Monthly Archives: March 2015

Housing: Corresponding date rule validated Right to Manage Claim Notice

An application may be made for the appointment of a manager of leasehold housing under the Commonhold and Leasehold Reform Act 2002 (“2002 Act”).

Section 80 of the 2002 Act prescribes that the claim notice:

– must specify a date, at least one month after “the relevant date”, by which each person who was given the notice under section 79(6) may respond to it by giving a counter-notice under section 84 (Section 80(6)) and

– must specify a date, at least three months after that specified as above, on which the Right To Manage company (“RTM company”) intends to acquire the right to manage the premises (Section 80(7)).

In the Upper Tribunal Lands Chamber) case of Windermere Court Kenley RTM Company Ltd v Sinclair Gardens Investments (Kensington) Ltd [2014] “the relevant date” was the 29th August 2013, when the claim notice was given, and the 30th September 2013 was the date specified under section 80(6) and the 31st December 2013 was the date specified under section 80(7).

Issue: whether a specified date of 31st December 2013 satisfied the requirements of section 80(7) or whether the earliest date it could have been was 1st January 2014.

The Tribunal said:

– The corresponding date in the following month or months was to be used as the date of calculation particularly where, as here, there was one.

– The application of the corresponding date rule in this case required that the start time specified for the RTM company must be a date ‘after’ midnight on 30th-31st December 2013.

– The start-time the claim notice specified for the RTM company was 31st December 2013.

– 31st December was the day ‘after’ midnight on 30th-31st.

Accordingly specifying 31st December 2013 as being the first day three months “after” the 30th September 2013 satisfied the requirements of section 80(7). So the claim notice complied with the provisions of section 80 of the 2002 Act.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Planning: Core Strategy Housing delivery target was not a requirement

In Local Development Plans there are two quite separate concepts:

– the “requirement” and

– the “target”.

It is the distinction between a “need” and an “aspiration”.

A “requirement” is something that is needed, and that must be provided.

A “target” is more ambitious; it is a goal or aspiration that is set, which may or may not be attained.

The “requirement” is the required minimum, which must be met whether or not the “target” is reached.

In the High Court case of Phides Estates (Overseas) Ltd v Secretary of State for Communities and Local Government & Ors [2015] Policy SS2 of the Council’s Core Strategy had the core objective to ensure the delivery of a minimum of 350 dwellings each year from 2006/2007 until 2030/2031.

It also set the target of providing 8,000 dwellings by the end of 2025/2026, which would mean an average delivery of 400 dwellings per year.

The court said Policy SS2 differentiated consistently between those two concepts.

It imposed a requirement for not less than 350 new dwellings per year to be delivered each year throughout the Core Strategy period.

The claimant’s interpretation forced one to read the word “target” as if it meant “requirement”, which was wrong.

The planning inspector had understood Policy SS2 correctly, and had applied it lawfully at the appeal in having the Secretary of State grant planning permission.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Input Tax incurred by Property Consultant related to pre VAT registration supplies

For VAT incurred by a taxable person to be input tax recoverable from HM Revenue and Customs, it must relate to an onward supply by that taxable person in the furtherance of their business.

In the First-tier Tribunal (Tax) case of Lissack v Revenue & Customs [2015] the Appellant, a property consultant, was registered for VAT with effect from 1 March 2011.

The Appellant had been involved in a court case about a business dispute that started in 1996 and the VAT charged to the Appellant on the associated legal fees had been reclaimed as input tax.

The dispute related to the multi-million pound restoration of St Pancras Hotel. The onward supply by the Appellant to the developer, Manhattan Loft Corporation Ltd (“MLCL”), had been that of introductory services in 1996.

HMRC disallowed the input tax claimed in respect of the legal fees as they did not relate to the activities of the Appellant’s VAT registered business.

The Appellant made no further supply of introductory services to MLCL in relation to the project after 1996.

The Tribunal said the supply by the Appellant was made at a time when the VAT registration was not effective and so the VAT charged to him on the legal fees was not recoverable input tax.

Whilst the legal fees were incurred on services supplied to him at a time when the Appellant’s VAT registration was effective, they were incurred in the Appellant’s attempt to enforce an alleged agreement entitling him to further payment for the supply of introductory services in 1996 when there was no VAT registration effective.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Agreed adjudication procedure could by agreement make final and binding decision

A Scheme Construction Adjudication under Section 108(3) of the Housing Grants, Construction and Regeneration Act 1996 (“Construction Act”) carries with it an implicit proviso that, unless expressly stated in the Construction Contract or agreed between the parties to the contrary, the adjudicator’s decision will be only temporarily binding on the parties, in the sense that they must comply with it, and the court will enforce it, irrespective of any complaints about its correctness or other issues which the losing party may wish to raise, unless and until the dispute is finally resolved. That final resolution may be by legal proceedings, by arbitration (where applicable) or by agreement.

In the High Court case of Khurana & Anor v Weber Construction Ltd [2015] the right of adjudication under the Scheme did not statutorily apply to the construction contract, because under Section 106 of the Construction Act the right of adjudication under the Scheme does not statutorily apply to construction contracts with residential occupiers for operations on a dwelling house.

Nonetheless in a letter the Defendant’s solicitor expressly proposed, and in their written response the Claimant’s solicitors expressly agreed to, the appointment of a quantity surveyor under the Scheme under procedures to be “conducted in accordance with” the Scheme “save that the decision of the independent structural quantity surveyor shall be binding on the parties.”

The court said both parties must be taken to have been aware that a Scheme adjudication decision would be only temporarily binding, unless expressly stated to the contrary. The words “save that the decision … shall be binding on the parties” could only sensibly have been intended to derogate from that default position.

The reasonable observer could only have concluded that those words in the Defendant’s solicitor’s letter clarified that unlike a Scheme adjudication, the adjudicator’s decision would be permanently, as opposed to temporarily, binding on the parties if their proposal was accepted.

The letter made it plain that the losing party to the proposed adjudication could not subsequently elect to re-run the whole dispute afresh in legal proceedings if that proposal was accepted (which it was by the Claimant’s solicitor’s letter).

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Pace and timing of adjudication did not deny natural justice

The courts will usually enforce the decision of an adjudicator.

There may be exceptions where a properly arguable case can be made out that there has been a breach of natural justice, or that the adjudicator lacked the necessary jurisdiction to reach the decision.

In CSK Electrical Contractors Ltd v Kingwood Electrical Services Ltd [2015], the defendant raised both challenges:

The natural justice challenge was based on the adjudicator’s timetable being too quick and therefore overstretching their resources.

This argument had been unsuccessfully raised in earlier cases.

The High Court said adjudication is a “rough and ready process” because it has to take place within a very strict timetable.

That often puts the responding party under particular pressure.

That was “a fact of adjudication life”. It is “inherent in the whole process”.

Here, the claimant testified that they had proper cash flow reasons for pursuing the claim at the time they did.

After all the importance of cash flow was the principle that underlies the adjudication process.

The timetable the adjudicator had set down made the best use of the 28 days that was available.

Though it took place over the Christmas/New Year period, the defendant had held the disputed invoices since the middle of November and so must have known what points it intended to make in the adjudication. Otherwise what was the basis for the defendant saying that the claims would be ‘strenuously defended’ on 18 December 2014? Also there had been no great complexity about the disputes between the parties.

The only real point of significance was whether or not the defendant had served on the claimant a valid “payless notice”. That was relatively straightforward and well capable of determination within the 28 days.

Lastly the defendant could have asked the adjudicator for further time but the defendant failed to do that.

That strongly suggested to the judge that this challenge was not based on something that was of great concern to the defendant at the time, but rather “on an attempted comb through the authorities on adjudication, to try and find a reason after the event for avoiding making payments to the claimant.”

So the defendant’s challenge to the adjudication, on this ground, was unsuccessful. Indeed it was on all the other grounds as well.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Wrong appointing body and rules applied to adjudication

Parliament provided that every party to a construction contract should have the right to resolve its disputes by adjudication at any time.

However, the jurisdiction of the adjudicator derives from the agreement of the parties, as represented by the terms of their contract. A dispute cannot be validly resolved by an adjudicator unless the adjudicator is appointed in accordance with:

– the terms of the contract; or

– (if it is incorporated into the contract either expressly or by operation of law) the Scheme in Part I of the Schedule to the Scheme for Construction Contracts (England and Wales) Regulations 1998 (“the Scheme”).

Unless the adjudicator is appointed under the correct contractual (or Scheme) provisions, his appointment would be null and void.

An adjudicator cannot be validly appointed under a non existent contractual provision. He or she would have no jurisdiction, So any decision that he or she might make could not be enforced.

In the High Court case of Ecovision Systems Ltd v Vinci Construction UK Ltd (Rev 1) [2015] the Sub-Contract contained 3 sets of terms under which, either party could request adjudication: (1) Option W2 of the Sub-Contract, (2) Option W2 of the Main Contract, incorporated into the Sub-Contract by Appendix 1 and Document A, or (3) if neither of the first two was applicable, the Scheme.

The procedure in each of the appointment provisions was not identical.

The court extrapolated the following principles from case law:

1. an adjudicator has no jurisdiction to determine whether he has jurisdiction, even on a temporarily enforceable basis; and

2. a choice between two sets of adjudication provisions will amount to such a determination if the choice makes a material difference as to how the adjudicator should be appointed, what rules he is obliged to follow or the effect of his decision.

However, in practice if the adjudicator purports to decide what rules governed his appointment and govern the conduct of the adjudication, his decision will be enforced if his decision turns out to be correct.

So the foregoing principle is subject to one pragmatic exception: an adjudicator can inquire into his jurisdiction and make such a determination with temporarily binding effect if:

1. his conclusion coincides with the claimant’s contentions as to the contractual terms; and,

2. the claimant is right.

This is because the defendant would not be able to establish, either:

1. with any real prospect of success when seeking to resist enforcement of a summary judgment; or,

2. on a final basis in the circumstances of a Part 8 claim,

that the adjudicator actually lacked jurisdiction because the adjudicator will have determined that the rules he was purportedly appointed under were the correct rules and the court will have gone along with his conclusion.

Even where it is common ground that a construction contract exists under which there is a right to have adjudication, the adjudicator has no power to decide what rules of adjudication apply if:

1. there is a dispute about those rules; and

2. the dispute affects (i.e. makes a material difference as to):

2.1 the procedure for the adjudicator’s appointment;

2.2 the procedure to be followed in the adjudication; or

2.3 the status of the adjudicator’s decision.

Specifically there was no rule that the court will not interfere with an adjudicator’s conclusion as to a matter affecting his jurisdiction when considering whether to enforce a decision by summary judgment.

The choice of the correct adjudication rules was fundamental to the jurisdiction of the adjudicator.


1. The referring party (Vinci) had not told the adjudicator what adjudication rules it was saying applied or why.

2. The different adjudication provisions involved different nominating bodies and were likely to involve different adjudicators being nominated. It was possible but improbable that the adjudicator would have been nominated by one of the other bodies.

3. The different rules contained real differences of procedure. In previous precedent cases these may or may not have been significant.

Neither the Scheme nor the contractual adjudicator appointment rules in this case prescribed that the Notice of Adjudication or any request to adjudicate should specify the contractual terms as to adjudication or (if the Scheme) the power under which adjudication was being pursued, so it was not fatal to the defendant’s case that the Notice of Adjudication and the request for a nomination had failed to identify the contractual terms or the power under which adjudication was being invoked.

Were it otherwise, it would mean that even where:

1. the referring party’s contention as to the applicable contractual terms was correct (or there was no real prospect of the respondent being able to prove otherwise); and,

2. the adjudicator had been appointed in accordance with those terms,

the court could still decline to enforce the decision because, at the time the Notice of Adjudication was served or the nomination was requested, those terms were not stated as being the terms applicable.

The court would be loath to reach that conclusion.

The substantive validity of the Notice of Adjudication depends on whether it can be shown that the correct rules are or have been applied. It does not depend on what was said in the Notice. The same applied to the request for a nomination of an adjudicator.

However the adjudicator had been wrong to decide that the governing adjudication rules were those in Option W2, and his appointment had been made by the wrong body. On both counts, the adjudicator lacked jurisdiction to make the decision. If the defendant wanted adjudication, it must start again. If the President or any Vice-President of the RICS was not available to act, the adjudicator must be appointed by the Chairman of TeCSA. The Chairman could appoint the same adjudicator and the Adjudication Rules of TeCSA would govern the adjudication.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Structural Engineers not liable for Contractor’s negligence

Construction professionals’ duty to warn may be analysed as follows:

1. We must first decide what the scope of the contractual duties and services were.

The scope of the duty to warn and the circumstances in which it may arise should be determined against the context of what the professional person was contractually engaged to do.

2. The professional must exercise reasonable care and skill.

That duty must be looked at in the same context.

The duty to warn is a corollary of the duty to act with the skill and care of a reasonably competent person in that profession.

3. The existence and extent of that duty will depend on all the circumstances.

4. The duty to warn can arise when a careful professional ought to have known of a danger either to life and limb or to property having regard to all the facts and circumstances. It does not have to be an obvious and significant danger.

5. Any duty to warn may well not be engaged if all there is a possibility in future that the contractor may not do the works properly, or of some other danger.

Generally, the engineer or architect is required to design the permanent works and the contractor is responsible for the design of the temporary works necessary to facilitate the permanent works.

But it will always be necessary to consider what services the professional is engaged to provide. There may well be contracts for professional services in which the engineer is employed to consider and approve temporary works’ proposals and, if so, that must be done with reasonable care and skill.

On other contracts the engineer may be engaged to supervise or inspect the works and, also, that will have to be done with reasonable care and the scope of that duty may entail checking how safely the works are being carried out by the contractor.

In the High Court case of Goldswain & Anor v Beltec Ltd (t/a BCS Consulting) & Anor [2015] the Claimants had a leasehold ground floor flat with a cellar which they decided to convert into living accommodation by underpinning the outer walls to create more height. They retained professional engineers, Beltec Ltd (“Beltec”).

Beltec was employed to provide the permanent works design for the excavation of the basement, the underpinning of the perimeter walls and the provision of support to the internal walls and structure as necessary.

That the obligation related and was limited in scope to design was supported by the Letter of Instruction:

“This letter instructs [Beltec] to carry out structural designs…”

This pointed strongly to the scope of the services not covering any supervision or inspection of the contractor. There was nothing referring to any involvement with the contractor.

Later AIMS Plumbing & Heating Ltd (“AIMS”). AIMS installed the underpinning. Following increasing amounts of cracking in the superstructure the building collapsed.

By the legal proceedings AIMS was believed to be insolvent.

The court said, in the contractual context what were the Claimants contractually entitled to expect from Beltec?

Beltec was required to provide the Claimants with the structural designs with reasonable care and skill.

The main issues were whether:

1. the drawing which showed the light well at the rear with the doorway into the light well, created a weakness or risk such that a competent contractor would not necessarily have appreciated it and,

2. therefore whether Beltec should have provided for some way of overcoming such weakness or risk.

No professional negligence in relation to the design and specification of the rear light well or otherwise had been established.

All Beltec had to do was to tell AIMS to follow the requirements set out on the drawings which had been done.

It had not been established on any balance of probabilities that Beltec should have realised that AIMS was completely out of its depth or not competent to do the job which it had been employed to do. They had believed that a company like AIMS would not necessarily need to have a temporary works designer if it had the experience in-house. There was no evidence that AIMS did not have that experience in-house.

The overwhelming probability was that AIMS had failed to carry out their work with reasonable care and skill or in compliance with the drawings which it was provided with. The breaches of contract on the part of AIMS had undoubtedly caused the collapse.

The primary mechanism of failure was a horizontal or sliding movement of the base of the flank wall. There was no propping of the flank wall and the specified sequence had not been followed, particularly in relation to the need to form the subjacent floor slab and kicker under and next to each of the pins.

Although Beltec had provided no specific guidance on how the base slab sections to the pins in the various corners were to be constructed, that was something which could reasonably be left to the contractor to work out, since the contractor had responsibility for how the works were done.

Any competent contractor could and would be expected to read the drawings and correctly interpret and implement the correct thicknesses.

Competent engineers, exercising reasonable care and skill, would have readily assumed that builders would read and understand the drawings in that way and the order in which the works were to be done.

It was unnecessary to decide whether or not AIMS would have followed more detailed advice or design specifications in relation to propping and the like.

Anyway, there was insufficient evidence to establish on the balance of probabilities that AIMS would have followed such advice or further specification because AIMS ignored such advice as was given.

So even if the court had found material breaches of duty on the part of Beltec, it is unlikely that it would have found an adequate causal link between such breaches and the collapse because the intervening and immediate cause of the damage and loss would have been the contractor’s negligence.

So the Claimants’ case against Beltec was dismissed and AIMS was found liable to the Claimants for damages of £287,754.55 – not that that would have been any consolation to them.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Planning: Core Strategy preparation cured early defects in sustainability approach

Article 3 of the SEA Directive requires a strategic environmental assessment of certain plans and programmes, including a local planning authority’s Core Strategy draft Development Plan Document (“CS”).

In the case of No Adastral New Town Ltd v Suffolk Coastal District Council & Anor [2015] the Court of Appeal upheld the High Court judgement (q.v.).

The High Court Judge had found two deficiencies in the SEA process, namely:

(i) the failure to carry out an SEA early in the preparation of the CS, prior to the Preferred Options consultation, and

(ii) the failure to consult on the alternative options to the disputed “Area 4” when an increase in housing allocation to 2000 dwellings was proposed.

But the High Court Judge found that each of those two deficiencies was later cured and that the requirements of the SEA Directive and implementing regulations had been fulfilled with by the time the draft CS was submitted for examination by the inspector in anticipation of its adoption.

However the appellants said on appeal:

(a) as a matter of law, the earlier deficiencies were incapable of being cured later in the process, and

(b) in fact, they were not so cured.

The Court of Appeal found against them (a) and (b).

When the Council decided to proceed with the CS, it was fully informed of the environmental implications on all alternative areas and knew the outcome of the public consultation as to the effect of 2000 dwellings on all 5 of the original option areas.

The judge had been right to find that the earlier deficiencies in the SEA process had been cured.

Under the Habitats Directive any plan or project:

– not directly connected with or necessary to the management of a site but

– likely to have a significant effect on it, either individually or in combination with other plans or projects,

shall be subject to appropriate assessment (“AA”) of its implications for the site in view of the site’s conservation objectives.

Screening assessments are carried out to determine whether a full AA is required

The second ground of challenge was that the Council was in breach of the Habitats Directive by not carrying out an initial screening assessment until too late in the CS process.

In the legislative material examined by the Court of Appeal it could not see even an obligation to carry out a screening assessment, let alone any rule as to when it should be carried out.

If it is not obvious whether a plan or project is likely to have a significant effect on a Special Protection Area (“SPA”) like this, it may in practice be necessary to carry out a screening assessment in order to ensure that the substantive requirements of the Habitats Directive are ultimately met.

It may be wise, and likely to reduce delay, to carry one out an early stage of the decision-making process. However there was no obligation to do so.

So there was no breach of the Habitats Directive by failing to carry out a screening assessment in this case until well into the process.

A full AA was in fact carried out and led to a properly based conclusion that the allocation of housing proposed in the CS would not have an adverse effect on the integrity of the SPA. That met the relevant requirements of the Directive.

The third ground of challenge was that the Council had breached Article 6 of the Habitats Directive by leaving mitigation measures over for assessment at the later stage of the Area Action Plan or specific planning applications, in circumstances where sufficient information had been available to assess the effectiveness of such measures at the CS stage.

To leave matters of mitigation to lower-tier plan-making or specific project stages was claimed to be contrary to the scheme of the Directive if the relevant information had been known at an earlier stage.

The Court of Appeal said the important question was not whether mitigation measures were considered at the CS stage in as much detail as the available information allowed, but whether there was sufficient information at that stage to enable the Council to be satisfied that the proposed mitigation could, in practice, be achieved.

There was an obligation to have continuing regard to the avoidance of harm to the SPA at all subsequent stages of the planning process.

If some unforeseen adverse impact was subsequently identified which could not be resolved by mitigation, the development would be cut back to the extent necessary to ensure that there would be no adverse effect on the integrity of the SPA.

That was a sensible precautionary measure in a CS that set the framework for development until 2027.

That sort of an approach was in accordance with Article 6 of the Habitats Directive, not in breach of it.

This blog has been posted as a matter of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Retrospective planning consent imposed current obligations

Section 73 of the Town & Country Planning Act 1990 (“TCPA”) enables an application to be made to proceed with a development without complying with conditions attached to a planning permission whether the development has not yet commenced, or is in progress, or has been completed.

If the development has not yet commenced, a new grant of permission will take effect prospectively.

If the development is partially completed the permission may take effect prospectively or, using the power under section 73A, both retrospectively and prospectively.

However, if the development has been completed in breach of a pre-condition, retrospective planning permission may be granted under section 73A subject to conditions imposed under section 70. No part of it can be prospective since (i) there remains no proposed development in respect of which any permission can be given and (ii) since there is no proposed development, any conditions, as varied, could only be imposed as a current obligation.

Court of Appeal case of Lawson Builders Ltd & Ors v Secretary of State for Communities and Local Government & Anor [2015] turned on whether the appellants had, in 2010, successfully appealed against the refusal of an application under section 73 of the Town & Country Planning Act 1990 (“TCPA”) for the variation of planning conditions attached to an earlier permission or whether the appellants the planning inspector’s decision constituted the grant of retrospective planning permission for the dwellings under sections 73A and 75(3) TCPA, so rendering the development lawful, and the conditions attached to the permission enforceable.

No carriageway works were undertaken in compliance with the conditions on the 2010 permission and the council served a Breach of Condition Notice (“BCN”). The first appellant took no action and was convicted of failing to comply with the BCN contrary to section 187A(9) TCPA.

The appellants accepted that the development for which the first appellant was seeking planning permission had already been completed in breach of a 2004 planning permission because the appellants had failed to carry the carriageway works out as a pre-commencement condition.

It followed that any new planning permission granted by the local planning authority (or the planning inspector on appeal) whether or not subject to conditions had to be retrospective in its effect.

New conditions could not be grafted on to the 2004 permission – that was not the way section 73 worked.

Subject to qualifications in subsections (4) and (5) (not applicable here), section 73(2) made it plain that the local planning authority must either grant a new permission with no conditions or grant a new permission with different conditions or refuse the application.

1. The first appellant had not been seeking permission for a “proposed development” it had been seeking permission for a completed development.

2. The first appellant was seeking the variation of pre-conditions to the original development. Any conditions attached to the fresh permission could not be pre-conditions to the construction of a “proposed development” because the development had been completed and the existing breach was irremediable. If the conditions were to be varied in the terms sought they could only be conditions that took effect at the date of the grant of the retrospective planning permission or at some other specified time in the future.

It was implicit that if the 2010 application had been successful it would result in a grant of planning permission retrospectively and the imposition of new conditions for the carriageway works that would take effect on or after the date of grant.

An application merely to change the specification of the carriageway works referred to in the 2004 planning permission could not have assisted the first appellant because the carriageway works were a pre-condition to the development. What was done was done. The first appellant could only achieve what it wanted by a grant of fresh planning permission retrospectively subject to revised conditions imposing new current obligations as to the carriageway works.

The first appellant could not implement the 2004 permission because its failure to comply with the carriageway pre-commencement conditions attached to it was irremediable and it had already ‘implemented’ the 2010 permission by completing the development before permission was granted so that the conditions of that permission had immediate practical application.

The original purpose of the conditions being pre-conditions to the 2004 permission (i.e. to prevent building and occupation before the conditions were fulfilled) could no longer be achieved. The development was already causing harm from additional traffic and “it [was] essential that the scheme be submitted and completed in a short time”. The first appellant could not reasonably have understood that compliance with carriageway conditions had been optional.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Fountain had sufficient business purpose for input VAT to be recoverable

    In Folkestone Harbour (GP) Ltd v Revenue & Customs [2015], Folkestone Harbour (GP) Limited’s (“FHGP”) business consisted of the Folkestone Seafront redevelopment (“the Project”). It was the Developer within that Project though facilitating and masterminding the development as opposed to developing it itself.

    HMRC disallowed FHGP’s recovery of input VAT claimed on the costs of constructing a “pavement fountain” in Fountain Square, Folkestone.

    However FHGP felt:

    “…it had satisfied the business purpose test within Section 24(1) of the Value Added Tax Act 1994 as there is an obvious and clear link between the fountain… and the business of [FHGP], and that the input tax incurred on the construction of the fountain should be fully recoverable.”.

    HMRC did “… not believe that the fountain which does not lie within the potential harbour redevelopment site, has an obvious business purpose”.

    Accordingly the input tax on the fountain was not incurred for business purposes. so as to be recoverable by FHGP.

    The First Tier Tribunal Tax Chamber disagreed with HMRC. It was effectively a marketing tool not least because it increased the footfall in the area.

    The brand awareness was increased for FHGP. The plaque near the fountain said it was a development by FHGP. But it did not really matter whether the general public made any connection between the fountain and FHGP. The test was a subjective one and the controlling mind and the sole ultimate shareholder of FHGP’s Group always considered the construction of the fountain to be an essential part of the Project.

    Even if the Tribunal was wrong on that finding, no ordinary businessman would have incurred such expenditure on the fountain unless it was for the purpose of the business.

    This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.