UT/2023/000115 - [2025] UKUT 00004 (TCC)

In view of our conclusion that the promotion condition is ultra vires, it is necessary to determine whether Item 1(c) can be interpreted in conformity with Article 132(1)(o). The case of Marleasing establishes that national courts have a duty to interpret domestic legislation, as far as possible, in the light of the wording and the purpose of the relevant directive in order to achieve the result pursued by the latter; in other words, in conformity with the directive.

Following the hearing we directed the parties to provide further written submissions on a number of issues, including the potential application of Marleasing to Item 1(c). In a subsequent written reply, which had not been requested by the Tribunal, Mr Firth sought to raise the argument that the permission to appeal granted to HMRC was restricted to the issue of whether Item 1(c) was compatible with the Directive, and did not extend to whether (if it was not compatible) the FTT’s application of Marleasing was permissible. We reject that argument. The relevant ground of appeal, for which permission was granted, was that “the FTT erred in law in its interpretation of [Item 1(c)] and wrongly excised it (or alternatively the word ‘primarily’) from the text of Item 1”. While HMRC’s primary case was that Item 1(c) was compatible with the Directive, this ground clearly encompasses a secondary challenge to both of the alternative conforming interpretations on which the FTT relied, and that was clear from HMRC’s skeleton argument.

The approach to be taken in applying a conforming interpretation was set out by Sir Andrew Morritt C in Vodafone 2v Revenue and Customs Commissioners [2009] EWCA Civ 446 (“Vodafone 2”), at [37]-[38]. The relevant principles can be summarised as follows:

Ms Mannion referred to the need first to identify precisely in what respects the domestic provision infringes EU law, before it can be decided whether a conforming interpretation is possible, relying for this proposition on statements made recently by this Tribunal in The Trustees of the Panico Panayi Accumulation and Maintenance SettlementsNumbers 1 to 4 v HMRC [2024] UKUT 00319 (TCC), at [128] and [130]. Ms Mannion criticised the FTT for failing to have carried out this preliminary step.

For our part, while we agree that an acceptable conforming interpretation must identify the precise infringement and do no more than is necessary to remedy that infringement, we consider that a rigid approach whereby, as a separate step, the precise infringement must first be identified will not necessarily be the best way of approaching the issue in all cases. For the reasons set out above, we have concluded that Item 1(c) is not compatible with the PVD, and that the FTT was justified in reaching the conclusion. The next question in light of that determination is whether a conforming interpretation is possible. That will critically turn on whether or not a particular conforming interpretation goes against the grain of the legislation and crosses the line between interpretation and legislation. The proper resolution of that question will necessarily take into account the precise infringement which has been determined to arise.

A conforming interpretation must not “go against the grain” of the legislation. In Vodafone 2, reference is made in this context to “the underlying thrust” of the legislation, and the impermissibility of an interpretation which is inconsistent with a fundamental or cardinal feature of the legislation.

This constraint is sometimes referred to as prohibiting an interpretation which is “contralegem”. In Dansk Industri (DI) v Estate of Karsten Eigil Rasmussen (Case C-441/14), Advocate General Bot defined this as follows, at paragraph 68 of his Opinion :

If applied too literally, the expression contra legem might be thought to prohibit many conforming interpretations which have been reached by the CJEU and UK courts. The terms in which the constraint is expressed in Vodafone 2 are, in our opinion, a more helpful way of framing the prohibition. We respectfully endorse the comments of the Court of Appeal to this effect in British Gas TradingLtd v Lock and Anor [2016] EWCA Civ 983. Having summarised the passage above from the Opinion of Advocate General Bot, Sir Colin Rimer said this, at [102]-[104]:

The further submissions from the parties as to the grain or underlying thrust of the relevant legislation produced similar results. Mr Firth stated that “the grain (as opposed to textual detail) of the legislation is exempting fundraising events organised by charities”. Ms Mannion stated that “the ‘purpose’, ‘grain’ or ‘thrust’ of Item 1…is, narrowly, to encourage charitable fundraising through events. It does not extend beyond that specific purpose to wider activities which further charitable purposes, or support the application of a loose or weak definition of a fundraising event to further that supposed goal”.

We consider that Ms Mannion is right to focus on the grain or thrust of Item 1 as a whole, rather than the grain or thrust of sub-paragraph (c), or (for example) the use of “primarily” in that sub-paragraph. We also agree with Mr Firth that, if the grain or thrust is considered at too granular a level, there is a risk that almost any conforming interpretation might be seen as prohibited.

In our opinion, the underlying thrust and purpose of Item 1(c) is to encourage fundraising events organised by charities for charitable purposes by providing that supplies in connection with such events are exempt.

The issue is whether the alternative conforming interpretations of Item 1(c) adopted by the FTT go against, or are inconsistent with, this underlying thrust and purpose, and cross the boundary between interpretation and amendment.

The FTT decided that there were two permissible conforming interpretations. The first, which we refer to below as Interpretation 1, is to delete sub-paragraph (c) in its entirety. The second, which we refer to as Interpretation 2, is to delete the word “primarily” from sub-paragraph (c).

We consider that Interpretation 2 is clearly preferable to Interpretation 1.

Ms Mannion argued that Interpretation 1 went beyond the type of construction permitted by Marleasing, because it entailed the wholesale deletion of one element of the definition of fund-raising event, and amounted to giving direct effect to Article 132(1)(o). Mr Firth argued that the authorities establish that the deletion of wording is not necessarily beyond the permissible limits of a Marleasing construction, and that the precise manner of such construction should not be constrained. He relied on the following passage from Vodafone 2, at [39]:

We do not read this passage as authority that deletion is a permissible method of conforming construction. It is simply making the uncontroversial point that being able to consider the manner of achieving a particular construction is helpful to a court or tribunal in deciding whether that construction is permissible under Marleasing principles.

We do not have to decide whether or not Interpretation 1 is permissible, because we have concluded that Interpretation 2 is permissible. A construction of Item 1(c) which requires that the relevant event is promoted as being for the raising of money, but without requiring that it is promoted as being primarily for that purpose, is, in our opinion, a permissible conforming construction. It does not go against what we have determined, or what the parties have submitted, to be the grain or thrust of Item 1. Nor is it inconsistent with Article 132(1)(o).

Ms Mannion stated in her further written submissions that “this approach was in principle permissible under Marleasing, but was not in accordance with it, because it was not effective in meeting any supposed infringement of EU law”. Ms Mannion argued that “it could only be an effective remedy if the Tribunal found that the aspect of Item 1(c) which was incompatible with the PVD is not the imposition of the promotion requirement per se, but the requirement that the event is promoted as being ‘primarily’ for fundraising”.

We do not agree with Ms Mannion’s arguments. They amount to an assertion that the only justifiable conforming interpretation would be Interpretation 1, but since Interpretation 1 goes against the grain it is not permitted. That is illogical. As explained above, we have concluded that Item 1(c) infringes the PVD. In light of that conclusion, our task is to determine whether there is an acceptable conforming construction of sub-paragraph (c), keeping in mind that such a construction should go no further than is necessary to remedy any infringement and that it must not in any event go against the grain. We have concluded that Interpretation 2 meets those requirements. That is because it is a construction which is effective in meeting the infringement, while doing no more than is necessary, and not going against the grain of Item 1.