tribunal would be making an error of law in referring the
compound interest jurisdiction questions to the CJEU, it would have been
entirely inappropriate for such a reference to have been made, in the circumstances
that have arisen in this case, without first the Upper Tribunal having been
given the opportunity to consider that question, and this tribunal then to have
reflected on what the Upper Tribunal has to say.
25. For these
reasons, we grant the application of HMRC for a stay, and we suspend the effect
of our decision to refer the compound interest questions pending the
determination by the Upper Tribunal of HMRC’s application for permission to
appeal in that respect. We are satisfied that this is the only extent to which
we are required to grant a stay. If the Upper Tribunal does give permission,
any application for a further stay or suspension pending the appeal itself can
be considered by the Upper Tribunal. As we have described, Cartesio
confirms that proceedings may be stayed pending an appeal without that having
to be in the discretion of the referring court.
26. Referral of the
pre-1 January 1978 question is unaffected by the stay in respect of the
compound interest questions. We shall settle that reference and send it to the
CJEU as soon as practicable.
ROGER BERNER
TRIBUNAL JUDGE
RELEASE DATE: 3 May 2011
