Neutral Citation Number: [2008] EWCA Civ 752
Case No: C1/2007/2186
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
-ON APPEAL FROM THE QUEEN’S BENCH DIVISION
ADMINISTRATIVE COURT
Mr Justice Stanley Burnton
[2007] EWHC 2062 (Admin)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 02/07/2008
Before :

LORD JUSTICE WALLER
Vice-President of the Court of Appeal, Civil Division

LORD JUSTICE BUXTON
and
LADY JUSTICE SMITH
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Between :

	The Queen on the Application of Federation of Tour Operators & Ors	Appellant	
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	Her Majesty’s Treasury	Respondent	
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 (Transcript of the Handed Down Judgment of
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Charles Haddon-Cave QC and Tim Ward (instructed by Herbert Smith LLP) for the Appellant
David Anderson QC and Sarah Lee (instructed by Treasury Solicitor) for the Respondent

Hearing date : 15th May 2008
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Judgment
Lord Justice Waller : 
1.	This is an appeal from one aspect of a decision of Stanley Burnton J (as he then was) handed down on 4th September 2007. On 6th December 2006, the Chancellor of the Exchequer announced in his Pre-Budget Report (PBR), the doubling of Air Passenger Duty (APD) with effect from 1 February 2007 (i.e. only 7 weeks later). The tax was to be paid by operators of aircraft on passengers flying. Airlines were likely to pass the tax on to passengers with whom they had direct contracts and to Tour Operators where they had not, even in relation to pre-booked flights.  Unlike the airlines, Package Tour Operators would be largely precluded from passing on the increase to passengers who had already booked their holidays, by virtue of the Package Travel, Package Holidays and Package Tour Regulations 1992 (the Package Travel Regulations). If implemented on such short notice the effect would be to impose the burden of the tax on the Tour Operators without any ability for them to pass the same on to passengers. 
2.	The Tour Operators immediately drew this fact to the attention of the Government. The Government, however, refused to postpone the introduction of the increase. On 11th December they announced that the decision was fixed. In the result a Parliamentary Resolution passed under Section 1 of the Provisional Collection of Taxes Act 1968 on 27 March 2007 applied the increase to flights departing on or after 1st February 2007. The Finance Bill, making provision for doubling APD rates with effect from 1st February 2007, received its second reading on 23rd April 2007. It was debated in Committee of the Whole House on 1st May 2007. It received its third reading on 25th and 26th June 2007 and was given Royal Assent on 19th July 2007.
3.	The Federation of Tour Operators and two representative Tour Operators commenced proceedings. They attacked the lawfulness of the tax itself and thus the lawfulness of the increase, alleging a breach of Article 15 of the 1944 Chicago Convention and a breach of Article 49 of the European Treaty. It was also alleged that the increase in duty, imposed in the manner it was, infringed the Tour Operators’ rights under Article 1 of the First Protocol (“A1P1”) to the European Convention on Human Rights. Stanley Burnton J rejected all lines of attack.
4.	On appeal the Tour Operators wished to pursue only one argument. They confined their appeal to a single ground; they said the timing of the implementation of the increase in APD gave rise to unjustified interference with Tour Operators’ property rights, contrary to A1P1. The relief they seek on the appeal is “a declaration of incompatibility” pursuant to section 4 of the Human Rights Act 1998 (HRA) in respect of section 12 of the Finance Act 2007. 
5.	They submit that there was an easy solution which would have avoided imposing a burden on the Tour Operators. Before Stanley Burnton J they produced Section 12 with an amendment to subsection (4) which made that subsection read as follows:-      
“(4) The amendments made by this section have effect in relation to any carriage of a passenger on an aircraft which begins on or after 1st February 2007, save passengers whose carriage forms a component part of a package holiday booked prior to 6 December 2006.”    
6.	The submission is that, without the amendment, Section 12 is incompatible with the Tour Operators’ rights under A1P1.
APD and the Package Travel Regulations

7.	The judge sets out the full history of the introduction of APD and the increases thereto over the years. He details the fact that previously concessions were made by reason of the special position of Tour Operators. He spells out what occurred up to and following the PBR on 6th December 2006. All the above he does from paragraphs 8 to 33 of his judgment and there is no challenge to that account. In short it comes, I believe, to this. APD was introduced by the Finance Act 1994. The duty was to be paid by the operator of the aircraft on each passenger and was due when the aircraft took off. Where flight tickets have been purchased other than through Tour Operators, operators of the aircraft can recover the duty from the passengers. Normally so far as bookings made through Tour Operators are concerned, the operator of the aircraft can recover through the contracts maintained with Tour Operators the same from the Tour Operator. Where a Tour Operator is also the operator of the aircraft the duty necessarily falls on it.
8.	Regulation 11 of the Package Travel Regulations constrains the ability of Tour Operators to recover the duty from passengers who have booked through them. Furthermore many Tour Operators include “no surcharge guarantees” in their conditions of contract.
9.	When APD was introduced in 1994 its implementation was postponed in recognition of the position of the Tour Operators. The News Release of 31st January 1994 contained this paragraph:- 
“We accept it would be unreasonable to expect Tour Operators to take the theoretical possibility of this new duty into account when they made their guarantees, and so the Government has agreed to a special concession in 1994 to accommodate Tour Operators. The delay will also give airlines one further month to prepare for the new duty.”
The reference to one month was to a postponement from 1st October 1994 to   1st November 1994, i.e. to a date 11 months after the announcement of the duty.
10.	It is of relevance that although it is the position of Tour Operators which was being recognised, the delay in implementation was not limited to Tour Operators, but applied to airlines as well.
11.	On 26th November 1996 an increase in the rate of APD was announced to be implemented 11 months later, again the Chancellor in Parliament recognising the position of Tour Operators but, once again, the date for implementation applying to all.
12.	There were further changes announced in March 2000 but only taking effect on 1st April 2001.
13.	The increase with which these proceedings are concerned was announced on 6th December 2006. The judge spells out the details of how the same would impact on Tour Operators if the date for implementation of 1st February 2007 were adhered to in paragraphs 19 and 20. Suffice it to say the impact is accepted as being serious, estimated in the region of £50 million.
14.	Between paragraphs 21 and 33 the judge spells out the detail of the negotiations and makes findings of fact from paragraphs 139 to 153. Since there is no challenge to his findings I can summarise the position as follows. Prior to making the announcement on 6th December 2006 those responsible had overlooked the effect of the Package Travel Regulations and, as the judge said, “that this should have occurred does not speak well of the process of decision-making by the Treasury.” But the Regulations and their effect was most emphatically brought to the attention of the Government by the claimants. The Government then decided that, despite the effect on Tour Operators, they were not prepared to postpone implementation. 
15.	When the increase in APD had been announced, its objectives were said to be “to protect the environment, broaden the tax base and raise revenue”. Insofar as the tax burden was to fall on Tour Operators rather than passengers in relation to holidays already booked, there could be no environmental justification, save in a speculative sense arising from the possibility that Tour Operators might increase their prices in following seasons to recoup losses.
16.	The judge accepted however that the possible loss of revenue, if there was a postponement of the implementation, was “a, if not the, major consideration of the Ministers in refusing any concession to the Tour Operators”. The judge found that a general postponement would have involved loss of revenue to the extent of some £100 million; a postponement for Tour Operators alone would have involved £50 million. The figures given by the Government in their skeleton argument on the appeal suggest a postponement from 1st February to 1st November 2007 would actually have involved foregoing some £800 million [see paragraph 27].
17.	The judge, it is right to say, rejected the Government’s argument that there would have been “legal and administrative difficulties involved in an exemption for Tour Operators’ existing bookings” [see paragraph 146]. He also accepted that the increase in APD was “practically a retrospective measure, since it was payable on flights that had already been contracted when it was announced” [paragraph 148].  But he was far from sure that “exempting package holiday passengers, while retaining liability for other passengers, would have been seen as, or would have been, fair and non-discriminatory and in that context the judge thought “there were substantial reasons not to defer or to exempt existing package holiday bookings.” [paragraph147]
18.	The judge considered proportionality from paragraphs 150 to 153. He pointed out that the burden imposed on Tour Operators is actually an incident of their contractual arrangements with the airlines. Other surcharges can be passed on to Tour Operators under those contracts and Tour Operators absorb those charges giving as many of them do “no surcharge guarantees”. He points to the fact that one Tour Operator has increased its prices for flights booked after the date of the announcement to recoup the loss of being unable to pass the increased APD to those that had already booked. He points to the fact that one airline took the commercial decision not to pass on the increased APD. Finally he finds that none of the 12 Tour Operators constituting the claimants could be shown to have suffered specific hardship.
The law
19.	A1P1 provides as follows:-
“A1P1 is as follows: 
Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”
20.	It is common ground that, notwithstanding the second paragraph of the Article, tax measures are not immune from scrutiny under A1P1. Mr Haddon-Cave QC for the appellants was however critical of the judge’s approach in paragraph 132 of his judgment, where Mr Haddon-Cave suggested that the judge was saying that a tax could be justified simply on the basis that it was a tax. The  passage needs to be read in context and I thus quote paragraphs 131 and 132 where he said this:- 
“131. The classic statement of the requirement of proportionality is that of Lord Steyn in R v. Secretary of State for the Home Department ex p Daly [2001] 2 AC 532 at paragraph 27, namely: 
"whether: (i) the legislative objective is sufficiently important to justify limiting a fundamental right; (ii) the measures designed to meet the legislative objective are rationally connected to it; and (iii) the means used to impair the right or freedom are no more than is necessary to accomplish the objective."
132. However, the application of this test requires modification, or at least caution, when it is sought to apply it to a tax measure such as the imposition of or increase in APD. Taxation is one of life's certainties: it is essential in a modern society in order to fund its government and public services. As Benjamin Franklin famously remarked: "But in this world nothing can be said to be certain, except death and taxes." Assuming that a tax measure is not disguised confiscation it necessarily involves taking property from the citizen, and therefore a limitation on his fundamental right under the first paragraph of A1P1. In relation to the requirement of a rational connection, if one, if not the only, legislative objective is to raise revenue, the rational connection is obvious. In the case of the increase in APD, there were two such objectives, the one to raise revenue and the other to reduce travel by air. It is not disputed that in relation to those whose flights had not yet been booked, the increase was generally rationally connected with both of these objectives. In relation to those passengers whose package holidays had already been booked when the increase was announced, the rational connection with the second objective was either lacking or speculative.”
21.	In my view the judge is not saying that simply because the objective is to raise revenue that makes a taxation measure immune from scrutiny. The following passages of the judge’s judgment make that clear and, in my view, accurately reflect the law:- 
“134. The latitude to be accorded by the judicial branch of government to the executive and legislative branches varies with the context: see the speech of Lord Nicholls in A v Secretary of State [2004] UKHL 56, [2005] 2 AC 68 at paragraph 80: 
"… the courts will accord to Parliament and ministers as the primary decision-makers, an appropriate degree of latitude. The latitude will vary according to the subject matter under consideration, the importance of the human right in question and the extent of the encroachment on that right."
135. The right engaged in the present case is less important than Convention rights under, for example, Articles 2, 3 and 5. In this connection, it is pertinent to recall what the European Court of Human Rights said in James v UK (1986) 8 EHRR 123 at paragraph 42: 
"… the object and purpose of Article 1 (P1-1) … is primarily to guard against the arbitrary confiscation of property."
The encroachment on the Claimants' rights under A1P1 in this case does not approach confiscation, and does not demand anxious scrutiny by the Court. Far from it, in the present context:
"The Court, finding it natural that the margin of appreciation available to the legislature in implementing social and economic policies should be a wide one, will respect the legislature's judgment as to what is "in the public interest" unless that judgment be manifestly without reasonable foundation."
See paragraph 46 of the judgment in James. 
136. Thus in the Gasus case, referred to above, the Court held that a measure entitling the Netherlands tax authorities to seize and to realise property in the possession of a defaulting tax payer that belonged to the applicant, who had sold that property subject to its retention of title, was not disproportionate. It expressed the approach of the Court in such a case as follows: 
"60. As follows from the previous paragraph, the present case concerns the right of States to enact such laws as they deem necessary for the purpose of "securing the payment of taxes".
…
In passing such laws the legislature must be allowed a wide margin of appreciation, especially with regard to the question whether - and if so, to what extent - the tax authorities should be put in a better position to enforce tax debts than ordinary creditors are in to enforce commercial debts. The Court will respect the legislature's assessment in such matters unless it is devoid of reasonable foundation."
137. In my judgment, there is no difference between the approach of the Court to a measure to secure the payment of taxes in the sense of that considered in Gasus and the approach to a substantive tax measure, i.e. a decision to impose a particular tax or to increase it. In order to challenge successfully such a measure, it must be shown that the legislature's assessment is "devoid of reasonable foundation". 
138. Furthermore, the jurisprudence of the European Court of Human Rights does not justify this Court in declaring a tax measure incompatible because its objects could have been secured more efficiently or effectively by a different measure. The cases of James and Gasus show that the fact that a particular class of persons is subject to a measure that engages A1P1 is a factor to be taken into account, but does not of itself lead to a conclusion of incompatibility.”
Appellants’ submissions
22.	The judge summarised the submissions before him and they accurately reflect in summary form the submissions before us:-
“(a) The Government made the decision to increase APD without taking into account the Package Travel Regulations, and therefore in ignorance of the impact of the increase on tour operators.
(b) The environmental aim of the increase, i.e. to reduce air travel, manifestly could not be accomplished in relation to existing bookings of package holidays. Package holiday passengers with existing bookings would not bear the increase (or could at most be liable for the relatively small part exceeding 2 per cent of the package price if permitted by regulation 11(3)(i) of the Package Travel Regulations). A tax borne by tour operators in relation to existing bookings could not have the effect of reducing air travel.
The requirement for an exemption or postponement was demonstrated or supported by the postponement of its introduction in 1994 and the deferrals made in 1996 and 2000: see paragraphs 14, 17 and 18 above.
(c) It would have been legislatively and administratively easy to have exempted existing bookings.
(d) The increase was retrospective. For the purposes of A1P1, a more stringent test is applied to retrospective taxation than is applicable to tax measures that apply to future transactions only.”
Respondents’ submissions
23.	Those made to the judge he summarises at paragraph 128. The judge rejected the submissions as to administrative difficulty and retrospectivity and no attempt was made to reopen those points. The judge’s summary of the other points taken by the respondents accurately reflects the arguments before us. One can thus summarise the position of the respondents before us in this way:- 
“(a) If the effect of the Regulations had originally been ignored when the decision to increase APD had been made, their effect was taken into account by the Government when it decided to make no change to its original decision.
(b) The environmental benefits of the tax were not the only reason for its increase: the raising of revenue was an important consideration, and the exclusion of pre-booked flights would have substantially reduced that revenue, by, as the Claimants themselves assert, between £40 and £50 million.
(c) Previous postponements of the introduction or increase of APD were not comparable.
(d) The risk of the increase in APD was a risk of the tour operators' business that they could be expected to deal with.
(e) Under the Convention, an especially wide latitude was permitted to the executive and legislature in determining whether tax measures infringe A1P1. The decision to increase APD and not to exempt existing bookings was within the margin of appreciation of the Government.”
Discussion
24.	The main burden of Mr Haddon-Cave’s submissions was that what had occurred was that the Government had imposed a tax on his clients by mistake because they overlooked the Package Travel Regulations. If his clients had been attacking a decision taken on 6th December 2006 that might be a proper characterisation of the situation but by the time that section 12 was enacted by Parliament the legislators were absolutely aware of the likely effect on the Tour Operators.
25.	That being so it seems to me that if the Tour Operators were to have a legitimate complaint it must be on the basis that the Government knowingly imposed a tax burden on them in some way which was illegitimate. In considering that question it seems to me helpful to start by asking whether the correct view to take is that this was a tax imposed on the Tour Operators alone, who were in effect being targeted with a tax imposed on them without any justification, or whether this was a tax on operators of aircraft likely to be passed on to passengers which had a justification but which caught the Tour Operators. I would accept that Mr Haddon-Cave’s case would be stronger if the correct view was to see this as a tax aimed at Tour Operators alone.
26.	But it seems to me that the correct view is to see APD as a tax on flight operators, by reference to the passengers they carry, the justification for which in general terms would not be susceptible of challenge under A1P1. 
27.	The question then is, having decided to introduce a tax on aircraft operators by reference to passengers as from a certain date, and on discovering that in relation to passengers pre-booked through Tour Operators the tax burden will fall on those Operators, did a decision not to exempt passengers who had pre-booked through Tour Operators place “an individual and excessive burden” on Tour Operators, such as to render the decision “devoid of reasonable foundation”?  
28.	Although this was not in fact a tax on Tour Operators as such, it has been accepted that it is necessary to “look behind the appearances and investigate the realities of the situation ..” see Sporrong and Lonnroth v Sweden (1983) 5 EHRR 35 para 63. On that basis the tax has to be treated as “de facto” a tax on Tour Operators but it is not an “individual tax” on them. In considering whether the tax is “excessive” the question is whether it is “proportionate”.
29.	I agree with the judge that it was, in fact, an entirely understandable decision not to exempt only passengers who had pre-booked through Tour Operators. When on previous occasions the interests of Tour Operators had been taken into account and dates for implementation extended, the extensions had applied across the board. A postponement on this occasion for Tour Operators alone would have been difficult to justify to the operators of airlines.
30.	Postponement of implementation across the board would have involved a very substantial loss of revenue and at least one object of increasing the tax was to raise revenue. Indeed as regards any passengers who had pre-booked, whether direct with airlines or through Tour Operators, the tax was not going to discourage them from flying and thus the direct environmental impact was not present. 
31.	The Tour Operators were not uniquely disadvantaged. The airlines would have to take a commercial risk if they passed the increase on to pre-booked passengers and in at least one case did not in fact do so. Tour Operators could in fact mitigate the harmful effect by increasing charges thereafter for passengers who booked after 6th December 2006. Tour Operators were not unable to absorb the impact even if it did have an effect in the short term on their profits.
32.	In agreement with the judge, in my view, it is impossible to conclude that if Section 12 fails to exempt passengers who booked with Tour Operators prior to 6th December 2006, it imposes either an excessive or individual burden on Tour Operators and/or is devoid of reasonable foundation, and I would dismiss the appeal. 
Lord Justice Buxton :
33.	I agree.
Lady Justice Smith :
34.	I also agree.