VAT SUPPLY –Who made the supply? – The Partnership or the Individual Partner – The Partnership – Appeal Dismissed

LONDON TRIBUNAL CENTRE

	FENGATE DEVELOPMENTS 	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	Michael Tildesley	 (Chairman)
						Caroline de Albuquerque 

Sitting in public in  London on 19 May 2003, 6 June 2003 and 1 August 2003

Eamon McNicholas Counsel for the Appellant instructed by David Barney & Co

Paul Key Counsel  for the Respondents

© CROWN COPYRIGHT 2003

DECISION

The Appeal

1.	Fengate Developments (the Appellant) appeals against an Assessment dated 29 June 2001 for VAT in the sum of £42,429.

2.	The ground for the Appeal was that the assessment was incorrect in that the relevant supply or transaction was not a taxable supply and that the VAT and interest claimed was not due because:

a)	The transfer of the 8th July 1999 being the document upon which the assessment was based only transferred the interest of Lena Mary Darlow and did not effect a transfer of land by a taxable person viz the Appellant. As such the transfer came within Paragraph 8(1) Schedule 10 of the VAT Act 1994 (hereinafter referred to as the 1994 Act) so that the Appellant was not the person making the grant.

b)	Further or in the alternative the transfer was not a supply of goods or services for the purposes of VAT.

The Appellant also included in its notice of appeal that “if the said transfer gave rise to a taxable supply (which is denied) the amount of tax due was less than the amount of the assessment”.

The Relevant Legislation
	.	
3.	Article 2(1) of the Sixth Council Directive (77/388/EEC) makes

“the supply of goods or services effected for consideration within the territory of  the country by a taxable person acting as such subject to VAT”

4.	Under Article 5 (1) of the Sixth Council Directive (77/388/EEC):

“supply of goods shall mean the transfer of the right to dispose of tangible property as an owner”.

5.	Section 4(1) of the VAT 1994 Act (hereinafter referred to as the 1994 Act) provides that

	“VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him”.

6.	Section 4(2) of the 1994 Act states that

“A taxable supply is a supply of goods or services made in the United Kingdom other than an exempt supply”.

7.	Under Item 1 of Schedule 9 of the 1994 Act the grant of any interest in land is an exempt supply. However, under paragraph 2(1) of Schedule 10 a person may elect to waive the exemption from VAT in respect of the grant of any interest in land subject to certain exceptions, which are not relevant for the purposes of this appeal.

8.	Paragraph 8 of Schedule 10 of the 1994 Act provides that

“Where the benefit of the consideration for the grant of an interest in or right over or licence to occupy the land accrues to a person but that person is not the person making the grant –
(a)	the person to whom the benefit accrues shall for the purposes of this Act be treated as the person making the grant”
(b)	not relevant to this Appeal.

9.	Section 45 of the 1994 Act enables persons carrying on a business partnership to register the name of the firm for the purposes of VAT.

10.	Section 51A of the 1994 Act which deals with the grant of any interest in land by more than one person has not been brought into force.

The Issue

11.	The Appellant was a partnership of Anthony Harry Darlow and Lena Mary Darlow. The Appellant was registered for VAT in respect of its business as a property developer. With effect from 25 October 1996 the Appellant elected to waive the exemption from tax in respect of “the Fengate Land”.

12.	On 8 July 1999, the Appellant transferred freehold title to an area of land (“the Red Land”) forming part of the “Fengate Land” to Anthony Harry Darlow and Deanna Valerie Brawn trading as a partnership under the name of Darlows in consideration of sum of money.

13.	The Appellant contended that the transfer of land on the 8 July 1999 related solely to the transfer of  Lena Darlow’s interest in the land. As Lena Darlow was not a taxable person no VAT was payable on the transaction. The Respondents, on the other hand, argued that the transfer was the disposition of an asset of the Appellant and was therefore a supply made in the course or furtherance of its business. The Appellant had waived the exemption from tax in respect of grants of any interest in the “Fengate land”. Thus the 8 July  transfer was a standard rated taxable supply.

14.	The issue for determination by the Tribunal was who made the supply of land on the 8 July 1999 for the purposes of the 1994 Act. If the supply was made by Lena Darlow and related solely to her interest in the land, no VAT would be payable on the transaction. If the supply was made by the Appellant, VAT at the standard rate would be payable. The burden of proof on the balance of probabilities in this Appeal rested on the Appellant.

The Evidence

15.	The Appellant called three witnesses to give evidence: Anthony Harry Darlow, Lena Darlow and Shani Harvey. Mr and Mrs Darlow were the partners for Fengate Developments (the Appellant). Mrs Harvey was the daughter of Mr Darlow and Ms Brawn (the ex wife of Mr Darlow). Mrs Harvey was employed as the book-keeper for the Appellants and for Darlows. The Respondents called one witness, Peter Gerald Goulding, a Senior VAT Assurance Officer employed by HM Customs and Excise. He was responsible for the investigation of the Appellant’s VAT affairs. A bundle of documents was submitted to the Tribunal.

The Facts Found

16.	The Appellant was set up as a partnership in 1996 to purchase from Spen Hill Properties a piece of land with a disused industrial building on it situated at Fengate, Peterborough (hereinafter referred to as “Fengate land”). The partners were Mr and Mrs Darlow. Mr Darlow was also in partnership with his ex wife, Deanna Valerie Brawn, trading as Darlows, potato merchants. 

17.	The Appellant was registered as a partnership for VAT from 23 October 1996 under registration number 683 9273 89. The main business activity of the Appellant was property development. The principal asset of the Appellant was “Fengate land” upon which cold store premises had been established. The premises were let to the “associated partnership”, Darlows. The Appellant was also involved in house construction. The Application for Registration under the 1994 Act mentioned the construction of three houses, two of which were located at Warboys, Peterborough.

18.	The “Fengate Land” was registered with the HM Land Registry under title number CB146423. The Registered Proprietors with Title Absolute were Anthony Harry Darlow and Lena Mary Darlow. The Proprietorship Register contained one restriction, namely that 

 “Except under an order of the registrar no disposition or dealing by the proprietor of the land is to be registered without the consent of the proprietor of the Charge dated 25 October 1996 in favour of Midland Bank PLC referred to in the Charges Register”.  

19.	On 25 October 1996 the Appellant gave written notice to the Respondents that it had elected to waive exemption from VAT in respect of grants of any interest in land. Mr Darlow signed the notice in his capacity as partner.

20.	As at 31 March 2000, the Appellant had achieved a net profit of £170,115 which was split equally between the partners. Mr Darlow’s value of capital invested in the partnership was £993,406, whereas the capital value attributed to Mrs Darlow was £200,611. 

21.	On 2 May 2001 Mr Goulding, an officer employed by the Respondents visited the Appellant at its offices in Fengate, Peterborough. He was accompanied by Mrs Meredith who attended as part of her training and took no part in the discussions. The visit was prompted by a “pre-credibility” query raised by the Respondents’ Credibility Unit. Mr Goulding inspected the various accounting documents held by the Appellant and carried out a series of basic checks. As part of his visit he queried the VAT return for period 08/99 where £585,346 had been declared as net sales but only £12,039.37 had been declared as output tax. The sales figures in the VAT summary for this period showed two substantial sales in the sums of £260,050 and £250,000. The first sale related to the sale of a zero-rated new dwelling. The second involved the sale of bare land.

22.	The sale of bare land (hereinafter referred to as the “Red Land”)was identified as part of the “Fengate Land”. The “Red Land” comprised  2.5 acres on the south east corner of the “Fengate Land” and was zoned for industrial development.  Mr Goulding formed the opinion that the election to pay VAT on the sale of “Fengate Land” applied to the sale of the “Red Land” to the value £250,000. He informed Mr Darlow of his opinion that VAT should have been charged on the sale of the “Red Land”. The discussion that then ensued was a matter of dispute between the parties. However, we were satisfied that Mr Goulding was directed by Mr Darlow to speak to his solicitors, David Barney and Company. Mr Barney explained that the Land Registry Transfer Document which was faxed to Mr Goulding at the Appellant’s offices showed that only Mrs Darlow’s interest in the “Red Land” was sold to the value of £125,000. 

23.	On the 17 May 2001 Mr Goulding wrote to the Appellant re-asserting his opinion that the sale of the “Red Land” was a taxable supply in the sum of £250,000.

24.	On the 29 June 2001 the Respondents issued the Appellant with a notice of assessment for unpaid VAT in the sum of £37,150 plus interest of £5,279.19 making a total of £42,429.19.

25.	The sale of the “Red Land” was executed by a deed, HM Land Registry Transfer document TR1, “Transfer of Whole Registered Title” dated 8 July 1999. The 
Transfer document contained the following details:

~	Section 3 of the TR1 described the property as “land on the south east of Fengate, Peterborough shown edged red on the attached plan for the purposes of identification only”. 
~	Section 5 named the Transferor as Anthony Harry Darlow and Lena Mary Darlow.
~	Section 6 named the Transferee as Anthony Harry Darlow and Deanna Valerie Brawn.
~	Section 9 stipulated that the Transferor had received from the Transferee for the property the sum of £125,000.
~	Section 11 declared that the Transferee were to hold the property on trust for themselves as tenants in common in equal shares.
~	Section 12 (additional Provisions) stated that “the interest transferred by this Transfer and the consideration referred to in section 9 was exclusively in respect of the interest in the property of Lena Mary Darlow no transfer or dealing having taken place as a result of this Transfer in respect of the interest of the said Anthony Harry Darlow”.

The Transfer Document was executed as a deed by Mr and Mrs Darlow and Ms Brawn in the presence of witnesses. 

26.	Mr and Mrs Darlow gave evidence that they had been informed by their solicitor, David Barney, that he had made enquiries of the Land Registry about the form of the Transfer document to record the sale of the “Red Land” and how that form should be completed. The Tribunal did not hear from David Barney direct and no record of the conversation with the Land Registry was produced except the evidence given by Mr and Mrs Darlow.

27.	The Appellant’s bank statement (HSBC, account number 40-10-02 51760807) for the period between 30 June 1999 – 28 July 1999 showed that two separate amounts of £125,000 had been paid into the account on the 8 July 1999, the date of the execution of the TR1 relating to the sale of the “Red Land”. The first £125,000 was paid into the account by David Barney & Co, the Appellant’s solicitors, and represented the sun of money received by Lena Mary Darlow for the sale of the “Red Land”. The second amount of £125,000 was paid into the Appellant’s account by Anthony Harry Darlow from the Darlows’ partnership accounts. This payment was triggered by the sale of the “Red Land” enabling Mr Darlow to take advantage of the usual arrangement for the Darlows partnership regarding equality of drawings, namely that the drawings by each partner would be matched one with the other. The effect of the combined payment of £250,000 was to reduce the Appellant’s overdraft from £251,750.56 to £1,750.56.	

28.	The Appellant’s nominal ledger accounts for the period 1 July 1999 to 1 September 1999 revealed that the accounts were credited with two separate amounts of £125,000. Both entries were described as “land sale” which referred to the sale of the “Red Land”.

29.	The Appellant’s “Trading and Profit and Loss Account” for the year ended 31 March 2000 showed a “Sale of Land and Property” to the value of £260,000.  The “Balance Sheet” for the period ending 31 March 2000 revealed a reduction in “Fixed Assets: Freehold Property from £1,534,464 for the period ending 31 March 1999 to £1,353,423 for the period ending 31 March 2000. The “Tangible Fixed Assets Schedule” for the period ending 31 March 2000 recorded a disposal of “Freehold Property” to the value of £250,000. The entries recorded above referred to the sale of the “Red Land”. These accounting records were prepared by George Hay, Chartered Accountants, and were submitted to Inland Revenue for the purposes of assessing  income tax for the period ending 31 March 2000. The accounts were signed by Mr Darlow as true and accurate. Mrs Darlow could not remember whether she had signed the accounts. Mr Darlow confirmed that he had not recalled the accounts from the Inland Revenue to make any changes.

30.	The Appellant’s VAT return for the period ending 30 September 1999 recorded £12,039 as the total VAT due in box 3, and £585,346 as the total value of sales in box 6. The sales value included £250,000 for the sale of the “Red Land”. The VAT return contained a declaration that the “Information given above is true and complete” and was signed on 29 September 1999 by Anthony Harry Darlow.

31.	The two amounts of £125,000 credited to the Appellant’s accounts on the 8 July 1999 were sourced by transfers from the capital accounts of Anthony Harrow Darlow and Deanna Valerie Brawn in their partnership trading as “Darlows”. 

32.	Mr Darlow gave evidence that he and his wife were purchasing a new ocean-going motor cruiser which was being built in Italy. The funding for this venture was coming out of their capital accounts in “Fengate” (the Appellant). The Appellant’s bank had agreed to give an overdraft for this purpose. The sale of the “Red Land” had enabled the Appellant to repay nearly all the withdrawals for the purchase of the motor cruiser and considerably reduce its overdraft. Mr Darlow’s explanation for the discrepancy between the £125,000 recorded for the sale of the “Red Land” in the Transfer document and the £250,000 recorded in the various accounting documents was that his accountant had made a mistake and failed to follow his instructions. Mr Darlow relied on a letter from his solicitors, David Barney, dated 18 April 2000 to George Hay & Co, Mr Darlow’s accountants which stated that

	“I have been asked by Tony Darlow to write to you to give you details of the transactions relating to the sale of Oxney Road by Darlows and also the sale by Lena Darlow of a half interest in a piece of land adjacent to the present factory building shown edged red on the attached plan.

Deanna bought Lena out for the sum of £125,000 which is one half of the market value of that land. That means in place of the property being owned by Anthony Harry Darlow and Lena Mary Darlow trading as Fengate Developments the property was from the 8 July 1999 owned by Anthony Harry Darlow and Deanna Valerie Brawn as Tenants in Common in equal shares”.

33.	Mr Darlow stated that he signed the accounts as a true and correct record because he had no reason to doubt his accountants. He had engaged George Hay & Co as his accountants for 40 years. His accountants had not asked him to resubmit his accounts to the Inland Revenue. The accountants, George Hay & Co, were not called to give evidence. 

34.	Mr Darlow accepted that the “Red Land” would have been sold at £250,000 because that was the value of the land. Mr Darlow gave no convincing explanation as to why he paid £125,000 into the Appellant’s account on the 8 July 1999, the date of the Transfer document for the sale of the “Red Land”. 

His responses to the Respondents’ Counsel’s questions on this point were as follows:

	Question: “If this sale had not taken place”?
	Answer: “I could have paid the £125,000 into my account”.

Question: “Would you have paid £125,000 if this transaction had not taken place”?
	Answer: “I don’t know, I could have done – Its my money”.

35.	Mrs Darlow believed that the sale of the “Red Land” related only to her share in the land not her husband’s. She confirmed Mr Darlow’s account that the sale was necessary to fund the ocean-going motor cruiser and to reduce the Appellant’s overdraft. However, it was clear from her evidence that she left most of the documents and business to her husband, Mr Darlow. She did not have much to do with the day-to-day running of the Appellant’s business and she only went into the office occasionally.

36. 	Mrs Shani Harvey kept and still keeps the book-keeping records for the Appellant and for “Darlows”. She was responsible for the underlying accounting records leaving the preparation of the management accounting records to the accountants, George Hay & Co. Mrs Harvey recorded the entries in the Appellant’s nominal ledger on the 8 July 1999 dealing with the sale of land in the value of two  separate amounts of £125,000. She believed at the time of completing the ledger that it was the correct method to record the two transactions of £125,000 as “land sale”. Mrs Harvey did not have sight of the Transfer document dated 8 July 1999 when she entered “land sale”. Although she could not now remember why she entered “land sale”, she did accept that she would have had a basis for those entries. Mrs Harvey also compiled the VAT return for signature by her father, Mr Darlow.  She accepted that if she had any doubts about the way to record entries in the nominal ledger she would ask her father (Mr Darlow) or her mother (Ms Brawn) for advice.

The Authorities

37.	We were referred to the following authorities:

	Bourne v Bourne [1906] 2 Ch 427
	Carlton Lodge Club v Customs and Excise Commissioners [1974] STC 507
Commissioner of Customs and Excise v Glasborrow and another [1974] STC 142
Customs and Excise Commissioners v Evans and others (Trading as The Grape Escape Wine Bar) [1982] STC 342
Pepper v Hart [1993] A.C. 593
Neil Gwynn House Maintenance Fund Trustees v Customs and Excise Commissioners [1996] STC 310
Popat v Schnchhatra [1997] 1 WLR 1367
Auto Lease Holland BV v Bundesamt fur Finanzen (CJEC) (Case C-185/01) 3 February 2003
Seeling v Finanzamt Starnberg (Case C – 269/00) [2003] STC 805

38.	We were also referred to

RGB Contractors v Customs and Excise Commissioners VAT Decision 133, 23  December 1974.
Border Flying Company v Customs and Excise Commissioners [1976] VATTR 132
Hoi Shan Chinese Restauarant v Customs and Excise Commissioners VAT Decision 2368, 23 May 1987
Coombes Transport v Customs and Excise Commissioners VAT Decision 11275, 12 October 1993
Veale v Customs and Excise Commissioners VAT Decision 14637, 12 December 1996
Zang v Customs and Excise Commissioners VAT Decision 15426, 18 February 1998
Singh v Customs and Excise Commissioners VAT Decision 16378 19 November 1999
De Voil (ed) Indirect Tax Service (2003), paras V2.117; V3, 119.
Glasser (ed) Tolley’s VAT Business by Business 2001-02 at 655-656
Lord Halisham (ed.), Halisbury’s Laws of England,  Vol.26 (1997, 4th ed.      reissue), Land Registration paras 735-736 and 1078-1155
Lord Halisham (ed.), Halisbury’s Laws of England,  , Vol 35 (1994, 4th ed reissue), Partnership, paras 93-96, 103-109
Lord Halisham (ed.), Halisbury’s Laws of England,  Vol 39(2) (1998, 4th ed reissue) Real Property, paras 45-48
Lord Halisham (ed.), Halisbury’s Laws of England,   Vol 29 (1999, 4th ed. Reissue) paras 932, 934, 1061)
Ruoff & Roper, The Law and Practice of Registered Conveyancing (2002) para 20-04 & para 32-19
JE Adams (9ed), Precedents for the Conveyancer, (2003) para 17-C3
Land Registry, Practice leaflet 28, Using the new transfer forms (April 1999)
Customs and Excise Manuals, extracts V1 pt 8 ch 2 sec 3, paras 3.8 and 9.13

The Arguments for the Appellant

39.	Mr McNicholas on behalf of the Appellant contended that there were two main issues in the Appeal:

a)	Who for VAT purposes made the supply of 8 July 1999?
b)	How much was the supply for?

40.	Mr McNicholas submitted that the two questions identified above should be addressed by applying the law as stated in the EC Sixth Council Directive and the 1994 Act. Paragraph 8, Schedule 10 of the 1994 Act covered the situation of legal title and beneficial interests in the same piece of land. Thus the 1994 Act was not concerned with the complexities of legal and beneficial interests. Instead Paragraph 8, Schedule 10 applied a simple and objective test for determining the identity of the person making the taxable supply, namely, which person received the benefit of the consideration for the grant of an interest in land. In Mr McNicholas’ view this interpretation was consistent with the overall framework for VAT established by the EC Sixth Council Directive. He cited in support the European Court’s decision in Auto Lease Holland BV v Bundesamt fur Finanzen, in particular paragraph 32 of the decision which stated that

	“….supply of goods does not refer to the transfer of ownership in accordance with the procedures prescribed by the applicable national law but covers any transfer of tangible property by one party which empowers the other party actually to dispose of it  as if he were the owner of the property”.

41.	Mr McNicholas was of the opinion that the evidence demonstrated that the sale of the “Red Land” on the 8 July 1999 related solely to Mrs Darlow’s beneficial interest in the land. This was supported by the Mr and Mrs Darlow’s evidence, which in Mr McNicholas’ view had not been challenged in cross-examination by the Respondents’ counsel. It was also supported by the documentary evidence provided by the Land Registry Transfer Document of the sale, in which section 12 stated that the sale related solely to Mrs Darlow’s interest. Mrs Harvey had made a mistake when she entered the two separate transactions of £125,000 on the 8 July as land sales. The Appellant’s accountants had replicated this entry in the subsequent financial documents relating to the Appellant’s business thus compounding the consequences of Mrs Harvey’s initial mistake. The Accountants had not followed the instructions given by Mr Darlow through his solicitor about the accounting of the transaction on the 8 July 1999. The Respondents had had ample opportunity to call the Accountants as a witness to challenge the Appellant’s assertion that the Accountants had not followed its instructions. Hence, consideration of the evidence lead inevitably to the conclusion that only Mrs Darlow had benefited from the transfer of the “red land to “Darlows”. In accordance with Paragraph 8 of Schedule 10  of the 1994 Act, it was Mrs Darlow who made the supply. The sale of her interest in the “Red Land” was an exempt supply because she was not a party to the election to waive exemption from VAT on land sales made by the Appellant on 25 October 1996. 

42.	Mr McNicholas suggested that the Respondents had placed too much weight on naming the transferors as Anthony Harry Darlow and Lena Mary Darlow in the 8 July 1999 document dealing with the transfer of the “Red Land”. In his view the Respondents had interpreted this to mean that it was the Appellant’s interest not Mrs Darlow’s interest in the “Red Land “ which had been sold. Mr McNicholas pointed out that it was necessary to record Anthony Harry Darlow and Lena Mary Darlow as the transferors to comply with the Land Registration Rules 1925 and established conveyancing practice. The 1925 Rules prescribed the forms for transferring interests in registered land. The Appellant had no choice but to use the prescribed form TR1 to register the sale of Mrs Darlow’s interest in the “Red Land”. This required the Appellant to name Anthony Harry Darlow and Lena Mary Darlow as the transferors but to recite in section 12 that it was only Mrs Darlow’s interest that was being sold. Mr McNicholas went on to argue that a deed was required for the sale of land. There was no deed in existence for the purported sale of the “Red Land” for a consideration of £250,000, which in his view represented a major hole in the Respondents’ case.

43.	Mr McNicholas considered that the Respondents had placed too much weight on partnership law. The term “partnership property” did not preclude the holding of legal and equitable  interests in land and that the law enabled the conveyancing of a partner’s individual equitable interest. In his opinion the Respondents’ reliance on partnership law was symptomatic of  their flawed approach to this Appeal. The Respondents  originally relied on section 51A of the 1994 Act dealing with the VAT  treatment of co-owners of land until Mr McNicholas  indicated to the Respondents that section 51A  was not yet in force.   

The Arguments for the Respondents

44.	Mr Key on behalf of the Respondents contended that there was a critical distinction between partnership property and a share in a partnership. In his view property bought and acquired by the partnership was partnership property. The legal interest in  partnership property   vested  in the partnership.  None of the individual partners had a legal or equitable interest in that property instead they were entitled to  a share in the partnership capital when the partnership came to an end. In support of his submission Mr Key relied on section 8 (1) of the Partnership Act 1890 which states that

	“All property and rights and interests originally brought into the partnership stock or acquired whether by purchase or otherwise on account of the firm, or for the purposes and in the course of the partnership business are called in this Act partnership property, and must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement”

Mr Key also cited a number of authorities supporting his proposition, the chief one was the dicta of Romer LJ in Bourne v Bourne on page 432:

“It is to be borne in mind that the real interest of the partnership in real estate is of a personal character, because wherever the legal estate may be, whether it is in the partners jointly or in one partner or in a stranger it does not matter, the beneficial interest in the real estate belongs to the partnership, with an implied trust for sale for the purposes of realizing the assets and for the purposes of giving to the two partners their interests when the partnership is wound up and an account taken”. 

45.	Mr Key applied his proposition to the facts of this Appeal. In his opinion the “Fengate Land” of which the “Red Land” was part had been acquired by the Appellant for partnership business. The “Red Land” was, therefore, partnership property.  Applying the dicta of Romer LJ in Bourne v Bourne, the legal and beneficial estate in the “Red Land” were vested in the Appellant. Mr and Mrs Darlow had no separate legal or equitable interest in the “Red Land”. They were entitled only to their share of the partnership capital on dissolution of the  partnership. In these circumstances  Mrs Darlow could not  be the person who made the supply of the “Red Land” because she had no right of ownership in the “Red Land” to transfer. Thus only the Appellant could be the supplier of the “Red Land” to “Darlows”. The Appellant had waived the exemption to pay VAT on the sale of interests in land, and was, therefore, liable to pay VAT  at the standard rate on the supply of the “Red Land”.  Mr Key considered that the evidence of  the accounting entries in the Appellant’s books showing a transfer of fixed assets supported his analysis of  the legal and factual position relating to the sale of the “Red Land”. 

46.	Mr Key then went onto consider the taxable amount for the supply of “Red Land”. Article 11 of the EC Sixth Council Directive  requires that the taxable amount shall be everything which constitutes the consideration received by the Appellant on the sale of the “Red Land”. In Mr Key’s view the Appellant’s accounting documents clearly showed that it had received £250,000 for the sale from “Darlows”, which had sourced the transaction. Mr Key felt that Mrs Harvey’s evidence was very illuminating and supportive of the figure £250,000 as the consideration. She confirmed that £250,000 had been taken from “Darlows” accounts in connection with the sale of the “Red Land”. Mrs Harvey believed that her entries of land sales  in the nominal ledger were at the time of  entry the correct way to record the 8 July 1999 transactions. Further, Mrs Harvey confirmed that she would have checked the matter with either her father or mother if she had concerns about the correctness of the entry.  

47.	Mr Key did not accept that the evidence given by Mr and Mrs Darlow had gone unchallenged. He considered that Paragraph 8, Schedule 10 of the 1994 Act did not apply to this Appeal because the legal and beneficial interests in the “Red Land” were not split between different legal entities. Finally Mr Key found the Appellant’s contentions inherently unattractive and if successful would undermine the whole fabric of the VAT regime dealing with partnerships.  

Reasons for the Decision

48.	 The parties took fundamentally different approaches to this Appeal. The Appellant’s case was built upon the wording of paragraph 8, schedule 10 of the 1994 Act, whilst the Respondents relied upon the law relating to partnerships. However, the parties were agreed on the central issue of this Appeal, which was: “Who made the supply of the “Red Land” on the 8 July 1999”. Our starting point for resolving the central issue was to agree our conclusions on the facts found in relation to the testimonies of the three witnesses called by the Appellant and the conflict between the documentary evidence.

49.	Counsel for the Appellant submitted in his closing address that the evidence of Mr and Mrs Darlow and Mrs Harvey was not challenged and should be taken as fact. In other words their evidence had established the case for the Appellant on the balance of probabilities. We would disagree with Counsel’s assessment of the evidence given by these three witness.

50.	Mr Darlow was the key witness for the Appellant. He was the major partner in the Appellant’s business and effectively was the sole decision maker. Mrs Darlow, the other partner, accepted in her evidence that she had little to do with the day-to-day running of the business and left the decisions to her husband. Mr Darlow was also a partner in the associated business of “Darlows”. Mr Darlow’s explanation for his payment of £125,000 into the Appellant’s bank account on the same day as the completion date for the sale of the “Red Land” was in our view unconvincing and vague. He was  unsure whether he would have drawn against his capital account in Darlows, if the sale had not proceeded. In our view it was too much of a coincidence that he paid £125,000 on the same day as the completion date for the sale, particularly as he accepted in his own evidence that £125,000 represented half the market value of the “Red Land”.  

51.	We placed considerable weight on the fact that Mr Darlow certified the VAT return and the Partnership Accounts containing the entries regarding the £250,000 land sale as “true and complete”. Mr Darlow in his evidence tried to downplay the significance of his certification by suggesting that he trusted implicitly the actions of his accountants. However, this subordinate image of Mr Darlow never questioning his professional advisers does not stack up with what we have learnt about Mr Darlow during the course of the hearing. Mr Darlow was a successful business man and entrepreneur. He was the decision maker for the Appellant and probably for the associated business of Darlows. He was the person to whom Mrs Harvey deferred to in respect of queries on the accounts. He through his solicitor issued instructions to his accountants about the correct accounting entries for the sale of Oxney Road by Darlows and the sale by Lena Darlow of a half interest in the “Red Land”.

52.	We attached no weight to Mrs Darlow’s evidence. We concluded that she had little understanding of the business. She accepted in evidence that she left all the document side of the business to her husband and visited the office occasionally.

53.	Counsel for the Appellant tried to persuade us that Mrs Harvey had accepted she had made a mistake in entering the two transactions of £125,000 as land sales. We do not accept his interpretation of Mrs Harvey’s evidence. Mrs Harvey said that at the time of preparing the nominal ledger she believed it was the correct method to record the transaction. Although she could not remember what she was told at the time of the transaction, she had a basis for putting the comments  “land sales” in the ledger. We consider that her evidence was unequivocal: she did not make a mistake with her entries.

54.	We were asked by Counsel for the Appellant to disregard the evidence contained in the Appellant’s accounts for the period ending 31 March 2000 because the accountants had made a terrible mistake and had failed to follow the instructions of their clients. We had no direct evidence from the accountants of their acceptance they had made a mistake. Counsel for the Appellant suggested that the Respondents had had ample opportunity to call the accountants to refute the evidence of a mistake. We disagree the burden of proof was on the Appellant not on the Respondents. It was down to the Appellant to call the accountants. 

55.	The Appellant relied on a letter dated the 18 April 2000 from David Barney, the Appellant’s solicitors, to George Hay & Co, the accountants, to substantiate the claim that the accountants had failed to follow the instructions of their client, Mr Darlow. We did not arrive at the same conclusion. The letter contained no instructions about how the payment of  £125,000 made by Mr Darlow on the 8 July 1999 should be recorded in the accounts. This payment was known to Mr Darlow when he issued instructions on the 18 April 2000. Second the instruction regarding the sale of the “Red Land” read:

	“Deanna bought Lena out for the sum of £125,000 which is one half of the open market value of the land. That means in place of the property being owned by Anthony Harry Darlow and Lena Mary Darlow trading as Fengate Developments the property was from 8th July 1999 owned by Anthony Harry Darlow and Deanna Valeria Brawn as Tenants in Common in equal shares”. 

We have interpreted this to mean that the Appellant (Fengate Developments) disposed of its whole interest in the “Red Land”, which is how George Hay & Co, the accountants, recorded the transaction in the partnership accounts for the period ending 31 March 2000. The Appellant has not convinced us that George Hay & Co made mistakes in the compilation of its accounts.   

56.	We have, therefore, concluded that the details recorded in the Appellant’s VAT return for the period ending 30 September 1999, the nominal ledger (1 July  - 1 September 1999) and the partnership accounts for the year ending 31 March 2000 were correct and reflected the true position regarding the sale of the “Red Land”. 

57.	Our findings in respect of the Appellant’s accounting documents and the £125,000 payment made by Mr Darlow challenge the accuracy of the facts given in section 12 of  the Transfer document relating to the sale of the “Red Land”. We are also of the view that there were inconsistencies within the Transfer document itself between sections 5 and 12. The legal effect of  the Transfer document was to dispose of the Appellant’s interest as held by Mr and Mrs Darlow as joint tenants. The document did not just transfer the interest of Mrs Darlow. This was confirmed by the Appellant’s solicitor in his letter to George Hay & Co of the 18 April 2002: 

	“That means in place of the property being owned by Anthony Harry Darlow and Lena Mary Darlow trading as Fengate Development ………”.  

58.	Counsel for the Appellant submitted that there was no deed which evidenced the sale  of the “Red Land” by Mr and Mrs Darlow trading as Fengate Developments for £250,000. Whilst we accept that the consideration recorded in the Transfer document was £125,000, nevertheless the document was the deed which conveyed the legal and beneficial interest of Mr and Mrs Darlow in the “Red Land”. 

59.	We heard evidence from Mr and Mrs Darlow that they had been informed by their solicitors about their enquiries of the Land Registry regarding the method to record the purported sale of Mrs Darlow’s half interest in the “Red Land”. According to Mr and Mrs Darlow the Land Registry informed the solicitors that they had to use the form TR1 and name both registered proprietors in section 5 to constitute a valid transfer. Further the solicitors should complete section 12 to the effect that it was just Mrs Darlows’ interest that was being sold. We attach no weight to this evidence. It is hearsay, not supported by contemporaneous notes of the conversation. We saw no correspondence between the solicitor and the Land Registry confirming the contents of the conversation about TR1. There was also a contradiction in Mr and Mrs Darlows’ witness statements which referred to form TP1 rather than  form TR1. 

60.	The extracts from the various conveyancing authorities produced by the Appellant appeared to contradict its assertion that it had to use the TR1 form to transfer the half interest of Mrs Darlow in the “Red Land”. The Land Registry Practice Leaflet “Using the new transfer forms for less straightforward transactions” (extract 15 in the Appellant’s bundle of authorities) recommended that TP form  be used where the land being transferred comprises part of one or more registered titles. The TR form was recommended for use when the land being transferred comprises the whole of one or more registered titles. 

61.	We have concluded that the effect of  the Transfer Document was to transfer the Appellant’s (Fengate Developments.) interest in the “Red  Land”. It did not just transfer the interest of Mrs Darlow. 

62.	In view of our findings in relation to the accuracy of the accounts and Mr Darlow’s payment of £125,000 we consider that the sections in the Transfer document dealing with the consideration (£125,000) and the sale of Mrs Darlow’s interest do not represent the whole picture regarding the sale of the “Red Land”. 

63.	We have felt it necessary to explain in detail our assessment of the Appellant’s evidence and identify our conclusions from that assessment, which are:

a)	The payment of £125,000 by Mr Darlow on the 8 July 1999 represented the other half contribution from “Darlows” for the purchase of the “Red Land”.
b)	The record of the sale of the “Red Land”.in the various accounting documents for the relevant period was accurate. Mr Darlow also accepted their accuracy by his certification as to their truth and accuracy.
c)	Mrs Harvey had not made a mistake about the description as “land sale” of the two payments of £125,000 entered in the nominal ledger
d)	The Appellant adduced no convincing evidence that the accountants, George Hay& Co, had made mistakes in the compilation of the final accounts and that they had failed to follow the instructions of their client, Mr Darlow.
e)	The effect of the Transfer Document was to convey the legal and beneficial interest of the Appellant (Fengate Developments) in the “Red Land” to Mr Darlow and Ms Brawn.
f)	The information contained in the Transfer Document about the consideration and the sale of Mrs Darlows’ interest did not represent the whole picture regarding the sale of the “Red Land”

64.	The legal principles under VAT which determine the identity of the supplier have been built up through case law. These principles have been helpfully summarised in “De Voil Indirect Tax Services”, Part V3 Supplies, Acquisitions and Imports, Division V3.1 Supplies (Extract 16 in Respondents’ Authorities), which states:

	“A substantial body of case law has arisen over this issue (the identity of the supplier); the fact that it is so substantial demonstrates that to a large extent, each case must be viewed on its own merits, and no single factor is determinative. Nevertheless, the following considerations have been held to be significant in determining the identity of the supplier:

1.	Who is the person assumed to be making the supply from the viewpoint of the customer?
2.	Who is the person who sets the price (or is entitled to set the price) for the supply?
3.	Whose assets are used to set the supply?
4.	Is the scale of operation such that it is unlikely to be operated in the manner contended?
5.	To whom are payments made? 
6.	Who would the customer claim against in the event of a default?
7.	How is the arrangement regarded for direct tax purposes?
8.	What degree of control does one party hold over another”.

65.	We prefer at this stage to adopt the approach recommended in “De Voil Indirect Tax Services” to resolve the critical issue of “who made the supply of the “Red Land” on the 8 July 1999” rather than addressing the conflict of approaches taken by the respective Counsel. Applying the principles identified in case law to the facts found by ourselves in this Appeal we conclude the following:

~	The “Red Land” was an asset of the partnership, Fengate Developments, (the Appellant). “Red Land” was part of “Fengate Land” which had been purchased by the partnership in October 1996. In fact the partnership was created for this specific purpose of buying and developing Fengate Land, which was its principal asset. The transfer of the “Red Land” in the value of £250,000 was recorded in the Tangible Assets Schedule of  the partnership accounts for the year ending 31 March 2000. 

~	We found that the two payments of £125,000 made on 8 July 1999 by Mr and Mrs Darlow were made out and paid into the Appellant’s bank account with HSBC. The Appellant received a direct benefit with a significant reduction in its overdraft from  £251,750.56 to £1,750.56. The total value of these two payments represented the open market value of the “Red Land”, namely £250,000. The payments were recorded in the Appellant’s nominal ledger for the period 1 July 1999 – 1 September 1999, the Trading and Profit and Loss Account for the year ended 31 March 2000, and the VAT return for the period ending 30 September 1999. 

~	The Appellant in the names of Mr and Mrs Darlow transferred the legal title and beneficial interest in the “Red Land”. It was their names that appeared on the Transfer document. Therefore, the buyer of the Red Land would have viewed the Appellant as the person making the supply. The Appellant was the person able to set the price for the “Red Land”. The buyer, Mr Darlow and Ms Brawn, transferred monies from the capital accounts in their partnership “Darlows” into the Appellant’s bank account  (Ms Brawn transferred it via the account of David Barney & Co, the solicitors, handling the sale and the purchase).

~	The buyers’ remedy for a defect in the sale would have been against the person transferring the legal and beneficial interests in the “Red Land”, that is the Appellant.

~	The sale of the “Red Land” in the value of £250,000 was included in the Appellant’s Financial Statements for the year ended 31 March 2000 which was submitted to Inland Revenue for the purposes of supporting the assessment to direct tax. Mr Darlow gave evidence that he signed these statements as true and accurate, they were submitted to the Inland Revenue and were not recalled.

The elements of the “scale of operation” and  “the degree of control” were not relevant to this Appeal.

66.	The Appellant relied on a simpler legal test of “which person receives the direct benefit of the sale proceeds, rents etc from the property” for determining the question: “who made the supply”? Appellant’s Counsel derived this test from the wording of Paragraph 8, Schedule 10 of the 1994 Act. Although we have reservations about whether Paragraph 8, Schedule 10 applies to the facts of this Appeal, it would appear that the simple legal test of who receives the benefit has wider application in the statutory regime created by the 1994 Act. Counsel referred us to an extract from the “Customs and Excise Manuals”, Volume VI Value Added Tax, Part 8 Value Added Tax – Land and Property, Chapter 3 Taxable Person:

	“Current VAT legislation does not concern itself with the complexity of trusts and the relationship between legal and beneficial owners. Instead it sets a simple and objective test: which person receives the direct benefit of the sale proceeds, rents etc from the property? That person is deemed to make the supply of selling leasing or letting the property. The relevant legal provision is contained within Paragraph 5 Schedule 10 of the VAT Act 1994”.
( the extract then goes on to make similar observations about the wording of Paragraph 8 Schedule 10 of the 1994 Act).

67.	Applying the legal test of  “which person receive the direct benefit of the sales proceeds from the “Red Land” to the facts found in this Appeal, we conclude the following:

~	Fengate Developments, the Appellant, received payments totalling £250,000 from the purchasers of the “Red Land” into its bank account on the 8 July 1999. 
~	There was no evidence that the Appellant then allocated the purchase monies to the individual partner’s personal bank accounts.
~	The Appellant received the direct benefit from the payment of the purchase monies of £250,000, namely a substantial reduction in its overdraft with HSBC bank.
 
68.	We, therefore, conclude from the facts found and their analysis to the factors  drawn from case law identified in the extract from  “De Voil Indirect Tax Services” and the legal test of  “who received the direct benefit” that the Appellant was the person who supplied the “Red Land” to Mr Darlow and Ms Brawn, as tenants in common on the 8 July 1999. 

69.	We have found as fact that

~	The Appellant received sums totalling £250,000 for the sale of “Red Land” from “Darlows” direct into its bank account on the 8 July 1999. David Barney & Co, the solicitors dealing with the conveyancing of the “Red Land”, paid Ms Brawn’s half share of the purchase price into the Appellant’s bank account. Mr Darlow paid his  half share of the purchase price direct  into the Appellant’s bank account.

~	The Appellant’s accounting documents for the relevant period recorded the value of the sale as £250,000. 

We, therefore, conclude that the consideration received by the Appellant for the sale of  “Red Land” was £250,000.

70.	On the 25 October 1996 the Appellant elected to waive the exemption from VAT in respect of “Fengate Land”. The waiver of exemption from VAT applied to the “Red Land” because it was part of “Fengate Land”. Thus the Appellant was liable to pay VAT on the sale of the “Red Land” on 8 July 1999.

71.	We have, therefore, decided to dismiss the Appeal. Thus the Assessment for VAT  dated 29 June 2001 in the sum of £42,429 stands. The Appellant has failed to discharge its burden of proof on the balance of probabilities. We are satisfied that it was the Appellant which supplied the “Red Land” on the 8 July 1999 in consideration of the sum of £250,000. The Appellant had waived exemption from VAT in respect of the sale of “Red Land” on 25 October 1996. We make no order for costs in respect of the substantive hearing.

The Legal Arguments

72.	Counsel for the Appellant and Respondents took fundamentally divergent approaches to the legal issues raised by this Appeal. The Appellant’s case was built upon the wording of Paragraph 8, Schedule 10 of the 1994 Act, whilst the Respondents relied upon the law relating to partnerships.

73.	Counsel for the Respondents took issue with  Counsel for the Appellant about the application of Paragraph 8 of Schedule 10 of the 1994 Act to the facts of this Appeal. He considered that it did not apply because the legal and beneficial interests of the “Red Land” were vested in the same persons; Mr and Mrs Darlow. He was of the view that Paragraph 8, Schedule 10 only came into play if the legal and beneficial interests in the land in question were held by different persons. Counsel for the Respondents in making this submission relied on the House of Lords decision in Nell Gwynn House Maintenance Fund Trustees v Customs and Excise Commissioners where Lord Slynn of Hadley at page 93 expressed the view on Paragraph 7 Schedule 6A 1983 VAT Act :

	“Paragraph 7 of the Schedule is general, but it seems to me that it is really aimed at the situation where the legal title is in one person, so that he can make a grant of an interest in the land but the beneficial interest is in another person, so he receives any rent or other payment for the grant of the lease ……Accordingly, I think, as the Court of Appeal were inclined to think ….., that Paragraph 7 is directed to the case where trustees grant an interest in land on behalf of the beneficiary and the benefit of the consideration for the grant accrues to the beneficiary”.

( Paragraph 7 Schedule 6A  was the statutory  provision under the previous 1983 VAT Act dealing with the situation covered by Paragraph 8 Schedule 10 of the 1994 Act. The wording of paragraph 7 is the same as Paragraph 8).   

74.	We are inclined to agree with Counsel for the Respondents that Paragraph 8 Schedule 10 of the 1994 Act did not apply to the facts in this Appeal because the legal and beneficial interests in the “Red Land” were vested in the same persons. However, our agreement is somewhat academic because we accepted Appellant’s Counsels wider submission that the legal test of “who received the benefit of the consideration” was material to the central issue of “who made the supply”. We decided on the facts  found that it was the Appellant which received the benefit of the consideration of the sale of the “Red Land”.

75.	Counsel for the Respondents relied on an analysis of the domestic law relating to partnerships. He argued that the “Red Land” was partnership property, that Mrs Darlow had no right of ownership in the “Red Land” and therefore there was nothing she could transfer. We considered that the correct approach was to decide first our findings of fact. Further that Counsel’s submission on the law was only relevant if we found as fact that the supply was restricted to Mrs Darlow’s interest in the “Red Land”.  Since we decided on the facts that it was the Appellant which supplied the “Red Land”, it was unnecessary for us to consider in detail the Respondents’ submissions on the domestic law relating to partnerships.

76.	However, we would query whether the approach of Counsel for the Respondents was consistent with the Sixth Council Directive 77/388/EEC of  17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes. We consider that if we concentrated solely on the legal requirements for the transfer of partnership property in the context of domestic law it would undermine the purpose of the Sixth Directive to introduce across the European Community a common system of value added tax and a uniform basis of assessment. Counsel for the Appellant referred to the judgement of the European Court in Auto Lease Holland BV where at paragraph 26:

	“The German Government states that, under Article 5(1) of the Sixth Directive, supply of goods means the transfer of the right to dispose of tangible property as owner. The Court clarified that definition in particular in its judgment in Case C –320/88 Shipping and Forwarding Enterprise Safe [1990] ECR 1-285, according to which, in the government’s submission, it is the transfer of economic ownership, not the transfer of legal ownership which is relevant”.

Further at paragraph 32:

	“….supply of goods does not refer to the transfer of ownership in accordance with the procedures prescribed by the applicable national law but covers any transfer of tangible property by one party which empowers the other party actually to dispose of it  as if he were the owner of the property”.

77.	We considered that the Sixth Directive required us to consider the question: “who actually  made the supply in question rather than who is capable of making the supply in accordance with the domestic law on partnership”?

Ancillary Applications

78.  	During the hearing on the 6 June Counsel for the Appellant requested an application to adjourn the hearing on the grounds that

~	The Respondents had moved the “goal posts” from their statement of case by introducing the requirements of partnership law. Appellant’s Counsel was constantly playing “catch up” with the Respondents’ arguments.

~	Counsel for the Respondents had implied in his address to the Tribunal on 6 June that the Appellant and Mr and Mrs Darlow were involved in an elaborate scheme of tax avoidance. This was a fresh allegation, which the Appellant would strongly deny.

The Respondents opposed the application. Counsel for the Respondents had set out their case based upon partnership law at the hearing on the 18 May. Further, the Respondents were not suggesting that the Appellant and Mr and Mrs Darlow were involved in an elaborate scheme of tax avoidance, which was noted by the Tribunal with the agreement of the Respondents. Counsel was simply pointing out in his opening address that if the Appellant was to succeed with its Appeal it would mean that the partnership would obtain the advantages of its election for VAT on the sales of land but suffer none of the disadvantages associated with the election. 

79.	We refused the adjournment because

~	The Respondents had set out their case at the first hearing on 19 May 2003. The Appellant would have had the opportunity in the time between the first hearing on 19 May and the second hearing on 6 June to prepare for the Respondents’ case.

~	The Respondents through their Counsel stated to The Tribunal in the presence of  Mr and Mrs Darlow and their advisers that they were making no allegations that the Appellant and Mr and Mrs Darlow were involved  in a scheme of tax avoidance.

80. 	We reserved our decision of the 6 June.

81.	 On the 10 June 2003 the Tribunal Clerk received a letter together with attachments from Counsel for the Appellant. That letter stated:

“Further to the hearing of the above matter (Fengate Developments v Customs) last Friday 6 June I should be obliged if you, as Clerk on that day, would ensure that the accompanying are placed before the chairman and member as a matter of urgency:

~	Note, two pages
~	“Lindley and Banks on Partnership”, extracts
~	Cooper v Critchley [1955] 1Ch 431
~	Inland Revenue v Gray (executor of Lady Fox) [1994] STC 360

Thank you for your assistance in this matter

	Signed  Eamon Mc Nicholas, Counsel for the Appellant”

82.	When I received the letter I instructed the Tribunal Clerk to send a copy to the Respondents and seek their views about the admission of the attachments to the Appellant’s letter dated 10 June 2003. I did not read the attachments.

83.	The Respondents responded on the 17 June 2003, stating that

“At the hearing of the appeal on Friday 6 June 2003 the Appellant applied for an adjournment for further time to prepare further submissions. The application was rejected by the Tribunal during the course of the appeal on 6 June 2003.

As such the Commissioners do not consider the Appellant is entitled to have taken into consideration these further written submissions at all, and in any event, object to the fact that these written submissions were neither submitted with the knowledge nor consent of the Respondents’ counsel nor of the Respondents’ instructing solicitors. In fact these written submissions were not even sent directly to instructing solicitors and instead were received on 17 June 2003 by instructing solicitors via their Counsel.

As these written submissions were made without the express permission of the Tribunal on application, the Commissioners object to their admission. The Commissioners respectfully request that the Tribunal confirm that these submissions are deleted. Alternatively, should the Tribunal direct that written submissions are made, the Commissioners request adequate time to respond in writing accordingly”.

84.	We decided to re-convene the Appeal hearing on 1 August to hear representations on the admission of the Appellant’s letter and attachments in view of the Respondents’ response.

85.	On the 1 August Appellant’s Counsel objected to the suggestion that his letter and attachments constituted additional submissions. In his view he was simply fulfilling his duty to refer relevant authorities to the Tribunal. The Respondents in his opinion had not supplied the Tribunal with the leading authorities on partnership law. The Respondents had provided indiscriminately to the Tribunal chunks of Halsbury’s Laws of England without highlighting the relevant passages. Counsel for the Appellant repeated that he had been taken by surprise with the Respondents’ arguments on partnership law. The Appellant had not asked for the hearing on 1 August. In reply Counsel for the Respondents submitted that the letter and the attachments had been served on the Tribunal without advance notice and without permission. The Appellant in his view had failed to conform with the requirements of rule 11 of The Value Added Tax Tribunals Rules 1986 which dealt with the procedure for making applications to the Tribunal. Also Counsel considered that the Appellant was trying to bypass the Tribunal’s refusal to grant an adjournment of the hearing on the 6 June. Counsel for the Respondents disagreed with Appellant’s Counsel about not providing the Tribunal with the relevant authorities and that he had taken him by surprise with the arguments on partnership law. Counsel for the Respondents concluded that they were objecting as a matter of principle to the admission of the Appellant’s letter and attachments because this was not the correct way to proceed.

86.	The contents of letter and attachments of the 10 June were directed solely at partnership law. We decided, therefore, not to hear further argument on the relevance of partnership law to this Appeal because we decided on the facts that the “the Red Land” was supplied by Appellant which rendered it unnecessary for us to consider in detail the Respondents’ submissions on partnership law. 
 
87.	We did consider, however, that the manner in which Appellant’s Counsel sent the letter and attachments to the Tribunal was irregular. The correct way to proceed was by way of application in accordance with Rule 11 of the 1986 Tribunal Rules.

88. 	The Respondents put the Appellant on notice that they would be making an application for costs in relation to this specific matter if the application to receive the letter and attachments was unsuccessful. This application fell within one of the exceptions to the general policy not to seek costs against unsuccessful Appellants (written answer by the Minister of State, Treasury [the Hon Peter Brooke MP][Hansard Vol 102, 24 July 1986 Cols 459-460]). We have decided that a reminder to the Appellant’s Counsel of the correct procedure is sufficient in the circumstances and that an award of costs against the Appellant is unnecessary. We also consider that an award of costs would reflect unfairly on the conduct of Appellant’s Counsel who prepared thoroughly for the Appeal, as did Counsel for the Respondents. 

 

MICHAEL TILDESLEY
CHAIRMAN

RELEASED:

LON/01/855