Case No: A3/2002/0427 A3/2002/0968 A3/2002/0968

Neutral Citation Number:  [2002] EWCA Civ 1814

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
MR. JUSTICE ETHERTON
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 11th December 2002
Before :
 THE VICE-CHANCELLOR
LORD JUSTICE MUMMERY
and 
LORD JUSTICE TUCKEY
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Between :
Case No: A3/2002/0427

	COMMISSIONERS OF CUSTOMS & EXCISE 	Appellants	
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	BAA plc	Respondent	
AND
Case Number A3/2002/0968

On appeal from VAT and Duties Tribunal

Between :

	INSTITUTE OF DIRECTORS 	Appellant	
	- and -		
	COMMISSIONERS OF CUSTOMS & EXCISE	Respondents	

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Miss Alison Foster QC (instructed by Solicitor for Customs & Excise) for the Appellants in the First Appeal; and for the Respondents in the Second Appeal
Mr. David Southern (instructed by Solicitor for BAA plc ) for the Respondents in the First Appeal
Mr. David Southern and Mr. Gerard Hillman (instructed by H H Mainprice & Co.) for the Appellants in the Second Appeal
Hearing dates : 19th and 20th November,  2002
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JUDGMENT : APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)

The Vice-Chancellor  : 
Introduction
1.	The granting of credit is an exempt transaction for the purposes of VAT both under EC Sixth Council Directive (77/388/EEC) Article 13B(d) 1. and VAT Act 1994 Schedule 9 Group 5.   It is common ground that the issue of a credit card is such a grant because the issuer pays the supplier of goods or services before recovering the amount so paid from the card-holder to whom the supply was made.  Thus any consideration payable for that service by the card-holder to the issuer is exempt from VAT.   
2.	The same provisions exempt respectively transactions consisting of “the...negotiation of credit” and “the provision of intermediary services in relation to [the granting of credit] by a person acting in an intermediary capacity”.   The question for our determination is whether those provisions apply to the supply of services by a non-bank endorser of “affinity” or “co-branded” credit cards.   Such a card is
 “...a common means by which an organisation seeks to develop its relationship with its members or customers, offer additional benefits to them and obtain a contribution to the costs of having to operate and maintain databases.  A co-branded credit card is a card issued by a bank as a result of a business arrangement between a bank and an organisation which is not a bank (the “non-bank”), under which the non-bank will endorse the card and obtain applications from its members or customers for the card, which when issued bears the names of both bank and non-bank.  The term “affinity card” is also used in this context, but usually with reference to cards endorsed by non-profit making organisations...”  [2002] STC 327 at paragraph [7]
3.	The banks and non-bank endorsers concerned in these appeals are Bank of Scotland (“BoS”) and BAA Enterprises plc (“BAAE”) and Beneficial Bank plc (“BB”) and Institute of Directors (“IoD”).   In the case of BoS and BAAE the VAT and Duties Tribunal (Chairman: Stuart Lightman) by its decision released on 24th August 2001 and, on appeal, Etherton J ([2002] STC 327) determined that the services supplied by the latter to the former were exempt.  In the case of BB and IoD the Tribunal (Chairman: Miss J.C.Gort) by its decision released on 19th December 2001 concluded that such services were not exempt.  By order of Laddie J made on 1st May 2002 pursuant to CPR Rule 52.14 the appeal of IoD was transferred to this court.
4.	It is common ground that unless the nature and scale of benefits provided by BAAE is a relevant distinction our decision on the appeal of the Customs & Excise from the order of Etherton J will apply equally to the appeal of IoD from the order of the Tribunal.   Accordingly I shall, at this stage, refer to the facts relevant to the appeal of Customs & Excise in the BAA case.
The Facts of the BAA appeal
5.	BAA plc owns or operates a number of airports in the United Kingdom and elsewhere.  Since 1995 it has operated a customer loyalty card whereby those who buy goods or services from retailers at an airport owned or operated by BAA earn WorldPoints.   When sufficient points have been accumulated they may be exchanged for a voucher for use in the purchase of further goods or services at BAA’s airports.   As a consequence of this scheme BAA has built up a database of some 300,000 customers.   In addition it had a database relating to some 420,000 individual shareholders.   BAA wished to develop a co-branded credit card as an extension of its WorldPoints scheme and with a database of some 720,000 individuals had a good deal to offer a bank who wished to do the same.
6.	The agreement with which we are concerned (“the BAAE Agreement”) is dated 27th January 2000.  Though never executed by either party it regulates the relations between BAAE, a wholly owned subsidiary of BAA and therein referred to as BAA, and BoS.   The recitals record that
 “1. BOS provides credit card services throughout the United Kingdom, the Isle of Man and the Channel Islands as a registered user of the VISA trade mark;
2. BAA wishes to promote a credit card co-branded with BOS’ and BAA’s trade marks to certain persons in association with BAA’s bonus point scheme and as part of its customer loyalty strategy;
3. BOS has agreed to provide a co-branded credit card service to certain persons introduced by BAA to BOS, subject to the terms and conditions hereinafter appearing;”
7.	There follow 21 detailed clauses and 10 Schedules.   It is necessary to refer to some of them in detail.   The effect of the BAAE Agreement as a whole is to regulate (1) the issue of credit cards by BoS to those members or customers of BAA as are selected by BAAE and approved by BoS, (2) the provision by BAAE of additional benefits to card-holders and (3) the relationship between BAAE and BoS so long as the agreement lasts and the consequences of its termination.
8.	Clause 1 contains 48 definitions common to all three aspects of the BAAE Agreement.   Clauses 2 to 4 provide for the issue of the cards.    Their effect may be summarised as follows:
(1)	By clause 2: BAA shall introduce persons who require cards to BoS. BAA shall assist applicants in completing application forms, shall check all application forms submitted to BAA for errors and omissions, and shall correspond with applicants in relation to any such errors or omissions. BAA shall carry out, at its own cost and expense, screening processes to be agreed between BoS and BAA from time to time. BAA shall submit the application forms to BoS for approval. BoS shall be entitled in its absolute discretion to reject any application.
(2)	By clause 3: The card issued to an applicant shall have the features and benefits specified in the First Schedule and shall bear the design detailed in the Sixth Schedule to the Agreement, or such other design as BoS or BAA may agree in writing. The agreed design in the Sixth Schedule has, among other things, the initials of BAA on the front of the card. The card issuer-card- holder relationship for each card shall be between BoS and the card holder respectively. 
 (3) The features and benefits set out in the First Schedule include a minimum credit limit of £750, the absence of an annual charge, specified rates of interest, administration fees for returned payments and the like and a number of optional benefits or services.
(4) By clause 3.3 variations in the rate of interest or other card features or terms and conditions may be made in its discretion by BoS but only after consulting BAA and subject to giving BAA three months prior notice.  Clause 3.4 contains a similar provision relating to alterations in the additional benefits to be provided to card-holders by BAA, though the obligation to provide them is contained in clause 7.3 and any alteration is subject to the consent of BoS.
(5) 	By clause 4 BoS is obliged to pay BAA, in respect of each accepted application for a WorldCard, where the card has been used in accordance with its terms for at least a month, a one-off payment of an “Introduction and Processing Fee”.  BoS is also required to pay an on-going “Commission Fee” related to usage of the card.  This consideration is expressly linked to the obligations of BAAE under clause 2.1 and is deemed to be inclusive of VAT (if applicable).
9.	Clause 7.2. deals with the additional benefits to be provided by BAAE.   It is to provide them at its own cost and expense.  It must use reasonable endeavours to ensure that they generally remain competitive with similar benefits offered to credit card holders	 by competitors of BAAE within BAAE’s industry sector.  The additional card benefits listed in the Second Schedule are:
 (1) BAA WorldPoints	awarded to card-holders for purchases and additional airport-specific award points offers and airport shopping incentives, including a customer magazine and additional reward options.
(2) Half Price Holiday Parking on redemption of WorldPoints and alternative or different parking offers depending upon seasonal influences.
(3) Fastrack Security Access on redemption or anticipation of the grant of WorldPoints.
(4) Upgrade to First Class on Heathrow Express and Gatwick Express if a Cardholder uses his card to buy a Heathrow Express or Gatwick Express ticket.
(5) One Year No Quibble refund Guarantee in respect of all airport purchases as an extension of the standard three month airport guarantee. 
10.	Clause 5 contains mutual warranties and undertakings regarding corporate authority and appropriate licences.  Clause 6 deals with marketing and promotion of the card by BAAE at its own expense.  By clause 7.1 BoS is required, at its own cost and expense and unless otherwise agreed, to provide the cards and operate all ancillary services in respect of them other than those required in relation to additional card benefits.  Such ancillary services include processing transactions and payments into the card accounts, credit control, customer services, and debt collection and recovery.  BoS is required to bear the costs of any fraud or credit losses	on any card.
11.	The rest of clause 7 and clauses 8 (audit), 9 (liability), 10 (confidentiality), 11 (Trade Marks Licence and Agreed Design), 12 (Force Majeure), 16 (executive committee), 17 (notices), 18 (waiver), 19 (assignment), 20 (illegality and severance) and 21 (entire agreement) require no further mention.   Clauses 13 and 14 deal with the duration, termination and consequences thereof.   In summary the agreement was to continue until terminated by either party giving to the other 12 months notice to that effect either after the fourth anniversary thereof or because of a material breach, insolvency, change of control or other specified cause.   The consequences are dealt with in detail but the upshot is that a card-holder would, if he wished, be left with an ordinary BoS card without either the endorsement of BAAE or the additional benefits BAAE is to provide. 
12.	On 6th July 2000 Customs & Excise determined that the services provided by BAAE under the BAA agreement were not exempt from VAT.   As BAAE is a member of a VAT group of which the representative member is BAA the liability to pay was that of BAA.  On 24th July 2000 BAA appealed to the Tribunal claiming that the exemptions under both the Sixth Directive and VAT Act 1994 Schedule 9 group 5 applied.   As I have indicated that contention was accepted by both the Tribunal and Etherton J.  Before I refer to their decisions it is convenient to consider the relevant provisions and two cases which bear on their construction and application.
The Law
13.	By various EC Council Directives, of which the Sixth Directive is the most recent, member states are obliged to introduce and maintain a system of value added taxation imposed on the supply of goods and services.   Liability is subject to exemptions specified in the Sixth Directive.   The obligations of the United Kingdom have been implemented by various VAT Acts of which the VAT Act 1994 is the most recent.   Under that Act VAT is payable on the value of the supply of goods or services made by a taxable person within the United Kingdom in the course or furtherance of any business carried on by him:  VAT Act 1994 s. 4(1).   A supply of goods or services is exempt from tax if it is of a description specified in Schedule 9:  s.31(1).  
14.	Thus there are two sources of exemption, the Sixth Directive and VAT Act 1994.  The first reflects community concepts and must be so interpreted.  The second is intended to introduce those concepts into the law of the United Kingdom and must, as far as possible, be interpreted consistently with the Sixth Directive so as to achieve that result.   As the exemptions for which the Sixth Directive makes provision are of direct effect there is no liability to VAT if the taxpayer can establish the application of either exemption.   Marks and Spencer v Customs & Excise [2002] STC 1036, 1057 para 27.   Accordingly it is convenient to start with the Community exemption.
The Sixth Directive
15.	Article 13 provides for exemptions within the territory of a member state.    Paragraph A deals with exemptions for certain activities in the public interest.   Paragraph B provides for other exemptions.   Sub-paragraph (d) sets out six classes of transaction of which the first is relevant to these appeals.   Thus Article 13B(d)1 provides
 “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)-(c)]
(d)  the following transactions:
1  the granting and the negotiation of credit and the management of credit by the person granting it;
[2. the negotiation of or any dealings in credit guarantees...
3. transactions, including negotiation, concerning deposit and current accounts...
4. transactions, including negotiation,concerning currency...
5. transactions, including negotiation, excluding management and safekeeping, in shares...
6. management of special investment funds...]” 
16.	This court considered the interpretation and application Article 13B(d)1 in Customs & Excise v Civil Service Motoring Association Ltd [1998] STC 111.   It also considered the corresponding provisions of Schedule 6 VAT Act 1983 but as they have been substantially altered since, it is unnecessary to consider that aspect of the judgments.
17.	In that case CSMA was a non-profit making body which provided motoring, leisure, financial and related services for its members.   It entered into an affinity credit card scheme with Frizzell Banking Services Ltd in substitution for a scheme operated in conjunction with Royal Bank of Scotland.   The essential features of the scheme were not dissimilar to those of the BAAE Agreement.  The Tribunal found as facts that CSMA was not acting simply as an introducer but was concerned with customer handling, marketing, setting prices, discussing interest rates and negotiating the provision of benefits.  But there was no finding that CSMA acted as an intermediary between its members and the bank for the purpose of bringing them together in particular transactions for the specific grant of credit.
18.	Customs & Excise argued that the exemption for the “negotiation of credit” provided for by Article 13B(d)1 was inapplicable because it applied only to the case of an intermediary bringing together the principals and arranging particular transactions between them for the grant of credit.   This submission was rejected by Mummery LJ, with whom Hobhouse and Pill LJJ agreed, for reasons which he summarised in the following terms at p.118
 “(1)  It is common ground: (a) that FBS entered into exempt transactions granting credit in the form of credit cards to members of CSMA; but the exemption is not limited to a supply by the person granting credit; (b) that CSMA supplied services to FBS in connection with the granting of that credit to its members and, in consideration of those services, received a commission calculated by reference to the total amount of credit granted; and (c) that there is no express reference in either the Sixth Directive or in Sch 6 to the 1983 Act to ‘particular’ transactions or to the ‘specific’ grant of credit.
 (2)  The critical question is whether the expressions ‘negotiation of credit’, and ‘making of arrangements for any transaction for granting of any credit’ are to be construed as implicitly restricted to activities in relation to particular transactions for the specific grant of credit.  Neither the purpose nor the context of the exemption justify placing this restricted meaning on the wide general language of the directive and of the 1983 Act.  Both the ‘negotiation of credit’ and ‘the making of arrangements’ for the granting of credit refer to the doing of things antecedent to, and directly leading to, the results sought to be achieved by the doing of those things.  The result to be attained is of a general rather than a specific nature, namely the ‘granting of any credit’.  In some cases intermediaries between principals will be involved in achieving that result.  In other cases they will not.  It is neither expressly nor impliedly necessary that they should be involved as a condition of the application of the exemption to those who do not actually grant credit.
 (3)  The activities of CSMA, in respect of which FBS paid commission, can reasonably and sensibly be described as negotiation of, or making arrangements for any transaction for, the grant of credit.  I am unable to detect either in the purpose of the exemptions or in the language and context in which they are expressed any distinction between (a) the negotiation, or making arrangements for particular transactions for the specific grant of any credit, and (b) these negotiations or arrangements planned and designed by joint efforts for the specific purpose of leading directly to the grant of credit by FBS to members of CSMA.”
19.	The ambit of the word “negotiation” in the context of Article 13B(d)5, namely, transactions in shares was considered by the European Court of Justice in CSC Financial Services Ltd v Customs & Excise [2002] STC 57.   In that case CSC provided a call centre for financial institutions through which all contacts with members of the public concerning a particular investment product were made.  CSC provided potential investors with all relevant information and application forms.   It checked the eligibility of applicants, the proper completion of the forms and the relevant payment.  It also dealt with cancellations.  It did not deal with the formalities of the issue or transfer of securities.   The financial institution paid CSC a fee for these services.   Two questions were referred to the Court of Justice, the meaning of “transaction in shares” and the meaning of “negotiation...in shares”.
20.	The Advocate-General considered (para 27) that “transactions in securities” was limited to those “which are capable of creating, changing or extinguishing rights and obligations of parties in relation to securities” and did not extend (para 40) to the provision of information about a particular product and processing applications for subscription for it.   He dealt with the case of negotiation in footnote (s) in these terms:
“The inclusion of negotiation among exempt operations is prompted by its very nature.  When negotiation is undertaken, on one's behalf or for a third party, the substance of the exempt operation is being shaped.  The scope of the activity involved in negotiation is co-extensive with that of the legal transaction to which it leads and, therefore, it has no life of its own and is treated in the same way for tax purposes (see Card Protection Plan Ltd v Customs and Excise Comrs [1999] STC 270 at 293, [1999] 2 AC 601, at 627 para 30): if the transaction is exempt, so is the negotiation.  In this respect, it is immaterial whether the dealings are direct or carried out through a representative.  Where a representative is used, his activity appears to be that of the principal and consequently, the negotiations which he carries out must be treated from a tax point of view as if they were those of the principal.  Otherwise, the principle of fiscal neutrality would be infringed.”
21.	The Court of Justice concluded (para 33) in respect of the first question that 
“the words “transactions in securities” refer to transactions liable to create, alter or extinguish parties’ rights and obligations in respect of securities.”
22.	In respect of the second question the Court did not follow the same reasoning as the Advocate-General.  They said:
 “39.  It is not necessary to consider the precise meaning of the word ‘negotiation’, which also appears in other provisions of the Sixth Directive, in particular, Article13B(d)(1) to (4), in order to hold that, in the context of Article 13B(d)(5), it refers to the activity of an intermediary who does not occupy the position of any party to a contract relating to a financial product, and whose activity amounts to something other than the provision of contractual services typically undertaken by the parties to such contracts. Negotiation is a service rendered to, and remunerated by a contractual party as a distinct act of mediation. It may consist, amongst other things, in pointing out suitable opportunities for the conclusion of such a contract, making contact with another party or negotiating, in the name of and on behalf of a client, the detail of the payments to be made by either side. The purpose of negotiation is therefore to do all that is necessary in order for two parties to enter into a contract, without the negotiator having any interest of his own in the terms of the contract.
40.  On the other hand, it is not negotiation where one of the parties entrusts to a sub-contractor some of the clerical formalities related to the contract, such as providing information to the other party and receiving and processing applications for subscription to the securities which form the subject matter of the contract. In such a case, the subcontractor occupies the same position as the party selling the financial product and is not therefore an intermediary who does not occupy the position of one of the parties to the contract, within the meaning of the provision in question.”
The judgments of the Tribunal and Etherton J
23.	The hearing before the Tribunal took place on 12th and 13th March 2001.   Their decision was released on 24th August 2001.   The opinion of the Advocate-General in CSC was given on 12th July 2001 but did not enter into the Tribunal’s consideration of the issues before them.   They considered that as the manner of granting the exemption had been left to the member states by Article 13B they needed only to consider the terms of the relevant provision in VAT Act 1994, that is Schedule 9 group 5 para 5.   They considered that such provisions were satisfied by BAAE so that the services supplied by them were exempt from VAT.
24.	By the time of the hearing before Etherton J both the opinion of the Advocate-General and the decision of the Court of Justice in CSC had been given.  He rejected the core submission of counsel for Customs & Excise that the “negotiation of credit” must be restricted to the brokering of the actual exempt transaction by an intermediary who has power to affect the transaction itself.   Though consistent with the opinion of the Advocate-General in CSC Financial Services Ltd v Customs & Excise he considered that the Advocate-General’s analysis had been rejected by the Court of Justice.   In particular he thought that paragraphs 39 and 40 of the judgment of the Court of Justice were inconsistent with the very narrow interpretation of the Advocate-General on the second question as well as the arguments of the United Kingdom government and the European Commission.
25.	Etherton J continued (para 42)
 “...The Court of Justice found against CSC, not on the basis of those narrow legal interpretations of the word “negotiation”, but on the basis that CSC was doing no more than carrying out, as a subcontractor, some of the clerical formalities related to the contract to be entered into between the customer and Sun Alliance, such as providing information to the potential customer and receiving and processing applications for subscription to the security which was to form the subject matter of the contract. 
43.	It does not seem to me that the analysis and decision of the Court of Justice in the CSC case are inconsistent with the decision of the Court of Appeal in Customs & Excise v Civil Service Motoring Association Ltd [1998] STC 111.  The CSMA case, therefore, remains binding on me as an authority as to the proper meaning of the expression “negotiation of credit” in article 13B(d)1 of the Sixth Directive. Accordingly, there is no reason, in principle, why the exemption in Article 13B(d)1 should not apply to arrangements for an affinity card scheme.”
26.	After referring to the submissions of counsel for Customs & Excise that the services provided by BAAE under the BAAE Agreement were distinguishable from those provided by CSMA and the contrary submissions of counsel for BAA he concluded (para 47):
 “In my judgment, the activities carried out by BAAE, pursuant to the Credit Card Agreement, satisfy the requirements for “negotiation of credit” in Article 13B(d)1. They constitute “a distinct act of mediation” within paragraph 39 of the judgment of the Court of Justice in CSC Financial Services Ltd v Customs & Excise [2002] STC 57. Without BAAE’s services, the individual contracts for the issue of WorldCards to individual customers of BAAE would not take place. BAAE’s activities cannot be fairly characterised as mere clerical formalities, which it effectively carries out as a subcontractor of BOS (cf. para.40 of the Court of Justice’s judgment in the CSC case). BAAE does not play a purely passive role in relation to the individual contracts for the issue of a WorldCard to an applicant. Nor can its activities properly be described as merely carrying out promotional or marketing activities for BOS. In addition to the matters specifically relied upon by [counsel for BAA], I would add the role of BAAE in providing the Additional Card Benefits, and BAAE’s obligation, under the Credit Card Agreement, to use reasonable endeavours to ensure that the Additional Card Benefits remain competitive with similar benefits offered to credit card holders by competitors of BAA within BAA’s industry sector.”
27.	In the remaining paragraphs of his judgment Etherton J dealt with the interpretation and application of VAT Act 1994 Schedule 9 Group 5 and whether or not he should make a reference to the European Court of Justice.  He concluded that BAA were entitled to the exemption afforded by Schedule 9 Group 5 item 5 and that there was no need for a reference.
Are the services of BAAE exempt under Article 13B(d)1?
28.	Etherton J recorded a number of matters which were common ground before him.  They are common ground before us too.   They are, as recorded by Etherton J, (para 20)
(1) The provisions of Article 13 B(d)1 are to be construed strictly.  The general principle of European Community law is that turnover tax is levied on all services supplied for consideration by a taxable person. Exemptions from that general principle are to be interpreted strictly, Stichting Uitvoering Financiële Acties v Staatssecretaris van Financiën [1989] ECR 1737.  
 (2) The expression “negotiation” in Article 13B(d)1 has its own independent meaning in Community law, and is not to be equated merely with an English dictionary definition, Customs and Excise Commissioners v Cantor Fitzgerald International [2001] STC 1453, 1460.  
 (3) Article 13 of the Sixth Directive applies directly within the United Kingdom, and may be invoked by a taxpayer, irrespective of domestic United Kingdom legislation, Ursula Becker v Finanzamt Münster-Innenstadt [1982] ECR 53.  
 (4) BAA must show, in order to bring itself within the exemption in Article 13 B(d)1, that there is a distinct supply of services, in consideration of the payments to it by BoS under the Credit Card Agreement, the overall character of which falls within the expression “negotiation of credit” within that exemption; Sparekassernes Datacenter (SDC) v Skatteministeriet [1997] STC 932: Ivory & Sime Trustlink Ltd v Customs and Excise Commissioners [1998] STC 597; Customs and Excise Commissioners v Guy Butler (International) Ltd  [1975] STC 299; Customs and Excise Commissioners v Lloyds TSB Group Ltd  [1998] STC 528,535.
 (5) United Kingdom domestic legislation cannot cut down the meaning of Article 13 of the Sixth Directive.  
 (6) The relevant provisions of the United Kingdom legislation, that is to say Group 5 of Schedule 9 to the 1994 Act, are to be interpreted, so far as possible, without unduly offending the language used in the statute, so as to be consistent with and give effect to the provisions in the Directive, Webb v EMO Air Cargo (UK) Limited [1993]1 WLR 59. 
 (7) The issue of a credit card is a grant of credit.
29.	Counsel for Customs & Excise submitted that Etherton J was wrong for four basic reasons, namely: (1) the decision of this court in CSMA cannot survive the decision of the Court of Justice in CSC and is distinguishable on its facts;  (2) in CSC the Court of Justice did not provide any positive test by which to identify “negotiation of credit” and is distinguishable on its facts;  (3)  if and in so far as the decision of the Court of Justice in CSC did provide a positive test then the services of the negotiator must be independent of any of the parties to the grant of credit, different from the services typically undertaken by such parties and amount to a distinct act of mediation;  (4) the nature of the services provided by BAAE should have been characterised as the sale of a customer list alone or coupled with the joint promotion and marketing of a financial product.
30.	I do not accept that there is any relevant inconsistency between the decision of this court in CSMA and the decision of the European Court of Justice in CSC when read in the light of their respective facts.  I have quoted the material passages in paras 18 and 22 above.   Both recognise that negotiation is an exercise preliminary to and connected with the relevant transaction.    In both the negotiator was remunerated by commission.   In neither is it suggested that the negotiator should be able to affect the terms of the relevant transaction.   
31.	It is true that the Court of Justice in CSC went further than this court in CSMA in excluding services typically provided by one or other party to the relevant transaction and in requiring a distinct act of mediation.   But both that exclusion and that requirement are consistent with the actual decision of this court in CSMA.  Similarly it is true that the description of the services of CSMA, in addition to those of an introducer, to which I have referred in paragraph 17 above cannot be used in connection with BAAE in this case;  but it does not follow that the services of BAAE were not those of a negotiator.
32.	I turn then to the second submission of counsel for Customs & Excise.   I accept that the judgment of the Court of Justice in CSC did not provide a precise and exhaustive definition of “negotiation”;  that is what the court said in the first sentence of paragraph 39 which I have quoted in paragraph 22 above.   But it does not follow that the judgment does not provide a sufficient basis for determining whether, as a matter of fact, the services of BAAE were or were not those of a negotiator.   On the contrary the specific inclusions and exclusions indicated in paragraphs 39 and 40 go a long way to providing a precise and exhaustive test yet leaving room thereafter to include or exclude the unforeseen.   Plainly the facts in CSC are distinguishable from those in this case;  but whether the distinction is material depends on the application of the test to which the Court of Justice referred.
33.	The third submission of counsel for Customs & Excise imports a test of independence from either party to the transaction.   This is warranted by paragraphs 39 and 40 of the judgment of the Court of Justice in CSC.   Thus the negotiator must not be a party or a subcontractor of a party to the grant of credit.   Nor must the services he provides be those typically provided by such a party or sub-contractor.   But this submission leads nowhere.   It is quite clear that BAAE is not a party to the grant of credit by the issue of the co-branded credit card.  Nor are its services those typically provided by a bank or card-holder.   Of course, there is a contractual relationship between BAAE and BoS and for some purposes, no doubt, it may be accurately described as a joint venture.  What matters is not the relationship but the services rendered by BAAE thereunder.
34.	Accordingly the outcome of this appeal rests on the fourth submission of counsel for Customs & Excise.  How should those services be characterised?    I do not accept that they amount to no more than the sale of BAAE’s relevant databases.   On the contrary BAAE is required to do all the introductory work not to all those on its databases but only to those who comply with the conditions imposed by BoS.   Nor can they be confined to the joint promotion and marketing of a financial product.  The promotion and marketing is of the grant of credit which is the essential preliminary to obtaining any benefit under the BAAE Agreement by either party.
35.	In my judgment Etherton J was correct to characterise the services of BAAE as the negotiation of credit within Article 13B(d)1 in the way that he did in paragraph 47 of his judgment.  First, the First Schedule to the BAAE Agreement contains the details of the credit to be offered to an applicant by the issue of a card unless and until varied by BoS.   Whether and to what extent it was the result of negotiation between BAAE and BoS is immaterial.  The fact is that the introduction by BAAE of one of its members or customers to BoS is an introduction to a source of credit on terms agreed by BAAE and BoS.
36.	Second, the introduction is preceded by screening processes carried out by BAAE so as to ensure that those whom BAAE introduces comply with BoS pre-conditions.  Whether or not an application is accepted is a matter for BoS alone but the introduction is effected by BAAE.
37.	Third, BAAE is remunerated by the commission payable by BoS in accordance with Clause 4 of the BAAE Agreement.  This comprises a commission and an introduction and processing fee.  The latter is payable, subject to certain conditions, in respect of each card account opened in a specified period.  The former is an ongoing commission based on the value of the usage of the card.  Thus the services of BAAE are remunerated by one party to the grant of credit as a distinct act of introduction or mediation.
38.	Fourth, it is clear that BAAE is not itself a party to the grant of credit by BoS to a card-holder, nor is it a sub-contractor of such a party.   The introductory services it performs are, by definition, not typical of the services performed by the grantor or grantee of credit.
39.	The true analysis, in my judgment, is that BAAE provides access to some of its customers or members for BoS to supply them with credit on terms previously agreed between BAAE and BoS.   Of course, each derives benefits from the transaction.   Accordingly each is eager to promote the scheme and enlist the support of the other party for that purpose too.   But all the benefits to be obtained by either party depend on the issue of the co-branded credit card.   In those circumstances I agree with the parties in treating the services as composite.  Equally the introductory services of BAAE without which the card is not issued and the benefits cannot be obtained seem to me to be properly characterised as “negotiation of credit” within the European concept denoted by that phrase as described by the Court of Justice in CSC.  
Are the services of BAAE exempt under Schedule 9 Group 5 Item 5 VAT Act 1994?
40.	As I have already indicated this question does not arise if the services supplied by BAAE under the BAAE Agreement are exempt under Article 13B(d)1.   But it may be helpful to refer to the relevant provisions and indicate why I consider that their terms are satisfied too.
41.	At the time of CSMA that provision was in the following terms:
“GROUP 5 - FINANCE
Item No
....
2.	The making of any advance or the granting of any credit.
...
5.	The making of arrangements for any transaction comprised in item ...2.......”
42.	By Value Added Tax (Finance) Order 1999 SI 1999/594 there was substituted, with effect from 10th March 1999:
“GROUP 5 - FINANCE
Item No
....
2.	The making of any advance or the granting of any credit.
....
5.	The provision of intermediary services in relation to any transaction comprised in item 1, 2, 3, 4 or 6 (whether or not any such transaction is finally concluded) by a person acting in an intermediary capacity.
....
Notes:
...
(2A)  This Group does not include a supply of services comprising the management of credit, other than such a supply made by the person granting the credit.
 (2B)  For the purposes of this Group a person makes “a supply of services comprising the management of credit” if he performs any one or more of the following in relation to a credit, a credit card, a chargecard or a similar payment card, operation - 
(a) credit checking;
(b) valuation;
(c) authorisation services;
(d) taking decisions relating to a grant or an application for a grant of credit;
(e) creating and maintaining records relating to a grant or an application for a grant of credit on behalf of the credit provider; and
(f) monitoring a creditor’s payment record or dealing with overdue payments.
....
 (5)  For the purposes of item 5 “intermediary services” consist of bringing together, with a view to the provision of financial services - 
(a) persons who are or may be seeking to receive financial services, and 
(b) persons who provide financial services, 
together with (in the case of financial services falling within item 1, 2, 3 or 4) the performance of work preparatory to the conclusion of contracts for the provision of those financial services, but do not include the supply of any market research, product design, advertising, promotional or similar services or the collection, collation and provision of information in connection with such activities. 
 (5A)  For the purposes of item 5 a person is “acting in an intermediary capacity” wherever he is acting as an intermediary, or one of the intermediaries, between - 
(a) a person who provides financial services, and
(b) a person who is or may be seeking to receive financial services, 
unless the financial service in question is the grant of credit and he is also making supplies of services comprising the management of credit to the grantor, or prospective grantor, of the credit. 
...”
43.	In paragraphs 48 and 49 of his judgment Etherton J considered whether the services of BAAE came within those provisions.   He held, rightly, that those provisions had to be construed, as far as reasonably possible, consistently with Article 13B(d)1 as interpreted by the Court of Justice in CSC.    He said (para 49)
 “The services provided by BAAE, pursuant to the Credit Card Agreement, involve BAAE bringing together a person providing a financial service (the grant of credit) and persons seeking to receive that financial service within Note (5A) of Group 5, and the performance by BAAE of work preparatory to the conclusion of contracts for the grant of credit within Note (5) of Group 5.  [counsel for Customs & Excise] accepted that, notwithstanding the exclusion from the statutory exemption of “the supply of any market research, product design, advertising, promotional or similar services, or the collection, collation and provision of information in connection with such activities” by virtue of Note (5) in Group 5, it is necessary to form a view as to the overall character of the supply in question. A similar approach is required with regard to the exclusion from the exemption of services comprising “ the management of credit”, by virtue of Notes (5A) and (2B) of Group 5. As I have said, on the facts of the present case, I find that the overall character of the services provided by BAAE, pursuant to the Credit Card Agreement, does not fall within those exclusions from the statutory exemption in Item No 5 of Group 5.”
44.	In paragraph 50 Etherton J noted that the terms of the legislation gave no support to the submission for Customs & Excise that an intermediary must have power to affect the terms of the grant of credit.
45.	The contentions advanced by Customs & Excise were in substance the same as the submissions made in relation to Article 13B(d).  It was suggested that BAAE did not provide intermediary services except as a minor part of its marketing, promotion and advertising services in relation to the co-branded card.   And as these are excluded from intermediary services what remains cannot be enough.
46.	I do not accept these submissions for all the reasons I did not accept the submissions of Customs & Excise in relation to Article 13B(d).  Suffice it to say that in my view the services supplied by BAAE under the BAAE Agreement fall squarely within Schedule 9 Group 5 item 5 VAT Act 1994.   I share the views of Jacob J in Century Life plc v Customs & Excise [2001] STC 38, 42 para 6.  What useful purpose is served by the draftsman in his own elaborate language setting out what he understands to be the effect of the Sixth Directive as interpreted by the European Court of Justice in CSC?  At best it is unnecessary;  at worst it constitutes a breach of the United Kingdom’s obligations not to afford any exemption wider or narrower than that allowed by the Sixth Directive.
Should the court make a reference?
47.	Counsel for Customs & Excise submitted that if we did not accept her submissions on the proper construction and application of Article 13B(d) then we should refer to the Court of Justice questions designed to elicit a definition of the concept of “negotiation” suitable for general application.  We were informed that there are many cases pending in which the meaning of “negotiation” is the principal issue.
48.	I do not accept that submission either.  The fact that the Court of Justice did not provide a precise and comprehensive definition of “negotiation” in CSC does not mean that it did not provide any definition sufficient for the resolution of this case.  For the reasons I have already given in my view it did.   Accordingly the issue is the proper application of that definition to the facts of this case.   That is the function of the national court not of the Court of Justice.   Accordingly I do not consider that Article 234 would authorise a reference quite aside from the need for judicial self-restraint urged upon us by Advocate-General Jacobs in Wiener SI GmbH v Hauptzollamt Emmerich [1997] ECR I-6495, 6515/6 to which attention was drawn by Chadwick LJ in Customs & Excise v Littlewoods Organisation plc [2001] STC 1568, 1613. 
The Appeal of the Institute of Directors
49.	IoD is an institute with a professional membership operating from 116 Pall Mall, London.  Every person becoming a member is provided with a leaflet which sets out the benefits to which membership entitles him.   One of those benefits is a IoD Visa Gold Card issued by BB.  
50.	The issue of the IoD visa gold card arises from an Agreement (“the IoD Agreement”) made between BB and IoD dated 22nd April 1994.   That Agreement has been superseded by a further agreement made between IoD and BB on 21st December 2001.   But the potential liability to VAT with which this appeal is concerned arises in the periods from 1st April 1999 to January 2001.    Thus the relevant agreement is that of 22nd April 1994.   
51.	The IoD Agreement recites that
 “The Institute desires to make available to members of the Institute a financial package associated with the Institute and Beneficial is willing to make so available the Product (as hereinafter defined) upon the terms and conditions contained below.”
The Product is defined in clause 1 as the financial product detailed in Schedule 1 or as varied from time to time by BB after consultation with the Institute.   Schedule 1 contains the details.   Thus the card is to be a visa gold card “branded with the name of” IoD.  The credit limit is to be £10,000 and the card is to double as cheque guarantee card up to £100.   In addition the member is to be issued with a cheque book.   There are details as to interest rates, standing order and direct debit facilities and times and amounts of repayment.   There are a number of additional benefits such as travel accident insurance, holiday savings and a “beneficial wine service”.
52.	By clause 2 BB is to make the card available to members on their application.  Clause 3 deals with what is called administration and provides that the acceptability of a member’s application is a matter for BB alone.  By clause 4 both IoD and BB agree to promote and market the product.  Clause 5 provides that as consideration for the services provided by IoD BB is to pay it £5 for each new account opened by a member with BB and a percentage of the value of the use of the cards.  The IoD agreement was for an initial period of 3 years with automatic renewals for further 3 year periods unless terminated by either party giving a 3 month notice expiring at the end of a three year period or for good cause such as the commission of a material breach or insolvency.   Clause 8, 9, 10 and 12 deal with the effect of termination, mutual warranties, confidentiality and general matters.  Clause 11 deals with exclusivity.  IoD is not to offer to its members a similar product operated by another bank and BB is not to offer a similar card to the members of another organisation representing company directors in the United Kingdom. 
53.	The hearing of the appeal of IoD by the Tribunal took place on 7th November 2001.  That was after the delivery of the opinion of the Advocate-General in CSC but before the judgment of the Court of Justice.  Accordingly the argument was directed to the opinion of the Advocate-General to which I have referred in paragraph 20.   The decision of the Tribunal was released after the delivery of the judgment of the Court of Justice but the judgment does not appear to have been drawn to the attention of the Tribunal.
54.	The reasoning and conclusion of the Tribunal are clear from paragraphs 65 and 66 of their decision which are as follows:
 “65.	We accept the Respondent's argument that to come within the exemption for such limited activities as those for which it now claims exemption, the Appellant would have to be in a position to negotiate the rates, or to be otherwise involved in the actual transaction binding the other party to the credit card agreement as an agent.  This is not the case in the present circumstances.
66.	We accept the Respondent's arguments for distinguishing the Civil Service Motoring Association case on its facts.  In this matter we follow the opinion of the Advocate-General in the CSC case, cited extensively by [counsel for the Customs & Excise], and in particular his construction of article 13B(d)(5) in terms of its aims being to exempt those activities which are capable of altering a legal position by the creation, changing or extinguishment of rights and obligations, which we find is not the case here.  In the present case the Appellant's activities do not affect the substance of the transaction.”
55.	It is clear from the judgment of the Court of Justice in CSC that it did not consider that it was an essential element in “negotiation” that the negotiator should have the ability to alter the legal position as between the grantor and grantee of the credit.  There is no trace of any such requirement in paragraphs 39 and 40 of the judgment of the Court of Justice which I have quoted in paragraph 22 above.   It follows that the decision of the Tribunal contains a fundamental error of law and must be set aside unless their order can be justified on other grounds.
56.	It appears to me that the only distinction between the services provided by IoD to BB when compared to those provided by BAAE to BoS arises from the additional benefits.   In this case they are part of the product as defined in the first schedule to the IoD Agreement and, seemingly, provided at the expense of BB whereas under the BAAE Agreement they are provided by BAAE at its expense.
57.	Given this difference I do not see why it should lead to any different result.  The fact is that the services supplied by IoD to BB consist of the introduction of its members to BB coupled with its encouragement to them to apply for an IoD Visa Gold Card.  The issue of such a card is the grant of credit and an essential preliminary to the generation of benefits to both IoD or BB.  IoD is not a party to the grant of credit, nor is it the sub-contractor of such a party.   IoD does not supply the services typically supplied by such a party or any of the other services proscribed by Schedule 9 Group 5 VAT Act 1994.
58.	In my view the services supplied by IoD under the IoD agreement are exempt because they fall within both Article 13B(d)5 and Schedule 9 Group 5 VAT Act 1994.
59.	There is no more reason to make a reference to the European Court of Justice in IoD’s case than in that of BAA.
Conclusion
60.	For all these reasons I would:
a) dismiss the appeal of Customs & Excise in the BAA appeal,
b) allow the appeal of IoD in the IoD appeal, and
c) refuse to make a reference to the Court of Justice in both appeals.

Mummery LJ:

I agree

Tuckey LJ:

I also agree