Britax International GmBH v Inland Revenue, Court of Appeal - Civil Division, May 31, 2002, [2002] EWCA Civ 806,[2002] STC 956

Extract

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Britax International GmBH v Inland Revenue, Court of Appeal - Civil Division, May 31, 2002, [2002] EWCA Civ 806,[2002] STC 956

Neutral Citation No.[2002] EWCA Civ 806 Case No: A3 2001 2678

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM HIGH COURT CHANCERY DIVISION

(THE VICE-CHANCELLOR)

Royal Courts of Justice

Strand,

London, WC2A 2LL

Friday 31st May 2002

Before :

LORD JUSTICE PETER GIBSON

LORD JUSTICE JONATHAN PARKER

and

LORD JUSTICE LONGMORE

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Between :

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(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)

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Mr John Walters QC and Ms Claire Simpson (instructed by Messrs Eversheds of Birmingham) for the Appellant

Mr Rabinder Singh QC and Ms Karen Steyn(instructed by Solicitor of the Inland Revenue) for the Respondents

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Judgment

As Approved by the Court

Crown Copyright ©

Lord Justice Jonathan Parker :

Introduction

1. This is an appeal by Britax International GmbH ("Britax") against an order made by Sir Andrew Morritt V-C on 22 November 2001 on the hearing of preliminary issues in proceedings between Lloyds UDT Finance Ltd (now called Lloyds TSB Asset Finance Division Ltd) ("Lloyds") as claimant and Standard Chartered Bank and four other companies in the Standard Chartered group ("SCB") as defendants, to which proceedings Britax was joined as a defendant under Part 20 of the Civil Procedure Rules. The Commissioners of Inland Revenue, the respondents to this appeal, were subsequently added as defendants.

2. The issue in the appeal is as to the true construction of section 35(2) in Chapter III of Part II of the Capital Allowances Act 1990 ("the 1990 Act") (as amended). Section 35(2) restricts the extent to which expenditure on the "hiring" of an "expensive motor car" (that is to say, a car the retail price of which when new exceeds a specified sum, currently £12,000) is deductible in computing the profits of a trade for tax purposes. The issue is whether (as Britax contends) "hiring" in the context of section 35(2) is limited to contracts of hire under which the hirer is the end-user, in the sense that he (or, in the case of a company, its servants or agents) enjoys the physical use of the car: or whether (as the Revenue contends) it applies to all contracts of hire, whether or not the hirer may in turn have entered into a contract of sub-hire to a third party end-user.

The facts

3. The relevant facts are non-contentious and may be shortly stated.

4. Autolease Ltd (formerly Britax Autolease Ltd) ("Autolease") carries on the business of hiring motor vehicles to members of the public (including corporate customers). It acquires the necessary rights to enable it to do so under finance leases of the vehicles in question granted by a funder. The funder acquires, and retains ownership of, the vehicles. The rentals under the finance leases are geared to recovery of the funder's costs of acquiring the vehicle, plus finance charges. Thus, the finance lease serves not only to transfer rights in the vehicles to Autolease: it also provides a mechanism by which Autolease's business is funded. For obvious reasons, this mechanism for the provision of finance is known commercially as "back-to-back" funding. It is a common method of funding where the contract-hire company is not, or is not associated with, a bank. At the material time Autolease was not associated with a bank (although it has since become part of Lloyds). Not all the vehicles leased to Autolease under finance leases are in turn hired out to third parties; some are retained for use by directors or employees of Autolease.

5. Autolease entered into finance leases with a number of funders, including Lloyds. At the hearing before the Vice-Chancellor the parties were content to take th...

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