[2013] CSOH 127



in the cause

CLOBURN QUARRY COMPANY LIMITED, a company incorporated under the Companies Act and having its registered office at Cloburn Quarry, Pettinain, Lanark, Lanarkshire



Judicial Review of a decision of HM Revenue and Customs to seek a summary warrant for the enforcement of Aggregates Level for the Sheriff at Lanark



Petitioners: MacColl; Lindsays

Respondents: Maciver; Office of the Advocate General

17 July 2013

[1] This matter came before me in the Vacation Court on 16 July 2013 for first orders and interim orders. I heard counsel for the petitioners and for the Advocate General for Scotland representing Her Majesty's Revenue and Customs (HMRC). I considered the matter overnight and on 17 July I refused the motion for interim orders giving brief reasons for my decision. I granted leave to reclaim and was asked by parties to give a more extensive judgment.

[2] The petitioners are the owners of Cloburn Quarry in Lanarkshire and are engaged in the commercial extraction and exploitation of aggregates. As such they are liable to pay Aggregates Levy under section 16(1) of the Finance Act 2001. The Aggregates Levy is a tax on the production of certain aggregates. Currently it is charged at £2.00 per tonne. The tax is not levied on all aggregates; there are certain exemptions. These exemptions form the root cause of the petitioners' complaint about the operation of the Aggregates Levy.

[3] On 28 November 2012 HMRC wrote to the petitioners demanding payment of £588286.12 by way of Aggregates Levy. For reasons set out below, the petitioners have not paid this demand. On 25 June 2013 HMRC obtained a summary warrant under section 128(6) of the Finance Act 2008 from the sheriff at Lanark in the sum of £749,198.76. Following thereon, on 4 July 2013 a charge for payment of the sum of £749,350.13 was served on the petitioners. The days of charge expire on 18 July. As at the date of the hearing these sums remained unpaid. The interim orders sought by the petitioners were for the interim reduction and suspension of the summary warrant and charge.

[4] The petitioners seek judicial review on three grounds. First it is said that the respondents are only entitled to a summary warrant where a sum of money is due to them. The petitioners say that no money is due on the basis that the Aggregates Levy is an unlawful state aid and contrary to European Union law. There has been no approval of the state aid by the European Commission with the result that it cannot now be levied.

[5] Secondly, in seeking the summary warrant the petitioners claim that HMRC have acted in a manner contrary to the petitioner's rights under Art 6(1) of ECHR. The summary warrant determines civil obligations and enables a court decree. There is no entitlement to make representations before the sheriff or challenge assertions made to the sheriff by HMRC. That, it is said is not right or fair. For these purposes the sheriff is not an independent tribunal as he has no discretion under the statute about whether or not to grant a warrant.

[6] Thirdly, the petitioners say it was within their reasonable expectations in the light of guidance promulgated by HMRC that they would not proceed to obtain a summary warrant where there is a legal dispute over whether the tax is due or not.

[7] The opposition to the Aggregates Levy is based on the perceived advantage that is given to producers of certain types of aggregate who, by reason of certain exemptions, are not required to pay the tax. That distorts the market in their favour and it is claimed amounts to an unlawful state aid under European Law. In February 2002 the British Aggregates Association (BAA), with others, brought proceedings in the High Court in England seeking a declaration that the Aggregates Levy was contrary to what are now articles 107 and 108 TFEU. On 19 April 2002 Moses J dismissed the application for judicial review holding that the Aggregates Levy was not a state aid. He did, however, give leave to appeal to the Court of Appeal and an appeal was lodged. For the reasons set out in the next paragraph by mutual agreement these proceedings were stood out by a direction of the Court of Appeal on 21 May 2002.

[8] In December 2001 the United Kingdom government notified the Aggregates Levy to the European Commission. In April 2002 the Commission determined that the Aggregates Levy did not give rise to state aid. On 12 July 2002 the BAA lodged an application for annulment of the decision of the Commission. There then followed protracted proceedings in the European courts resulting in the decision of the General Court on 7 March 2012 annulling the Commission's decision. The Commission has not yet made a fresh decision. The petitioners aver that the most likely decision is that they will open a formal investigation under article 108(2) TFEU.

[9] Following the decision of the General Court the proceedings in the Court of Appeal have been re-activated. A substantive hearing is due to take place on

7 and 8 October 2013.

[10] Since becoming liable for payment of Aggregates Levy the petitioners have made all the returns that are required to enable a calculation of their liability by HMRC. Until 2012 they paid all sums calculated as due, albeit under protest. However I was informed that their position, and that of a number of other petitioners in other parallel judicial reviews, had altered following the decision of the General Court. It had firmed up their view that there was no proper basis for the Aggregates Levy and that it was unenforceable. They had offered to consign the sums which HMRC claimed was due on joint deposit pending resolution of the dispute. The offer had been refused.

Petitioner's Submissions
[11] Mr MacColl submitted that there is at the very least a good and arguable basis for seeking to challenge the validity of the Aggregates Levy. He referred me to an appendix to the petition which sets out in some detail the case in support of the proposition that the Levy is an unlawful state aid. He emphasised the fact that the European Commission's original decision had been quashed by the General Court. While the court had not ruled that the Aggregates Levy is an unlawful state aid it was significant that it found that in reaching their decision the Commission had erred in its assessment of the selective advantage granted to producers of certain materials that are exempt from the Aggregates Levy. He maintained that this showed the strength of the argument in the petitioners favour.

[12] The procedure before the Sheriff did not comply with article 6(1) of the ECHR which states:

"In the determination of his civil rights and obligations......everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law."

The summary warrant was granted under section 128(6) of the Finance Act 2008 which reads:

"The Sheriff must, on an application by an officer of Revenue and Customs under subsection (2), grant a summary warrant in, or as nearly as may be in, the form prescribed by Act of Sederunt."

This procedure, Mr MacColl submitted, was a determination of the petitioner's civil rights and obligations. Yet the summary warrant was obtained without the petitioners being aware that such an application was being made and without a right to make representations. In this instance the sheriff could not be said to constitute an independent and impartial tribunal as he had no discretion as to whether or not to grant the application. He noted that the position in England and Wales was very different with no procedure equivalent to section 128(6) of the 2001 Act.

[13] The case of Ferrazzini v Italy (2002) 34 EHHR 45, which the respondent founded upon for the proposition that article 6(1) was not engaged, could be distinguished on its facts; it dealt with a very different set of circumstances. He anticipated that the respondent might argue that the right of appeal under section 40 of the Finance Act 2001 might be deemed sufficient protection of the petitioner's article 6 rights. However he argued that it presupposed that there had been a decision of HMRC against which the petitioner could appeal. In his submission there had been no decision. In any event the procedure was not apt for a challenge of this nature.

[14] The petitioners had a legitimate expectation that HMRC would not seek to enforce the debt. Mr MacColl referred me to an HMRC document headed "DMBM605420 - Pre-enforcement: preparing a case for enforcement; Enforcement and Insolvency criteria: General Considerations" which states that before considering enforcement or insolvency a number of criteria must be met one of which is that the debt must not be the subject of dispute or appeal. This document it was submitted created a legitimate expectation that no enforcement action would be taken while the matter was in dispute. The decision to enforce was contrary to that legitimate expectation. He referred me to Council of Civil Service Unions v Minister for the Civil Service [1985] 1AC 374. It might also be characterised as irrational.

[15] For these reasons Mr MacColl submitted that there was a prima facie case. A prima facie case was one that is arguable. It was equivalent to the test for summary diligence under the Debtors (Scotland) Act 1987. It was not necessary to show that the petitioner would definitely succeed. All that was required was that there was a good and arguable or properly colourable case.

[16] So far as balance of convenience was concerned Mr MacColl submitted that the approach of the petitioners and the offer they had made to place the sums purportedly due on joint deposit meant that there was no plausible downside to HMRC. By contrast if the sums due on the charge were not paid by the petitioners they faced the prospect of a winding up order; Insolvency Act 1986 sections 122 and 123. The petitioners were anxious that if they paid the Aggregates Levy and were subsequently successful in having it declared an unlawful state aid HMRC might try and frustrate repayment. They may be faced with arguments that the petitioners were not entitled to be repaid as the petitioners would wish. Accordingly it was necessary to retain the sum on joint deposit.

Respondent's submissions
[17] Mr Maciver informed me that there were over 700 producers of aggregates in the United Kingdom who were liable to pay the Aggregates Levy. Of those only 22 were refusing to pay. He submitted that the tax was an indirect tax which was paid, not by the producers, but by the consumers; the petitioners were merely the collectors of the tax. He suggested that the Aggregates Levy could be compared with VAT. After some discussion I understood Mr Maciver to row back from that position. He accepted that the levy would be regarded by the producers as an overhead which they could pass on in whole or part to the consumer as with any other overhead.

[18] The test for prima facie case was that there were reasonable prospects of success. It was not enough to say that the case was arguable; WAC Ltd v Whillock 1989 SC 397, per decision of the Second Division at p 410.

[19] He submitted that there was an alternative remedy of an appeal under Part 2 of the Finance Act 2001 and in particular section 40 of that Act. The petitioners had failed to take this step. HMRC had taken a decision. The letter dated 28 November 2012 from HMRC to the petitioners was a decision for the purposes of section 40; see section 41(2). It followed that what this court was being asked to do was to determine whether these sums fall due to be paid. That was not the function of this Court; Commissioners of Inland Revenue v Pearlberg [1953] 1 WLR 331 per Denning LJ at 333, Lord Advocate v McKenna 1989 SC 158.

[20] Secondly he submitted that the petitioners aver no wrong. Their complaint was that the Aggregates Levy was an illegal state aid. If there was a state aid the beneficiaries were those companies within the relevant market area, who, by virtue of the exemptions, were not paying it. The cure was not to abolish the Aggregates Levy but to withdraw the exemptions. It was not open to an individual entity to take it into their own hands to refuse to make payment; H.J. Banks & Co Limited v The Coal Authority [2001] 3 CMLR 1285 at paragraph 80.

[21] Thirdly Mr Maciver submitted that there were no reasonable prospects of success. There had never been a finding that the Aggregates Levy was an illegal state aid. The decision of the General Court was not a finding that it was an illegal state aid. He referred me to the judgment of the General Court delivered on 7 March 2012, Case T-210/02 RENV and in particular to paragraphs 60, 61, 74, 81, 82 and 91. The essence of the decision was to be found in paragraph 92 which was to the effect that the Commission had misconstrued the concept of state aid. The plea in law was upheld in so far as it related to the existence of tax differentiation and the absence of justification in that respect on the basis of the nature and the general scheme of the tax system at issue. The effect was to send the matter back to the Commission.

[22] There was no infringement of the petitioner's article 6 rights since tax disputes were a matter of public law and fell outside the scope of civil rights and obligations; Ferrazzini v Italy, paragraph 29. In any event there is an appeal procedure under section 40 of the 2001 Act. The petitioners had not taken any appeal against the imposition of the Levy.

[23] Turning to the issue of legitimate expectation Mr Maciver submitted that there was no dispute over the sums that were due and the petitioners had not appealed the assessment. The guidance that Mr MacColl had referred to related to quantum in respect of individuals who had submitted the dispute to the appeals procedure. The challenge of the petitioners was one to the entirety of the scheme. The correspondence set out in clear terms that HMRC would seek a summary warrant in the event of non‑payment. It was not realistic for the petitioners to claim that they had a legitimate expectation that no steps would be taken to enforce the sums due.

[24] The balance of convenience favoured HMRC. There was no question of them going out of business or not being good for any repayment in the event that the petitioners were ultimately successful. On the other hand the petitioners were a limited company and so the same permanency could not be ascribed to them. HMRC could not agree to sums being put on joint deposit. Such schemes involve substantive administrative costs. The offer however was significant; if the petitioners were willing to put the sums on joint deposit there was no reason not to pay the tax. So far as the suggestion that they might be reluctant to pay back any monies due Mr Maciver could assure the court that in the event of the petitioners being ultimately successful and it was found that in consequence HMRC had to repay money to the petitioners, they would do so. He could also give an undertaking that HMRC would not seek to liquidate the petitioners or any other company in respect of unpaid Aggregates Levy so long as the judicial review proceedings in England remained live. If the sums continued to remain unpaid they would take other enforcement action such as the arrestment of bank accounts under section 128 of the Finance Act 2008. There was a public interest in efficient tax collection. Not collecting the tax entailed a risk of market distortion as it would favour those who did not pay. Moreover he submitted that the court might unwittingly be a party to creating an unlawful state aid.

Discussion and decision
[25] Although the petitioners objection to the Aggregates Levy is that it constitutes an illegal state aid there was little discussion before me of the substantive case. Having regard to the arguments contained in the appendix and the decision of the General Court it is clear that there is an arguable case that the benefit to certain producers of the exemptions to the Aggregates Levy create a state aid. I cannot determine the strength of the case. Even if it is a state aid, whether or not it is illegal may depend on whether or not such exemptions can be objectively justified. Again these questions cannot be answered in the Vacation Court.

[26] I cannot accept the proposition that all that is required at this stage is a good and arguable or properly colourable case. I am not clear that this would be a sufficient definition of a prima facie case in any circumstances. In this case however I think the courts should proceed with caution. HMRC are endeavouring to collect a tax. The authority for levying the tax is to be found in section 16 of the Finance Act 2001. That is an enactment of the United Kingdom Parliament, a democratic and sovereign legislature albeit subject to the restrictions imposed by virtue of the United Kingdom's membership of the European Union. Before the court makes interim orders which have as their foundation the proposition that Parliament acted ultra vires there should at the very least be reasonable prospects of success. Indeed it may be that something more than that is required. Anything less would fail to respect the right of Parliament to enact legislation and infringe the separation of powers between the courts and the legislature.

[27] At present the only judicial determination of this issue was in the English High Court by Moses J in 2002. Nothing that has happened since then, including the proceedings in the European courts, persuades me that I should depart from a judgement formed after more extensive submissions and more detailed reflection than I have had. Accordingly I reject the first ground on which this petition is based.

[28] In relation to article 6(1) section 128(6) of the Finance Act 2008 does not give any right to a debtor to make representations to the sheriff. Nor does the sheriff appear to have any discretion as to whether or not to grant the application for the summary warrant. The absence of such a discretion undoubtedly removes the sheriff's independence. Yet however unsatisfactory the procedure may be it does not follow that is contrary to article 6(1) of ECHR. The European Court of Human Rights has held that tax disputes fall outside the scope of civil rights and obligation; Ferrazzini v Italy at paragraph 29.

[29] Even if that were not the case and the petitioners ought to have had the right to make representations to the sheriff that would not have assisted them. The sheriff does not have the power to hold that a tax is unlawful. Only this court, exercising its supervisory jurisdiction, could hold that an Act of Parliament was ultra vires on the ground that it was contrary to the European Union treaties. The petitioners have access to this court and could have challenged the imposition of the levy at any time. Their article 6 rights are fully protected.

[30] I should add that I do not consider that the right of appeal under section 40 of the 2001 Act is relevant. To that extent I agree with the petitioners. In my opinion the fundamental challenge that the petitioners have to the Aggregates Levy could not be brought within the scope of section 40. Only a judicial review such as the BAA have brought in England could determine whether or not the Aggregates Levy is an illegal state aid.

[31] So far as the petitioners' legitimate expectations are concerned I do not consider that the conditions for judicially reviewing the decision of HMRC to obtain a summary warrant on this ground exist. It is not clear that the document to which Mr MacColl referred is relevant to a situation such as this. It was not suggested that the petitioners had founded upon it in any way in determining not to pay the Aggregates Levy. Even if they did by the time they received the letter of 28 November 2012 it would have been perfectly clear to them that HMRC intended to seek a summary warrant. They had plenty of time to make such arrangements as may be required to make payment. It was not suggested that HMRC were bound by any guidance or that they could not depart from it.

[32] Finally on balance of convenience I note the undertaking by the petitioners to consign the amount of levy due to HMRC on a joint deposit. I also note the undertaking by HMRC not to seek the liquidation of the petitioners while judicial review proceedings are pending in England. They would seek payment through the arrestment of bank account under section 128 of the Finance Act 2008 in the event of non‑payment.

[33] Given the undertaking to place the sum due as Aggregates Levy on joint deposit the petitioners cannot complain that they will be deprived of funds that would ordinarily be at their disposal. Moreover the understandable fear that they might find themselves facing a petition for winding up if they continue to refuse payment has been removed by the respondents undertaking.

[34] Accordingly the issue on balance of convenience appears to revolve around a fear that even if at the end of the day they are successful HMRC would seek in some way to frustrate the repayment of the levy which would at that stage have been adjudged to be unlawful. However in the event of section 16 of the Finance Act being found to constitute an illegal state aid and hence ultra vires of the United Kingdom Parliament any question as to entitlement to repayment of sums unlawfully collected would be settled according to law. Meanwhile the petitioner is a United Kingdom taxpayer. The Aggregates Levy is a tax imposed by the United Kingdom Parliament. It stands as ex facie valid unless and until the courts determine otherwise. The petitioners are liable to pay the tax. There is a public interest that they should meet their obligations. For these reasons I do not consider that the balance of convenience favours the petitioners.

[35] For these reasons I refused the motion for interim orders.