Brunel Motor Company Ltd v Revenue and Customs & Anor

Parties may mutually rescind a supply agreement after an insolvency event, even where the written agreement contains an entire agreement clause and provides express termination consequences. Where the parties genuinely adopt a different regime, return the goods, issue credit notes and proceed on the basis that the original supplies have been rescinded, the credit notes may be valid for VAT purposes. The court will assess the substance of the parties’ transaction rather than treat the arrangement as an artificial device to extinguish a VAT liability. An appellate court will not interfere with a tribunal’s factual findings absent a recognised error of law or findings that no reasonable tribunal could have made.

Brunel Motor Company Ltd appealed against a decision of the VAT and Duties Tribunal released on 3 April 2007. The Tribunal had held that credit notes issued by Ford Motor Company Ltd after Brunel entered administrative receivership were valid for VAT purposes, requiring Brunel to repay input tax previously recovered.

The supply agreement automatically terminated upon the appointment of administrative receivers and provided for the return of unpaid-for vehicles. Following that event, the vehicles were returned, Ford issued credit notes, and Ford resold the vehicles to the receivers on the same terms so that the business could continue trading. The central issue was whether the credit notes were valid because the parties had mutually rescinded the original supplies, or whether the transaction was governed solely by the agreement’s express termination provisions.

1. The appeal was dismissed. The Tribunal’s decision was based on findings of fact which could not properly be challenged on the appeal.
2. The express termination provisions required the return of unpaid-for vehicles and preserved Ford’s contractual rights. They did not, however, prevent the parties from subsequently agreeing a different regime. The entire agreement clause prevented the implication of an additional contractual term, but it did not prevent mutual rescission of the agreement.
3. The parties’ conduct showed a genuine transaction outside the operation of the termination provisions. The vehicles were returned; Ford issued credit notes; Brunel, acting through its receivers, ceased claiming the original VAT as input tax; the VAT was paid to HMRC; Ford resold the vehicles to the receivers at the same price; and the business was thereby enabled to continue trading.
4. That arrangement was not artificial or designed merely to extinguish a VAT liability. The parties acted on the basis that the original supply agreement had been rescinded, that the vehicles had never remained supplied under it, and that no VAT was payable in respect of those supplies. The credit notes were therefore properly issued.
5. The Tribunal’s reasoning was analogous to AEG (UK) Ltd v The Commissioners of Customs and Excise (VAT Decision No 11428), where subsequent consideration meant that no amount remained outstanding for bad debt relief purposes.
6. The court rejected the argument that VAT remained contractually payable as part of the original price after repossession. On the facts found, the parties had agreed to end the original contractual regime. The appeal was accordingly dismissed.

The appeal was brought to the High Court (Chancery Division) from a decision of the VAT and Duties Tribunal released on 3 April 2007. The Tribunal had rejected Brunel’s claim for repayment. The High Court dismissed the appeal.