Heritage of London Trust Operations Ltd v Customs and Excise [2004] UKVAT V18545 (26 March 2004)

INPUT TAX – whether the Appellant was party to a contract to carry out works or the recipient of a donation – contract inferred – appeal allowed

LONDON TRIBUNAL CENTRE

	HERITAGE OF LONDON TRUST OPERATIONS LIMITED	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

			Tribunal:	DR JOHN F AVERY JONES CBE (Chairman)
					MICHAEL SILBERT FRICS

Sitting in public in London on 4 March 2004

Malcolm Crowder OBE FRICS, Project Organiser and Secretary of the Appellant, for the Appellant

Nicola Shaw, counsel instructed by the Solicitor for the Customs and Excise for the Respondents

© CROWN COPYRIGHT 2004

DECISION

1.	This is an appeal by Heritage of London Trust Operations Limited against a decision in a letter dated 11 October 2002 refusing input tax credit of £137,000.  Mr M Crowder represented the Appellant; Miss Nicola Shaw represented the Commissioners.
2.	The appeal concerns the moving of a Grade II listed water tank designed by Sir George Gilbert Scott and built in 1872 for servicing steam locomotives, the St Pancras waterpoint (the building).  The building was in the way of the channel tunnel rail link.  Under the Channel Tunnel Rail Link Act 1996, London & Continental Railways Limited (LCR, which will also include references to its subsidiaries Union Railways Limited and Union Railways (North) Limited which were acting as agents for LCR), the company constructing the rail link, was required to give various undertakings relating to the preservation of the building the terms of which were detailed in an agreement dated 20 February 1997 with The Historic Buildings and Monuments Commission for England (English Heritage), referred to below as EH, clause 10 of which provides:
“If EH identify before 1st October 1997 (or such later date as may be agreed between the parties) a suitable site and a willing recipient for the water point, LCT will survey, record and dismantle the building comprising the water point in such manner as to readily enable its re-erection, and will pay the costs of transporting it as so dismantled to a site in the immediate vicinity of the Railway Lands [defined as the Kings Cross Railway lands shown on a plan annexed] (any transport costs outside this area being borne by the recipient) and transfer ownership of it as dismantled at no cost to the recipient, although it is agreed that LCR is not to bear any cost of its re-erection.”
If the condition was not satisfied, LCR was under the Act entitled to demolish the building.
3.	We find the following facts:
(1)	EH approached the Appellant about the same time as making the agreement with LCR.  EH paid the Appellant a grant of £20,000 towards a feasibility study of moving the building.
(2)	EH stated in a letter to LCR of 7 March 1997 that using figures provided earlier by LCR and adjusting them, the work for which LCR was liable would cost £103,200.  EH asked LCR to agree an updated final figure to be incorporated into a Heritage Lottery bid.
(3)	The 1 October 1997 deadline was extended to 1 April 1998 by letters of 3 and 24 October 1997.  A letter of 7 March 1997 from EH to LCR refers to the identification of a site at St Pancras Gardens, from which we assume that the condition in the agreement was satisfied before 1 April 1998.  Notes of a meeting on 19 February 1998 state that the London Borough of Camden were not keen to take ownership of the site.
(4)	A letter of 29 June 1997 from LCR to EH states that in the event of LCR’s obligations in the agreement being performed by someone else it would pay the Appellant £100,000 subject to various conditions including:
“A written agreement between [LCR], on behalf of Eurostar (UK) Limited, and [the Appellant], will set out how the work shall be carried out and the timing of LCR’s contribution including:
•	[The Appellant] or its contractor(s) shall carry out the work, as it affects [LCR’s] interests, to the satisfaction of [LCR].
•	The work shall be undertaken in accordance with the overall programme determined by [LCR] and notified to [the Appellant] or its contractor(s), or as modified and agreed between the parties.
•	[The Appellant] shall indemnify [LCR], its agents, contractors and employees against all claims for loss and damage directly arising from the carrying out of the work, including any loss or claim made by [LCR’s] contractors directly resulting from failure of [the Appellant] or its contractor(s) to comply with the overall programme.
•	As [the Appellant] or its contractor(s) shall be exercising LCR’s powers under the CTRC Act to dismantle the water point they shall be required to comply with all relevant obligations imposed upon LCR, e.g. the Environmental Minimum Requirements etc.
•	Any sum paid by LCT to [the Appellant] shall be paid in full and final settlement of all and any obligations which LCR has in relating to the water point pursuant to the Agreement [with EH] and before such sum shall be payable the Appellant shall deliver to LCR a satisfactory discharge from English Heritage of the aforesaid obligations.”
Effectively EH agreed that LCR were to pay £100,000 rather than be responsible for the removal.  No such written agreement was ever entered into.  The letter contains the following: “It would be a matter of regret to all parties if a satisfactory site for this building could not be found in the agreed time scale, thereby forcing LCR to demolish it, under the powers of the CTRL Act.”
(5)	The Channel Tunnel Rail Link project seems to have gone off in 1998.  A note of a meeting of 9 March 2000 states that a re-submission of lottery funding was being made to replace funding previously agreed.  The note of the meeting also states that “EH advised that under the new agreement with LCR, [the Appellant] will be contracted to LCR to carry out the works.”  There was no evidence about such new agreement.  At some point the Appellant agreed that it would own the site rather than the London Borough of Camden.  At the same meeting it was recorded that British Waterways Board intended to take a long lease of the new site.  
(6)	On 11 May 2001 the Heritage Lottery Fund agreed a grant of up to £587,000 (75 per cent of the total cost of £783,300 for moving and re-erection of the building) subject to the execution of a contract between the Appellant, the British Waterways Board and the Trustees of the National Heritage Memorial Fund, one of the conditions of which was that LCR would provide £108,000 funding towards the scheme.  The Appellant’s funding of the total of £783,300 included £108,000 from LCR and £27,460 as a grant from EH.
(7)	Work on moving the building started in March 2001 and it was moved on 28 November 2001 in two sections split horizontally after it had been found that it would not be possible to dismantle it.  The cost was larger than had been envisaged.
(8)	Mr Crowder of the Appellant gave evidence, which we accept, that they were introduced to the project by EH, following which they made a feasibility study; that they were on the sidelines and accepted the conditions in the 2 June 1997 letter and accordingly considered that they were liable for any delays to the project; they negotiated the increased price of £117,000 with LCR to compensate for inflation over the period of delay of the contract (evidenced by a letter of 18 May 2001 from LCR to the Appellant; the same letter refers to the possibility of a form of contract “that would enable you to reclaim VAT”).
(9)	On 1 November and 29 November 2001 the Appellant invoiced LCR a total of £117,000 plus VAT.
(10)	On 16 November 2001 the Appellant was invoiced by Abbey Pynford plc was a total of £345,773 less a retention and less six payments already made on account leaving a balance of £101,183.60 due of which £78,345.12 was paid on 19 December 2001.  On 29 November 2001 the Appellant was invoiced by The Morton Partnership limited, consulting engineers, for £8,323 including VAT.  On 10 December 2001 the Appellant was invoiced by David Ball Restoration Limited for £13,253.85 including VAT.
(11)	The building was moved to a site owned by the Appellant surrounded by land owned by British Waterways Board to whom the Appellant agreed to grant a 25 year lease at a peppercorn rent.
4.	Essentially Mr Crowder for the Appellant asks us to find that, by agreement with LCR and EH, the Appellant took on LCR’s contractual obligations to EH; and Miss Shaw for the Commissioners asks us to infer that there was no contract between the Appellant and either EH or LCR with the result that any payment by LCR is a payment to EH to be relieved of its contractual obligations, which EH asked it to pay to the Appellant so that it formed a further donation by EH to the Appellant relating to the project.  Miss Shaw contends that in the absence of such a contract there is no consideration for the supply of services made by the Appellant.  The Appellant’s services were supplied to EH but the payment by LCR was not consideration for that supply, being part of the total funding of the project.  Alternatively, Miss Shaw contends that the Appellant’s inputs is not attributable to the proposed (elected) lease at a peppercorn to British Waterways Board.
5.	It is clear that there are no written contractual documents setting out the Appellant’s precise role in the transactions.  In support of there being an oral contract between the Appellant and LCR under which with EH’s consent the Appellant took over LCR’s original obligations are the following: (1) that the terms of a proposed contract are spelt out in detail in the letter of 29 June 1997 from LCR to EH obviously following legal advice; (2) that a contract between the Appellant, the British Waterways Board and the Trustees of the National Heritage Memorial Fund under which LCR were to pay £108,000 was a condition of the Heritage Lottery Fund grant; (3) LCR already had a contract with EH and wanted a release of their obligations from EH on making the payment to the Appellant, so LCR might be expected to make the Appellant liable to do the work instead of LCR; (4) EH’s interest was to preserve the building rather than to receive the £108,000 from LCR and have the building destroyed, and so it needed to make sure that the Appellant did the work; transferring the payment from LCR to the Appellant and merely relying on the Appellant’s interest in preserving the building would not necessarily achieve this; (5) the 9 March 2000 meeting envisaged a contract between the Appellant and LCR; (6) the Appellant had incurred works of £345,773 plus £8,323 plus £13,253.85 before the building was moved and had funded the project on terms that LCR paid £108,000; the Appellant might be expected to ensure that it would be paid the £108,000 (increased to £117,000) before taking on a greater liability and starting work in March 2001 (eight months before it received the payment); (7) the Appellant negotiated directly with LCR for the final price of £117,000.  Against there being a contract was that the evidence of Mr Crowder did not point to a time when offer and acceptance were agreed with LCR.
6.	We consider that in spite of the lack of direct evidence of a contract between the Appellant and LCR on the balance of probabilities there was such an oral contract based on the terms of the contract set out in the correspondence.  It was in the interests of the Appellant, EH and LCR that there was such a contract.  Although Mr Crowder could not point to the act of making of such a contract, he is not a lawyer and may not have appreciated the legal significance of his actions.  In particular, he negotiated the increased payment of £117,000 with LCR and he considered that the Appellant was liable if delays in carrying out the removal had delayed the Channel Tunnel Rail Link project.  The other funding for the project is different in nature.  LCR had a contractual liability to EH to do the removal.  The Appellant knew how to organise the removal.  It is much more probable that they agreed with LCR to take on the same liability to EH as LCR had, than EH merely directed LCR to pay the Appellant the same sum as part of the total funding of the project.
7.	On Miss Shaw’s alternative contention, we agree that the inputs are not attributable to the proposed lease as there is insufficient connection between them.
8.	Accordingly we allow the appeal.

J F AVERY JONES

CHAIRMAN

LON/02/984