B E T W E E N

JUDGMENT
 
DATED: 5 June 1991

THE TRIBUNAL (Mr A Simpson TD, Mrs V Ashcroft) :

This is an appeal by Lamdec Ltd, which is in receivership and in liquidation, against the Commissioners' decision, which is embodied in a letter dated 16th October 1990 from the Commissioners to the receivers, that the Appellant is not entitled to credit for the sum of £1,588,443.97 shown on a credit note issued by the Appellant to Petrolite Ltd ('Petrolite') and dated 19th June 1990.

The Appellant was represented by Mr DC Milne QC. Mr Milne called as witnesses Anthony John Patrick Brereton of Price Waterhouse, one of the receivers, and Robin Donald Rison, a senior manager employed by Price Waterhouse. The Commissioners were represented by Mr NE Gibbon of their Solicitor's office. Mr Gibbon called as witnesses Raymond William Mutch and Gordon David Harrison, both of whom are surveyors of HM Customs & Excise. There was no substantial dispute on the facts. We are indebted to both representatives for a well-presented and well-argued case.

The main issues in this case are (a) whether the parties came to an agreement within section 25 of the Finance Act 1985; if so, (b) whether the Commissioners, having purported to withdraw from the agreement, are bound by it; if either issue (a) or issue (b) is decided in the negative, (c) whether the credit note was issued for a valid purpose and (d) whether the Appellant is entitled under section 24 of the Finance Act 1989 to repayment of the sum stated in the credit note.

In this decision, save as otherwise stated, the text of letters is set out in full with the omission of formal parts only.

The Appellant, until it went into liquidation, was a construction company, having bases near Warrington and Redditch and its registered office in Coventry. Its value added tax seems to have been dealt with at all material times by the Warrington VAT sub-office. On 27th December 1989 Renaissance Holdings Ltd ('Renaissance') the holder of a debenture issued by the Appellant, appointed Mr Brereton and a Mr SRE Hancock, both of Price Waterhouse, to be joint administrative receivers of the Appellant. Price Waterhouse act for the receivers; general matters relating to the receivership are dealt with at Price Waterhouse's Birmingham office, where Mr Rison deals with day-to-day matters, but matters relating to the Warrington side of the Appellant's former business are dealt with by Mr Brereton at Price Waterhouse's Manchester office. Price Waterhouse also act for Renaissance. The Appellant was put into liquidation on 23rd July 1990.

Petrolite is a chemical manufacturer, having its base in Kirkby near Liverpool. Its value added tax seems to have been dealt with at all material times by the Wigan local VAT office. Price Waterhouse act for Petrolite at their Liverpool office.

Like other accountants, Price Waterhouse are accustomed to acting for clients whose interests are or may be mutually in conflict. In such cases it is necessary for the clients' affairs to be dealt with by different persons and for confidentiality to be preserved in relation to each client.

Mr Mutch was stationed at the Warrington VAT sub-office until early in 1990, when he was posted to the Wigan local VAT office. He dealt with the early stages of this case as a senior officer. Mr Harrison was stationed at Manchester Airport (where his work did not involve value added tax) until about the same time, when he too was posted to the Wigan office.

Between 1985 and 1987 the Appellant carried out construction work for Petrolite. The Appellant issued invoices in the usual way as the work progressed. Thinking that the work was standard-rated, the Appellant charged value added tax in all except one of the invoices. Altogether there were 315 invoices. The tax-inclusive sums invoiced amounted to £12,514,474.83. Petrolite accepted and paid 291 of the invoices (the tax charged on which amounted to £1,588,443.97) but withheld payment on the other 24 invoices (the tax charged on which amounted to £43,878.90). The Appellant accounted for the tax on the 291 invoices but did not account for tax on the other 24. Mr Mutch noticed the omission in the course of a routine control visit to the Appellant in December 1988, and on 11th January 1989 he issued a notice of assessment to the Appellant to correct the omission.

The assessment came to the notice of the Appellant's solicitors, Cuff Roberts North Kirk of Liverpool. It occurred to them that in any event the work was zero-rated. By letter dated 9th February 1989 they wrote to the Warrington VAT sub-office to that effect. Correspondence followed, culminating in a letter dated 7th June 1989 from Mr Mutch to the solicitors as follows:

'I am now in a position to confirm that the contract with Petrolite Ltd involved Zero Rate new civil engineering work, and therefore output tax has been incorrectly charged. Corrective action should be taken by the issue and despatch of a credit note to Petrolite Ltd. In the meantime, the assessed amount remains due and payable on the grounds that the tax point was created by the issue of the original invoices. The credit note should be brought to account on the current VAT return.'

The solicitors replied on 21st June 1989 as follows:

'Further to our telephone conversations between Mr Crank of this firm and Mr Mutch on the 16th instant, we have considered the matter so far only briefly with our clients and their advisers and we feel a little more time is required before we will be in a position to advise our clients to regularise the VAT position.

We would stress that our clients are anxious to regularise their VAT position, especially in the light of the observations made in your letter of 7th June 1989 that the contract between them and Petrolite involved Zero Rate new civil engineering work and we note the appropriate corrective action will be to issue and despatch a credit note to Petrolite Limited. We understand that the credit note will be for all of the invoices on which VAT output tax had been incorrectly charged.

Our clients are presently examining their records to collate this information to provide precise figures. It does however seem simply on a ball park figure that it will involve raising credit notes to the extent of £1.2m and our clients would propose to raise such credit notes in their Return for the next quarter. Before however such credit notes are raised, we do feel that we need your confirmation of the fact that this will be the correct action to be taken as obviously raising credit notes for such a large sum is not an exercise to be undertaken lightly.'

Mr Mutch replied on 11th July 1989 as follows:

'On the evidence provided by your client, the complete Petrolite contract is considered to have been zero rated. The way to correct this situation is to issue a credit note detailing the VAT incorrectly charged in respect of each invoice issued to Petrolite Ltd. It would be helpful if a copy of this credit note is forwarded to me for my information.

May I remind you that notwithstanding the issue of the credit note, my assessment is still payable immediately.'

The solicitors replied on 7th August 1989 as follows:

'We refer to our previous correspondence in this matter and the recent telephone conversation between Mr Crowe of Lamdec Limited and Mr Mutch of your office.

It is the intention of Lamdec to raise a credit note for the whole of the VAT incorrectly invoiced to Petrolite in respect of the project. The basis for the proposed action is as follows:-

1. The supplies made by Lamdec to Petrolite in respect of the whole project were zero-rated, as indicated in the ruling given in your letter of 7th June and confirmed in subsequent telephone conversations.

2. The incorrect invoicing VAT constitutes a genuine mistake for which the issue of the credit is the appropriate corrective action.

It is further intended that Lamdec will invoice Petrolite in respect of a residual amount for completed work which has not yet been invoiced. This amount will be zero-rated as:-

1. It refers to a complete work of civil engineering and that work was "in full use" before 1.4.89.

2. It is made in pursuance of a legally binding obligation to make the supply wish (sic) was incurred before 21.6.88.

The document will therefore cover the following amounts:-

The VAT on the credit note will be included in box 4 of the VAT Return for the period 08/89.

We await your early response and confirmation that, in accordance with your letter of 7.6.89, the above course of action should be undertaken.'

The sum of £1,621,536.36 mentioned by the solicitors is not the same as the total of the two sums of £1,588,443.97 and £43,878.90 mentioned above, which is £1,632,322.87. It was agreed that the latter figure was the correct figure.

Mr Mutch then consulted with his superior officer. They decided that, since both the Appellant and Petrolite had accounted for tax on the 291 invoices, no useful purpose would be achieved by, as Mr Mutch put it, 'sending the money round yet again'. The 24 invoices, however, were a different matter because of the outstanding assessment, which the issue of a credit note would in effect counteract. Mr Mutch therefore wrote to the solicitors on 30th August 1989 as follows:

'The contents of your letter dated 7 August 1989 have now been considered and the matter can be brought to a conclusion by the following action:-

1. Lamdec Ltd will issue and despatch to Petrolite Ltd a VAT credit note for £43878.90 being the amount shown on the invoice which was the subject of the assessment. All previous invoices which were wrongly charged at the standard rate will be allowed to stand as they have been processed through respective accounting systems.

2. Upon confirmation by Lamdec to Customs and Excise that the credit note has been issued, the assessment for £43878.90 will be withdrawn.

3. Subsequent invoice(s) should be charged at zero rate.

If there are any problems or you wish to discuss the matter further, please ring me at the above address.'

On 12th September 1989 the Appellant issued a credit note to Petrolite for the tax of £43,878.90 charged on the 24 invoices. A copy of the invoice is document 8 in the agreed bundle of documents. The Appellant however was still undecided on its best course in relation to the 291 invoices. On 3rd October 1989 the Appellant's secretary, Mr RE Crowe, wrote to the Warrington VAT sub-office as follows:

'Further to your letter of 30 August 1989, please find enclosed copy of our credit note 10218 issued to Petrolite Ltd on 12 September 1989.

We are still looking into the issuing of a further credit note and will advise you of our position in due course.'

Mr Mutch told us that after receiving Mr Crowe's letter he telephoned Mr Crowe to ask what the Appellant's intentions were with regard to issuing a further credit note, and that Mr Crowe told him that at that time there was no intention to issue a further credit note. Mr Mutch considered that the Appellant had accepted his suggestion, which he regarded as a respectable way of cutting through the technical requirements (which were of course to issue a further credit note and 'send the money round yet again'). Nevertheless, he told us, if the Appellant had issued a credit note, although it would have come as a surprise to him, it would have been legitimate, and in his view the Appellant was not bound to proceed in accordance with his suggestion. In that view we think that he was correct.

The Appellant did nothing more in the matter for the time being; doubtless it was preoccupied with more urgent matters. On 27th December 1989 the Appellant went into receivership as mentioned above. The first priority of Mr Brereton and his colleague was to sell the Appellant's business as a going concern, which they achieved at the end of February 1990. Thereafter it was their task to get in and realise the Appellant's other assets for the benefit of the Appellant's creditors, of whom Petrolite was one, there being outstanding disputes arising out of the construction contract. In due course the receivers came to the matter of the 291 invoices. They had been informed of the matter by the Appellant's directors, but Mr Gibbon accepted that it was not at the instigation of the directors that the receivers decided on their course of action. After taking advice, the receivers decided to issue a credit note in accordance with Mr Mutch's original suggestion. That credit note, which is the subject of this appeal, was issued on 19th June 1990. A copy is document 9 in the bundle. The first page is the credit note proper. The material part is as follows:

'VAT-only credit note to correct VAT incorrectly charged on tax invoices listed on the attached schedule (which forms part of this credit note for VAT purposes), with a total value of £10,882.151.96

There then follow nine pages in which details of the 315 invoices are set out.

On the following day, 20th June 1990, Mr Brereton wrote to the Commissioners' VAT Control Division C ('VCC'), which deals with receiverships and liquidations, as follows:

'I enclose pre-receivership VAT return for the period 1 October 1989 to 26 December 1989 in respect of Lamdec Limited for a net repayment of £1,556,395.74.

This reclaim has occurred because of a VAT-only credit note issued in the sum of £1,558,443.97 of which we enclose a copy. The reason for the issue is to correct the error in VAT liability applied to Lamdec's supplies to Petrolite Limited, over the period April 1985 to September 1987 as specified on the enclosed credit note.

The supplies in question relate to the construction of a chemical processing plant which the Commissioners ruled in their letter to Lamdec of 11 July 1989 were zero rated. The VAT-only credit note has been issued accordingly to correct the original VAT charged in accordance with the instructions in Paragraph 57(d). Notice 700, relating to credit notes, the credit note has been accounted for on the enclosed pre-receivership return, as the supplies in question were made before my appointment.'

The return enclosed with the letter showed output tax of £214,635.90, input tax of £182,587.68 and, as over-declarations of tax made in previous returns, the sum of £1,588,443.96, being the amount of the credit note; accordingly it showed a net sum of £1,556,395.74 as repayable by the Commissioners to the Appellant. A copy of the return is document 10 in the bundle.

VCC replied on 19th July as follows:

'I thank you for your letter dated 20 June 1990.

At the beginning of the year Wigan VAT office decided after consultation with VAT Control Division D in Southend Headquarters that if Lamdec Ltd were to issue the credit note to which you refer, it would be deemed invalid as the value of the credit note must be received by the recipient of the related invoice which I believe has not happened in this case due to the receivership of Lamdec Ltd. The department disallows the credit note, therefore, as it would result in the unjust enrichment of the claimant.

Consequently I am directed by the Commissioners to lodge their claim in the above matter in the sum of £32,048.22 as detailed below. Your acknowledgement of receipt would be appreciated.'

The Appellant was put into liquidation on 23rd July as mentioned above. Correspondence continued between Mr Brereton and VCC, Mr Brereton stating his views on the validity of the credit note and the question of unjust enrichment and VCC maintaining its attitude. The two relevant letters are dated 15th August and 16th October 1990 and copies thereof are documents 13 and 14 in the bundle. VCC's letter is the decision against which this appeal is made. The letter stated that 'the matter has again been referred to our VAT Control Division "D" in Southend Headquarters who have confirmed that the credit note must be disallowed as invalid', which indicates that at that stage Division D ('VCD') was the directing authority in the matter.

The Appellant's notice of appeal was dated 22nd November 1990. On the same day Mr Brereton sent to VCC a letter in reply to VCC's letter of 16th October, responding to the points made in the letter and concluding as follows:

'To summarise therefore, I maintain my view that the credit note is valid and that repayment of the Lamdec VAT return should be made without further delay.

I shall be grateful if the Commissioners will consider the points contained in this letter and will reconsider their decision in this matter. I should also inform you that an application for a hearing of this case before a VAT Tribunal has been made.

I look forward to receiving your comments in due course.'

On 3rd January 1991 a Mrs KJ Cobb of VCD wrote to Mr Rison at Price Waterhouse's Birmingham office as follows:

'The Commissioners have reconsidered their decision on the validity of the credit note issued by Lamdec to Petrolite Ltd in respect of wrongly standard rated supplies. It is now agreed that Lamdec are entitled to a refund of the VAT overpaid in error.

Accordingly a repayment of the amount claimed will be made as soon as possible.

However, where a supply is taxed at the incorrect rate the issue of a credit note is not appropriate as the recipient of the supply has no entitlement to input tax. To correct the position Lamdec should now write to Petrolite advising that the credit note is withdrawn. The letter should state that the original invoices issued in respect of the supplies were in error in showing VAT at the standard rate as zero rating should apply. A copy of the letter to Petrolite should be sent to Mr Hughes, Assistant Collector Wigan local VAT office, for information.

In view of the Commissioners revised decision you will wish to consider whether to proceed with the VAT Tribunal appeal currently lodged on behalf of your client (ref MAN/90/1018).'

Mr Rison received the letter on or about 7th January and communicated it to Mr Brereton, who on 11th January replied as follows:

'I acknowledge with thanks your letter of 3 January 1991 informing me of the Commissioners decision in this case. I look forward to receiving payment as soon as possible and perhaps you could give me some indication of when this is likely to be.

I trust that the Commissioners' decision will also release the payment of claims made subsequently on forms VAT 427, in respect of VAT incurred post deregistration, and I look forward to receiving these amounts also. I note your instruction that I should write to Petrolite Limited to advise the company that Lamdec Limited's credit note on 19 June 1990, is withdrawn, and I confirm that this will be done as soon as the amount due to be repaid by the Commissioners in respect of the VAT period 1 October 1989 to 26 December 1989, has been received.

I confirm that I am prepared to withdraw the application for a hearing of this issue before a VAT Tribunal (Ref: MAN/90/1018) subject to the satisfactory settlement of costs, and in due course I shall be making an application in this respect to the Solicitors Office of Customs & Excise.'

The first two, or the last two, or all of the three letters last mentioned are those which are relied on by the Appellant as constituting an agreement within section 25 of the Act of 1985.

In the meantime Mrs Cobb's letter had come to the notice of Mr Harrison at the Wigan local VAT office. He was comparatively unfamiliar with value added tax. The promised repayment, however, seemed unsatisfactory to him, because it would merely swell the Appellant's assets available for its creditors, of whom Petrolite would be but one, and an unsecured and non-preferential creditor at that. He discussed the matter with Mrs Cobb and with the Commissioners' Solicitor's office. It was decided that Mrs Cobb's letter should be withdrawn and that Mr Harrison should communicate the withdrawal to Price Waterhouse. On or about 8th January 1991 he sent a letter bearing that date to Price Waterhouse. It is not clear whether the letter was posted or faxed. By mistake he addressed it to Price Waterhouse's Liverpool office which, it will be remembered, acted for Petrolite and not for the receivers. That office replied, in effect, that the letter was not for them. Mr Harrison directed a copy of the letter to be faxed to Price Waterhouse's Manchester office, marked for Mr Brereton's attention. It was transmitted on 14th January. Mr Harrison also telephoned Mr Brereton on the same day and Mr Rison on the following day to inform them of the position. The letter is as follows:

'The letter dated 3.1.91 (Ref TRA153/89) from Mrs KJ Cobb is hereby withdrawn.

VAT should never have been charged by LAMDEC, as the goods were wrongly standard rated.

The Commissioners are concerned that the company PETROLITE receive back from LAMDEC the amount incorrectly charged by LAMDEC.

As you are aware VAT paid can be claimed as input tax and the net effect of your proposals is that PETROLITE will have paid VAT (improperly charged) to LAMDEC and will only receive a proportion of it back and will have to account for any input VAT claimed to the Commissioners in full — this seems less than satisfactory.

In these very unusual circumstances the Commissioners will be prepared to act as follows:-

(i) To repay the VAT direct to PETROLITE:

or

(ii) To repay the VAT to LAMDEC on the understanding that the money will be passed in full to PETROLITE.

In all the circumstances it would be better if I were to arrange for the money to be paid direct to PETROLITE.

I look forward to your agreement.'

Mr Harrison's letter is relied on by the Commissioners as effecting their withdrawal from the agreement, if any, constituted by the letters mentioned above. In view of the terms of Mr Harrison's letter the Appellant did not withdraw its appeal, which duly proceeded to the hearing before us.

We deal first with the issues relating to the alleged agreement and the alleged withdrawal.

Section 25 of the Act of 1985, so far as material, is as follows:

'(1) Subject to the provisions of this section, where a person gives notice of appeal under section 40 of [the Value Added Tax Act 1983] and, before the appeal is determined by a value added tax tribunal, the Commissioners and the appellant come to an agreement (whether in writing or otherwise) under the terms of which the decision under appeal is to be treated —

(a) as upheld without variation, or

(b) as varied in a particular manner, or

(c) as discharged or cancelled, the like consequences shall ensure for all purposes as would have ensued if, at the time when the agreement was come to, a tribunal had determined the appeal in accordance with the terms of the agreement (including any terms as to costs).

(2) Subsection (1) above shall not apply where, within thirty days from the date when the agreement was come to, the appellant gives notice in writing to the Commissioners that he desires to repudiate or resile from the agreement.

(5) References in this section to an agreement being come to with an appellant and the giving of notice or notification to or by an appellant include references to an agreement being come to with, and the giving of notice or notification to or by, a person acting on behalf of the appellant in relation to the appeal.'

Although Mrs Cobb's letter of 3rd January 1991 was not addressed to Mr Brereton and did not expressly refer to his letter of 22nd November 1990, it seems clear to us that it was intended as a reply to it. The schemes of the three letters may be summarised thus:

Mr Brereton's letter of 22nd November 1990:

1. The credit note is valid.

2. The repayment claimed in the return should be made without delay.

3. Please reconsider the matter.

4. The appellant has appealed.

Mrs Cobb's letter of 3rd January 1991:

1. The Commissioners have reconsidered the matter.

2. The Commissioners now agree that the Appellant is entitled to a refund of the overpaid tax.

3. The claimed repayment will be made as soon as possible.

4. A credit note is inappropriate; the Appellant should write to Petrolite withdrawing the credit note and stating that the original invoices charged tax in error, the supplies being zero-rated, and should send a copy to Wigan local VAT office.

5. Consider whether you wish to proceed with the appeal.

Mr Brereton's letter of 11th January 1991:

1. I note the Commissioners' decision; I look forward to receiving payment as soon as possible; when will it be made?

2. [Enquiry about other claims].

3. I will write to Petrolite as you suggest when the repayment due on the return has been received.

4. Subject to costs, on which I will communicate with the Solicitor's office, I am prepared to withdraw the appeal.

Mr Milne referred us to Scorer v. Olin Energy Systems Ltd [1985] STC 218, a case concerning section 510 of the Income Tax Act 1952, the wording of which is very similar, mutatis mutandis, to that of section 25(1). In that case Lord Keith of Kinkel said, at p 223f: 'The situation must be viewed objectively, from the point of view of whether the inspector's agreement to the relevant computation, having regard to the surrounding circumstances including all the material known to be in his possession, was such as to lead a reasonable man to the conclusion that he had decided to admit the claim which had been made.'

Mr Milne also referred us to the case stated by the Commissioners for the special purposes of the Income Tax Acts in Shepherd v. Lyntress Ltd; News International plc v. Shepherd [1989] STC 617, 642j, a case involving the successor to section 510, section 54 of the Taxes Management Act 1970, for that tribunal's approach to a similar question.

We hold without hesitation that the first two letters together amount to an agreement in writing within the meaning of section 25(1) for the disputed decision to be treated as discharged or cancelled. If the last two letters were taken in isolation, in our judgment they too would have constituted such an agreement, but in their context we read the third letter as no more than an acknowledgement that an agreement had already been reached.

Mr Gibbon submitted that, since one of the terms was that consideration would be given to the withdrawal of the appeal, and since such a term was otiose by virtue of the provisions of section 25(1), the agreement could not have been intended to operate under section 25. We disagree; in the first place, the reference to withdrawal in Mrs Cobb's letter was more of a suggestion than a term, and secondly, if the parties come to an agreement which is within section 25(1), in our judgment the subsection operates, whether or not the parties had section 25 in mind.

Mr Gibbon also submitted that in the context of the earlier correspondence a reasonable man would not conclude that an agreement had been reached. Here too we disagree. The terms of Mrs Cobb's letter could hardly be clearer, a reasonable man might be surprised that, after all that had gone before, the Commissioners had decided to concede the case, but in our judgment the letter would leave him in no doubt that they had conceded it.

Mr Gibbon further submitted that the correspondence was not an agreement within section 25 because Mrs Cobb's letter did not accept, and indeed in some respects expressed disagreement with, the arguments which Mr Brereton had put forward in his letter of 22nd November. Again we disagree; in our judgment an agreement between an appellant and the Commissioners that a decision is to be treated as varied, discharged or cancelled does not imply that the Commissioners agree with all or indeed any of the arguments advanced by the appellant in support of his case.

The next question is whether the purported withdrawal by the Commissioners was effective. Whichever of the letters are held to constitute the agreement, in our judgment Mr Harrison's letter was too late to prevent the initial formation of the agreement. If the first two letters constituted the agreement, which we have held that they did, it is clear that Mr Harrison did not write his letter until he had seen Mrs Cobb's, which, we find, had been posted to Mr Rison by then. If the last two, or all three, of the letters constituted the agreement, in our judgment the sending of Mr Harrison's letter to Price Waterhouse's Liverpool office was not the equivalent in law of sending it to the Appellant in general or to Mr Brereton in particular, and in our judgment, if Mrs Cobb's letter is to be treated as an offer, Mr Brereton accepted it by his letter and Mr Harrison's letter was too late to revoke the offer. On that basis, the question for our decision is whether the Commissioners, having concluded the agreement, could effectively resile from it as by Mr Harrison's letter they purported to do. In our judgment they could not. Section 25(2) expressly gives an appellant a locus poenitentiae, and in our judgment the absence of any corresponding provision in favour of the Commissioners must mean that Parliament intended them to have no such opportunity. Mr Gibbon drew our attention to the shortness of the period between Mr Cobb's letter and Mr Harrison's, contrasting it with the length of the corresponding periods in the two cases cited above. In our judgment the length of the period is immaterial. Once the parties have come to an agreement which falls within section 25, in our judgment the appellant alone can unilaterally resile from it, and the Commissioners are not entitled to do so, however soon thereafter they repent of their decision.

The next question is a technical matter, which was not explored at the hearing. If there is an agreement within section 25(1), 'the like consequences shall ensue for all purposes as would have ensued if, at the time when the agreement was come to, a tribunal had determined the appeal in accordance with the terms of the agreement (including any terms as to costs)'. So, it might be argued, in this case the consequences of the agreement are that the appeal is to be treated as allowed as at the date of the agreement and accordingly this tribunal is now functus officio. In our judgment however in a case such as this, where there is a dispute between the parties as to whether they came to an agreement, further questions of substance arising for decision if the answer is in the negative, we have jurisdiction to hear and determine the case at least as far as deciding whether an agreement has been reached, because that question must be resolved before we can usefully proceed to the other issues. The alternative would be to hold that we have no jurisdiction to decide the question and that the parties must go elsewhere to have it decided, a conclusion which we would regard as most unsatisfactory.

We hold therefore that the parties have come to an agreement, the consequences of which are (a) that the Commissioners' decision appealed against is to be treated as discharged or cancelled, (b) that the appeal is to be treated as allowed on the date of the agreement, and (c) that the Appellant is entitled to the repayment claimed. In our judgment the date of the agreement is the date on which Mrs Cobb's letter of 3rd January 1991 was posted.

That is sufficient to dispose of the appeal, but in case the matter goes further we will deal shortly with the other issues.

Renaissance holds a debenture issued by the Appellant. In addition to a charge on the whole of the Appellant's assets, the debenture is supported by guarantees given by the Appellant's directors. Although Mr Brereton could not remember with certainty, he thought that the directors had also given collateral mortgages to secure their liability under their guarantees. Up to the date of the hearing the directors had not been required to honour the guarantees.

Without the claimed repayment, the Appellant's assets may be sufficient to pay Renaissance's claims in full. With the claimed repayment, there will be enough to pay Renaissance, the other secured creditors and the preferential creditors in full and to pay a dividend to the ordinary creditors, but the Appellant's shareholder will still receive nothing.

It was accepted on both sides that in principle Petrolite had a valid claim against the Appellant for the sums charged as tax in the invoices, presumably as money paid under a mistake evidenced by the credit note, and that Petrolite was accordingly one of the Appellant's ordinary creditors. (The matter of compliance with the technical requirements relating to proving in the receivership or the liquidation was not raised at the hearing, and we assume that there are no technical objections to Petrolite's claim). Thus, if the claimed repayment is made, Petrolite will not receive the full benefit of the repayment; the benefit will be received by Renaissance (which in turn will relieve the directors from the risk of being required to honour their guarantees), the other secured creditors and the preferential creditors; Petrolite's only benefit will be a share of whatever surplus may remain.

By paragraph 6(2) of Schedule 7 to the Act of 1983,

'Where an invoice shows a supply of goods or services as taking place with tax chargeable on it, there shall be recoverable from the person who issued the invoice an amount equal to that which is shown on the invoice as tax or, if the tax is not separately shown, to so much of the total amount shown as payable as is to be taken as representing tax on the supply'

By paragraph 6(3) of Schedule 7,

'Sub-paragraph (2) above applies whether or not —

(a) the invoice is a tax invoice ...; or

(b) ... the amount shown as tax, or any amount of tax, is or was chargeable on the supply; or

(c) ...;

and any sum recoverable from a person under the sub-paragraph shall, if it is in any case tax, be recoverable as such and shall otherwise be recoverable as a debt due to the Crown.'

Those provisions apply to this case. The Appellant had issued invoices to Petrolite which showed tax as chargeable on supplies which were later decided to be zero-rated. Accordingly no tax was chargeable on the supplies and the sums shown on the invoices as tax were not tax. Nevertheless the Commissioners were entitled to recover those sums from the Appellant, and they recovered them by virtue of the Appellant's accounting to them in its returns as if the sums were tax.

One question in such cases is how to recover from the Commissioners the money so paid to them. Until 1st January 1990 the procedure was set out in paragraph 69(a) of the Commissioners' Notice 700 ('the VAT guide') and was, in brief, to issue a credit note to the recipient of the supplies for the money overcharged. The supplier could then recover the money from the Commissioners and the recipient of the supplies would recover it from the supplier and account for it to the Commissioners (because he would previously have obtained credit for the 'tax' in the usual way as his input tax). Since the effect of the procedure, if carried out in full, was that no one gained or lost, the Commissioners not infrequently agreed (as they suggested in the correspondence in the instant case) to dispense with the procedure and leave matters as they were.

On 1st January 1990, by virtue of article 2 of the Finance Act 1989 (Recovery of Overpaid Tax and Administration) (Appointed Days) Order 1989 (SI 1989 No 2271), section 24 of the Finance Act 1989 came into force. So far as material, it is as follows:

'(1) Where a person has paid an amount to the Commissioners by way of value added tax which was not tax due to them, they shall be liable to repay the amount to him.

(2) The Commissioners shall only be liable to repay an amount under this section on a claim being made for the purposes.

(3) It shall be a defence, in relation to a claim under this section, that repayment of an amount would unjustly enrich the claimant.

(6) A claim under this section shall be made in such form and manner and shall be supported by such documentary evidence as the Commissioners prescribe by regulations; ...

(7) Except as provided by this section, the Commissioners shall not be liable to repay an amount paid to them by way of value added tax by virtue of the fact that it was not tax due to them.'

On the same day the Value Added Tax (Accounting and Records) Regulations 1989 (SI 1989 No 2248) came into force. Regulation 6 prescribes the procedure for making a claim under section 24. Mr Gibbon accepted that the Appellant's claim for repayment of the sums charged as tax in the invoices fell within section 24, subject to subsection (3) (which we will call 'the unjust enrichment issue'), and that the Appellant had complied with regulation 6.

Mr Gibbon's first submission was that the credit note was issued for an improper purpose and was invalid. He cited the well-known passage from the decision of the tribunal in British United Shoe Machinery Co Ltd v. Commissioners of Customs and Excise [1977] VATTR 187, 192:

'In the judgment of this tribunal the duty of the Commissioners, and of the tribunal on appeal, is to satisfy ourselves that a credit note has been issued bona fide in order to correct a genuine mistake or overcharge, or to give a proper credit. If this test be not satisfied then the credit note is for a false purpose and is void as being contrary to public policy, see Alexander v. Rayson and Napier v. National Business Agency Ltd.'

In the instant case, Mr Gibbon submitted, the credit note which is the subject of this appeal was not issued until a year after the earlier credit note and after the Appellant had gone into receivership. He suggested that the real purpose of the credit note was to protect the pockets of the Appellant's directors. He accepted that the overcharge was occasioned by a genuine mistake, and that the credit note, with the subsequent repayment, would correct the mistake; that, however, he submitted, was merely the effect, and not the purpose, of the issue of the credit note. He therefore submitted that the credit note was not issued for a proper purpose. As an example he cited Larullah Ltd v. Commissioners of Customs and Excise LON/84/172 (unreported), in which a credit note, issued by the appellant for the purpose of facilitating the repayment by its wholly-owned subsidiary of some of the subsidiary's debts, was held to be ineffective for the purposes of value added tax.

Mr Milne submitted, correctly, that there was no specific evidence of the receivers' purpose in issuing the credit note; he further submitted that the receivers were under a duty to get in all of the Appellant's assets that could profitably be got in, and that the credit note was issued in pursuance of that duty. There was a genuine mistake or overcharge, which the credit note was properly issued to correct.

The validity of the credit note depends on the purpose for which it was issued. The unjust enrichment issue, on the other hand, depends on the effect of the credit note and the subsequent repayment. Mr Gibbon's argument, to put it very shortly, was that, because the repayment would swell the Appellant's assets (or at least reduce its net deficiency), the Appellant would be enriched and that, because Petrolite would see at best but little of the repayment, the enrichment would be unjust. Mr Milne on the other hand submitted that neither the Appellant nor its shareholders would be enriched, because the whole of the repayment must, by law, be used in the first instance to pay the Appellant's creditors, of whom Petrolite would be one, and nothing would be left over for the shareholders. Petrolite would not receive the full benefit of the repayment, but it was the Appellant's position, and not Petrolite's, which fell to be regarded under section 24(3).

We find that the credit note was issued bona fide (a) for the purpose of recovering from the Commissioners money which, if the true position had been known at the time, would not have been invoiced as tax and would not have been payable to them, and (b) for the purpose of increasing the Appellant's assets available for the distribution amongst its creditors, including Petrolite. Although our views are necessarily obiter, that seems to us to bring the credit note within the scope of the observations in the British United case which we have quoted earlier. The unjust enrichment issue does not seem to have come before these tribunals previously. We would incline to the view that a person whose assets are increased (or whose net deficiency is diminished) by a payment of this kind is thereby enriched, whether he is bankrupt or in receivership or in liquidation or not. The question what sort of enrichment is unjust is not easy to answer. If the person to whom the repayment is made would be under no obligation to reimburse the person whom he has overcharged, that would seem to us to be unjust enrichment, because he would be able to keep the repayment for himself. Equally, at the other end of the scale, where the person to whom the repayment is made is under a legal obligation to pay the whole of the money repaid, or an equivalent sum, to the person whom he has overcharged, clearly that would no be unjust enrichment. In cases between those extremes, however, the answer is less clear. The test might be based, as Mr Milne suggested, on whether the person to whom the repayment is made will retain the benefit of the repayment, or of any part of it, for himself, the person whom he has overcharged being ignored. Alternatively, as Mr Gibbon suggested, there may be a double requirement, namely (a) that the person to whom the repayment is made will get no benefit from it and (b) that the overcharged person will be fully reimbursed. We do not see that either suggestion is clearly correct. In the instant case the matter is further complicated by the fact that Petrolite is one of the Appellant's ordinary creditors and would receive part, though by no means the whole, of the benefit of the repayment; in that case, it could be argued, if the Appellant is enriched, part of the enrichment is just (because Petrolite will receive it) and part is unjust (because Petrolite will not receive it). In this connection we see no halfway house in section 24(3), which seems to us to mean that the repayment is to be made either in full or not at all. Further questions could arise where bankruptcy or liquidation occurs after the date of the repayment and before the person overcharged is reimbursed. In such a case, does an enrichment which was originally just become unjust?

In theory at least (and, for all that we know, in fact) Petrolite is liable to repay to the Commissioners the sums for which it mistakenly claimed and received credit as its input tax. It has a claim, as we assume, against the Appellants for the sums overcharged. That claim will not be met in full. Obviously Petrolite ought to be reimbursed as far as possible. But the scheme of section 24 is that repayment must be made, not direct to Petrolite, but to the Appellant, leaving Petrolite to take its chances as a creditor. If repayment by the Commissioners is refused, Petrolite will get nothing at all. If repayment is made, at least Petrolite will get something, which is better than nothing. If we were required to express a view, we would say that there is no unjust enrichment if the repayment will be applied, to the full extent permitted by law, for the benefit of the person overcharged, and the person to whom the repayment is made will not be entitled to keep the remainder, if any, for himself, in which expression, in relation to a company in liquidation, we would include the shareholders but not the creditors. In the instant case, therefore, we would hold that the repayment ought to be made.

The appeal was rightly pursued to a hearing in case the Commissioners' assertion that the agreement was ineffective proved to be well-founded. We hold therefore that we have jurisdiction to deal with the costs of the appeal. Mr Milne asked for costs if the appeal succeeded, as in effect it has. Mr Gibbon did not oppose the application. We therefore direct that the Commissioners are to pay to the Appellant its costs of and incidental to and consequent upon the appeal, to be assessed if not agreed by a chairman sitting alone, on the standard basis as applied in the High Court of Justice. The parties are to be at liberty to apply generally. Notice of any such application, whether as to costs or otherwise, should be served at this tribunal centre within two months after the date on which this decision is released. The costs of any such application are to be in the discretion of the tribunal which hears it.