Case No: QBC of 2000/0324/C
 
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Tuesday 19th December 2000.

                 B e f o r e :

                THE PRESIDENT      
                    LORD JUSTICE KENNEDY     
            and 
               MR JUSTICE JACOB
               - - - - - - - - - - - - - - - - - - - - -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE		Appellants	
	- and -		
	CENTURY LIFE PLC	Respondents	

                 - - - - - - - - - - - - - - - - - - - - -
                 (Transcript of the Handed Down Judgment of
                Smith Bernal Reporting Limited, 190 Fleet Street
           London EC4A 2AG
               Tel No: 020 7421 4040,  Fax No:  020 7831 8838
                  Official Shorthand Writers to the Court)
              - - - - - - - - - - - - - - - - - - - - -

Miss A. Foster (instructed by Her Majesty’s Customs and Excise) for the Appellants
Mr D. Milne QC and Mr J. Henderson (instructed by Landwell of London) for the Respondents

- - - - - - - - - - - - - - - - - - - - -

    Judgment
          As Approved by the Court

        Crown Copyright ©

MR JUSTICE JACOB:

1.	This appeal is by the Commissioners of Customs and Excise from a decision of Moses J given on 6th March this year.   He reversed the decision of the VAT Tribunal (Dr Avery Jones CBE) of 14th December 1998 in favour of the Commissioners.   The question at issue is whether the respondents, Century Life Plc, are exempt from VAT in respect of certain services they performed for a pension policy provider called Lincoln Assurance Ltd. Century Life says the services fall within Art. 13B of the Sixth Directive (77/388/EEC).   This was implemented in the UK by paragraph 4 of Group 2 of Schedule 9 to the VAT Act 1994 as amended.   These read:
6th Directive
“Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse;

(a)	insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents;

Implementing Legislation:  Paragraph 4 Group 2 of Schedule 9
The provision by an insurance broker or insurance agent of any of the services of an insurance intermediary in a case in which those services -
(a)	are related (whether or not a contract of insurance or reinsurance is finally concluded) to any such provision of insurance or reinsurance as falls, or would fall, within item 1, 2 or 3;
and

(b) 	are provided by that broker or agent in the course of his                                                                                                           acting in an intermediary capacity.”

2.	Item 1 consists of the “provision of insurance or reinsurance in the course of business”, subject to qualifications not material to the present case.   There are lengthy “notes” to item 4 included as part of the legislation.   So far as is material they read:
“(1)	For the purposes of item 4 services are services of an insurance intermediary if they fall within any of the following paragraphs –

(a)	the bringing together, with a view to the insurance or reinsurance of risks, of –

(i)	persons who are or may be seeking insurance or reinsurance, and
(ii)	persons who provide insurance or reinsurance;

(b)	the carrying out of work preparatory to the conclusion of contracts of insurance or reinsurance;

(c)	the provision of assistance in the administration and performance of such contracts, including the handling of claims;

(d)	the collection of premiums.

(2)	For the purposes of item 4 an insurance broker or insurance agent is acting ‘in an intermediary capacity’ wherever he is acting as an intermediary, or one of the intermediaries, between –

(a)	a person who provides any insurance or reinsurance the provision of which falls within item 1, 2 or 3, and

(b)	a person who is or may be seeking insurance or reinsurance or is an insured person.

(7)	Item 4 does not include –

(a)	the supply of any market research, product design, advertising, promotional or similar services; or

(b)	the collection, collation and provision of information for use in connection with market research, product design, advertising, promotional or similar activities.

(8)	Item 4 does not include the supply of any valuation or inspection services.

(9)	Item 4 does not include the supply of any services by loss adjusters, average adjusters, motor assessors, surveyors or other experts except where –

(a)	the services consist in the handling of a claim under a contract of insurance or reinsurance;
(b)	the person handling the claim is authorised when doing so to act on behalf of the insurer or reinsurer;  and
(c)	that person’s authority so to act includes written authority to determine whether to accept or reject the claim and, where accepting it in whole or in part, to settle the amount to be paid on the claim.”
3.	Notoriously, during the late 1980s and early 1990s there was mis-selling of pension policies on a considerable scale. As a result, the Securities Investment Board and Personal Investment Authority required all pension companies to review all the personal pensions they had sold during the period 29th April 1988 to 30th June 1994 to identify those entitled to redress and to provide it.  Redress could consist of reinstatement of the old policy, an augmented new policy or simply the payment of a lump sum.   Lincoln had sold pension policies and so was subject to these requirements.   It found itself under time pressure to get the work done.  So it outsourced the work to Century Life, which was in a position to perform it faster.   The work outsourced was to review the pension policies concerned and to assist in the provision of redress in cases identified by that review.   The Tribunal summarised the position as follows:
“[Century Life] acts in Lincoln’s name and corresponds on Lincoln’s headed paper using a PO box number used only for this purpose.  Century Life issues questionnaires to policyholders with requests for benefit statements if appropriate, and scheme booklets are requested from scheme trustees, independent financial advisers and other insurance companies.  Scheme trustees may invoice Century Life for supplying this information and Century Life will pay for this and invoice Lincoln on a monthly basis. Century Life chases up replies either by telephone or by visits.  Century Life then checks that the case is one requiring review, that all the relevant information has been provided, that the correct scheme information is available, and that Lincoln’s procedures have been followed.

The case is then analysed.  If there is no mis-selling the case is referred back to Lincoln and if they agree with Century Life’s view, the investor is informed.  If there has been mis-selling the correct type of offer is identified.  The data is then input into the loss calculator and a reliability check is made on reinstatement costs if that is the type of offer.  Calculations are checked by actuaries contracted to Century Life.  Where the redress exceeds £10,000, Lincoln has to approve it.  Century Life prepares an offer letter and carries out the mechanics of the settlement either requesting a cheque from Lincoln and sending it to the policyholder, or instructing Lincoln to augment the policy.  Century Life audit cases during the various stages of the review to ensure that the correct procedures have been followed.  Weekly and monthly reports are provided to Lincoln to enable it to make returns to the Personal Investment Authority.”

4.	Century Life also had its own business. Miss Foster, who appeared for the Commissioners, accepted that that business is properly characterised as that of “insurance agent.”   She says, however, that in relation to the work for Lincoln Century Life were not acting qua insurance agents, a point to which I will return.
5.	Now, if Lincoln had itself done the work internally, it is common ground that VAT would not have been chargeable.  Its “service” to itself would carry no charge to tax and its overall service to the public would be plainly be within the exemption.    But this consideration is irrelevant.  The provider of a service cannot rely upon the exemption of the recipient.  If the provider is to be exempt he must fall within his own exemption, see e.g. per AG Ruiz-Jarabo Colomer in Sparekassernes Datacenter (SDC) v Skatterministeriet [1997] STC 932.  
6.	The question is simply, therefore, whether the exemption applies to the service supplied by Century Life.   I say “the” exemption because there is common ground that the effect of the UK domestic legislation is the same as that of the Directive and intended to implement it.  One wonders why a draftsman implementing a Directive or other international treaty provides his own elaborate language attempting to set out what the implemented law is supposed to be.  I have commented on the unnecessary complications that this process causes in intellectual property.  For instance in Beloit Technologies v Valmet Paper [1995] RPC 705 at p.731 I said:
“… it helps no-one for the Parliamentary draftsman to re-write matter in a treaty or convention (or EU directive for that matter) which is to be implemented in the United Kingdom.  If the language of the basic document is obscure or less than complete it makes things worse if the Parliamentary draftsman tries to “clarify” it in some other words.  Where he does, he simply causes extra complications (and therefore legal uncertainty and costs) .... The point at which obscurities should be avoided is in the underlying international document.  If they are unfortunately there, it is too late for our Parliamentary draftsman to help and the problem must be left for industry to pay for in the courts.  The particular question here is a typical example of what could be avoided by simply adopting the language of the underlying document as it stands.”

See also British Sugar v James Robertson [1996] RPC 281 at p. 291 and Philips v Remington [1998] RPC 283 at p. 290.
7.	In the case of an Act regulating the position as between citizen and State, such a taxing statute of the kind we have here, the result of the draftsman’s attempt at “re-write” rather than “copy out” has a potential effect beyond merely causing confusion and unnecessary complication.   As Mr Milne QC, for Century Life pointed out, in principle the taxpayer could have the better of either form of language.  He could rely upon the exemption in the Directive (which it was conceded was of direct effect).   But, if, by an accident of draftsmanship, the UK legislation was unintentionally wider, the taxpayer could rely upon that.   The difference might be an infraction of the UK’s obligations to implement the Directive, but that could not affect the citizen given an exemption by the domestic legislation.   Mr Milne did not go so far, however, as to contend that the UK legislation was actually wider in this case.  But his point shows what may happen where Parliament implements by an unnecessary re-write.
8.	Because it was common ground that the cloud of rules and notes of the UK legislation was no more than an implementation of the pithy primary source, argument was, rightly, focussed on that, i.e. the Directive.   It exempts “supplies of services consisting of insurance and reinsurance transactions including related services performed by insurance brokers and insurance agents.”    The learned Judge’s reasons for saying the exemption applied were straightforward.   He reasoned as follows:
		(1)	The original pensions were clearly “insurance transactions;”
(2)	The service supplied by Century Life was related to those transactions;
(3)	Since Century Life was an insurance agent, they were supplied by an insurance agent.
(4) 	 Hence the services were within the exemption.
9.	Miss Foster described that approach as “simplistic”.   She said that there was a further requirement:  not only must the service be supplied by an insurance agent properly so characterised, but also the service itself must be supplied by that agent acting in the capacity of such an agent. 
10.	Miss Foster’s submission requires that the word “by” in the phrase “services performed by insurance brokers” serve a double function – to denote whom the services are to be performed by and to define, or further define, the nature of the services.   Quite apart from the fact that as a matter of strict grammar it cannot have both functions, I see no purpose in her suggested qualification.   After all the language has already defined the nature of the services to be supplied – they are to be “related to” insurance transactions.    If Miss Foster were right, there would hardly be a need for these words – for everything an insurance broker does is likely related to transactions of insurance.
11.	Where then does Miss Foster get her further qualification?   Before coming to that, it is pertinent to observe that her argument is not based on any of the recitals to the 6th Directive.   That European legislation, such as a Directive, is to be construed purposively and very much with its spirit and intent in mind, is trite.   One normally discerns spirit and intent from the recitals, but that cannot be done here.   The definition of the exemption and its limits in Art. 13B comes cold with no express guidance to help understand its limits or purpose.   I can discern no purpose which supports Miss Foster.   Mr Milne suggested there was a purpose, namely that the costs of insurance transactions and pensions should be kept down because, in their nature, such transactions were a good thing.   But that is far too wide and woolly.  Moreover it likewise has no basis in the recitals.   So, most unusually, one cannot here construe in the light of a known purpose.
12.	Miss Foster sought to find the qualification via two routes.  The first is via another Directive, the Insurance Intermediaries Directive 77/92/EEC.   The VAT Directive itself contains no definition of “insurance agent” or “insurance broker”.   But the Intermediaries Directive does.  This Directive is concerned with freedom of establishment and freedom to provide services in respect of insurance agents and insurance brokers.  Its subject matter is not connected with VAT at all.  However, the Directive had to consider the functions of insurance agents and brokers because the functions performed by people connected with insurance (even their names) vary significantly in different Member States.   It is a principle of construction of a Directive that one may look for assistance to a Directive dealing with a related subject matter.   Both sides so accepted, and indeed Mr Milne relied upon that to establish that Century Life’s activities are, or include that of an “insurance agent” within Art. 2.1(b) of the Insurance Intermediaries Directive.   The Directive contains the following provisions:
	“Recital 8 

“Whereas, where the activity of agent includes the exercise of a permanent authority from one or more insurance undertakings empowering the beneficiary in respect of certain or all transactions falling within the normal scope of the undertaking or undertakings concerned, to enter in the name of such undertaking or undertakings into commitments binding upon it or them, the person concerned must be able to take up the activity or broker in the host Member State”

Art. 2.1

This Directive shall apply to the following activities:

(a) professional activities of persons who, acting with complete                                                   freedom as to their choice of undertaking, bring together, with a view to the insurance or reinsurance of risks, persons seeking insurance or reinsurance and insurance or reinsurance undertakings, carry out work preparatory to the conclusion of contracts of insurance or reinsurance and, where appropriate, assist in the administration and performance of such contracts, in particular in the event of a claim;

(b) professional activities of persons instructed under one or contracts or empowered to act in the name and on behalf, or solely on behalf of, one or more insurance undertakings in introducing, proposing and carrying out work preparatory to the conclusion of, or in concluding, contracts of insurance, or assisting in the administration and performance of such contracts, in particular in the event of a claim
(c)…”
Miss Foster suggested that the functions of an insurance agent were delimited by the 8th recital – in essence one who had power to bind an insurance undertaking.  But she accepted that the Directive itself goes wider in its provision of freedom of establishment.   The Directive can and does help in providing some idea of how to identify an “insurance broker” or “insurance agent” – but that is all.  It does not support Miss Foster’s construction which is based on the notion of what an insurance agent normally does.
13.	Miss Foster particularly relied on the Opinion of Advocate-General Fennelly in Card Protection Plan v Customs and Excise Commissioners (Case C-349/96 [1999] STC 270).  That case was concerned with a service consisting of the provision to credit card holders of a protection plan which included a package of services.  One of these was the provision of insurance cover provided by an insurance company on a block policy which identified the assured as the cardholders.   The European Court of Justice decided the reference from the House of Lords on the meaning of “insurance transactions” in Art.13B(a) of the 6th VAT Directive.   The Court did not go on to consider what is meant by the latter part of Art. 13B(a) – “related services etc.”  Thus it is common ground that the decision of the Court does not help here, though I note the decision adopted a relatively wide meaning of that phrase and hence of the exemption).   In his Opinion, however, Fennelly AG did address the latter part of the exemption.   Miss Foster relied upon a short passage of his reasoning at p.283:
“The crucial issue raised by the second part of the third question is whether CPP may be regarded, for the purposes of Art.13B, as having acted as an insurance agent or broker.”
She suggested that here the Advocate General was indicating that there was a qualification of the kind she proposed – that the broker or agent must be acting as such to come within the exemption.  But I do not think that he was proposing any such construction.  He was addressing the point of whether or not CPP were “insurance agents” in the context of an argument (advanced by the UK, Germany and the Commission) that they were not because what they did was not characteristic of the activity of an “insurance agent.”   He concluded that CPP’s:
“usual business does not seem to be that of an insurance broker or agent in the strict sense.   The limitation of the exemption of ‘related services’ to ‘insurance brokers and insurance agents’ would be deprived of any meaning if any intermediary whatever which is incidentally involved in arranging insurance transactions ipso facto came within the definition.”
This shows that the Advocate General thought that one had to ask whether the provider was an insurance or agent for the purposes of the exemption..  It is only in the context of answering that question that there may have to be an inquiry as to whether what he does is the sort of thing normally performed by insurance brokers or agents.  Here it is accepted that Century Life are such agents, so the inquiry does not arise.

14.	Finally, I should mention two further submissions of Miss Foster.  She relied upon the general principle of interpretation of European legislative instruments that exceptions to a general rule are to be construed strictly.   That has particularly been applied in relation to VAT where the general rule is that a turnover tax is levied on all services supplied for consideration by a taxable person, see e.g. Stichting Uitvoering Financiële Actvies v Staatssecretaris van Fiananciën (Case 348/87 [1989] ECR 1737 at 1753, para. 13.   I am fully conscious of that principle.  But it does not justify reading into an exception a meaning which is not apparent from the words and which is not apparent from any legislative purpose.   Further, as I noted above, the Court did not resort to the principle when construing “insurance transactions” for the purposes of the opening part of the exemption.  
15.	I would, however, accept the application of this principle to the words “related services.”  These formed the basis of the last point made by Miss Foster on the Directive.   She submitted that unless her main submission was correct, one is left merely with the words “related services.”  These, she suggested, were so vague that a businessman would not know where he stood.   I do not agree.  Of course, the words involve a question of degree.  But that is true of many legal tests.  And one does have the “exceptions are narrow” principle to help here.  Applying that, one can say that if a service is only remotely or incidentally connected with an insurance transaction it is not “related to” it:  there must also be a close nexus between the service and the insurance transaction concerned.  So, for example, if an insurance agent supplies secretarial or general computer services to an insurance company, the exemption would not apply.   Those services would only be incidental to insurance transactions.
16.	That cannot be said of the services in the present case.   Two points were taken to suggest otherwise.  Firstly, it was suggested that the nature of the services was essentially that of compliance rather than commercial.  Secondly, it was suggested that the service could not be in relation to the pension transactions because they were past transactions.  Like Moses J I think there is no substance in either point.   Seeing that a policy complies with regulations is intimately related to it – the very nature of the individual policy is under scrutiny.   And the fact that the policy was already sold does not mean that there are not continuing obligations.  There clearly are an important one of which is compliance. 
17.	Accordingly, I think the services provided by Century Life were within the exemption provided by Art. 13B(a) of the Directive.  For the reasons I have already given, it is strictly unnecessary to consider the case from the point of view of the domestic legislation.  But, since the matter was argued both here and below I do so briefly. 
18.	The Commissioners’ main point was that Century Life did not provide the services in “the course of acting in an intermediary capacity.”  It was said that the activity was merely ancillary to the provision of insurance, rather like functions performed by solicitors or auditors.   But I think their activity was more than that.  It fell within note 1(c) – “the provision of assistance in the administration and performance of such contracts.”   It was indeed a vital part of the administration of the contracts.   And the actual work done by Century Life involved acting as an intermediary between the insured and Lincoln so is within note 2(b).
19.	As to whether the work was “related to” the pensions contracts, the legislation gives no express definition as to the meaning of “related.”   Each side sought to draw comfort from the notes, seeking to deduce the scope of the term from what was excluded from or included within the exemption provided by item 4.  Thus Mr Milne pointed to notes (7) and (8).  Why, he asked, was it necessary to exclude for instance market research services, unless they would otherwise be covered by item 4 and hence regarded as “related to” any contracts of insurance with which they may be concerned?   Miss Foster pointed to note 8 excluding valuation and inspection services and note 9 excluding the services of loss adjusters and other experts except where they actually handled the claim and had power to settle it.   This showed, she submitted, that the general tenor of “related” was confined to activities establishing or acting upon the commercial relationship between insurer and insured. 
20.	I do not find these arguments helpful.   They stem partly from the fact that the legislation has introduced the term “acting in an intermediary capacity” which is not found in the Directive.  Since that phrase may cover activities beyond that of a broker or agent, the explanatory notes are an attempt to clarify the concept.  Moreover, the notes are, in part, a commentary and may be merely explanatory rather than truly inclusive or exclusive of any particular service.
21.	Thus, in the result I am of the view that the more complicated domestic legislation leads to the same conclusion.   In reaching my conclusion I have not felt it necessary to accept Miss Foster’s late suggestion of a reference to the European Court of Justice.  Moreover it would not seem that the case involves issues having a wide impact throughout Europe:  pension mis-selling was, we were told, a uniquely British phenomenon and one of limited duration at that.  So there is no general need for a final ruling by the Court of Justice, which again militates against a reference.   I would simply dismiss the appeal.
LORD JUSTICE KENNEDY:
22.	I agree.
DAME ELIZABETH BUTLER-SLOSS, PRESIDENT:
23.	I also agree.
ORDER: Appeal Dismissed with the costs, reference to European Court of Justice refused.

(Order does not form part of approved Judgment)