A recent tribunal decision illustrates the art of distinguishing a case from an otherwise binding legal precedent.
Businesses prefer cases to be decided by legal principles, and not by reference to the specific facts of each case. Of course, all cases are a mixture of the two, but it is frustrating to be told, too often, that the devil is inevitably in the detail, because that makes winning cases seem even more of a lottery than they otherwise would be. Cases are like snowflakes: no two are identical.
But the way in which ‘facts’ trump ‘legal principles’ is illustrated by two Upper Tribunal decisions of 17 March: Adecco [2017] UKUT 113 (TCC) and U-Drive [2017] UKUT 112 (TCC) (both reported in last week’s Tax Journal). I will comment on the second of these.
In that case, put simply, a car hire company (therefore making taxable supplies of hiring cars), preferred their hirers’ collisions to proceed via an arrangement which allowed the appellant to commission repairs to the cars of the other party, rather than the matter going via the insurers. A minor prang could be resolved by the appellant getting the car into a garage, and paying the garage to make good the damage. But what about the VAT on that repair? If it had been commissioned by the car’s owner, he would have suffered the tax as a final consumer and no VAT recovery would have arisen. So, should the ‘mere fact’ that the car hire company stepped in to take the burden magically transform the cost into his own? This, of course, is the primordial question of ‘to whom is the supply made’, with the familiar gallery of precedents, including Redrow, Aimia, Airtours.
Businesses prefer Redrow, where the business paid another party’s estate agency fees (on selling their old house) and was allowed to recover the VAT. HMRC prefers Airtours, where a service paid for by the business was held nonetheless to be supplied to a group of lenders, and not to the business.
One significant difference between Redrow and Airtours was the contractual position. Redrow contracted with the estate agents, whereas the corresponding situation was insufficiently clear in Airtours. In neither case, however, was there a suggestion that the business was not acting in its business role when incurring the costs. So, does this mean that the clincher is that a contract which is in the name of the business, and not in the name of the supposed third party consumer, and which does not involve a direct service relationship with the third party consumer, allows a Redrow interpretation?
One would have thought so, but it turns out not. A subtle factual distinction here is that Redrow told buyers of its houses that they could avail themselves of a scheme under which Redrow would pay the costs of selling the old house. So, it was settled at the outset that Redrow was obliged as part of their business offer to meet these costs. But no such pre-ordination can apply to a car hire company which is dealing with the victim of an accident it has had with one of the business’s cars (and hirers), and which merely hopes that the victim will allow matters to be settled in that way. U-Drive had no authority to act as it did, but merely could cajole others to allow it to do so, and it took up such opportunities as they arose. That seems to have been the critical distinction. It is not one I find all that convincing, though I can see why it can appear to make a difference to the application of the principle, and certainly why it successfully distinguished this case from the binding precedent of Redrow.
But, I wonder if the distinction is all that telling, and whether an appeal might not be worth taking.
Home >Articles > U-Drive Ltd: when do facts trump legal precedents?
U-Drive Ltd: when do facts trump legal precedents?
A recent tribunal decision illustrates the art of distinguishing a case from an otherwise binding legal precedent.
Businesses prefer cases to be decided by legal principles, and not by reference to the specific facts of each case. Of course, all cases are a mixture of the two, but it is frustrating to be told, too often, that the devil is inevitably in the detail, because that makes winning cases seem even more of a lottery than they otherwise would be. Cases are like snowflakes: no two are identical.
But the way in which ‘facts’ trump ‘legal principles’ is illustrated by two Upper Tribunal decisions of 17 March: Adecco [2017] UKUT 113 (TCC) and U-Drive [2017] UKUT 112 (TCC) (both reported in last week’s Tax Journal). I will comment on the second of these.
In that case, put simply, a car hire company (therefore making taxable supplies of hiring cars), preferred their hirers’ collisions to proceed via an arrangement which allowed the appellant to commission repairs to the cars of the other party, rather than the matter going via the insurers. A minor prang could be resolved by the appellant getting the car into a garage, and paying the garage to make good the damage. But what about the VAT on that repair? If it had been commissioned by the car’s owner, he would have suffered the tax as a final consumer and no VAT recovery would have arisen. So, should the ‘mere fact’ that the car hire company stepped in to take the burden magically transform the cost into his own? This, of course, is the primordial question of ‘to whom is the supply made’, with the familiar gallery of precedents, including Redrow, Aimia, Airtours.
Businesses prefer Redrow, where the business paid another party’s estate agency fees (on selling their old house) and was allowed to recover the VAT. HMRC prefers Airtours, where a service paid for by the business was held nonetheless to be supplied to a group of lenders, and not to the business.
One significant difference between Redrow and Airtours was the contractual position. Redrow contracted with the estate agents, whereas the corresponding situation was insufficiently clear in Airtours. In neither case, however, was there a suggestion that the business was not acting in its business role when incurring the costs. So, does this mean that the clincher is that a contract which is in the name of the business, and not in the name of the supposed third party consumer, and which does not involve a direct service relationship with the third party consumer, allows a Redrow interpretation?
One would have thought so, but it turns out not. A subtle factual distinction here is that Redrow told buyers of its houses that they could avail themselves of a scheme under which Redrow would pay the costs of selling the old house. So, it was settled at the outset that Redrow was obliged as part of their business offer to meet these costs. But no such pre-ordination can apply to a car hire company which is dealing with the victim of an accident it has had with one of the business’s cars (and hirers), and which merely hopes that the victim will allow matters to be settled in that way. U-Drive had no authority to act as it did, but merely could cajole others to allow it to do so, and it took up such opportunities as they arose. That seems to have been the critical distinction. It is not one I find all that convincing, though I can see why it can appear to make a difference to the application of the principle, and certainly why it successfully distinguished this case from the binding precedent of Redrow.
But, I wonder if the distinction is all that telling, and whether an appeal might not be worth taking.
