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|Judgments - Card Protection Plan Limited v. Commissioners of Customs and Excise
HOUSE OF LORDS
Lord Slynn of Hadley Lord Jauncey of Tullichettle Lord Nolan Lord Steyn Lord Hoffmann
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
CARD PROTECTION PLAN LIMITED
COMMISSIONERS OF CUSTOMS AND EXCISE
ON 31 JANUARY 2001
 UKHL 4
LORD SLYNN OF HADLEY
1. Dr P R Howell paid to the appellants ("CPP") a fee of £16 for services to be provided to him. The question on this appeal (which affects a large number of CPP's clients) is whether that payment is wholly liable to Value Added Tax (as the Commissioners contend and as the London VAT Tribunal and the Court of Appeal held) or exempt as constituting the making of insurance arrangements for the carrying on of insurance business (as CPP contends), or partly liable since some of the services are and some are not exempt (as Popplewell J held.) The question has to be decided in the light of answers given by the European Court of Justice to questions referred by your Lordships' House pursuant to article 177 (now 234) of the European Community Treaty.
2. The parties are agreed that the Card Protection Plan operated by CPP is, as found by the Tribunal,
When a person applies to join the scheme and his application is accepted, he receives a "policy pack" with a registration form, a change of address form, property and telephone stickers, medical emergency warning cards and card change forms, property tags and luggage labels. His name and address and the serial number of credit cards and other property are recorded. He is given a number to ring if he loses any of these documents and CPP passes on any reported loss to the insurer so that steps can be taken to prevent or limit use of the card. The documents he is sent include a statement of "15 important reasons why you should join Card Protection Plan". This statement has been treated as constituting the key document in the case and in view of the question which arises it is necessary to set it out in full.
To cover claims made by its clients CPP instructed an insurance broker to arrange a policy of insurance. Such a policy was taken out for periods of a year and at the relevant time was with the Continental Insurance Co of London Plc ("Continental") and covered the period from 1 September 1989 to 31 August 1990. The insurers guaranteed to indemnify the insured against loss as more fully set out in the policy detailed in the schedule to the policy. The schedule provided that the assured were "various individual members of Card Protection Plan as per schedule". Sections A to F of the interest specified in the policy covered liability of the cardholder in respect of direct financial loss arising from the wrongful use of any lost or stolen cards, the costs of reuniting CPP's clients with their luggage, the costs of assisting the police and/or making insurance claims against individual members' insurances and the costs of providing medical assistance and emergency cash and airline tickets. It is to be seen that these cover the heads of claim to which the client was entitled under the 15 reasons.
3. By letter dated 28 October 1983 the Commissioners accepted that the benefits supplied by CPP to its customers was an exempt supply, but by letter dated 23 February 1990 the Commissioners decided that the supply to Dr. Howell of the services provided in the agreement was fully taxable at the standard rate of VAT firstly because the package of services was essentially to maintain a register of card numbers, to provide a notification loss service and to prevent liability from unauthorised use and secondly because there was no supply of insurance by Continental to the client and no privity of contract between Continental and the client.
The relevant legislation
4. The Value Added Tax Act 1983 was enacted to give effect to Council Directive (77/388/EEC) (OJ 1977 L145, p 1) ("the Sixth Directive").
5. VAT is payable on the supply of services made in the United Kingdom where it is "a taxable supply made by a taxable person in the course or furtherance of any business carried on by him," other than an exempt supply: section 2(1) and section 2(2) of the 1983 Act.
6. Article 13(B) of the Sixth Directive provides that
7. Pursuant to that obligation section 17(1) of the 1983 Act provided that "A supply of goods or services is an exempt supply if it is of a description for the time being specified in Schedule 6 to this Act . . . ". At the time of the Commissioners' decision (23 February 1990) Schedule 6 included:
With effect from 1 December 1990 item 1 was amended (by article 2 of The Value Added Tax (Insurance) Order 1990 (SI 1990 No 2037)) but not in a way relevant to the present appeal.
8. The First Council Directive on the coordination of laws relating to the business of direct insurance other than life insurance (Council Directive (73/239/EEC) (OJ 1973 L228, p 3), as amended by Council Directive (84/641/EEC) (OJ 1984 L339, p 21) defines the classes of business to which the Directive applies. It included (annex, point A(18)):
The litigation so far
9. On CPP's challenge to the Commissioners' decision, the Tribunal, in reasons given by Judge Medd QC, concluded from a review of the 15 reasons that CPP undertook
That was the "fundamental service that enabled the company to provide all these services. . . ". The insurance cover negotiated by CPP with Continental ensured that CPP could carry out its undertakings given to its clients which might involve having to pay the clients who suffered a loss. Such undertakings were to be found in items 2, 3, 8, 9, 10 and 12 of the 15 reasons. The supply made to Dr. Howell was
if any of the relevant contingencies occurred.
10. As the judge held, if Continental was not providing insurance for the clients of CPP, then CPP "cannot have been making arrangements for the provision of insurance for the customers".
11. Popplewell J  STC 797, 803, 804 after a detailed analysis of the insurance policy issued by Continental held that section A indemnified the cardholder against unlimited loss (subject to a limit during the first 24 hours);
He rejected the argument that there was no privity of contract between the cardholder and Continental so there could be no exemption. Arrangements for the provision of insurance enforceable by the cardholder could still be made by CPP.
12. The judge concluded, at p 807, that there was in the protection plan the making of arrangements for the provision of insurance within Schedule 6 to the 1983 Act. The "convenience" services were however "a separate part of the plan unrelated to the insurance . . . ". There were thus two supplies and it was necessary to decide which was the major supply.
13. The Court of Appeal  STC 199 dismissed CPP's appeal contending that there was a single supply of insurance. On the contrary the court found that there was a single supply of a card registration service to which the supply of insurance was incidental so that the Commissioners' cross-appeal to that effect was allowed.
14. Balcombe LJ, with whom Butler-Sloss LJ agreed, thought, at p 207, that practical difficulties indicated that in a comparatively simple transaction, as here, the court should not seek to find two supplies. On the basis that the relevant terms of the contract were to be found in the 15 reasons, he held, at pp 207-208, that points 4 to 7 and 13 to 15 were services of convenience and could not be seen as insurance. Points 8 to 11 had an insurance element but it was subsidiary to the registration or convenience service. Points 2 and 3 were pure insurance. Point 12 had equal elements of convenience and insurance. If on the other hand he had concluded that the insurance element had been predominant there would have been the arranging for the provision of insurance.
15. Sir John Megaw accepted that the cardholders could claim directly against insurers under the policy with Continental. This had been arranged by CPP which was not and could not lawfully under the Insurance Companies Act 1982 issue a policy of insurance itself. He rejected CPP's claim that the "package of services" was an arrangement for the provision of insurance services, or that it was right to divide it up into two parts, one of insurance and therefore exempt, the other of non-exempt services.
16. When the appeal first came before the House, your Lordships' House referred to the European Court of Justice the following questions:
The court in its judgment (Case C-349/96)  2 A.C. 601, 621 et seq) noted that "insurance transactions" and the concept of insurance are not defined either in the Sixth VAT Directive or in Council Directive (73/239/EEC) (the First Council Directive on direct insurance other than life insurance) but said, at p 625:
CPP did not itself undertake to provide insurance cover. It held a block insurance policy under which its customers were the insured.
17. What is done here by CPP thus constitutes an insurance transaction for the purposes of article 13(B)(a) of the Sixth Directive.
18.The court further held that in deciding whether a transaction which comprises several elements is to be regarded as a single supply or as two or more distinct supplies to be assessed separately, regard must first be had to all the circumstances in which that transaction takes place, taking into account:
Even if a single price is charged for the arrangements, which may indicate a single supply, it must still be considered whether the arrangements in the present case indicated that
Accordingly it is for the National Court
Finally, if the transaction is an insurance transaction, it is exempt whether or not it is authorised by national law, i.e. by the 1982 Act which transposed Council Directive (73/239/EEC) into United Kingdom law but on the basis of the introductory sentence of article 13(B) of the Sixth Directive, defined those authorised to provide insurance in section 2. CPP is not so authorised under that section although any contract of insurance underwritten by it would be enforceable against it by virtue of section 132 of the Financial Services Act 1986.
19. It is thus plain from the European Court of Justice's judgment that some at any rate of what CPP provides for its clients constitutes the provision of an insurance transaction and therefore of insurance services within the meaning of Group 2 in Schedule 6 to the 1983 Act.
20. In the circumstances on the appeal there is only question for your Lordships to decide. Do the arrangements made constitute a single supply with some ancillary services or are there two independent supplies, an exempt insurance supply and a non-exempt card registration service?
21. Although the Tribunal heard oral evidence of the way the plan works it is plain that everything turns on the interpretation of the written arrangements in particular as set out in the 15 reasons. Thus although the tribunal came to one conclusion on this question, and was supported by the Court of Appeal, its seems to me that it is open as a matter of law for your Lordships to review afresh the scheme although in doing so I pay full regard to the views of the courts below.
22. It is clear from the European Court of Justice's judgment that the national court's task is to have regard to the "essential features of the transaction" to see whether it is "several distinct principal services" or a single service and that what from an economic point of view is in reality a single service should not be "artificially split". It seems that an overall view should be taken and over-zealous dissecting and analysis of particular clauses should be avoided.
23. I accept that it is possible, as Mr. Paines QC has contended, to find that some of the 15 points if separated out and seen in isolation do not on the face of it provide for insurance as commonly understood. For example, point 1 provides only for an accurate computer record; point 6 provides for a change of address service; point 13 provides for a computer update service.
24. But there are points which indisputably provide for insurance of the most obvious kind. Thus point 2 provides for £750 cover for fraudulent use on any one claim; point 3 provides for £750 cover up to the moment of the call to notify CPP - "After that your protection against fraudulent use is unlimited". These points reflects the insurance provided in section A of the policy issued by Continental to CPP for which clients are assured. Others it seems to me fall within class 18 ("Assistance") in point A of the annex to the First Insurance Directive (73/239/EEC) as amended by Council Directive (84/641/EEC), e.g. points 4, 9, 10, 11 and 12 since it is clear that the service may consist of cash or acts in kind for the purposes of the Sixth Directive (77/388/EEC).
25. If one asks what is the essential feature of the scheme or its dominant purpose, perhaps why objectively people are likely to want to join it, I have no doubt it is to obtain a provision of insurance cover against loss arising from the misuse of credit cards or other documents. That is why CPP is obliged to, and does, arrange, through brokers, with an insurance company like Continental for that cover to be available.
26. For the loss to be kept to the minimum it is valuable that the client should be able to notify CPP of the loss of a card and that CPP should be able to notify the company issuing the credit card. It is particularly useful if the client is abroad. For this purpose CPP needs an up-to-date record of cards with the necessary details and the client needs a replacement card if cards are stolen or lost. To assist in the administration of the scheme, luggage tags and a medical warning card are useful. Yet all of these are ancillary or incidental to the main objective of the scheme i.e. financial protection against loss. The fact that the emergency cash advance and the cost of an emergency air ticket have to be reimbursed does not prevent those services from falling within "Assistance" in class 18 of the First Insurance Directive (73/239/EEC). They clearly fall within the European Court of Justice's definition of insurance.
27. The dominant purpose in my view is thus plainly one of insurance principally as to the provision of £750 and then of unlimited protection under reasons 2 and 3 but also in the other financial provisions such as those for dealing with seeking police help and pursuing claims in reason 8.
28. In so far as there are services which are not independently to be categorised as insurance they are in my view ancillary and in some cases minor features of the plan. They were, as CPP contends, preconditions to the client making a claim for cash indemnity or assistance or a precondition of the furnishing of insurance cover. I doubt whether they can in any event be regarded as sufficiently coherent as to be treated as one separate supply but even if they can it is ancillary to the provision of insurance. To regard the provision of insurance as ancillary or subsidiary to the registration of credit card numbers is unreal and the consequences for the client of being able to take protective action with CPP with whom the cards are registered is closely linked to the insurance service. It is not possible to say that some elements of the transaction are "economically dissociable" from the others: Commission of the European Communities v United Kingdom of Great Britain and Northern Ireland (Case 353/85)  ECR 817.
29. I would therefore hold in response to paragraph 32 of the European Court of Justice's judgment  2 A.C. 621, 627 that the transaction performed by CPP for Dr. Howell is to be regarded for VAT purposes as comprising a principal exempt insurance supply and the other supplies in the transaction are ancillary so that they are to be treated as exempt for VAT purposes. CPP is entitled to its costs before your Lordships' House and below against the Commissioners.
LORD JAUNCEY OF TULLICHETTLE
30. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Slynn of Hadley. For the reasons he gives I would also make the order which he proposes.
31.I have had the advantage of reading in draft the speech of my noble and learned friend Lord Slynn of Hadley. For the reasons he gives I would also make the order which he proposes.
32. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Slynn of Hadley. For the reasons he gives I would also make the order which he proposes.
33. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Slynn of Hadley. For the reasons he gives I would also make the order which he proposes.
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