Teleos Plc & Ors, R (on the application of) v Customs and Excise

A court has no inherent power to order interim payment of disputed sums. The statutory and procedural scheme imposes strict conditions, which cannot be bypassed by recasting payment as an injunction or another interim remedy. In VAT disputes, the Commissioners have a discretion to make interim payments under paragraph 1 of Schedule 11 to Value Added Taxes Act 1994. That discretion must be exercised rationally and proportionately, and a refusal is reviewable in public law proceedings. The existence of that review mechanism satisfies the requirements of Community law. There is no need to give a strained interpretation to the Civil Procedure Rules. Costs ordinarily follow the event.

Teleos challenged the Commissioners’ decision that its mobile-phone supplies did not qualify for zero-rated VAT. In the judicial review proceedings, Moses J referred questions concerning Article 28c(A) of the Sixth VAT Directive to the European Court of Justice. Pending that decision, Teleos sought an interim payment of £529,275.31 plus legal costs, relying on CPR 25 and the court’s inherent jurisdiction.

Moses J held that the application was for an interim payment, not interim relief, and dismissed it because the CPR 25.7 conditions were not satisfied. He also rejected an unappealed public law challenge to the Commissioners’ refusal. Teleos appealed, and the Commissioners cross-appealed against the no-order costs decision. The central issues were whether payment could be ordered outside CPR 25.7 and how the Commissioners’ discretion was to be controlled.

Lord Justice Dyson gave the judgment, with Mr Justice Bennett and Lord Justice Ward agreeing. The main appeal was dismissed and the costs cross-appeal was allowed.

1. No inherent jurisdiction. Section 32(5) of the Supreme Court Act 1981 defines an interim payment by reference to a sum which the party may ultimately be held liable to pay. The statutory provision and CPR regime were necessary because the court has no inherent power to order interim payment, as shown by Moore v Assignment Courier Ltd [1977] 1 WLR 638.
2. CPR 25. Teleos did not satisfy the conditions in CPR 25.7. CPR 25.1(3) preserves any power which the court may otherwise possess; it does not create an inherent power to order disputed payments by injunction. The court doubted the suggestion in Capital One Developments Limited v Customs and Excise Commissioners [2002] EWHC 197 (Ch), [2002] STC 479 that such an injunction might be available in very special circumstances.
3. Commissioners’ discretion. Under paragraph 1 of Schedule 11 to the Value Added Taxes Act 1994, the Commissioners have a discretion to make interim payments in appropriate cases. That discretion must not be exercised irrationally in the Wednesbury sense or disproportionately. A refusal is susceptible to judicial review.
4. Community-law requirements. Garage Molenheide BVBA and others v Belgium [1997] ECR 1-7281, [1998] STC 126 establishes the relevance of proportionality and effective judicial review. If no mechanism existed for obtaining proportionate treatment, there would be an infringement. The United Kingdom system provides such a mechanism through review of the Commissioners’ discretion. Factortame [1991] 1 AC 603 concerned a national rule which prohibited interim relief altogether and added nothing because no equivalent rule applied here.
5. Other matters and costs. The Commissioners should publish their policy and criteria for interim payments. The court also noted that Community law does not require direct-tax and VAT procedures to be identical, but that point was not advanced as a discrete ground. Costs should follow the event under CPR 44.3(2)(a); the Commissioners had not unjustifiably delayed matters. The order was varied so that the Commissioners received their costs of the application, appeal and cross-appeal, subject to detailed assessment. An interim payment of £15,000 was ordered and permission to appeal was refused.

• Court of Appeal (Civil Division): The appeal against refusal of interim relief was dismissed and the Commissioners’ cross-appeal on costs was allowed: [2005] EWCA Civ 200.
• High Court, Administrative Court: Moses J dismissed Teleos’s application for interim payment because the conditions in CPR 25.7 were not satisfied, and made no order as to costs.