Heathrow Airport Ltd & Ors v Her Majesty's Treasury (Rev 1)

The court dismissed the challenge to the Government’s decision to abolish most tax (VAT) free shopping (the VAT Retail Export Scheme (“VAT RES”) and Extra-Statutory Concession 9.1 (“ESC 9.1”)). Key legal points decided were: the application of the Wilkinson principle to extra-statutory concessions (ESC 9.1 could not continue or be extended as an ESC after the transition period and, if retained, would have required legislation); the applicability and scope of the General Agreement on Tariffs and Trade (GATT) — in particular Articles I:1 and III:2 — to the VAT RES and ESC 9.1 (the schemes would have been discriminatory under GATT if retained after the Transitional Period); and the justiciability of the Government’s reliance on GATT (the court found the issue justiciable and applied a tenability standard to the Government’s interpretation).

The court further held that the Government had not unlawfully failed to take into account relevant evidence of wider economic effects. Officials and the independent OBR had considered the limits of quantitative modelling (noting high uncertainty, especially because of Covid-19), and the Chancellor’s decisions of 3 December 2020 to lay the statutory instrument and to withdraw ESC 9.1 fell within a broad margin of judgment. Alleged mathematical shortcomings in departmental costing inputs were, on the facts, differences of approach and immaterial to the ultimate decision.

Background and parties. The appellants (Heathrow Airport Ltd, Global Blue (UK) Ltd and WDFG (UK) Ltd) challenged the Government’s decision, announced in the consultation response of 11 September 2020 and implemented by the Travellers’ Allowances and Miscellaneous Provisions (EU Exit) Regulations 2020 (SI 2020/1412) and withdrawal of ESC 9.1, to abolish most VAT-free shopping with effect from the end of the Transitional Period (31 December 2020). The defendants were Her Majesty’s Treasury and HM Revenue & Customs. The claim comprised multiple grounds of judicial review including legal error about the Commissioners’ extra-statutory concession powers (Wilkinson), misinterpretation and failure to consider GATT obligations, failure to take account of the Trade and Cooperation Agreement (TCA), and procedural failings in the collection and assessment of economic evidence. The litigation was heard both as a Divisional Court (judicial review) and as the Court of Appeal (appeal against refusal of permission).

Relief sought and procedural posture. The claimants sought judicial review quashing the decisions to abolish the VAT RES and ESC 9.1 and related acts, together with consequential relief. The matter came on appeal from the Queen’s Bench Division (Swift J, CO/3995/2020) and was determined in this judgment of the Divisional Court & Court of Appeal [2021] EWCA Civ 783.

Issues framed by the court. The principal issues were: (1) whether HMRC’s extra-statutory concession ESC 9.1 was ultra vires and whether the Wilkinson principle precluded retaining or extending ESC 9.1 without legislation; (2) whether GATT (Articles I:1 and III:2) required removal of the VAT RES/ESC 9.1 on expiry of the Transitional Period and whether the Government’s interpretation of GATT was tenable and justiciable; (3) whether the subsequent conclusion of the TCA altered the legal analysis and required reconsideration; (4) whether the Government unlawfully failed to gather or take into account relevant evidence about wider economic effects (including alleged errors in departmental costings); and (5) delay and the consequences of WTO compliance on relief.

Court’s reasoning and conclusions. The court concluded that: (a) Wilkinson limits the Commissioners’ collection and management powers; ESC 9.1 effectively untaxed supplies that, under domestic law implementing the VAT Directive (notably Article 146 and section 30 VATA), should be zero-rated only where the supplier exported or shipped the goods; the scheme therefore exceeded permissible ESC scope and could not be retained or extended as an ESC after the Transitional Period but could have been legislated for; (b) the VAT RES and ESC 9.1 fell within the scope of Article I:1 of the GATT (they were "matters" in the sense of Article III and involved rules/charges connected to exportation) and would have been discriminatory as between EU and non-EU destinations after the Transitional Period; (c) issues of GATT interpretation were justiciable in the domestic courts in the circumstances (the Government had relied on GATT doctrine in domestic policy, grounding it in the decision-making process), and the Government’s interpretation was tenable and, on the court’s analysis, correct; (d) the TCA and its domestic implementation did not change the conclusions: the TCA did not cover tax rates and Article XXIV does not operate to wholesale disapplication of Article I:1 beyond what is necessary to form the free-trade arrangement; (e) on procedural grounds the Government had acted within a broad margin of judgment in the approach to economic evidence, correctly relied on OBR and KAI inputs, reasonably declined to attempt highly uncertain extended quantification of wider ripple effects in the pandemic context, and any alleged mathematical inconsistencies in departmental costings were differences of methodology that were immaterial to the ultimate decision; and (f) delay and relief points did not require quashing the decisions.

Outcome. The court dismissed the challenge in all respects: the claims for judicial review, and the appeal against refusal of permission, failed. The court emphasised its role was to supervise legality not to engage in political policy choices.

Appeal dismissed. The court held that (i) ESC 9.1 could not, as a matter of law, be maintained or extended by extra-statutory concession after the Transitional Period consistent with Wilkinson and therefore would require legislation if retained; (ii) the VAT RES and ESC 9.1 were caught by the non-discrimination obligations in GATT Articles I:1 and III:2 and, absent lawful derogation, could not lawfully treat EU and non-EU destinations differently after the Transitional Period; (iii) the Government’s reliance upon GATT was justiciable and its interpretation was tenable and, on the court’s analysis, correct; (iv) the Government’s handling of economic evidence, including reliance on OBR and HMRC analysis and its decision not to attempt highly uncertain wider- economy quantification in the pandemic context, was within a wide margin of judgment and not unlawful; and (v) the claim and all grounds failed on their merits.

Judicial-review proceedings in the Queen's Bench Division (Mr Justice Jonathan Swift, CO/3995/2020). The case was heard as both a Divisional Court and in the Court of Appeal; this judgment is the approved judgment of the Divisional Court & Court of Appeal: [2021] EWCA Civ 783 (on appeal from CO/3995/2020).