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Judgments - Card Protection Plan Limited v. Commissioners of Customs and Excise


Lord Slynn of Hadley Lord Jauncey of Tullichettle Lord Nolan Lord Steyn Lord Hoffmann








ON 31 JANUARY 2001

[2001] UKHL 4


My Lords,

    1. Dr P R Howell paid to the appellants ("CPP") a fee of £16 for services to be provided to him. The question on this appeal (which affects a large number of CPP's clients) is whether that payment is wholly liable to Value Added Tax (as the Commissioners contend and as the London VAT Tribunal and the Court of Appeal held) or exempt as constituting the making of insurance arrangements for the carrying on of insurance business (as CPP contends), or partly liable since some of the services are and some are not exempt (as Popplewell J held.) The question has to be decided in the light of answers given by the European Court of Justice to questions referred by your Lordships' House pursuant to article 177 (now 234) of the European Community Treaty.

    2. The parties are agreed that the Card Protection Plan operated by CPP is, as found by the Tribunal,

    "intended to ensure that a person who has paid the appropriate fee suffers as little financial loss or inconvenience as possible if credit cards or certain other types of property (e.g. car keys, passports, share certificates, insurance policies) belonging to him are stolen or lost".

When a person applies to join the scheme and his application is accepted, he receives a "policy pack" with a registration form, a change of address form, property and telephone stickers, medical emergency warning cards and card change forms, property tags and luggage labels. His name and address and the serial number of credit cards and other property are recorded. He is given a number to ring if he loses any of these documents and CPP passes on any reported loss to the insurer so that steps can be taken to prevent or limit use of the card. The documents he is sent include a statement of "15 important reasons why you should join Card Protection Plan". This statement has been treated as constituting the key document in the case and in view of the question which arises it is necessary to set it out in full.

    "1. Confidential Registration of all Cards - accurate computer records will be kept of all your valuable cards.

    2. £750 Insurance cover - against fraudulent use on any one claim, provided loss notification is received within 24 hours of discovery of loss.

    3. Unlimited Protection - you have £750 cover up to the moment of your call to CPP. After that your protection against fraudulent use is unlimited.

    4. Immediate Loss Notification - free 24 hour ACTIONLINE to receive your loss reports and act immediately to protect you. ACTIONLINE stickers provided for your phone, diary or wallet, so our vital ACTIONLINE number is always at hand.

    5. Replacement cards - can be ordered when losses are notified, thus minimising your inconvenience.

    6. Change of Address Service - all card insurers can be notified before you move to ensure your cards don't get into the wrong hands.

    7.Lost key Location - key tags with your unique policy number and our FREEPOST address help ensure keys can quickly be returned to you in confidence, when found.

    8. Valuable Property & Document Protection - register serial numbers of your property and details of policies, shares, passports, etc. for your own security and to assist in notifying police or making insurance claims in the event of loss or theft. Through our insurance cover you can claim up to £25 on communications costs when assisting police or claiming against personal insurance in respect of items registered with CPP. Includes phone calls, correspondence, postage, etc. but not travel costs.

    9. £500 Emergency Cash - rushed anywhere in the world (upon approval) if you are stranded and have lost your cards. An interest free advance repayment within 14 days.

    10. Lost Luggage Recovery - with CPP stickers lost luggage and other personal property such as briefcase or handbag can be quickly identified and owners advised of its location. Our special insurance cover entitles you to claim up to £25 on communications costs incurred arranging recovery of keys or luggage protected by CPP tags and stickers. This includes phone calls, correspondence, postage, etc., but not travel costs.

    11. Emergency Medical Cover Worldwide - in the event of illness or an accident abroad you need professional help, fast. We provide 24 hour emergency cover and one phone call secures medical advice and assistance in English and other languages, anywhere in the world. If necessary, at your expense, a full consultation, and even medical repatriation by air - with all necessary specialist personnel - can be arranged for you.

    12. Emergency Airline Ticket - if your credit cards and cash are lost or stolen and you're stranded overseas, CPP's travel cover means arrangements can be made, upon approval, to issue an air ticket to get you home. Cost repayable within 14 days.

    13. Computer Update Services - confidential printout of your card details for you to check, annually.

    14. Medical Emergency/Warning Card - dual purpose - to warn that all your cards are protected, and also to provide medical information that can save vital seconds in an emergency. Carry with you at all times.

    15. Car Hire Discounts - you can claim valuable discounts on car rental from Hertz, Avis and Europcar worldwide."

To cover claims made by its clients CPP instructed an insurance broker to arrange a policy of insurance. Such a policy was taken out for periods of a year and at the relevant time was with the Continental Insurance Co of London Plc ("Continental") and covered the period from 1 September 1989 to 31 August 1990. The insurers guaranteed to indemnify the insured against loss as more fully set out in the policy detailed in the schedule to the policy. The schedule provided that the assured were "various individual members of Card Protection Plan as per schedule". Sections A to F of the interest specified in the policy covered liability of the cardholder in respect of direct financial loss arising from the wrongful use of any lost or stolen cards, the costs of reuniting CPP's clients with their luggage, the costs of assisting the police and/or making insurance claims against individual members' insurances and the costs of providing medical assistance and emergency cash and airline tickets. It is to be seen that these cover the heads of claim to which the client was entitled under the 15 reasons.

3.    By letter dated 28 October 1983 the Commissioners accepted that the benefits supplied by CPP to its customers was an exempt supply, but by letter dated 23 February 1990 the Commissioners decided that the supply to Dr. Howell of the services provided in the agreement was fully taxable at the standard rate of VAT firstly because the package of services was essentially to maintain a register of card numbers, to provide a notification loss service and to prevent liability from unauthorised use and secondly because there was no supply of insurance by Continental to the client and no privity of contract between Continental and the client.

The relevant legislation

4.     The Value Added Tax Act 1983 was enacted to give effect to Council Directive (77/388/EEC) (OJ 1977 L145, p 1) ("the Sixth Directive").

5.    VAT is payable on the supply of 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," other than an exempt supply: section 2(1) and section 2(2) of the 1983 Act.

6.     Article 13(B) of the Sixth Directive provides that

    "Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of insuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse; (a) Insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents; . . . "

7.    Pursuant to that obligation section 17(1) of the 1983 Act provided that "A supply of goods or services is an exempt supply if it is of a description for the time being specified in Schedule 6 to this Act . . . ". At the time of the Commissioners' decision (23 February 1990) Schedule 6 included:

    "Group 2 - Insurance

    Item No.

    1. The provision of insurance and reinsurance by - (a) a person permitted, in accordance with section 2 of the Insurance Companies Act 1982, to carry on insurance business; . . .

    3. The making of arrangements for the provision of any insurance or reinsurance in items 1 and 2.

    4. The handling of insurance claims by insurance brokers, insurance agents and persons permitted to carry on insurance business as described in item 1."

With effect from 1 December 1990 item 1 was amended (by article 2 of The Value Added Tax (Insurance) Order 1990 (SI 1990 No 2037)) but not in a way relevant to the present appeal.

8.    The First Council Directive on the coordination of laws relating to the business of direct insurance other than life insurance (Council Directive (73/239/EEC) (OJ 1973 L228, p 3), as amended by Council Directive (84/641/EEC) (OJ 1984 L339, p 21) defines the classes of business to which the Directive applies. It included (annex, point A(18)):

    "18. Assistance

Assistance for persons who get into difficulties while travelling, while away from home or while away from their permanent residence".

The litigation so far

9.    On CPP's challenge to the Commissioners' decision, the Tribunal, in reasons given by Judge Medd QC, concluded from a review of the 15 reasons that CPP undertook

    "first and foremost, to register on its computer the number and type of all his credit cards and also the serial numbers of his other valuable property and documents such as passports, insurance policies, share certificates etc."

That was the "fundamental service that enabled the company to provide all these services. . . ". The insurance cover negotiated by CPP with Continental ensured that CPP could carry out its undertakings given to its clients which might involve having to pay the clients who suffered a loss. Such undertakings were to be found in items 2, 3, 8, 9, 10 and 12 of the 15 reasons. The supply made to Dr. Howell was

    "a single supply of a service that can conveniently be called a card registration service, by which [CPP] undertook to register his various cards etc. and, having done that, to take such action or pay such sum as they undertook to take or pay"

if any of the relevant contingencies occurred.

10.    As the judge held, if Continental was not providing insurance for the clients of CPP, then CPP "cannot have been making arrangements for the provision of insurance for the customers".

11.    Popplewell J [1992] STC 797, 803, 804 after a detailed analysis of the insurance policy issued by Continental held that section A indemnified the cardholder against unlimited loss (subject to a limit during the first 24 hours);

    "that indemnity is an indemnity covering the cardholder. It is not an indemnity given to the company against a claim by the cardholder . . . . There is scarcely any part of the policy which gives [CPP] any right against the insurance company".

He rejected the argument that there was no privity of contract between the cardholder and Continental so there could be no exemption. Arrangements for the provision of insurance enforceable by the cardholder could still be made by CPP.

12.    The judge concluded, at p 807, that there was in the protection plan the making of arrangements for the provision of insurance within Schedule 6 to the 1983 Act. The "convenience" services were however "a separate part of the plan unrelated to the insurance . . . ". There were thus two supplies and it was necessary to decide which was the major supply.

13.    The Court of Appeal [1994] STC 199 dismissed CPP's appeal contending that there was a single supply of insurance. On the contrary the court found that there was a single supply of a card registration service to which the supply of insurance was incidental so that the Commissioners' cross-appeal to that effect was allowed.

14.    Balcombe LJ, with whom Butler-Sloss LJ agreed, thought, at p 207, that practical difficulties indicated that in a comparatively simple transaction, as here, the court should not seek to find two supplies. On the basis that the relevant terms of the contract were to be found in the 15 reasons, he held, at pp 207-208, that points 4 to 7 and 13 to 15 were services of convenience and could not be seen as insurance. Points 8 to 11 had an insurance element but it was subsidiary to the registration or convenience service. Points 2 and 3 were pure insurance. Point 12 had equal elements of convenience and insurance. If on the other hand he had concluded that the insurance element had been predominant there would have been the arranging for the provision of insurance.

15.    Sir John Megaw accepted that the cardholders could claim directly against insurers under the policy with Continental. This had been arranged by CPP which was not and could not lawfully under the Insurance Companies Act 1982 issue a policy of insurance itself. He rejected CPP's claim that the "package of services" was an arrangement for the provision of insurance services, or that it was right to divide it up into two parts, one of insurance and therefore exempt, the other of non-exempt services.

16.    When the appeal first came before the House, your Lordships' House referred to the European Court of Justice the following questions:

    "(1) Having regard to the provisions of the Sixth VAT Directive and in particular to article 2(1) thereof, what is the proper test to be applied in deciding whether a transaction consists for VAT purposes of a single composite supply or of two or more independent supplies?

    (2) Does the supply by an undertaking of a service or services of the kind provided by Card Protection Plan Ltd (CPP) through the card protection plan operated by them constitute for VAT purposes a single composite supply or two or more independent supplies? Are there any particular features of the present case, such as the payment of a single price by the customer or the involvement of Continental Assurance Co of London Plc as well as CPP, that affect the answer to that question? (3) Do such supply or supplies constitute or include 'insurance . . . transactions including related services performed by insurance . . . agents' within the meaning of article 13(B)(a) of the Sixth VAT Directive? In particular, for the purpose of answering that question: (a) does 'insurance' within the meaning of article 13(B)(a) of the Sixth VAT Directive include the classes of activity, in particular 'assistance' activity, listed in the annex to Council Directive (73/239/EEC) (the First Council Directive on non-life insurance), as amended by Council Directive (84/641/EEC)? (b) do the 'related services of . . . insurance agents' in article 13(B)(a) of the Sixth VAT Directive constitute or include the activities referred to in article 2 of Council Directive (77/92/E.E.C.)? (4) Is it compatible with article 13(B)(a) of the Sixth VAT Directive for a member state to restrict the scope of the exemption for 'insurance . . . transactions' to supplies made by persons permitted to carry on insurance business under the law of that member state?"

The court in its judgment (Case C-349/96) [1999] 2 A.C. 601, 621 et seq) noted that "insurance transactions" and the concept of insurance are not defined either in the Sixth VAT Directive or in Council Directive (73/239/EEC) (the First Council Directive on direct insurance other than life insurance) but said, at p 625:

    "17. . . . the essentials of an insurance transaction are, as generally understood, that the insurer undertakes, in return for the prior payment of a premium, to provide the insured, in the event of materialisation of the risk covered, with the service agreed when the contract was concluded.

    "18. It is not essential that the service the insurer has undertaken to provide in the event of loss consists in the payment of a sum of money, as that service may also take the form of the provision of assistance in cash or in kind of the type listed in the annex Directive 73/239 as amended by Directive 84/641. There is no reason for the interpretation of the term 'insurance' to differ according to whether it appears in the Directive on insurance or in the Sixth Directive."

CPP did not itself undertake to provide insurance cover. It held a block insurance policy under which its customers were the insured.

    "21. . . . It procures for those customers, for payment, in its own name and on its own account, to the extent of the services mentioned in the Continental policy, insurance cover by having recourse to an insurer. Consequently, for the purposes of VAT, there is a supply of services between Continental and CPP on the one hand, and between CPP and its customers on the other, and the fact that Continental under the terms of its contract with CPP provides insurance cover directly to CPP's customers is not material in this respect."

    "22. . . . the expression 'insurance transactions' is broad enough in principle to include the provision of insurance cover by a taxable person who is not himself an insurer but, in the context of a block policy, procures such cover for his customers by making use of the supplies of an insurer who assumes the risk insured." (pp 625-626)

17.    What is done here by CPP thus constitutes an insurance transaction for the purposes of article 13(B)(a) of the Sixth Directive.

18.The court further held that in deciding whether a transaction which comprises several elements is to be regarded as a single supply or as two or more distinct supplies to be assessed separately, regard must first be had to all the circumstances in which that transaction takes place, taking into account:

    "29. . . . first, that it follows from article 2(1) of the Sixth Directive that every supply of a service must normally be regarded as distinct and independent and, secondly, that a supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical consumer, with several distinct principal services or with a single service.

    "30. There is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service. A service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied: Customs and Excise Commissioners v. Madgett and Baldwin (trading as Howden Court Hotel) (Joined Cases C-308/96 and 94/97) [1998] STC 1189, 1206, para 24." (p 627.)

Even if a single price is charged for the arrangements, which may indicate a single supply, it must still be considered whether the arrangements in the present case indicated that

    "31. . . . the customers intended to purchase two distinct services, namely an insurance supply and a card registration service, then it would be necessary to identify the part of the single price which related to the insurance supply, which would remain exempt in any event. The simplest possible method of calculation or assessment should be used. . . . "

    Accordingly it is for the National Court

    "32. . . . to determine, in the light of the above criteria, whether transactions such as those performed by CPP are to be regarded for VAT purposes as comprising two independent supplies, namely an exempt insurance supply and a taxable card registration service, or whether one of those two supplies is the principal supply to which the other is ancillary, so that it receives the same tax treatment as the principal supply."

Finally, if the transaction is an insurance transaction, it is exempt whether or not it is authorised by national law, i.e. by the 1982 Act which transposed Council Directive (73/239/EEC) into United Kingdom law but on the basis of the introductory sentence of article 13(B) of the Sixth Directive, defined those authorised to provide insurance in section 2. CPP is not so authorised under that section although any contract of insurance underwritten by it would be enforceable against it by virtue of section 132 of the Financial Services Act 1986.

19.    It is thus plain from the European Court of Justice's judgment that some at any rate of what CPP provides for its clients constitutes the provision of an insurance transaction and therefore of insurance services within the meaning of Group 2 in Schedule 6 to the 1983 Act.

20.    In the circumstances on the appeal there is only question for your Lordships to decide. Do the arrangements made constitute a single supply with some ancillary services or are there two independent supplies, an exempt insurance supply and a non-exempt card registration service?

21.    Although the Tribunal heard oral evidence of the way the plan works it is plain that everything turns on the interpretation of the written arrangements in particular as set out in the 15 reasons. Thus although the tribunal came to one conclusion on this question, and was supported by the Court of Appeal, its seems to me that it is open as a matter of law for your Lordships to review afresh the scheme although in doing so I pay full regard to the views of the courts below.

22.    It is clear from the European Court of Justice's judgment that the national court's task is to have regard to the "essential features of the transaction" to see whether it is "several distinct principal services" or a single service and that what from an economic point of view is in reality a single service should not be "artificially split". It seems that an overall view should be taken and over-zealous dissecting and analysis of particular clauses should be avoided.

23.    I accept that it is possible, as Mr. Paines QC has contended, to find that some of the 15 points if separated out and seen in isolation do not on the face of it provide for insurance as commonly understood. For example, point 1 provides only for an accurate computer record; point 6 provides for a change of address service; point 13 provides for a computer update service.

24.    But there are points which indisputably provide for insurance of the most obvious kind. Thus point 2 provides for £750 cover for fraudulent use on any one claim; point 3 provides for £750 cover up to the moment of the call to notify CPP - "After that your protection against fraudulent use is unlimited". These points reflects the insurance provided in section A of the policy issued by Continental to CPP for which clients are assured. Others it seems to me fall within class 18 ("Assistance") in point A of the annex to the First Insurance Directive (73/239/EEC) as amended by Council Directive (84/641/EEC), e.g. points 4, 9, 10, 11 and 12 since it is clear that the service may consist of cash or acts in kind for the purposes of the Sixth Directive (77/388/EEC).

25.    If one asks what is the essential feature of the scheme or its dominant purpose, perhaps why objectively people are likely to want to join it, I have no doubt it is to obtain a provision of insurance cover against loss arising from the misuse of credit cards or other documents. That is why CPP is obliged to, and does, arrange, through brokers, with an insurance company like Continental for that cover to be available.

26.    For the loss to be kept to the minimum it is valuable that the client should be able to notify CPP of the loss of a card and that CPP should be able to notify the company issuing the credit card. It is particularly useful if the client is abroad. For this purpose CPP needs an up-to-date record of cards with the necessary details and the client needs a replacement card if cards are stolen or lost. To assist in the administration of the scheme, luggage tags and a medical warning card are useful. Yet all of these are ancillary or incidental to the main objective of the scheme i.e. financial protection against loss. The fact that the emergency cash advance and the cost of an emergency air ticket have to be reimbursed does not prevent those services from falling within "Assistance" in class 18 of the First Insurance Directive (73/239/EEC). They clearly fall within the European Court of Justice's definition of insurance.

27.    The dominant purpose in my view is thus plainly one of insurance principally as to the provision of £750 and then of unlimited protection under reasons 2 and 3 but also in the other financial provisions such as those for dealing with seeking police help and pursuing claims in reason 8.

28.    In so far as there are services which are not independently to be categorised as insurance they are in my view ancillary and in some cases minor features of the plan. They were, as CPP contends, preconditions to the client making a claim for cash indemnity or assistance or a precondition of the furnishing of insurance cover. I doubt whether they can in any event be regarded as sufficiently coherent as to be treated as one separate supply but even if they can it is ancillary to the provision of insurance. To regard the provision of insurance as ancillary or subsidiary to the registration of credit card numbers is unreal and the consequences for the client of being able to take protective action with CPP with whom the cards are registered is closely linked to the insurance service. It is not possible to say that some elements of the transaction are "economically dissociable" from the others: Commission of the European Communities v United Kingdom of Great Britain and Northern Ireland (Case 353/85) [1988] ECR 817.

29.    I would therefore hold in response to paragraph 32 of the European Court of Justice's judgment [1999] 2 A.C. 621, 627 that the transaction performed by CPP for Dr. Howell is to be regarded for VAT purposes as comprising a principal exempt insurance supply and the other supplies in the transaction are ancillary so that they are to be treated as exempt for VAT purposes. CPP is entitled to its costs before your Lordships' House and below against the Commissioners.


My Lords,

30.    I have had the advantage of reading in draft the speech of my noble and learned friend Lord Slynn of Hadley. For the reasons he gives I would also make the order which he proposes.


My Lords,

31.I have had the advantage of reading in draft the speech of my noble and learned friend Lord Slynn of Hadley. For the reasons he gives I would also make the order which he proposes.


My Lords,

32.    I have had the advantage of reading in draft the speech of my noble and learned friend Lord Slynn of Hadley. For the reasons he gives I would also make the order which he proposes.


My Lords,

33.    I have had the advantage of reading in draft the speech of my noble and learned friend Lord Slynn of Hadley. For the reasons he gives I would also make the order which he proposes.


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