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The reason why, in the present case, the tax payable was (at least initially) greater than the specified percentage of the price payable to MOD is because MAR and PBL chose to include within the financing a large amount over and above that purchase price, structured as part of the purchase price payable by MAR to PBL o... |
The main element in the excess appears to have been the deferred payment of amounts needed by PBL to make early rental payments under the lease from MAR. Ratio |
Their commercial effect, in cash flow terms, was to give PBL an initial rent holiday, in broadly the same way as is often achieved under conventional mortgaged-backed finance by the bank lending an additional amount above the purchase price to fund early payments of interest. Ratio |
It is possible, although the evidence does not so state in terms, that this at least could have been a reason for constructing the Ijara finance by way of sub-sale, because the excess finance amounts could hardly have been payable to MOD, if MAR had purchased directly. Ratio |
After 2011 it would attract no additional SDLT if achieved by way of sub-sale, because the original purchase (here between MOD and PBL) would not be disregarded, and section 71A(2) would exempt the completed secondary contract. Ratio |
Before 2011, taxation of this additional finance amount appears to have been inevitable, whether by treating MOD as the vendor under section 71A(2), or under section 75A. Ratio |
This is, again, not an ordinary consequence of Sharia compliant financing. Ratio |
Where the finance amount is less than the full purchase price, a shared ownership structure was usually adopted, with different tax treatment which the court did not need to investigate. Ratio |
The Ijara structure used here was applied where the whole purchase price was being financed. Ratio |
In such cases the amount of tax paid by the bank will not differ substantially from the tax which would have been payable on the price paid to the third party seller. Ratio |
Ironically, substantially the same result may yet ensue here, because the Ijara structure was terminated early, before most of the excess finance amount had been paid. Ratio |
In such circumstances it is common ground that Part 4 permits a claim for repayment of the excess tax from the Revenue. Ratio |
This is because SDLT is paid up-front on contingent consideration on an assumption that the contingency will occur, and then reclaimed if it does not. Ratio |
In conclusion therefore, I have not been persuaded by any of the objections to construing and applying sections 45 and 71A of the Act in a way which, in the unusual context of a sub-sale coupled with an Ijara financing structure, leads to SDLT being payable by MAR on the consideration payable under the completed second... |
Of the only two interpretations of the relevant statutory provisions (from which I would exclude section 75A for the reasons given), that is the one which broadly achieves, rather than wholly frustrates, what must have been the underlying purpose of Part 4 in the relevant context. Ratio |
If MAR cannot now be made to pay, which the Revenue do not accept, and this leads to the shocking consequence that the public purse gets nothing from this large transaction by way of SDLT, that will only be because, in the words of Mr Thomas QC for PBL, the Revenue have been relentlessly pursuing the wrong taxpayer. Ra... |
It is a sad irony that, at all stages until the appeal to the Upper Tribunal, both parties appear to have thought that the only candidate as the taxpayer was PBL, but it is of no consequence to the outcome. Ratio |
In my view the Court of Appeal reached the right answer, and I would therefore dismiss the appeal. RPC |
This appeal is concerned with the extent and consequences of duties of equal treatment or fairness, said to have been owed by the Office of Fair Trading (OFT) to those subject to investigation under the Competition Act 1998 (the Act). Ratio |
Since the events in question the OFT has been replaced by the Competition and Markets Authority (CMA), but it will be convenient in this judgment to refer throughout to the OFT. FAC |
The facts FAC |
The investigation FAC |
In March 2003 the OFT began an investigation into alleged price-fixing arrangements in the tobacco market, contrary to section 2(1) of the Act. FAC |
On 24 April 2008, it issued a Statement of Objections (SO) under section 31 of the Act, addressed to 13 parties, including two manufacturers and 11 retailers. FAC |
The first respondents (Gallaher) were involved as manufacturers; the second respondents (Somerfield) as retailers. FAC |
On 15 April 2010 the OFT issued its decision (the Tobacco decision) upholding the finding of infringement against both respondents, and all but one of the other parties. FAC |
Six of those affected appealed to the Competition Appeal Tribunal. FAC |
The respondents did not appeal, having each reached settlements with the OFT under the so-called Early resolution process (or ER process). FAC |
The ER process FAC |
The letters accompanying the SOs sent to the parties in April 2008 had offered the possibility of obtaining a reduction in the financial penalty through co- operation with the OFTs investigation. FAC |
The parties were invited to indicate by 9 May 2008 whether they wished to enter into without prejudice discussion with the OFT for this purpose. FAC |
Both the respondents responded positively within the time- limit. FAC |
Following negotiations they, along with four other parties, entered into Early Resolution Agreements (ERAs). FAC |
The ERAs required the signatories admission of involvement in the infringements, set out a series of terms for further co-operation, and indicated the penalties to be imposed subject to a possible reduction of up to 20% for procedural co-operation. FAC |
Entry into an ERA did not prevent a party from terminating that agreement at any time up to publication of the OFTs final decision. FAC |
If a party did terminate an ERA, it would forgo any discounted penalty negotiated as part of the ERA. FAC |
In that event, the OFT would continue with its case against that party in accordance with the usual administrative procedure. FAC |
A party to an ERA could also, upon receiving the final decision, decide to appeal against it if it wished to do so, notwithstanding the admissions in the ERA. FAC |
In that event, the OFT reserved the right to make an application to the Tribunal to increase the penalty and to require the party to the ERA to pay the OFTs full costs of the appeal regardless of the outcome. FAC |
The ER process was not subject to any statutory rules, nor at the material time described in any published document. FAC |
The clearest contemporary description of the ER process (though not by that name) came in an internal document of the OFT dated 28 January 2008, and entitled A principled approach to Settlements in Competition Act cases. FAC |
This paper was designed to draw out a number of principles from the OFTs experience to date, and emerging thinking, on settlements in Competition Act 1998 cases, and to provide a policy framework for teams who may be considering the possibility of settlement. FAC |
Ten principles were identified and discussed. FAC |
Particular attention in the present case has been directed to Principle Three: Fairness, transparency and consistency are integral to an effective settlements process. Ratio |
This was explained as follows: 16. Ratio |
The overriding principles of fairness, transparency and consistency must always be taken into account. Ratio |
When engaged in settlement discussions, for example, it is important to ensure that the process is consensual and as transparent as possible throughout, in order to avoid any subsequent allegations of undue pressure having been applied to force parties to sign up to settlement. Ratio |
17. Ratio |
Consistency is a particularly key consideration, given parties sensitivity to equality of treatment issues. Ratio |
Whether or not the details of an individual case have been made public, particular approaches in one case will inevitably leak out during the settlement process (and be set out in the infringement decision) and inform parties strategies in others. Ratio |
Consistency of approach (or, alternatively, the formulation of strong arguments to justify taking a different approach in similar circumstances) is therefore vital. Ratio |
Although this is useful as indicating the adopted policy approach of the OFT itself, it is not suggested that the contents were known to or in terms relied on by the respondents when entering into their agreements. Ratio |
However, the OFT had a separate speaking note for use in discussions with parties. Ratio |
This summarised the main features of the ER process, and ended with the following commitment to equal treatment: Once first party signed up, the OFT will inform other parties of the terms agreed in terms of the Step 1 to 5 penalty calculation - these terms will be the benchmark for dealing with other parties (as the OF... |
Both the respondents concluded ERAs with the OFT in early July 2008, involving substantial reductions in the anticipated penalties. FAC |
In due course, when the OFT decision was issued in April 2010 the respondents did not appeal, but instead elected to pay the penalties imposed in the ERAs, taking the benefit of the reductions. FAC |
TMR FAC |
Martin McColl Retail Group Ltd and TM Retail Group Ltd (together, TMR) was another party subject to the investigation, which also entered into an ERA. FAC |
In the course of the negotiations for the ERA, at a meeting on 8 July 2008, TMRs representatives asked about the OFTs likely attitude to those who entered ERAs in the event of a successful appeal by one of the other parties to the investigation. FAC |
The effect of the exchange was recorded in an email from TMR to OFT after the meeting in the following terms (which were not contradicted): Should another manufacturer or retailer appeal any OFT decision against that manufacturer or retailer to the CAT (or subsequently appeal to a higher court) and overturn, on appeal,... |
(Emphasis added) In the course of 2009 and 2010, and before the expiry of the time for appealing the OFT decision, two other parties (Party A and Asda) made similar inquiries about the effect of a successful appeal by other parties, but received non-committal answers. FAC |
The Tribunals decision and its aftermath FAC |
On 12 December 2011 the Tribunal gave judgment allowing all six appeals: [2011] CAT 41. RLC |
Following the Tribunals judgment, TMR wrote to the OFT inviting it to withdraw the OFTs decision as against it, and threatening legal action if it failed to do so. RLC |
In the course of further discussions TMR relied on the OFTs earlier assurances about its position in the event of a successful appeal by another party, stating that this had been a key factor in its own decision-making. RLC |
As to what followed I take the following from the agreed statement of facts (para 50): The OFT considered that the statements which it had made to TMR in 2008 might have given rise to an understanding on the part of TMR that the OFT would withdraw or vary its decision against TMR in the event of a successful third part... |
In light of this, the OFT considered that there was a real risk that TMR would, as a result of this reliance on those statements, be permitted to appeal out of time to the Tribunal and would succeed in that appeal. RLC |
The OFT reached a settlement agreement with TMR, by which the OFT agreed to pay to TMR an amount equal to the penalty TMR had paid together with a contribution to interest and legal costs. RLC |
The Tobacco Decision was not withdrawn against TMR. RLC |
The agreed terms were set out in a settlement agreement dated 9 August 2012. RLC |
The OFT then published a statement about the TMR settlement on its website, in which it said that in the light of the particular assurances provided to TM Retail it had agreed to pay the amount of its penalty (2,668,991) and a contribution to costs. RLC |
In the meantime, following the Tribunals decision, in February 2012 each of the respondents had written to the OFT calling upon it to withdraw the decision as against them, and to refund the penalties. FAC |
This was refused. FAC |
In August 2012, after the publication of the information about the settlement between the OFT and TMR, they sent the OFT letters before claim, arguing that they also should be given the benefit of the assurances made to TMR. FAC |
In October 2012 they issued the present claims for judicial review. FAC |
The out-of-time appeals FAC |
The claims were initially stayed by consent to allow the respondents to pursue applications, made in July 2012, for permission to appeal the Tobacco Decision out of time. PRE |
By rule 8(2) of the Competition Appeal Tribunal Rules 2003 (SI 1372/2003), the Tribunal may not extend the time limit for appeal unless satisfied that the circumstances are exceptional. PRE |
The applications succeeded before the Tribunal, but its decision was reversed by the Court of Appeal on 7 April 2014: Office of Fair Trading v Somerfield Stores Ltd [2014] EWCA Civ 400. PRE |
The court held that there were no exceptional circumstances. PRE |
In the leading judgment Vos LJ referred (paras 35-36) to the principle of finality, exemplified by the CJEUs decision in Commission of the European Communities v AssiDoman Kraft Products AB (Case C-310/97P) [1999] All ER (EC) 737 (the Wood Pulp II case). PRE |
That principle was said to be based on the consideration that the purpose of such time-limits is to ensure legal certainty by preventing Community measures which produce legal effects from being called in question indefinitely. PRE |
Although the Wood Pulp II decision was no more than analogous, it pointed the way to the need for finality in competition cases. PRE |
In the present case, in Vos LJs view, the respondents had entered the ERAs with their eyes open and made a deliberate decision not to appeal. PRE |
He added: It is true that the OFT has the role of a prosecutor and has wide powers to impose penalties, and that those powers must be exercised on a proper basis, but that does not stop commercial parties from taking a commercial view as to whether or not to sign up to an ERA after a long investigatory process and the ... |
The addressee knows precisely the terms that are being offered. PRE |
It knows what it has done in relation to the alleged infringements, and what it is being asked to admit, and the terms requiring its co-operation and the fetters on its rights of defence to which it is being asked to agree. PRE |
It can take it or leave it (para 45) PRE |
The courts below FAC |
In a judgment dated 26 January 2015, Collins J rejected the claims: [2015] EWHC 84 (Admin). RLC |
He started from the proposition that the OFTs powers in relation to infringement of the 1998 Act were subject to public law requirements of fairness and equal treatment, so that it was essential that in negotiations in relation to ERAs one party is not given an advantage denied to another (para 38). FAC |
However, the assurance given to TMR had been given in error, without regard to the finality principle. FAC |
Citing Customs and Excise Comrs v National Westminster Bank plc [2003] STC 1072 para 66, he agreed with Jacob J that as a general rule a mistake should not be replicated where public funds are concerned. FAC |
That consideration provided an objective justification for the refusal by the OFT to make payment to the claimants (para 50). FAC |
The Court of Appeal took a different view [2016] EWCA Civ 719; [2016] Bus LR 1200. FAC |
In the leading judgment, Lord Dyson MR (para 34) noted it as common ground that (in the words of Cranston J, Crest Nicholson plc v Office of Fair Trading [2009] EWHC 1875 (Admin)) the OFT must comply with the principle of equal treatment in all steps leading up to the imposition of a penalty. FAC |
He agreed that the assurance given to TMR was a mistake: a decision which no- one who had the finality and legal certainty principles in mind could reasonably have taken (para 58). FAC |
The failure to offer a similar assurance to the claimants or others in the same position, or even to inform them, involved unequal treatment which was stark and manifest (para 59). FAC |
Under the heading Objective justification (paras 53-54), he agreed with counsel for the OFT that a mistake was not a trump card which will always carry the day The question as he saw it was - whether there has been unfairness on the part of the authority having regard to all the circumstances. FAC |
The fact that there has been a mistake may be an important circumstance. FAC |
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