Judgments - Her Majesty's Commissioners of Customs and Excise (Appellants) v. Zielinski Baker & Partners Limited (Respondents)

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    31.  I have already set out note (1) to Group 6 in Schedule 8 to VATA 1994. I must now put it in its context by setting out all the relevant parts of Group 6:


    Item No

    1  The first grant by a person substantially reconstructing a protected building, of a major interest in, or in any part of, the building or its site.

    2  The supply, in the course of an approved alteration of a protected building, of any services other than the services of an architect, surveyor or any person acting as consultant or in a supervisory capacity.

    3  The supply of building materials to a person to whom the supplier is supplying services within item 2 of this Group which include the incorporation of the materials into the building (or its site) in question.


    (1)  'Protected building' means a building which is designed to remain as or become a dwelling or number of dwellings (as defined in note (2) below) or is intended for use solely for a relevant residential purpose or a relevant charitable purpose after the reconstruction or alteration and which, in either case, is—

    (a)  a listed building, within the meaning of—

    (i)  the Planning (Listed Buildings and Conservation Areas) Act 1990 … or

    (b)  a scheduled monument, within the meaning of—

    (i)  the Ancient Monuments and Archaeological Areas Act 1979 …

    (2)  A building is designed to remain as or become a dwelling or number of dwellings where in relation to each dwelling the following conditions are satisfied—

    (a)  the dwelling consists of self-contained living   accommodation;

    (b)  there is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;

    (c)  the separate use, or disposal of the dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision,

    and includes a garage (occupied together with a dwelling) either constructed at the same time as the building or where the building has been substantially reconstructed at the same time as that reconstruction.

    (3)  Notes (1), (4), (6), (12) to (14) and (22) to (24) of Group 5 apply in relation to this Group as they apply in relation to that Group but subject to any appropriate modifications ….

    (6)  'Approved alteration' means ….

    (c)  in any other case, works of alteration which may not, or but for the existence of a Crown interest or Duchy interest could not, be carried out unless authorised under, or under any provision of—

    (i)  Part I of the Planning (Listed   Buildings and Conservation Areas) Act 1990 …

    and for which, except in the case of a Crown interest or a Duchy interest, consent has been obtained under any provision of that Part,

    but does not include any works of repair or maintenance, or any incidental alteration to the fabric of a building which results from the carrying out of repairs, or maintenance work ….

    (10)  For the purposes of item 2 the construction of a building separate from, but in the curtilage of, a protected building does not constitute an alteration of the protected building."

    32.  During the course of the appeal process both sides' arguments have to some extent changed. There is therefore no discourtesy to the careful decision of the Tribunal Chairman, or to the full and clear judgment of Etherton J, if I proceed at once to the judgments in the Court of Appeal. Aldous LJ began with the commissioners' cross-appeal against the judge's rejection of their argument that the tailpiece to section 1(5) of the 1990 Act is not carried over into the VAT legislation. Aldous LJ dismissed this argument [2002] STC 829, 836, para 14, for the same brief reasons as the judge had dismissed it at [2001] STC 585, 604, para 35:

    "Note (1)(a) of Group 6 provides that an essential feature of a protected building is that it is a listed building 'within the meaning of' the 1990 Act. A listed building 'within the meaning of' the 1990 Act is a building which falls within the extended definition in section 1(5) of the 1990 Act."

    Rix LJ agreed (p 845, para 45), relying on note (10) (to which it will be necessary to return); and Tuckey LJ agreed with the whole of Rix LJ's reasoning (p 838, para 29). This point is therefore one of the few points on which there has been judicial unanimity. Nevertheless the commissioners raise it again in your Lordships' House.

    33.  If the commissioners succeed on this point (which I will call the section 1(5) point) the other issues fall away. If the commissioners do not succeed on it, your Lordships have to resolve the difference of opinion between Aldous LJ (on the one hand) and Rix and Tuckey LJJ (on the other hand). Aldous LJ expressed his view shortly and simply [2002] STC 829, 837, para 20:

    "In the present case the approved alterations were made to a building, namely the outbuilding, not the house. The outbuilding was a listed building within the meaning of the 1990 Act. But it was not a dwelling nor was it to be used for residential purposes. It was therefore not within the definition of 'protected building' in note (1) and therefore the supplies were not zero-rated. There is nothing in item 2 or note (1) which imports the idea that alterations to the outbuilding should be deemed to be alterations to the house."

    When Aldous LJ said that the outbuilding was a listed building within the meaning of the 1990 Act he must have meant that it was, under the tailpiece to section 1(5) of that Act, to be treated as part of a listed building.

    34.  The reasoning of Rix LJ was more complex and was developed at greater length. It cannot be summarised briefly without over-simplification. But the salient points included Rix LJ's "holistic" (as opposed to "step by step") approach to the issue of construction (pp 839-840, paras 34, 35 and 37 and passim); his view (para 36) as to the right starting-point being the essential concept of the protected building; his analysis of the significance of the reference to a garage in note (2) (p 842, para 44) and of note (10) (pp 843-844, paras 49-51); and his view (in agreement with Aldous LJ) that the European dimension did not throw light on the issue of construction (p 845, para 53). Rix LJ's own summary of his reasoning is at p 845, para 54:

    "Once the holistic approach is adopted, the temptation is avoided of rejecting the appeal on the simple ground that it is the outbuilding that must qualify as the protected building and must therefore be a dwelling in itself. The concept of 'an approved alteration of a protected building' supports the view that the building with which the court is concerned is the main building, not the secondary building. So does note (10), which is otherwise turned into a nonsense. The items and notes under Group 6 are careful to deal expressly with all or at any rate most of the essential questions which would clearly arise for the reader. The concept of a protected building is defined. The concept of substantial reconstruction (see item 1) is defined in note (4). An approved alteration is defined. Mere repair and maintenance is put on one side. Can there be apportionment where services are supplied in part for an approved alteration and in part for other purposes? Yes, see note (9). A definition of listed buildings is adopted which renders separate outbuildings part of the listed buildings themselves. In such circumstances, if the draftsman wished again to separate such outbuildings from the listed building for the purpose of requiring that each such outbuilding had to qualify as a dwelling by itself, when it never had to qualify as a listed building by itself but was an integral part of a listed building for all that it was physically separate, then I would have expected the notes to deal expressly with that requirement, just as they had at one time, albeit for different reasons not connected with the section 1(5)(b) definition, made distinctions between main buildings and secondary buildings in the grounds of the former. There is nothing in the rationale of the European jurisprudence nor of Group 6 to require the commissioners' approach".

    35.  Since the section 1(5) point is potentially determinative of the whole appeal, it is tempting to consider it first, separately from the other arguments about the correct construction of item 2 in Group 6. That temptation is reinforced since before your Lordships Mr Walters QC (for the taxpayers) has relied on a decision of your Lordships' House, not cited below, which is said to be decisive against the commissioners on this point. But there is essentially a single question of construction, even though it is for purposes of discussion necessary to try to identify its main elements. In my view it is better not to sever one part of the issue of construction and decide it in isolation.

    36.  The definition of "protected building" in note (1) to Group 6 refers to two statutory codes enacted (in varying forms applicable in England and Wales, Scotland and Northern Ireland respectively) for the protection of two categories of structure which form part of the national heritage: that is, listed buildings and scheduled monuments. These categories are defined in a way which in theory permits a wide overlap. Every listed building must be a building. "Monument" is more widely defined (in England and Wales, in section 61 (7) of the Ancient Monuments and Archaeological Areas Act 1979—"the 1979 Act") and includes

    "any building, structure or work, whether above or below the surface of the land, and any cave or excavation".

    and also various types of site. The explanation for this rather untidy scheme is largely historical. The protection of ancient monuments goes back at least to the beginning of the last century (the first Royal Commission on the Historical Monuments of England was appointed in 1908) whereas listed building control was introduced by the Town and Country Planning Act 1947. Under that Act and its successors (now, in relation to listed buildings, the 1990 Act) the Secretary of State may either compile lists of buildings or approve lists previously prepared by the Royal Commission (or its successors).

    37.  It is unnecessary to go much further into the details of these codes. What is important for present purposes is that both statutory regimes prohibit unauthorised destruction or alteration of the listed or scheduled property, the prohibition being backed by criminal sanctions; and both contain provisions (that is the tailpiece to section 1(5) of the 1990 Act, and section 61(9) and (10) of the 1979 Act) which extend the scope of the prohibition beyond the actual listed building or scheduled building, structure or site. The general legislative purpose of both regimes is the protection of the national heritage, and the particular purpose of the extending provisions is to ensure that not only the heritage property itself, but also its fixtures and its environment, are protected. In Skerritts of Nottingham Ltd v Secretary of State for the Environment, Transport and the Regions [2001] QB 59, for instance, section 1(5)(b) prevented the installation of plastic-framed double glazing in a converted stable block which was not itself listed, but was within the curtilage of a mansion which Norman Shaw had built for W S Gilbert.

    38.  I return to the difference of opinion between Aldous LJ and Rix LJ. If the outcome of this appeal were to depend on a simple choice between a "step by step" approach and a "holistic" approach to statutory construction, it would be easily resolved in favour of the latter. A step by step approach sounds pedestrian and mechanistic ("ticking boxes" is, no doubt rightly, a fashionable term of disparagement) whereas a holistic approach would seem to accord with the universally acknowledged need to construe a statute as a whole.

    39.  But in my opinion your Lordships are not here faced with such a stark or simple choice. Undoubtedly, the relevant provisions of the VAT Act 1994 must be construed as a whole, but they amount to a text of some complexity. In practice the reader has to assimilate the text piece by piece (or in the language of patent law, integer by integer), forming a provisional view as to the meaning and effect both of each constituent part and of the emerging whole. The reader's provisional view may have to be modified more than once, especially as prolonged study may increase (rather than dispel) the difficulties of the text (the written and oral submissions to your Lordships on note (10) to Group 6 present a good example of this). Sometimes the final conclusion may be no more than the least satisfactory resolution of the difficulties (although in the end I have no doubt as to how this appeal should be resolved).

    40.  In this case the key part of the text is the definition of "protected building" in note (1). So far as relevant, it can be divided into three integers. A "protected building" means

    (1)  A building

    (2)  which is designed to remain as or become a dwelling (as defined in note (2)) after the alteration

    (3)  and which is a listed building within the meaning of the 1990 Act.

    On the provisional assumption that the courts below were right on the section 1(5) point, "listed building" in the third integer must be taken as including, as part of the listed building, a separate structure (built before 1 July 1948) within the curtilage of a listed building. But it is accepted that the outbuilding at The Mere was not designed to become a dwelling after the alteration. So the extended definition (or statutory fiction) in section 1(5)(b) of the 1990 Act cannot assist the taxpayers unless it is to be reflected back onto the first integer ("a building") so as to extend (and extend in an unusual and awkward fashion) the natural meaning of that simple expression.

    41.  I can see no good reason for such an unnatural construction. I can readily accept Rix LJ's view (at p 840, para 37 of his judgment) that

    "the whole concept of a 'protected building' is suffused with the inherent idea that the building in question is either listed or scheduled".

    But the requirements that the subject-matter of the "approved alteration" should be (1) a building and (2) designed to become a dwelling, indicate that Parliament intended to give the benefit of item 2 of Group 6, not to the whole set of listed buildings and scheduled monuments (and structures or sites deemed to form part of them) but only to a subset (that is those which are buildings to be used for residential purposes).

    42.  That construction is to my mind much the most natural construction of the language of the statute. It is reinforced by considerations of legislative purpose. The Court of Appeal derived little assistance from the European dimension, but at least it shows that the example of an orangery (within the curtilage of a listed country house) altered so as to be used for commercial catering (which Rix LJ accepted, at p 844, para 52, with equanimity) is hard to reconcile with the social policy of promoting home ownership which the ECJ recognised in Commission of the European Communities v United Kingdom (Case 416/85) [1990] 2 QB 130. The ECJ did not have to consider the provisions about protected buildings introduced in 1984, but it is clear that the changes made in 1989 are focused on home ownership (and similar purposes) in relation to what is now Group 6 as well as in relation to what is now Group 5. The protection of the national heritage is no doubt another social objective, but it is less clearly articulated (especially as repair and maintenance, notoriously the heaviest burden on owners of listed buildings, are excluded) and it appears to be subordinate to the housing objective.

    43.  Mr Lasok QC (for the appellant commissioners) accepted that although a building (including a protected building) may consist of more than one dwelling, a dwelling may not consist of more than one building (except for a detached garage which satisfies the conditions at the end of note (2)). This produces something of an anomaly. If the owner of a listed mansion obtains listed building consent to install a jacuzzi or a swimming pool in his cellar, the work of alteration will be zero-rated; but if the installation is in the old stables (a detached building), the work will attract VAT at the standard rate. Similarly he could (with listed building consent) obtain zero-rating if he turned an attic into an en suite guest room, but not if he made a similar alteration to a detached potting shed (unless it qualified as a separate dwelling with self-contained living accommodation). Mr Lasok submitted that these are the sort of grey areas which will always be found at the edges of any statutory code, but that zero-rating was a matter for Parliament (within its margin of appreciation under Community law) and that (as zero-rating is in the nature of an exemption) the language used by Parliament should not be stretched beyond its natural meaning. I would, with some hesitation, accept those submissions.

    44.  Mr Walters placed much emphasis on note (10):

    "For the purposes of item 2 the construction of a building separate from, but in the curtilage of, a protected building does not constitute an alteration of the protected building."

    He submitted that this supported his reading of note (2), that on any other reading note (10) was (as the judge concluded at p 603, para 33 of his judgment) meaningless, and that Mr Lasok's explanation of it was fantastic. I have to say that (in common with Etherton J) I find note (10) unfathomable. I agree that it would make some sort of sense, although only in a strained manner, if the taxpayers' interpretation of note (2) were correct. But I am quite unpersuaded that this uncertain straw in the wind (and the other contextual straws on which Mr Walters relied) are sufficient to justify doing violence to the reasonably straightforward language of note (2).

    45.  In these circumstances I do not find it necessary to consider whether the section 1(5) point provides a simpler route to the result for which the commissioners contend. Their contention on this point faces a formidable obstacle in the form of the decision of this House in Debenhams Plc v Westminster City Council [1987] AC 396, which (on unusual facts) concerned a reference in a rating statute (Schedule 1, para 2(c) to the General Rate Act 1976) to section 54 of the Town and Country Planning Act 1971 (section 54(9) being the predecessor of section 1(5) of the 1990 Act). Lord Keith (with whom all the House concurred on this point) said, at p 404:

    "A large part of the argument for the appellants was directed to the proposition that the words in section 54(9) 'for the purposes of the provisions of this Act relating to listed buildings and building preservation notices' had the effect that the enactment which followed them was not to be taken into account for the purposes of Schedule 1 to the General Rate Act 1967. In my opinion that proposition is ill-founded. The quoted words have the effect, for the purposes of the listed building provisions of the Act, of widening the definition of 'building' in section 290(1) of the Act of 1971. No other effect can properly be attributed to them. It would be an absurd result, such as cannot have been intended by Parliament, if a structure subjected to listed building control by the Act of 1971, were to be treated as not so subjected for the purpose of some other Act dealing with the consequences of listing."

    46.  Mr Lasok submitted that the present case is distinguishable. But he did not seek to develop the submission at any length, and he was probably right not to press the point. But the decision in Debenhams Plc v Westminster City Council (which turned on the expression "hereditament" rather than "building") does not in my view affect the construction of note (2) as a whole.

    47.  Beyond that it is unnecessary to express a final view on the section 1(5) point. For the reasons set out above (which are essentially the same as those more pithily expressed in the speech of Lord Hoffmann, with which I agree) I would allow this appeal and restore the order of Etherton J with costs in the Court of Appeal; but the respondents must have their costs in your Lordships' House in accordance with the terms on which leave to appeal was granted.


My Lords,

    48.  This appeal arises out of a VAT assessment contested by the taxpayers on the ground that the supply in question should properly have attracted zero rating under the Value Added Tax Act 1994 as amended ("the 1994 Act").

    49.  To identify and resolve the issues now arising for decision it is necessary to refer to two buildings, one a listed building known as Mere Court ("the house"), the other, within the curtilage of the house but not fixed to it, an outbuilding ("the outbuilding") which the taxpayers converted from a barn to a changing room and games room to be used in conjunction with an indoor swimming pool which they constructed alongside it.

    50.  The Planning (Listed Buildings and Conservation Areas) Act 1990 ("the 1990 Act") provides by section 1(5):

    "In this Act 'listed building' means a building which is for the time being included in a list compiled or approved by the Secretary of State under this section; and for the purposes of this Act—

    (a)  any object or structure fixed to the building;

    (b)  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 1 July 1948,

    shall be treated as part of the building."

    51.  The outbuilding had formed part of the land since before 1 July 1948 so that it was to be treated as part of the Building and so that authorisation was required (by other provisions of the 1990 Act) and duly obtained for its conversion.

    52.  Whether or not the supply of services here in question qualify for zero rating depends upon whether it falls within item 2 of Group 6 of Schedule 8 to the 1994 Act, namely as: "The supply [of the relevant services] in the course of an approved alteration of a protected building."

    53.  It is necessary at this stage to read the more directly relevant parts of note (1) to Group 6:

    "(1)  'Protected building' means a building which is designed to remain as or become a dwelling or number of dwellings … and which … is (a) a listed building, within the meaning of

    (i)  [the 1990 Act] …. "

    54.  Put compendiously, therefore, the question now arising is whether this supply of services was "in the course of an approved alteration of … a building which is designed to remain as or become a number of dwellings . . . and which . . . is . . . a listed building".

    55.  There is no dispute that the works constituted an approved alteration of a building. The critical question, however, is which building for the purposes of item 2 was being altered: was it the house or was it the outbuilding? If, as the taxpayers contend and the majority of the Court of Appeal held, it was the House, there can be no doubt that it was to remain as a single dwelling and was a listed building. If, however, it was the outbuilding, there can equally be no doubt that it was neither to remain as nor to become a dwelling and nor, indeed, was it "a listed building"; rather it was at most under the 1990 Act definition "part of" the Building (itself a listed building) and, as this House decided in Shimizu (UK) Ltd v Westminster City Council [1997] 1 WLR 168, although part of a building may be a listed building, a part of a listed building cannot itself be a listed building. (I say the outbuilding was "at most" a part of a listed building. If, contrary to the conclusions reached both at first instance and by each member of the Court of Appeal, the commissioners' secondary argument were correct and the final limb of the 1990 Act definition is not to be imported into the 1994 Act, it would not even amount to that. To my mind, however, nothing turns on this secondary argument and I am accordingly content to assume that it is ill-founded.)

    56.  The argument in favour of the alterations being, for item 2 purposes, to the house rather than the outbuilding is essentially this. Group 6 finds its origins in Group 8A (also headed Protected Buildings) which was introduced into Schedule 5 of the VAT Act 1983 by the Finance Act 1984. Item 2 of Group 8A zero-rated "the supply, in the course of an approved alteration of a protected building, of any [relevant] services", and the notes defined protected building simply to mean a building which was either a listed building or a scheduled monument within the meaning of the respective legislative provisions then applying.

    57.  Before that date all alterations to all buildings had been zero-rated, an exemption which the commissioners clearly came to regard as too generous once this House in Customs & Excise Commissioners v Viva Gas Appliances Limited [1983] 1 WLR 1445, 1451 had decided that any work on the fabric of a building constituted its alteration "except that which is so slight or trivial as to attract the application of the de minimis rule".

    58.  Group 8A was in turn restricted following the judgment of the European Court of Justice in Commission of the European Communities v United Kingdom (Case 416/85) [1990] 2 QB 130 by an amendment effected by the Finance Act 1989 to confine zero-rating in the case of protected buildings to the reconstruction and alteration of certain defined classes of residential buildings. The wording of Group 6 today derives directly from the 1989 amendment.

    59.  Such being the history of this enactment it is the taxpayers' case, accepted by the majority below, that item 2 was intended to encompass anything constituting the approved alteration of a listed building or a scheduled monument, provided only and always that such listed building or monument building was to remain or become a dwelling. Section 7 of the 1990 Act prohibits works for the alteration of a listed building "in any manner which would affect its character as a building of special architectural or historic interest, unless the works are authorised." The authorisation of such works under the 1990 Act is provided by note (6) to Group 6 to constitute the approved alteration of the listed building. The focus of Group 6 is, it is therefore suggested, upon the listed building itself, and thus it is that the extended definition of such a building to include any outbuilding within the curtilage falls to be incorporated into Group 6 for all purposes. This is the argument reflected at p 840, para. 37 of Rix LJ's judgment below when he says of the commissioners' case, focusing as that does on the outbuilding and asking whether that itself is a protected building, that it "ignores that the concept of a listed building has already been built into the idea, already mentioned in item 2, of 'an approved alteration'," and that "such an approach begs the very question of 'which building'?" "The concept of protection", Rix LJ then points out, "is not a value added tax (VAT) concept, it is a concept of listing or scheduling, a heritage concept".

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