Software Solutions Partners Ltd, R (on the application of) v HM Customs & Excise

A public authority may be held to a clear and unequivocal ruling where departing from it would be so unfair as to amount to an abuse of power. The ruling must be construed objectively and in context. An open-ended or imperfect ruling may still be sufficiently clear if its essential condition has an ordinary meaning.

However, the claimant must establish that its conduct fell within the ruling. An automated computer system does not itself confer agency authority on the business that designed or operates it. Where contracts are formed automatically within parameters set by insurers, the software provider is merely the electronic medium unless it has separately been appointed to contract on the insurers’ behalf. A judicial review claim may ordinarily be brought when a tax assessment crystallises the liability.

Software Solutions Partners Ltd sought judicial review of HM Customs and Excise’s decision to assess it to VAT on supplies made between 25 November 2003 and 22 April 2004. Customs had initially ruled that the supplies fell within the insurance exemption in Schedule 9 to the Value Added Tax Act 1994, subject to SSP having authority to accept insurable risk for insurers.

The VAT and Duties Tribunal appeals concerning the substantive VAT liability were withdrawn after the Court of Justice gave judgment in Staatssecrataris van Financien v Arthur Andersen & Co Accountants c.s. The remaining issues were whether Customs was bound by its ruling under public law principles, whether SSP’s activities satisfied the ruling, and whether the judicial review claim was brought in time.

1. The application for judicial review was dismissed. The relevant supplies did not fall within the express terms of the disputed ruling, so Customs was entitled to make the assessment.

2. The governing principle was whether Customs had acted so unfairly that its conduct amounted to an abuse of power. Applying R v Inland Revenue Commissioners, ex parte MFK Underwriting Agencies Ltd [1990] 1 WLR 1545, the ruling had to be clear, unambiguous and made against full disclosure of the material facts. The court held that those requirements were met. “Delegated authority” bore its ordinary meaning: authority for an agent to bind the principal. It did not bear the specialised insurance-industry meaning of a broad discretion to underwrite risks.

3. SSP nevertheless failed on the separate question whether its activities fell within the ruling. No primary document established that insurers had appointed SSP as their agent. The evidence showed that the insurers’ parameters had been pre-programmed into the software and that the transactions were automatically executed without human decision by SSP. The legal analysis was analogous to the automatic contract formation considered in Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163: the contract was formed through the automated mechanism, not through delegated authority granted to the software provider.

4. The court followed the principle in F&I Services Ltd v Commissioners of Customs and Excise [2001] EWCA Civ 762 that the public-law legitimate-expectation principle applies to the administration and collection of VAT.

5. The claim was not out of time. Under section 75(9) of the Value Added Tax Act 1994, notification of the assessment crystallised the taxpayer’s liability. The reasoning in R (Burkett) v Hammersmith and Fulham London Borough Council [2002] UKHL 23 provided a strong analogy. In any event, time would have been extended because the proceedings had been stayed, there was no prejudice to Customs, and the issue was serious.

This was a first-instance judicial review decision. The judgment records earlier appeals by SSP before the VAT and Duties Tribunal, which were withdrawn on 1 March 2006.