Kuoni Travel Ltd v Boyle & Ors

Where a tax covenant contains its own notice provision and gives it precedence over conflicting provisions in the sale agreement, the covenant’s notice regime governs. A separate contractual requirement for notice within 30 days will not apply if it conflicts with that regime. Awareness for such a notice requirement means conscious knowledge of sufficient relevant detail by personnel with responsibility for the issue, acquired in the ordinary course of business. Under the Swiss TVA legislation, a permanent establishment is a fact-sensitive question requiring a fixed place of business at the enterprise’s disposal, business carried on through that place, and activity that is not merely ancillary or preparatory. The court may reject a contractual voluntary-act defence where the alleged causal link is supported only by speculation.

Kuoni acquired the share capital of CV Travel Holdings Limited, including Ski Verbier Limited, from the defendants. The transaction included a Sale and Purchase Agreement and a Deed of Tax Covenant. Ski Verbier was later registered for Swiss TVA, with the Swiss tax authorities seeking tax retrospectively for periods including time before completion.

Kuoni sought reimbursement under the Deed. The defendants disputed the claim on three principal grounds: that notice was out of time under the SPA; that Ski Verbier was not liable for TVA because it lacked a Swiss permanent establishment; and that any liability resulted from Kuoni’s voluntary registration of a branch. The central issues were the construction of the notice provisions, the date of awareness, the existence of a permanent establishment, and the application of clause 5.4 of the Deed.

1. Notice provisions. The Deed contained a seven-year notice provision and stated that its terms prevailed over conflicting limitations in Part 5 of the SPA. Applying the principles in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 (SC), the court held that the SPA’s 30-day notice requirement conflicted with the Deed’s notice machinery. Clause 5.7 therefore prevented the 30-day requirement from applying.
2. Alternative time-bar conclusion. If the SPA requirement applied, Kuoni’s notice was nevertheless timely. Awareness meant conscious knowledge of sufficient information to serve a valid notice. It had to be the awareness of employees with responsibility for the issue, acquired in the ordinary course of a competently run business. Knowledge held by staff working on the matter could not be disregarded merely because their direct employer was a subsidiary. The relevant awareness arose on 20 December 2010, or at the earliest on 16 December, and the notice of 14 January 2011 was in time. The approach in ROK PLC v S Harrison Group Ltd 2011 EWHC 270 (Comm) supported this conclusion.
3. TVA liability. Under the Federal Law with regard to Value-Added Tax, services were supplied in Switzerland if the provider had a Swiss permanent establishment from which the services were provided. The relevant inquiry required a place of business, a fixed place, business carried on through that place, and activity that was not merely ancillary or preparatory. The court applied the approach reflected in Article 5 of the OECD Model Tax Convention on Income and Capital, Version July 2005. Ski Verbier’s chalets and hotel arrangements were practically at its disposal, its business was carried on through them, and the staff services formed an essential part of the holiday package. The TVA was therefore payable.
4. Clause 5.4. The defendants’ argument that registration caused the liability depended on speculative evidence about what the Swiss authorities might otherwise have done. That evidential case did not establish that the liability arose as a direct result of a voluntary act within clause 5.4. The defendants had no defence under that clause.
5. The claim succeeded on liability. Quantum and consequential matters were left to be dealt with at hand down if agreement could not be reached.