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Her Majesty's Commissioners of Customs and Excise (Appellants) v. Zielinski Baker & Partners Limited (Respondents)
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OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT IN THE CAUSE Her Majesty's Commissioners of Customs and Excise (Appellants) v. Zielinski Baker & Partners Limited (Respondents) ON THURSDAY 26 FEBRUARY 2004 The Appellate Committee comprised: Lord Nicholls of Birkenhead Lord Hoffmann Lord Hope of Craighead Lord Walker of Gestingthorpe Lord Brown of Eaton-under-Heywood HOUSE OF LORDSOPINIONS OF THE LORDS OF APPEAL FOR JUDGMENTIN THE CAUSEHer Majesty's Commissioners of Customs and Excise (Appellants) v.Zielinski Baker & Partners Limited (Respondents)[2004] UKHL 7LORD NICHOLLS OF BIRKENHEAD My Lords,1. I have the misfortune to have reached a different conclusion from your Lordships. So I will set out my own views as shortly as possible. I agree that if the relevant statutory provisions are read literally the commissioners' case is unanswerable. Among the supplies zero-rated by the Value Added Tax Act 1994 as amended is the supply of services in the course of an approved alteration of a protected building. A 'protected building' means (a) 'a building' which (b) is 'designed to remain as or become a dwelling or number of dwellings' and which, additionally, (c) is 'a listed building' within the meaning of the Planning (Listed Buildings and Conservation Areas) Act 1990: see item 2 and note (1) in Group 6 in Schedule 8 to the 1994 Act. To satisfy condition (b), as I have labelled it, each dwelling must consist of 'self-contained living accommodation' and meet the other conditions set out in note (2). 2. Section 1 of the Planning (Listed Buildings and Conservation Areas) Act 1990 provides that a listed building is a building included in a list compiled or maintained by the Secretary of State and that 'any object or structure within the curtilage of the building which, although not fixed to the building, forms part of the land and has done so since before 1st July 1948, shall be treated as part of the building'. 3. In the present case the approved alterations comprised alterations, not to the main house, which is a listed building, but to an adjacent outbuilding within the curtilage of the main building. The outbuilding is 5 yards away from the main building. The two buildings are not linked structurally, although they are linked by a substantial stone wall. Thus, and this is accepted on all sides, although the outbuilding is a separate building, for listed building purposes it is to be treated as part of the listed building. 4. The works in dispute comprised conversion of the outbuilding into games and changing facilities and the construction of an adjoining indoor swimming pool. Thus the alterations satisfied condition (c), as I have labelled it. But if the statutory provisions in the 1994 Act are read literally, the alterations did not satisfy condition (b). The outbuilding was not designed to become a dwelling. 5. The difficulty I have with this interpretation of the legislation is that it produces startling results which make no sense. If the games room and the indoor swimming pool were installed on the ground floor of the main house the works would be zero-rated. But, so it is said, there is a world of difference if the games room and the indoor swimming pool are installed in a separate existing building a few feet away. It makes a world of difference even though for listed building purposes the outbuilding is treated as part of the main house. 6. The matter does not rest there. Perhaps even more oddly, if additional bedroom or living accommodation were added to the main building that work would be zero-rated. But not so, according to the commissioners' argument, if an adjacent barn existing before 1st July 1948 were converted in the same way. Even if the enlarged living accommodation were self-contained by being used exclusively as one unit of living accommodation with the main house, that would not be zero-rated. It would be outside the zero-rating exception because the accommodation would be split between two buildings. 7. No one has been able to suggest a reason why these differences should matter. The social purpose of Group 6 in Schedule 8 to the 1994 Act was to alleviate the financial burden on the owners of listed buildings. This alleviation is confined to alterations, which in practice means improvements, as distinct from repairs or maintenance. The introduction of condition (b), as I have labelled it, added the 'separate dwelling' requirement in 1989. But no one has been able to put forward any suggestion why it should matter if the alterations carried out to improve the dwelling house amenities are made to an existing outbuilding as distinct from the main building itself. 8. I decline to attribute to Parliament such a strange intention as is involved in the commissioners' case. A meaningful, purposeful interpretation is to be preferred. I agree with the approach of the Birmingham Value Added Tax tribunal. The key lies in recognising that the reference to 'a building' in the singular in the definition of protected building in note 1 ('"protected building" means a building..') includes the plural 'buildings' where appropriate. If the accommodation comprises self-contained living accommodation it matters not that, structurally, part of it is located in one building and part in another, so long as both buildings fall within the statutory definition of a listed building. I would dismiss this appeal. LORD HOFFMANN My Lords, 9. I gratefully adopt the recital of the facts of this case in the speech to be delivered by my noble and learned friend Lord Walker of Gestingthorpe. It raises a point of statutory construction on which I must confess that I cannot feel the slightest doubt. To qualify for zero rating under Group 6, item 2 of Schedule 8 to the Value Added Tax Act 1994, the outbuilding to which alterations were made must have been a "protected building". Leaving aside immaterial matter, note (1) defines a protected building by reference to two propositions, both of which must be true. First, it must be "a building which is designed to remain as or become a dwelling house." Secondly, it must be a "listed building, within the meaning of the Planning (Listed Buildings and Conservation Areas) Act 1990". These two requirements are cumulative, being separated by the word "and". 10. The actual outbuilding to which the alterations in this case were made was not designed to remain as or become a dwelling house. It was designed to be a games room, changing room and swimming pool. It therefore did not satisfy the first part of the definition. "Listed building", on the other hand, is a statutory concept, a notional building which by virtue of section 1(5) of the 1990 Act is deemed to include structures within the curtilage of the building described in the list. So the outbuilding may well have counted as a listed building, although it would probably be more accurate to describe it as part of a notional listed building. Whether that is good enough to satisfy the second part of the definition does not arise. The claim to zero rating fails at the first hurdle. 11. The majority of the Court of Appeal treated the first part as satisfied by deeming the outhouse and the principal house (which was a dwelling house) to be a single building to which the alterations had been made. The only justification given for this heroic piece of deeming was an analogy with the definition of a "listed building" in the 1990 Act. The importation of this concept into the first part of the definition was described by the majority as "suffusive" or "holistic". It seems rather to have involved some process of osmosis by which the artificial definition of a "listed building" in the 1990 Act, to which reference was made in the second part of the definition, passed through the membrane of the word "and" and infected the meaning of the ordinary word "building" in the first part. In my opinion there is no ground for attributing such an intention to Parliament. The meaning of the first part of the definition is perfectly clear and I see no reason not to give "building" the ordinary meaning of the actual building to which the alterations are made. 12. A good deal of the argument was spent in examining other provisions of the 1994 Act, other statutes and other hypothetical facts to discover clues which might support or undermine the opposing constructions. But in my opinion the language is too clear to admit contradiction or need support from such tenuous inferences. The reasons why Parliament may have wished to narrow the scope of zero rating to buildings actually used as dwelling houses are convincingly explained by Etherton J in a judgment to which I would pay tribute for its clarity and comprehensiveness. 13. I would allow the appeal and restore the judge's order. LORD HOPE OF CRAIGHEAD My Lords, 14. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Walker of Gestingthorpe. I agree with it, and for the reasons which he has given I too would allow the appeal. But, as we are not unanimous and as we are differing from the majority in the Court of Appeal, I wish to add these brief observations. 15. The issue in this case is one of statutory construction. At the centre of the dispute is the question how the expression "protected building" as defined for the purposes of Group 6 in Schedule 8 to the Value Added Tax Act 1994 in note (1) to the Group is to be applied in a case where works of reconstruction or alteration are being carried out to a building ("the outbuilding") which lies within the curtilage of a listed building ("the house") but has not itself been listed in its own right. The effect of the definition of the expression "listed building" in section 1(5) of the Planning (Listed Buildings and Conservation Areas) Act 1990 is that the outbuilding must be treated as part of the house for the purposes of that Act. So it is subject to the controls set out in Chapter II of Part I of that Act, which prohibit the carrying out of any works of alteration which may affect its character as a building of special architectural or historical interest unless they have been authorised. The taxpayers' argument is that the fact that the outbuilding is to be treated as part of the house for the purposes of the 1990 Act is sufficient to entitle it to be treated as part of the house for the purposes of the definition of the expression "protected building" in Group 6. 16. There is, as I see it, a simple answer to this argument. The definition in note (1) to the Group does not say that a building which is a listed building within the meaning of the 1990 Act is a protected building. What it says is that a protected building is a building which has certain characteristics and is a listed building within the meaning of the 1990 Act or a scheduled monument within the meaning of the Ancient Monuments and Archaeological Areas Act 1979. This is a different drafting technique from that which would lead directly to the result that the taxpayers are contending for. 17. In Debenhams Plc v Westminster City Council [1987] AC 396 it was held that the extended definition of "listed building" in section 54(9) of the Town and Country Planning Act 1971 (from which section 1(5) of the 1990 Act is derived) applied equally for the purposes of paragraph 2(c) of Schedule 1 to the General Rate Act 1967. The technique which was used in that case was to say that no rates were to be payable in respect of a hereditament for any period during which it ("the hereditament") was included in a list complied or approved under section 54 of the 1971 Act. It was in that context that Lord Keith of Kinkel said, at p 404E-F, that it would be an absurd result, such as could not have been intended by Parliament, if a structure subject to building control by the 1971 Act were to be treated as not so subjected for the purpose of some other Act dealing with the consequences of listing. 18. The same could have been said if the definition with which we are concerned had provided that a building which was subject to building control as a listed building was a protected building. That would have amounted to a clear declaration that its treatment as a protected building was a consequence of listing. But the technique which the draftsman has used in note (1) is to direct the reader's attention instead to the building itself in the first instance. The context is that of the supply of goods and services, and the question is whether the supply attracts zero-rating for the purposes of value added tax. The first step is to identify the building in connection with which the supply is made. There is no room for doubt as to how one must go about this exercise. It is the building which is being reconstructed or altered (or each building, if the supply is made in connection with more than one building) that attracts the provisions for zero-rating in Group 6. That building must also be a listed building or a scheduled monument. But this is only one of several requirements that must be satisfied before it can be said that the building is a protected building. Listing is a prerequisite if the building is to be treated as a protected building. But there are other requirements too - that it is designed to remain as a dwelling, and so on - that must be satisfied. 19. The difference between these two approaches can be seen perhaps even more clearly when one considers the treatment which is given by the definition in note (1) to Group 6 to scheduled monuments. Section 1(11) of the Ancient Monuments and Archaeological Areas Act 1979 provides that in that Act "scheduled monument" means any monument which is for the time being included in the Schedule. Section 61(7) provides:
Section 61(10) provides that references in the Act to a monument include references to the site of the monument and to a group of monuments or any part of a monument or group of monuments. 20. It is plain that the definition of "scheduled monuments" in the Ancient Monuments and Archaeological Areas Act 1979 is capable of extending to things that do not fall within the ordinary meaning of the word "building". It is plain, too, that it is capable of extending to things that could not possibly be said to be "designed to remain as or become a dwelling or a number of dwellings" or to be "intended for use solely for a relevant residential purpose or a relevant charitable purpose" (see the definition of these expressions in notes (4) and (6) to Group 5 which are applied to Group 6 by note (3) to that Group). Here again it cannot be said that the definition of "protected building" in note (1) is dealing simply, in the case of scheduled monuments, with the consequences of the monument having been included in the schedule. The structure that is being reconstructed or altered must first be identified and the ordinary meaning of the word "building" must then be satisfied. It is only if it is satisfied and the other requirements in the definition are met that the question needs to be addressed as to whether the building in question is a scheduled monument. 21. The consequences of this approach to the definition may be to produce results which appear odd and unreasonable. The facts of the present case can perhaps be said to fall into that category. The house and the outbuilding are in the same occupation, they are occupied together as a single dwelling and both buildings fall within the definition of a listed building for the purposes of the 1990 Act. Prior to the abolition of the rating system for domestic properties by the Local Government Finance Act 1988 they would have been entered in the valuation list as a single hereditament. But there is no getting away from the fact that it is only the outbuilding and not the house that is being altered, and it is the house and not the outbuilding that has been listed. We must take the definition in note (1) as it stands, and we must construe it as we find it. In my opinion the ordinary meaning of the words used, taken in the order in which they are set out in the definition, leads inevitably to the result contended for by the commissioners. LORD WALKER OF GESTINGTHORPE My Lords, 22. This appeal raises a single issue of statutory construction on the legislation relating to zero-rating, for VAT purposes, of alterations to listed buildings. The issue is whether the expression "protected building" in item 2 of Group 6 in Schedule 8 to the Value Added Tax Act 1994 ("VAT Act 1994") includes an outbuilding which is not itself listed under the Planning (Listed Buildings and Conservation Areas) Act 1990 ("the 1990 Act"), but is protected under that Act because it is (and has been since the inception of the modern system of planning control in 1948) a structure within the curtilage of a listed building. 23. The issue arises because in the VAT Act 1994 Parliament has defined "protected building" by reference to (among other requirements) the definition of "listed building" in section 1(5) of the 1990 Act. Note (1) to Group 6 is as follows:
In section 1(5) of the 1990 Act, Parliament has added words so as to extend the basic meaning of what is being defined:
Your Lordships are therefore faced with one definition (that in the 1990 Act) which (at any rate in paragraph (b) of the tailpiece) introduces what the taxpayers acknowledge to be a statutory fiction; and a second definition (that in VAT Act 1994) which operates by reference to another statute dealing, not with any form of taxation, but with planning control. 24. The listed building to which the appeal relates is a dwelling-house known as The Mere at Little Houghton, Northamptonshire. The house and its immediate surroundings are described in some detail in the decision of the Birmingham VAT and Duties Tribunal (Chairman, Mrs J C Mitting). The description was repeated in the judgment of Etherton J on appeal [2001] STC 585, 587-9 and in the judgment of Aldous LJ on further appeal to the Court of Appeal [2002] EWCA Civ 692; [2002] STC 829, 831-3. At the outset of the litigation the details were important because there was an issue as to whether the house and the outbuilding were indeed physically separate (they are linked by a sandstone wall). But that issue is now gone. It is sufficient to say that the main house is a handsome residence, built in about 1830 and constructed partly of brick covered in stucco and partly of sandstone. The outbuilding (sometimes referred to in the course of the appeal as a barn) was built of sandstone at the same time as the house. It has over the years been put to a variety of uses. Initially it was a stable, carriage shed and tack room; latterly it had been used as a garage and laundry and to store a deep freeze. 25. On 30 August 1995 listed building consent was given for
It has at all times been common ground that the cost of some of these works must attract VAT at the standard rate. The issue is whether any part of the works qualifies for zero-rating. This depends on whether part of the works consists of "an approved alteration of a protected building" within item 2 of Group 6 of Schedule 8 to the VAT Act 1993. Different views have been taken at different stages of the appeal process. The Tribunal's decision (released on 4 July 2000) was in favour of the taxpayer, Zielinski Baker & Partners Limited (a firm of planning and development consultants, building surveyors and project managers who act for the owners of the house, Mr and Mrs Dutton). On 15 March 2001 Etherton J allowed the appeal of the Commissioners of Customs & Excise. On 17 May 2002 the Court of Appeal by a majority (Tuckey and Rix LJJ, Aldous LJ dissenting) allowed the consultants' appeal. The commissioners appeal with leave granted by your Lordships' House on 2 April 2003. 26. The commissioners' printed case contains a mild complaint that in his judgment Rix LJ went into the history and development of this part of the VAT legislation even though the Court of Appeal had indicated during the hearing that it would not be helpful. To my mind the background history, even if it were not directly relevant as an aid to construction, would be almost indispensable as an aid to comprehension. In any case I think it does assist as to the general legislative aim (and justification in Community law) of this part of the VAT legislation. 27. The imposition of VAT in the United Kingdom is required by European Union legislation which has from the first aimed at the progressive harmonisation of member states' legislation on turnover taxes. There is a useful summary in the opinion of Advocate General Darmon in Commission of the European Communities v United Kingdom (Case 416/85) [1990] 2 QB 130, 135-136, paras 1-4. EC Council Directives recognised that harmonisation would have to be a gradual process. In particular, Article 28 (2) of EC Council Directive 77/388 of 17 May 1977 ("the Sixth Directive") as amended by EEC Directive 92/77 permitted "exemptions with refund of the tax paid" (to which zero-rating was accepted as broadly equivalent) on a transitional basis for measures which were in force on 1 January 1991, were in accordance with Community law, and fell within the final indent of Article 17 of EC Council Directive 67/228 of 11 April 1967 ("the Second Directive"). That permitted such measures to be taken only "for clearly defined social reasons and for the benefit of the final consumer". 28. The European background helps to explain the evolution of the VAT treatment of building works under domestic legislation. Under the Finance Act 1972, which introduced VAT into the United Kingdom, all construction and alteration of buildings (of any sort) was zero-rated. In 1981 the Commission questioned the legality of the width of this measure (and of some other zero-rating provisions then in force). Discussions ensued and there were some changes of position. In particular, by the Finance Act 1984, the scope of the zero-rating of building works (then in Group 8 of Schedule 5 to the Value Added Tax Act 1983) was cut down by excluding almost all works of alteration (as opposed to construction). But a new Group 8A (the predecessor of the current Group 6) was introduced covering the reconstruction or alteration of a building which was a listed building or a scheduled monument. The Commission dropped some of its objections but maintained its objection to the zero-rating of construction works "in so far as the zero rate is not restricted to buildings by and for the final consumer within a social policy". 29. This difference of opinion came before the Court of Justice of the European Communities ("the ECJ") in the proceedings already mentioned. On 21 June 1988 the ECJ upheld the Commission's objections, but only as regards industrial and commercial buildings and civil engineering works (see [1990] 2 QB 130, 149-150, paras 36-39). The ECJ stated in para 36:
The outcome was that by the Finance Act 1989 the domestic legislation was reshaped so as to focus zero-rating of building works more directly on social objectives: that is housing, residential communities of various sorts (such as children's homes, old people's homes and hospices) and premises used by charities for non-commercial purposes (or as a village hall). These social objectives were spelled out both in the amended Group 8 (Construction of Dwellings, etc) and in the amended Group 8A (Protected Buildings). 30. Between 1984 and 1989 the provisions of Group 8 contained an expanded note (2) which introduced the concept of a "secondary building" constructed in the garden or grounds of a main building. This disappeared in 1989. Since then the legislation has been consolidated in the VAT Act 1994, and some relatively minor amendments have been made, notably by the Value Added Tax (Protected Buildings) Order 1995 (SI 1995/283) (which substituted a new text for Group 6 but made few changes of substance). |
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