Tuesday 15 October 2013

General Construction Limited v Chue Wing & Co Ltd and another

[2013] UKPC 30
Privy Council Appeal No 0073 of 2011


JUDGMENT

General Construction Limited (Appellant)

v

Chue Wing & Co Ltd and another (Respondents)

From the Supreme Court of Mauritius

before

Lord Neuberger
Lord Mance
Lord Clarke
Lord Carnwath
Lord Toulson



JUDGMENT DELIVERED BY

Lord Mance

ON

15 October 2013

Heard on 12 June 2013


Appellant
Gavin Kealey QC
Julia Dias QC
Eric Ribot SC
(Instructed by De Comarmond & Koenig)

LORD MANCE:
Introduction
1.         During a cyclone on 10 February 1994 the upper sections of a crane erected for works being undertaken on a multi-story building at the corner of Royal and Bourbon Streets in Port Louis fell onto the neighbouring building. The crane was owned, erected and operated by the appellant, General Construction Co Ltd. Its fall damaged both the neighbouring building, of which the first respondent, Ibrahim Cassam & Co Ltd, was owner and landlord, and the property and business of the second respondent, Chue Wing & Co Ltd, which was its tenant.  
2.         The trial took place in June 1997 and November 1998 before K P Matadeen J. By a judgment delivered only on 31 May 2004, and upheld by the Supreme Court (Court of Civil Appeal) only on 31 January 2011, the appellant has been held liable to both respondents in damages, on the basis that, although there was no proof of faute within article 1382, it had not established that the accident occurred due to force majeure within article 1384 of the Civil Code.
3.         The appellant, represented by Mr Gavin Kealey QC, Ms Julia Dias QC and Mr Eric Ribot SC, challenges the correctness of this conclusion. It also raises a minor point regarding the Court of Civil Appeal’s decision to award interest to the first respondent, which the trial judge had not awarded. The respondents, although represented below, have not been represented before the Board. The second respondent is now in liquidation. The Board pays tribute to the quality of the assistance which it has had from those representing the appellant, who have in accordance with best tradition put the relevant legal material before the Board both helpfully and objectively. 
Background facts
4.         The crane was a Potain crane model 428 G manufactured in France in 1973, purchased second-hand by the appellant in 1985, and used thereafter in Mauritius. The upper sections detached themselves from the side of the building and fell due to the breakage of the top three-sided collier or collar which wrapped round the crane and was supposed to fix it to an anchor extending out from the building.
5.         Cyclones are common in the Indian Ocean and not infrequently their path crosses Mauritius. Thus two cyclones hit Mauritius in 1960, one in each of the years 1961, 1962, 1964, 1966 and 1967, one in 1970, one in 1972, one in each of the years 1975, 1978 and 1979, three in 1980, one in each of the years 1981 and 1983, one in 1989 and one, Cyclone Hollanda with which this appeal is concerned, in 1994. Their intensity varies. The majority involved wind gusts well below 200 km per hour (kmph), but there were gusts of respectively 200 and 256 kmph in the two 1960 cyclones, 235 kmph in 1962, 219 kmph in 1962, 280 kmph in 1975, 221 kmph in 1979, 201 kmph in 1980 and 216 kmph during Cyclone Hollanda in 1994. Wind gusts in excess of 200 kmph during cyclones must therefore be taken to be foreseeable in Mauritius.
6.         Cyclones develop gradually over periods during which it is not clear that they will become cyclones. Cyclone Hollanda developed with greater than usual speed. What became Cyclone Hollanda consisted of no more than 40 kmph winds on 2 February 1994, it then formed a low pressure area south of Diego Garcia and by 8 February it had developed into a moderate, and by 9 February a severe, tropical depression. It takes six days to dismantle a Potain crane like the present. By the time a cyclone was a real possibility, it was therefore too late to dismantle the crane.
7.         The judgments below go little further into the characteristics or propensities of cyclones, though the judges may have known some of these from personal experience. In written material submitted to the Board after the hearing, the appellant noted potential differences between the behaviour and effects of “dry” and “wet” cyclones, of short-lived and longer-lasting cyclones and of wind patterns operating within cyclones (spiralling, funnelled, with short or more sustained gusts). The Board is content to accept that a particular cyclone may present in any of these forms, though it seems to follow that all must also have been foreseeable, or prévisible, in 1994. 
Code civil and force majeure
8.         Articles 1382 to 1384 read:
“1382  Tout fait quelconque de l’homme, qui cause à autrui un dommage, oblige celui par la faute duquel il est arrivé, à le réparer.
1383 Chacun est responsable du dommage qu’il a causé non seulement par son fait, mais encore par sa négligence ou par son imprudence. 1384 On est responsable non seulement du dommage que l’on cause par son propre fait, mais encore de celui qui est causé par le fait des personnes dont on doit répondre, ou des choses que l’on a sous sa garde. …..
La responsabilité ci-dessus a lieu, à moins que …. le gardien de la chose ne prouve que le dommage a été causé par l’effet d’une force majeure ou de la faute exclusive de la victime. ….”
9.         Before K P Matadeen J the respondents advanced a case of faute, alleging that the collars were not fit for the purpose or maintained properly or in accordance with the manufacturer’s instructions. The judge rejected this case, finding that the crane had been properly erected, maintained and operated and did not fall through any defect or weakness in its structure. The fall was “due to the unexpected giving way of the ‘colliers’ [sic]”. No reason was assigned for this “unexpected giving way”.
10.      However, the judge held the appellant liable on the ground that the cyclone was not unforeseeable in either its occurrence or its intensity and therefore did not constitute an event of force majeure. The Court of Civil Appeal, sitting in a constitution of five judges presided over by Y K J Yeung Sik Yuen CJ, who gave the judgment, upheld the trial judge after a detailed examination of authorities and principles relating to the concept of force majeure.
11.      The appellant accepts that the mere absence of faute within article 1382 does not prevent a person being liable for damage caused by a thing under his or its guard under article 1384. In effect, the gardien of a thing who benefits from its possession (or, at least in some cases, use) is treated as undertaking or bearing the risk of damage which it causes. Nevertheless, some limited exceptions are provided. That presently relevant is force majeure. Under article 1384, the onus is on the person in charge of the thing to show that the damage was caused by an event constituting force majeure. The consequent exposure is no doubt understood by the gardiens of choses, at least when they are crane operators, and they can be expected to arrange their insurance protections accordingly.
12.      French and Mauritian case-law have traditionally identified three constituent elements of an event of force majeure: it must be (i) extérieur or étranger à la chose, (ii) imprévisible and (iii) irrésistible. In the French case-law a divergence emerged between the practice of the 2ème Chambre and the Chambre sociale of the Cour de cassation, which insisted on a strict cumulative approach to these three elements, and the 1ère Chambre and the Chambre commercial, which, supported by a strong body of academic doctrine, treated irrésistibilité as the critical element and imprévisibilité as no more than a relevant consideration in judging whether an event was irresistible. Two decisions of the Assemblée plénière on 14 April 2006 (Bull. Ass. Plèn. nos 5 and 6), one in a contractual, the other in a delictual context, insisted upon the need for both irrésistibilité and imprévisibilité, but did not examine the relationship between them in detail.  
13.      Academic doctrine has been and remains somewhat sceptical about the relevance and inter-relationship of the three elements of force majeure, in both contractual and delictual contexts: see e.g. Encyclopédie Dalloz Vo Force Majeure para 21, Revue trimestrielle de droit civil (“RTD”) Civ 4 oct-déc 1994 pp 871-876, Ouragan sur la force majeure par P H Antonmattei [JCP]1996, I 3907, Bruschi, Revue Générale du Driot des Assurances (“RGDA”) 1996 pp. 385-392, Catastrophe naturelle et force majeure par Fabrice Leduc, RGDA 1997, no 2 p. 421, Droit de la responsabilité civile, par Le Tourneau et Cadret, paras 905-906 and, most recently, the Droit de la responsabilité et des Contrats par Le Tourneau Dalloz Action, 2010-2011), paras 1807-1813.  The basic academic thesis is that the real relevance of foreseeability is in throwing light on whether the event causing the damage was irresistible. If something is foreseeable at a time when it can be avoided, then it is not irresistible.
14.      More recent decisions of both the 1ère Chambre and the Chambre sociale in a contractual context insist upon imprévisibilité at the time of conclusion of the contract as well as irrésistibilité (Pourvois Nos: 07-17134 of 30 October 2008 and 10-17726 of 16 May 2012). But this is not on any view surprising in a contractual context. If something is foreseeable when the contract is entered into, and no special provision is made for it, then a contracting party may be taken to have accepted responsibility for or despite it, if it materialises. “La jurisprudence poursuit un objectif de loyauté contractuelle”: Fabrice Leduc in RGDA 1996 no. 2, cited above, p. 423. On the other hand, the Board can gain no real assistance from the passing reference to irresistibility alone in a decision of the Chambre commerciale, of 4 December 2012, 11-25.964, cited to it by the appellant after the oral hearing.
Judgment of Court of Civil Appeal
15.      Writing for the Court of Civil Appeal in the present case, the Chief Justice examined the French case-law up to the two decisions of the Assemblée plénière, and noted their conclusion that the elements of imprévisibilité and irrésistibilité must coexist (paras 68 and 72). But he also concluded that the “emphasis” in France was on whether the event was irresistible and that, if unforeseeability remained a “complementary” element, irresistibility was the irreducible factor. Further, when (in paras 78-90) he came to consider Mauritian authority and its understanding of the legal position (including French authority), he detected a recent “shift” from imprévisibilité to irrésistibilité (para 81). He concluded, speaking with reference to an appeal to the Cour de cassation relating to the effects in La Réunion of Cyclone Firinga in 1989 (Cour de cass, 2ème Civ 18 March 1998):
“89 In other words, while l’irrésistibilité of the event is the crucial element, the predictability of same becomes important to find whether precautions could have been taken to avoid the disastrous consequences.
90 In sum, what is force majeure with respect to cyclone Firinga was decided by the French Courts on the basis of its résistibilité. The fact that it was résistible was decided by the fact that it was prévisible. In other words, the prévisibilité of the cyclone rendered it possible for people to mitigate the disaster it would have caused.” 
16.      As the Board sees it, this was ultimately the approach which the Court of Civil Appeal held should apply in Mauritius. The Chief Justice said:
“105 When the Assemblée Plénière speaks of the double need of prévisibilité [sic] and irrésistibilité, one may need to follow what is the nature of the cumulative character of these two elements. If it is unpredictable and irresistible, there is no doubt, it is a force majeure. But there may occur an event which is prévisible yet when it strikes, it is irresistible. In that case, it would qualify as a force majeure:
“Quand le danger  prévisible était irresistible, il y a bien force majeure”
para 714, Philippe Le Tourneau, La responsabilité civile, 3ème ed. p.241. 
106 Thus, where an event is predictable but irresistible, it amounts to a force majeure where it can be shown that all measures taken to make the event resistible were of no avail. What the courts are looking for is whether all reasonable measures have been taken to render the predictable resistible. ….
“… exigeant des juges du fond qu’ils recherchent si, en l’espèce, toutes les mesures requises pour empêcher l’événement avaient été prises: ....”
17.      The word “reasonable” might be read as suggesting that mere absence of faute is sufficient to demonstrate irresistibility for the purposes of force majeure. The appellant accepts that this is not so. In its written case before the Board, the appellant submits that standard is not to be regarded as “an absolute standard of impossibility”. Rather it is, the appellant submits, the standard of a bon père de famille taking “those precautions which are reasonably and practicably possible in the circumstances of the case”. For bon père de famille, the Board would itself substitute a “responsible crane operator”. In its case, the appellant goes on expressly to accept, in this connection, that
“there is a very real difference between absence of faute or negligence and a standard of conduct referable to reasonable and practical possibility. The mere fact that a defendant has not been negligent or at fault does not of itself prove that he took all measures that were reasonably possible in the sense of being reasonably and practically available to him. In other words, a concept of irresistibilité which incorporates a standard of reasonable and practical possibility still requires a defendant to do much more than prove that he was not negligent. On the contrary, he must go further and show that once the event was foreseeable he did everything which was reasonably possible and practicable, not only that which it might have been reasonable for him to do.” 
18.      The Board is content for present purposes to proceed on this basis. It notes in passing a possible analogy with the legal position under article 17.2 of the CMR Convention scheduled to the United Kingdom Carriage of Goods by Road Act 1965, as explained at first instance by Mustill J in J J Silber Ltd v Islander Trucking Ltd [1985] 2 Lloyd’s Rep 243. Article 17.2 contains what is on its face a more widely expressed exception than force majeure, since it simply relieves international road carriers “of liability if the loss, damage or delay was caused …. by circumstances which the carrier could not avoid and the consequences of which he was unable to prevent”. But Professor Malcolm A Clarke in his standard work on International Carriage of Goods by Road (5th ed) (2009) suggests that, so far as irresistibility (or inevitability) is concerned, the standard involved may equate with that involved in force majeure under French law (see footnote 146 on p.230 and the accompanying text. He also points out that, under article 17.2, Mustill J in J J Silber at p. 247 identified the standard under article 17.2 as being “somewhere between, on the one hand, a requirement to take every conceivable precaution and, on the other hand, a duty to do no more than act reasonably in accordance with prudent current practice”.  That corresponds closely with the way in which the appellant puts the matter.
19.      Subject to the reservation made at the start of paragraph 17 above, the Court of Civil Appeal’s approach is, the Board understands, one with which the present appellant is content. The Board for its part also sees much force in the Court of Civil Appeal’s approach. However, since the appeal has only been argued on one side, the Board prefers to express no more concluded view than this, and it is unnecessary to do so. 
20.      What is in the Board’s view important is to identify the conjunction of circumstances constituting the event. If these are all foreseeable, then it is difficult to avoid the conclusion that steps should have been taken to address them. But foreseeability needs itself to be understood in a practical sense. Freak accidents can occur against which the most responsible persons may not guard. The duty is to take those precautions which are reasonably and practicably possible in the circumstances of the case, not to make freak accidents absolutely impossible. So, in the present case, it is not by itself sufficient to say that cyclones in general are foreseeable in Mauritius. It is possible that a particular cyclone may occur with unforeseeable characteristics or, perhaps more likely, that it may, in conjunction with other factors, give rise to a freak event against which responsible crane operators cannot be expected reasonably and practicably to guard.
21.      The Board notes, in parenthesis, that an approach along these lines appears consistent with that adopted after Hurricane Katrina in United States case-law. In HRD Corp v Lux International Corp, 2007 WL 2050366, a bailment case, the US District Court for the Southern District of Texas (citing Union Pac R.Co v Hartland Barge Mgmt, 2006 WL 2850064) adopted the definition of an act of God as meaning an “accident, due directly and exclusively to natural causes without human intervention, which by no amount of foresight, pains, or care, reasonably to have been expected, could have been prevented”. This test was followed by the US District Court for the Eastern District of Louisiana in Coex Coffee International and Insurance Co of North America v Dupuy Storage & Forwarding LLC, 2008 WL 1884041. Those cases and others are referred to in an interesting article (included in the appellant’s authorities) by Professor Kenneth Kristl, Diminishing the Divine: Climate Change and the Act of God Defense (2010), Widener Law Review, Vol 15, 325, 360. The author notes that in the post-Hurricane Katrina litigation the focus in United States case-law has been on defendants’ hurricane preparation plans. 
22.      The appellant takes issue with the way in which the Court of Civil Appeal applied its approach to the circumstances of this case. The Board agrees that certain aspects of the Court’s judgment are in this respect open to legitimate criticism. The Court’s judgment appears to the Board to display several different themes. The first is that cyclones announce themselves several days in advance (para 94). That is no doubt so, but, unless a cyclone announces itself with clarity more than six days in advance, which Cyclone Hollanda certainly did not, the announcement comes too late to do anything about a crane such as the present which requires six days to dismantle. On the evidence, it would have been very foolish to have been caught half way through dismantling the crane when the cyclone struck. In so far as the Court in paragraph 114 of its judgment seems to have suggested that the appellant was or may have been unable to show force majeure simply because it did not start dismantling the crane at the time when an area of low atmospheric pressure emerged south of Diego Garcia, because that area of low pressure might develop into a cyclone, that appears to the Board to put the duty on crane operators during the cyclone season much too high, even if it can be seen with hindsight that dismantling would then have been completed before the cyclone struck. Indeed, in the case of a crane designed to withstand cyclones of the character known to strike Mauritius from time to time, the Board sees no reason why the crane operator should necessarily contemplate dismantling the crane merely because such a cyclone was predicted, even if time did appear to allow such dismantling.
23.      The Court’s second theme was that Mauritians are familiar with cyclones, but are a resilient people with the means and resources to contain or mitigate their consequences (paras 96-101 and also 122). This is again doubtless the case, but it does not address the present problem which is, what more could or might have been done to avoid the event which befell this crane. No-one suggests that construction work or the erection and use of cranes to build or reconstruct high rise buildings ceases or should cease during the cyclone season.
24.      The Court in its third theme went on to acknowledge that, although “the type of cyclones we are used to cannot be regarded for the reasons given [as] force majeure”, nevertheless “there may occur cyclones of such a nature as may so qualify. In this age of climate change, natural phenomena are taking forms of unprecedented dimensions.” This led it to consider whether Cyclone Hollanda was “such a cyclone of the extreme type”, and to set out figures for the highest wind gusts over the previous century, which showed that wind gusts in excess of 200 kmph had occurred on most of the occasions which the Board has listed in para 5 above. It does not appear to have been addressed on any other characteristics of this particular cyclone, still less upon any contribution that they might have made to the accident.
25.      The Court then referred to evidence given by the appellant’s employee, M Curé, an electrician by training, who had worked with the appellant and had experience with cranes since 1988. His evidence had convinced the judge on the issue of faute. But the Court of Civil Appeal pointed out that he had singularly failed to give any evidence about the capabilities or suitability of the crane during a cyclone in which wind gusts developed exceeding 200 kmph. Cyclones with wind gusts of over 200 kmph with trajectories hitting Mauritius were, although rare, certainly not unknown in Mauritius. M Curé (who appears to have been responsible only for the operation, not for the selection and suitability of the crane) simply assumed that the crane would be capable of withstanding such a cyclone, if its jib was left free in the manner usual during such events. No evidence was called from the manufacturer, from anyone within the appellant responsible for the selection and use of this crane or from any crane expert. This was so, although, it appears, the appellant had given notice that it had engaged an expert for the trial. 
26.      M. Curé’s evidence, quoted by the Court of Civil Appeal, was as follows:
“Q: En fin de compte, concernant la grue, le technicien voit si c’est bien monté, la grue lorsque c’est installée d’après les données du dessin ?
A: Nous faisons strictement ce qui est demandé dans le livre.  Nous faisons tous les tests, tous les réglages de sécurité ; ensuite un ingénieur qui vient vérifier, fait des tests et émet un certificat.
Q: En temps normal ?
A: Oui, quand la machine est montée.
Q: Pas en temps cyclonique?
A: Quoi?
Q: D’après le livre, la grue peut tenir à quelle vitesse de vent?
A : Dans le livre, c’est pas vraiment mentionné aucune part, mais je pense ça devrait tenir à peu près à des vents supérieurs à 200 km selon les spécifications données comme je vous ai dis, nous travaillons selon ce livre, nous faisons ce que ce livre nous recommande – on a toujours fait ca [sic] dans le passé, on n’avait jamais eu de problèmes.
Q: Le livre vous recommande jusqu’ à quelle vitesse de vent ?
A: C’est pas dit.
Q: D’après vous c’est plus de 200 ou de 300 km?
A : Je ne sais pas, je ne suis pas apte à entrer dans les détails techniques.
Q : Est-ce que vous attendiez que la grue allait tomber pendant le cyclone?
A : Non.
Q : C’est tout
..................... .....................
Court : He was asked his opinion about what would be the maximum speed of wind that this crane would be able to resist and he expressed the opinion that it may be more than 200 km.  Am I right, Sir Marc?
Sir Marc David: Perfectly right, Your Lordship.  
XXX 1/332-33 or 2/552-3
27.      The Court commented on this evidence in paragraph 117 of its judgment:
“The evidence of this expert witness is to the effect that they went by the books, and to the letter at that, following the Potain Manual.  The evidence shows also that they have the temps normal in mind when they raise the crane.  The clearance certificate is issued with that in mind, once the crane has been erected for operation.  That leaves a lot to be desired: Poain Manual is silent on how this artificial structure of over 16 sections tall by 5,750 metres with an overhanging arm of 36 metres long having been imported in a cyclone-prone country would behave in such an environment, more particularly, in cyclonic conditions.  And what is more. [sic] General Construction have never seriously bothered about
it.”
28.      The Court commented further on M. Curé’s evidence in paragraphs 118-120 of their judgment:
“[118] From the above, it is clear that the cyclone itself did not have any of the characteristics of a force majeure and the crane was put up with little thought given to its capacity to resist a cyclone by no means exceptional in intensity or otherwise.
[119]  It is our view that where a construction company has put up a man-made structure of such an inverse-L type, of such a height, with an arm of such a length which overhangs people and property, it is not at the time of Class 1 warning that it should start bothering about the potential and inherent mischief that such a structure would constitute to life and property, especially in time of a cyclone.  The gardien of such a chose should have done his homework better.  He should have carried an up-front assessment of the manner in which his abnormal structure poses risks to the safety and security of life and property well ahead of Class I warning; indeed, well before, from the moment of the very conception of such a structure if it was meant to be imported and used in climates other than cyclone-free France.
[120]  As it is, General Construction had never bothered to find out how such a structure made in France in 1973 and imported to be used in Mauritius and bought by itself as a second-hand platform behaves in a cyclonic environment, all the more so when it knows that it cannot be dismantled so easily from the announcement of Class 1 Warning and that such a structure necessarily suffers from metal fatigue in view of its age.  No one in his right mind in Mauritius waits for Class 1 warning to start bothering about the capacity of the superstructure he has put up to resist an impending cyclone.  What he has to do he has to do well ahead of Class 1.  Any failure is at his risk and peril.”
29.      The appellant complains that the Court’s conclusions on this point 
“entirely ignored the evidence that Potain manufactured cranes for use worldwide and that the crane in question had been used by the Appellant in Mauritius for 12 years without any problem.”
30.      The history of previous cyclones shows, however, that no cyclone with wind gusts over 200 kmph had hit Mauritius during the period since 1985 when this crane was in use there, and there was no evidence of other similar cranes being in use during any cyclone when such wind speeds were experienced. The appellant’s attitude, that it must be all right to operate the crane during a cyclone with such wind gusts, was, so far as appeared from the evidence, based neither on enquiry nor on experience. A responsible crane operator is not obliged to ensure a situation in which it is absolutely impossible that an accident could occur. But its duty is to take those precautions which are reasonably and practicably possible in the circumstances of the case. This surely includes checking that its cranes will, at all events barring freak circumstances, be expected to survive cyclones of a type previously known to occur involving wind gusts of over 200 kmph.
31.      The appellant complains (case para 80(a)) that “as the point was never raised by the Court [referring apparently to the Court of Civil Appeal but it may be intending to refer to the judge at first instance] prior to the issue of its judgment, the Appellant was never afforded the opportunity of dealing with it either in evidence or in argument”. The point was however the subject of the evidence at first instance which the Board has quoted, and, during the course of submissions in the Court of Civil Appeal, the transcript shows the following exchange took place between counsel for the second respondent and the Court:
“MR Y ABOO BAKER SC: And, we have in Mauritius we had cyclones with much more wind strength. Therefore, it was prévisible. 
COURT: The other thing is I haven’t seen it. What is the capacity of the crane? What is the wind that it can resist?
MR Y ABOO BAKER QC: I will have a word on that, my Lords because I believe the onus was on the respondent [sic] to bring that to you. Mr Curé comes and says, I believe it must be above 200 kms, 201, 202, 203, we do not know. The onus vested [sic] squarely in view of Article 1384 on the respondent [sic] to bring to your attention”. 
32.      Making allowance for obvious mistakes in the transcript, the sense was and is clear, and the point was raised sufficiently. Mr M Sauzier for the first respondent followed with relevant criticisms regarding the absence of any evidence as to cyclones through which the crane had gone (p.270) and regarding M Curé’s inability to say more about the risks or what could be done about them than that he followed Potain’s instructions in mounting and dismounting the crane (pp.271-2). Counsel for the appellant, Mr R d’Unienville QC, was present, and could have addressed the Court then, or indeed on the next day when all counsel were back before the Court on another case heard together with this case.
33.      The Board considers in these circumstances that the Court’s third theme is one which was open to it, and moreover, in the light of M Curé’s answers in crossexamination, well-founded. It may be that, if the appellant had called evidence addressing this aspect – the onus being on it to do so – it would have proved that the crane, including its collar in which no defect was evidently found, was designed to withstand cyclones with wind gusts of over 200 kmph and with the other characteristics that such cyclones are known to present. In that event, some specific further cause would have had to be considered; that cause might have been related to some other external event which could be regarded as irrésistible - a stone dislodged from the building by the cyclone and falling onto the collar could be an example, or some freak cyclonic action breaking the collar against which a responsible crane operator in Mauritius would not be expected reasonably and practicably to guard by the design of the cranes it acquired and used or by any other means. Combined with the finding that the crane was properly maintained, there might then have been a good case for treating the accident as being due to force majeure. In contrast, a latent defect within the collar (which there was in this case evidently no basis for suggesting existed) would not appear to suffice; it would lack exteriorité (quite apart from the fact that it might - possibly, the Board expresses no view - engage liability under a different article of the Code civil - article 1286). On the evidence as it stood, the Board sees, therefore, no reason to differ from the Court of Civil Appeal’s conclusion that the appellant has not established that the collapse and consequent damage to the two respondents was caused by an event of force majeure. 
Interest in favour of second respondent
34.      That leaves for consideration the minor point regarding interest. The judge awarded the first respondent “interest at the legal rate as from the date of the notice”, i.e. presumably the date of its statement of claim. But he made no reference to any award of interest on the damages he awarded to the second respondent, despite the fact that the second respondent had claimed interest in, and from the date of, its statement of claim issued 11 April 1995. 
35.      In its judgment dated 31 January 2011, the Court of Civil Appeal said simply that it dismissed the appellant’s appeals. But by an “Addendum” on 16 February 2011 it ordered inter alia that the appellant pay interest to the second respondent again from the date of notice. The circumstances in which this occurred are unclear. There was no cross-appeal seeking interest by the second respondent before the Court of Civil Appeal. The second respondent may, perhaps, have raised the matter with the Court, after judgment, though there is no evidence of this and the appellant in its case assumes the contrary. The Court in its judgment on the merits had purported to confirm the trial judge’s judgment in relation to both respondents, without mentioning interest even in relation to the first respondent, to which the trial judge had awarded interest. So it is also possible that the initial impetus for the Addendum may have come from the first respondent.
36.      The appellant was only informed of the “Addendum” after it was made by a “circular”. Through its legal representative on 1 March 2011 it at once swore an affidavit submitting that the Court of Civil Appeal had been functus officio, and applied to add to its pre-existing application for permission to appeal to the Board a complaint to this effect regarding the Addendum. Both respondents were represented when the matter came back before the Court of Civil Appeal on the appellant’s application for leave to appeal to the Board on both the substance and the interest point. Mr Aboobaker for the second respondent said that his client had no objection to leave being granted, but without any admission as to the grounds. The complaint that the Court of Civil Appeal was functus officio is repeated in the appellant’s notice of appeal and now pursued before the Board.
37.      Rule 44 of the Supreme Court Rules 2000 of Mauritius provides:
“Clerical Mistakes
Clerical mistakes in pleadings, orders or judgments owing to any accidental slip or omission, may at any time be corrected by the Court or by the Master on a motion made to that effect in presence of all parties”.
Reliance on this provision could on the face of it have been, but was not, placed by the second respondent before the trial judge. The omission of any award to the second respondent of the interest it had claimed must have been a mistake – an important one in the context of litigation which has been so regrettably drawn out as this has been in the Mauritian courts. The post-judgment Addendum issued by the Court of Appeal could, at least if it had been made on a motion by the first respondent, also be regarded as made under this slip rule, in view of the Court’s failure to reiterate the judge’s award of interest in its favour.
38.      Failing any award of interest in its favour by the trial judge, the second respondent should have given notice of cross-appeal, and the “Addendum” to the Court’s judgment in its favour should not have been sought or obtained without prior notice to the appellant. However, there can no real doubt, but that the Court of Civil Appeal would and should have acceded to an application by the second respondent to cross-appeal in respect of interest, if made when the matter was still before it. As to whether the matter was still before the Court, or it was functus officio, after it had delivered its judgment on the substantive merits of the appeal on 31 January 2011, the Board retains some residual doubts, partly because it is clear that the Court of Civil Appeal did retain control of the matter for the purpose of hearing and dealing with the application for permission to appeal to the Board, which it determined and dealt with over the period March to June 2011 and partly because of the inflexibility that such a conclusion appears to entail. 
39.      Once again, the Board is therefore reluctant, but happily it finds it unnecessary, to reach any firm conclusion. What does appear is that, under civil law as practised in Mauritius, a judgment is dated and signed on the day it is pronounced and there is no practice of recording its effect in a separate order. Further, the appellant has produced material which makes a considerable case for saying that the Court of Civil Appeal was thus functus officio in respect of any matter of substance, once it had delivered its judgment on the substance on 31 January 2011: see Encyclopédie Dalloz V  Procédure Vol II F-Z 1956 notes 376-378 and 397. According to notes 377 -378 once a judge has pronounced judgment publically, he or she cannot withdraw or modify it, because it “belongs to the parties”. Note 397 adds that the judge cannot under the pretext of rectifying a slip change even the starting date for the running of interest, since this would undermine l’autorité de la chose jugée, citing a French authority to that effect dating from 3 August 1881. 
40.      The appellant has, however, very fairly, also put before the Board three prior decisions of the Board, the most recent of which, in which the previous two decisions were considered, is The Central Electricity Board of Mauritius v Bata Shoe Company (Mauritius) Ltd (PC Appeal No 36 of 1979). There the Board was concerned with a situation in which judgment had been entered in the Supreme Court for a sum including interest up to the date of judgment, but there was no statute or ordinance in force in Mauritius whereby interest could run or be made to run on the judgment sum. An appeal was taken to and after three years dismissed by the Board. The Board held that it had jurisdiction - rightly or wrongly described in one of the prior cases as a “common law” jurisdiction - to award interest, a jurisdiction founded on the “need, to do, so far as possible, complete justice between the parties”.
41.      In the present case an order for interest was and is of particular importance in view of the time taken - the Board must say, most regrettably - by both the trial judge and the Court of Civil Appeal to deliver their judgments. The judge should have made an order for interest, and would if asked probably have been able to correct his judgment to do so under the slip rule. The Court of Appeal could have made an order if asked. The Board has little doubt that the Court could also have done so of its own motion to compensate for the long delay before it issued its judgment, though it should then have offered the parties an opportunity to be heard before any order it made for interest was finalised. Here, but only after it had purported to issue the Addendum, the Addendum was brought to the attention of all parties. The second respondent then agreed to leave to appeal to the Board on the point, but made clear that it did not agree to the grounds. Although the second respondent is now in liquidation and not participating in the appeal, it cannot be taken to have wished or to wish anything but the continuation of an order which is in the interests of all its creditors. 
42.      The matter is now before the Board, over two and a half years after the Court of Appeal’s judgment. On the authority of Bata Shoe the Board would have jurisdiction to make an order for interest, even if there had not been a purported order to that effect by the Court of Civil Appeal. In the circumstances, all that is necessary is for the Board to determine that, whatever may have been propriety of the order made by the Court of Civil Appeal by the Addendum for interest in favour of the second respondent, an order in the terms of the Addendum is appropriate and should be made, and that interest should continue to run under it at the legal rate from the date of the original statement of claim until satisfaction of the judgment entered in favour of the second respondent. 
Conclusions
43.      For the reasons given, the Board therefore dismisses the appeal on both the main issue relating to force majeure and the ancillary point relating to the award of interest in the second respondent’s favour, and makes the order regarding interest indicated in the preceding paragraph.


Tuesday 23 July 2013

The Director General, Mauritius Revenue Authority v Paradis Brabant Hotel

[2013] UKPC  Case Ref. 24
Privy Council Appeal No 0090 of 2012

JUDGMENT


The Director General, Mauritius Revenue
Authority (Appellant)

v

Paradis Brabant Hotel
(Respondent)

From the Supreme Court of Mauritius

before

Lord Neuberger
Lord Wilson
Lord Carnwath
Lord Toulson
Sir Paul Girvan


JUDGMENTS DELIVERED

ON


23 July 2013

Heard on 11 June 2013


Appellant
Philip Baker QC
Karuna Gunesh-Balaghee
Laurent Sykes & Associates)
(Instructed by Carrington

Respondent
P. Maxime Sauzier SC
Michael King Fat
(Instructed by Blake Lapthorn)

  
LORD NEUBERGER ( WITH WHOM LORD TOULSON AND SIR PAUL GIRVAN AGREE)
1.         This is an appeal brought by the Mauritius Revenue Authority (“the MRA”) against an order of the Mauritius Supreme Court dismissing the MRA’s appeal against the decision of the Assessment Review Committee (“the Committee”). 
Introduction
2.         The issue before th e Committee concerned the appr opriate rate of Hotel and Restaurant Tax (“HRT”) applicable to taxable receipts in respect of supplies made by each of the fifteen or sixteen respondent    s, in connection with          its hotel and/or restaurant business.
3.         The respondents contended that the rate should be that prevailing at the date on which a respondent r eceived payment of a sum in resp            ect of a particular supply, whereas, the MRA contended that it should be the rate prevailing at the date on which the supply was actually m ade. The C ommittee agreed with t he respondents and t hat decision was upheld by the Supreme Court (Matadeen and Angoh JJ) on appeal.
4.         The difference between the parties can be demonstrated through the example of a hotel booking for 1 September 1998, offered by a respondent to a customer on 1 July 1998 for a particular sum, which the customer accepted on 1 August 1998, although it  actually paid the sum on 1 October 1998. In such a case, the respondents contend, and the Committee accepted, that the relevant date for assessing the rate of tax on the sum in question should be 1 October 1998, when the customer pays –i.e. the date on which the sum is received. The MRA’s case is that the relevant date sh ould be 1 September 1998, when the contract was m ade, and the commitment was given to the customer –  i.e. when the service was supplied and the respondent became entitled to payment.
5.         The issue is one of statut   ory c onstruction, so it is   appropriate to start by  referring to the two relevant statutes.
The Hotel and Restaurant Tax Act 1986

6.         HRT was introduce d by the H otel and Restaurant Tax Act 1986 (“the 1986 Act”).
7.         Section 3 of that Act was headed “Liability to tax”, and it provided:

1

“(1) The manager of every designated establishment shall be liable to a tax on the taxable receipts of that establishment.
(2)       The tax shall be calculated at the rate sp ecified in the Third    Schedule.
(3)       The liability to         tax shall accrue da  ily but shall be discharged monthly.
(4)       The manager may recover from customers the tax payable on the taxable receipts.”

8.         A “designated establishment” , referred to in section 3( 1), was defined in the First Schedule to the 1986 Ac t as comprising any restaurant, hotel or similar concern. “Taxable receipts”, referred to in section 3(         1) and (4), were defi ned in section 2 as  meaning “the gross receipts … arising fr            om the suppl y of [specified] g oods an d services”, subject to an irre levant exception. (The B oard was told that this definition was subsequently amended, and that, while the contention was that the amendment be withdrawn, this did not happ en; it was agreed be tween the parties that the definition should be treated as always ha ving been in its original form.) The Third Schedule to the 1986 Act, mentioned in section 3(2), simply stated “Rate of Tax: 10%”.
9.         Section 5 required every designated establishment to issue, and keep copies, in sequential order, of “a serially numbered bill in respect of every receipt”. Section 6 stated that such an estab lishment should  ke ep “a full and true written record … of  every trans action”, and to do so for at             least “6 years after the completion of the transaction to which it relates”.
10.      Section 7(1) of the 1986 Act re quired every designated establishm ent, on or before the end of each month, (a) to submit a monthly return “specifying the taxable receipts of the establishment” for the prev ious month, and (b) “to pay the tax due”. The form of the return is, according to section 7(2), to be approved by the MRA.
11.      Section 11 was concerned with “cessati on of busine ss” and it provides as follows:
“(1) … [W]here the manager of   a designated establishment ceases to carry on business … , he shall … (b) not later than the last day of the m           onth followi ng  the m onth i n which he ceased to carry on       business, submit … (ii) in respect of the last m onth in which he carried on business, a return which shall include any am           ount owi ng  to the establishment as taxable r   eceipts at the date of the cessation  of business … and pay the tax specified therein.

 2

(2) Where the m anager of a designated establishm ent, who ceases to carry on bus iness at that establishment, sells … the busine ss together with the am ount owi ng t o the establishment as taxable r eceipts at the date of the cessation of business, he shall not pay tax on those taxable receipts but the purchaser or transferee shall be liable to  pay the tax on those taxable receipts …”.

The Finance Act 1998

12.      In May 1996, the Minister announced that the rate of HRT was to be increased to 15% from 1 June 1996, but this increase was abandoned, although there was a week from 1 J une 1996 duri ng which an increase took effect. It is          agreed between the parties that nothing hangs on that for present purposes, and that the issue in this case can be approached on the           basis that the rate of HRT remained at 10% until 6 September 1998. 
13.      With effect from      7 Septem      ber 19 98, V alue Adde d Ta x (“VA T”) was introduced into Mauritius by the Value Added Tax Act 19 98. The intention was that VAT would replace HRT (as well as Sales Tax).  Accordingl y, the Finance Act 1998 (“the 1998 Act”), as well as including a num ber of other unrelated measures, phased out HRT by means of a stepped decrease. 
14.      Section 3 of the 1998 Ac t amended the Third Schedule to the 1986 Act “with  effect from the different dates specified in section 24”:
“(a) by deleting the words ‘10 percent’ and replacing t hem by the words ‘4 percent’;
(b)       by deleting the words ‘4 percent’ and replacing them by the words ‘2 percent’; and
(c)       by deleting the words ‘2 percent’ and replacing them by the words ‘zero percent’.”

15.      Section 24 included the following relevant subsections:
“(3) Section 3(a) shall, in respect of taxable receipts arising on or  after 7 September 1998, come into force on 7 September 1998.
(4)       Section 3(b) shall, in respect of taxable receipts arising on or after 1 July 1999, come into force on 1 July 1999.
(5)       Section 3(c) shall come into force on 1 July 2000.”

The factual background
16.      The facts are within a very            small compass. In respect of the period after 6             September 1998, the responde nts account ed for, and pai     d ove r, HRT at the rate prevailing at the date on wh    ich they received payment            for any relevant goods or services.
17.      So far as a custom   er was c oncerned, it appears, at leas t from the evidence which the Board was shown, that the res pondents would often quote a f igure (e.g. per  item, such as a night in a room or a meal , or else an overall “package” figure) which was expressed “inclusive of Governm   ent tax as applicable” (or s ome similar expression). Thus, there was no breakdown or explanation to the customer as to what taxes were included, let alone at what rate any tax was being assum ed to be paya ble. (It is only fair to reco rd that, after the hearing, the B oard’s attention was dr awn to other evidence which showed that some of t he respondents did som etimes include a  specific sum in respect of HRT in the bills presented to customers).
The approach favoured by the Board

18.      It is clear from section 3( 1) of the 1986 Act that HRT was a tax on receipts: thus it was onl y payable on money actually received by a respond ent for a specified  good or service. It is equally clear from se ction 3(3) of the 1986 Act that the liability to tax only actually accrued on receipts. Although it doe s not follow as a matter of strict logical necessity that the tax to be ca lculated under section 3(2) of the 1986 Act must be also calculated by reference to the rate prevailing at the date of receipt, that is clearly the natural inference, at least in the absence of any indication to the contrary
19.      In other words, given that (i) receipt       of a sum is the necessary and s     ufficient condition for payment of HRT, ( ii) the amount of HRT (whateve r the rate) is to be assessed by reference to the s          um receive d, and (iii) the HRT accrues on the sum received from the date of receipt, it would be surprising, at least in the absence of any indication to the contrary, if the rate of HRT payable on the sum was not also assessed as at the date of its receipt.
20.      It was suggested on behalf of t he MRA that sections 5, 6 a nd 11 of t he 1986 Act tended to support the contrary view, na mely that the rate was to be assessed by reference to the moment of supply. The Board does not agree. 
21.      The notion that section 5 s upports the contrary view is based on t he point that the bill will precede the receipt , but that is of little assi stance. The bill may well not bear the same date as the date of supply, but even if it does, the fact that the bill has to be retained is scarcely much of an indicatio        n that the date of the bill is the date by    reference to which the rate of HRT is to be      assessed. After all , the issue of the bill does not give rise to liability, and it is by no means necessa rily the case that the sum specified in the bill would be the sum on which HRT is payable. The tax is payable on whatever sum, if any, is eventually received for the goods or services referred to in the bill.
22.      Section 6 is of no assistance, save that , by tying the 6-year retention period t o “completion”, it is consistent with the notio n that completion, ie payment of the su m due, is the crucial event. However, in the Board’s view, that is no more harmful to the MRA’s case than section 5 is helpful to it. 
23.      Section 11(1)(b)(ii) was a deeming provision which would accelerate liability  to pay HRT if a respondent’s business closed down. It is equally consistent with either interpretation. The e xpression “amounts ow ing ... as taxable receipts” is entirely       consistent with the notion that there is no ta x until there is an actu al receipt.  As for section 11(2), it simply transfer s liability for future HRT to a transferee of a business and it is also irrelevant for present purposes.
24.      The MRA’s contention that se ction 11(1)(b)(ii) is only consistent with the rate of HRT being fixed by reference to a date earlier than receipt is based on the point  that, if the respondents are correct, it would      be impossible to know w hat rate of tax would be appropriate when the provision applied. The answer to that is that the effect of the provision is that the rate is that which is appropriate for “taxable receipts at the date of the cessation  of business”. Quite apart from that , section 11(1)(b)(ii) is not a helpful guide as to the ba   sis on which HRT was norma        lly to be assessed, as it represented, on any view, a departure             from the norm al way in w hich H RT was  payable. That is because it gave rise to a liability for HRT on sums which might never be received, whereas it is common ground that HRT is only payable in respect of sums which are received. In any event, section 11(1)(b)(ii) was enacted at a time when there was no question of the rate of HRT being va ried, and it would ther efore be unsafe to look to it in connection with the issue raised on the present appeal. 
25.      Turning to the 1998 Act, sec tion 3 intr oduces a trio of changes in the rate of tax, but it gives no steer on the issue raised on this appeal. However, that means that it does nothing to undermine the natural implication that one would draw from section 3 of the 1986 Act, as explained in paras 18 and 19 above, namely that the rate of HRT is to be assessed as at the date it is charged.
26.      Section 24(3), (4) and (5) provide more assistance. They each state that a new rate, 4%, then 2%, then 0%, is to apply,   successively, “in respect of taxable receipts arising on or after” a certain specified da  te. The natural meanin g of t he expression “receipts arising” is sums which are being received, and the requirement that any such sum must arise on or after a certain date suggests that the sum must be received on or after that date, which is consistent with the respondents’ case.  
27.      That is admittedly a contextual reading, and one must inte rpret the words in  their context. A vital part of that context is , of course, the 1986 A ct, which sections 3 and 24 of the 1998 Act amend. Reference to the 1986 Act brings one back, in the first place, to section 3 of the 1986 Act, whose natural implica tion, as already mentioned, is that the rate of HRT is to be assessed as at the date of recei pt. Secondly, the words  “receipts arising” in sections 24(3), (4) and (5 ) of the 1998 Act link back to s ection 2  of the 1986 Act, in which “taxable receipts ” are defined as “gro ss receipts … arising from the supply of go        ods and s ervices”. It seems cl ear from that definition that “receipts arising” in the 1986 Act is a refe  rence to sums which are received. There must be a s trong presumption that the drafter of section 24 of  the 1998 Act intended  the expression to have the same meaning, a conclusion supported by the fact that it is the natural meaning of the words.
Contrary arguments

28.      Mr Baker QC, who presented the case of the MRA, argued that the conclusion that the rate of tax was to be assessed        as at the date of receipt was not correct essentially for four reasons.
29.      First, it w as said that the Committee’     s co nclusion would render the HRT        system impractical, because a respondent would not know what rate of tax to pass on to a customer, unless that rate was fixed as          at the date of the supply of the relevant service. While that point has some force, it is not very telling. HRT is not a tax which has to be charged by a supplie           r to a customer as part of the cost of the supply           involved. All that section 3(        4) of the 1986 Act di            d was to ent itle the supplier to  recover from the customer a sum equal to the HRT which the supplier had to pay. 
30.      That could have been achieved in more than one way. For instance, the contract with a customer could provide that the cu stomer would include the appropriate figure  for HRT at the time he made the payment.         More likely, the c ustomer could simply agree a gross figure, as he or she will     normally only be concer ned about the overall cost as opposed to worrying how it is made      up. It is quite rational for the Act to contemplate that a supplier would quote a gross figure, and would then take the risk of the HRT rate moving up or down between the date of contract and the date of receipt. Indeed, that appears to have been the practice of at least some of the respondents – see para 4 a bove. As Mr Sauzier S C, who appeared for the respondents, said, such an approach would be similar to a supplier taking the risk on moves in currency exchange rates – a particularly apt analogy given that      hotel rates in Maur itius appear to have been quoted in South African rand (at least to some customers).
31.      It is perhaps rather question- begging and pejorative to describe as a windfall any benefit that a respondent gains as a result of a reduction in HRT between the date on which a gross sum is quoted to a customer and the date on which the sum is paid.
Where a respondent quotes a gross price, he is taking the risk of HRT changes, on the  basis that he is offering a fixed price to a prospective customer, who would normally be free to propose different terms or to fi nd another hotel, and would simply decide whether the holida        y (or other     service)         was worth the fixed price.  Different considerations may well apply i n cases wher e a responde nt quoted a price and t hen added HRT at, say, 10% in the quotation or estimate, and the respondent subsequently paid tax at, say 6%. In such a case, the cu stomer may well have a claim for recovery of the difference between the HRT at 10% and the HRT at 6%, but that is not an issue which arises, or which should be determined, on this appeal.
32.      Secondly, it was said by the MRA that it would be unsatisfactory if a taxpayer could manipulate the rate of HRT by putting off a payment, which would be the effect of the tax being assessed by refe rence to the date of receipt. While not without some force, the Board does not cons ider this to be an impressi ve point. It is by no m eans unknown for a rate of tax to be under t he control of t he taxpayer, in circumstances where the rate is changed as at a particular            date.   In any even t, the date on which payment is received is not in the sole cont        rol of a supplier: it also depends on the customer and/or the customer’s agent.  Furthermore, a supplier is unlikely, at least in many cases, to be keen to put off the customer making payment. Quite apart from this, even on the MRA’s construction, a supplier could manipulate matters in a case where it was not entitled to payment until it tendered its invoice, by waiting until the rate had decreased before formally contracting for a supply.
33.      Thirdly, it was argued that the rate of     tax should remain co nstant throughout the course of a particular transaction, and therefore it should be fixed as at the date the transaction is entered into. In the Board’ s view, that argument mischaracterises the tax. HRT is not a tax on a transaction, but on a sum which is rece ived pursuant to a  transaction, and it does not arise until rece         ipt of that sum. There is therefore no question of the rate of tax appl    ying at an y time during the course of a transaction before the moment of payment.
34.      The MRA rightly placed no reliance on th         e fact that HR T was or m ay have been paid at 15% dur ing the week w hen it was incre ased as m entioned in para 12 above. Even if taxpayers adopte d a stance on that occasion whic h was inconsisten t with that which the respondents are taking in these proc eedings, that cannot affect the proper interpretation of the legislation.
Conclusion

35.      In all the circumstances, the Board concludes that the meaning and effect of the 1986 and 1998 Act on the po            int at issue are clear, a        nd that, while the practical arguments raised by the MRA are not wholly           without force, they fall far short of justifying a court de parting from the natural  meaning of section 3 of the 1986 Act, when read together wi th sections 3 and 24 of the 1998 Act, namely that the rate o f HRT applicable to a receipt is the rate prevailing as at the date of that receipt.
36.      The Board accordingly dismisses the appeal of the MRA against the decision of the Supreme Court, upholding the decision of the Committee.
LORD WILSON (DISSENTING)
37.      With respect, I consider that the Board should have allowed the appeal.
38.      There is no doubt that under section 3(1) of the 1986 Act HRT is payable on receipts: it is only when a sum is received that the liability is triggered.  But to say that receipt triggers liability is not to say that the liability which then arises is to pay at the rate of HRT prevailing on the date of receip t.   I discern no “logica l inference” to that effect. Upon sums received from 1986 to 6 September 1998 (apart from one week in 1996) HRT was, in the event, payable at the rate prevailing on the date of receipt; but in my view that occurred onl y because the rate which was preva iling on the date of  receipt (10%) happened to be the same as         that which had prevailed on the date of supply.
39.      The situation which obtained during th at one week, whic h began on 1 June 1996, provides a good test of the respondents’ contentions: for the rate then increased  from 10% to 15%.  The Comm ittee found that, since the re spondents did not receive payment of HRT from customers at the rate of 15% during that week, they had paid it at the rate of only 10% fo r the entire m onth of J une 1996.  Nevertheless it follows from their contentions that they were legally obliged to pay that extra 5% on all sums received during that week, even (extraor       dinary though it may seem) in re  spect of supplies made prior to it; and, equally, that they would ha ve been obliged to pay the excess in respect of supplies made prior to 7 September 1998 but  paid for afterwards, if, instead of going down, the rate had then again gone up.
40.      The definition of “taxable receipts” in section 2 of the 1986 Act m akes clear that they are receipts “arising from [a] supply”.  In my view this definition informs the proper construction of the crucial subsections (3) and (4)  of secti on 24 of the 1998 Act. By subsection (3), the reduction to 4% was applied to “taxable receipts arising on or after 7 September 1998” and, by subsection (4), the reduction to 2% was applied to “taxable receipts arising on or after 1 July 1999”.   The word “arising” in the two  subsections should in my view be given the meaning which it is given in the definition in section 2 of the 1986 Act: in other words receipts arise from a supply so it is only if the supply occurs on or afte r 7 September 1998 and 1 July 1999 respectively that the receipts arise on or after those dates respectively.   

41.      I find myself unable to agree with the re spondents that section 11(1)(b) (ii) of  the 1986 Act is equally consistent with the       contentions of each side.  Its w ording is interesting: the phrase “am            ount owing to           the establishm ent as taxable receipts”, replicated in subsection (2), shows that the word “receipts” in the Act must be handled with care and that, there at l east, it referred to sums which were to be received in the future as opposed to those wh ich had been received in th e past. More significant still was the effect of the provision: it was that        , save where he sold or transferred his           business in the circumstances set out in subs ection (2), the m anager of a designated establishment who ceased to carry on business had within one month to pay HRT on any amount owing to it as taxa ble receipts at the date of cessa    tion.  Ignorant, of course, as to the date when the am ount would be rece ived from the cust omer, how could he (on the respondents’ case) have computed the tax payable? The answer is, of course, tha t, instead, he ha    d to do s         o by reference to the date of supply.  The respondents may prefer to call it a special, deeming, s olution for a special situation; but it is more convincing to regard it as th e logical application to that situation of an Act which fixed the rate of tax by reference to the date of supply.
42.      That the tax should be paya          ble at the rate prevailing on the date of receipt, rather than on that of supp ly, seems to me to be scarce           ly workable for two related reasons.
43.      The first relates to the permission whic  h, by section 3( 4) of the 1986 A  ct, Parliament gave to t      he m anager of a de signated est ablishment to “recover from  customers the tax payable on the taxable recei pts”.  How in practice could he recover the proper sum from them if su ch was to depend on the date when they chos e to pay?  The respondents adm it that invoi ces to cu stomers for supplies made, for exam        ple, prior to 7 September 1998 included, whether expressly or otherwise, a charge to HRT at 10% and that, in respect of payments ag ainst such invoices as were received from customers thereafter (albeit prior to 1 July 1999), the respondents

(a)       paid HRT at 4% to the Commissioner of VAT;
(b)       failed to refund to th           e cust omers 60% ( or ind eed any part) of their payments referable to HRT; but, on the contrary,

(c)       kept the 60% and incl uded it in their ac counts as part of their turnover for the purposes of income tax.

The respondents accept th e description of the 60% as be ing a windfall, although (so they say) it was more than offset by the introduction on 7 September 1998 of VA T; but in my view the Act was not intende d to work in that way and, it is clear that, on their construction, the respondents have unlawfully exceeded the permission given to them by subsection (4) to recover from customers only the tax payable.  But if, upon receipt from the customers, HRT is payable             at the rate prevailing on the date of supply, no such bizarre consequences arise.

44.      The second relates to the facility for a manager to have reduced his liability for HRT by declining, until the da te when a reduction of HR T took effect, to invoice a customer in respect of a supply made on a date prior to the date of reduction.   For my part, I would not, without           clear words, construe a    scheme as being ope           n t o manipulation of that sort on the part of the tax-payer.
45.      One factor alone has caused m e to hesitate in offering this dissent.   It is the principle against doubtful penalisation, wh ich applies as much to the imposition of              taxes as to that of criminal sanctions: see Bennion on Statutory Interpretation, 5th ed.
(2008), Part XVII, section 271. In that no less than three members of this Board and two, also highly respected, judges of the Supreme Court have reached a conclusion in favour of the respondents, how can there not – to put it at its lowe st – be doubt about my conclusion that the respondents have failed to pay the full amount of the tax due?   But in the end, rightly or wrongly, I consider that the proper construction of section 24 (3) and (4) of the 1998 is so clear that my dissent should stand.
LORD CARNWATH  (ALSO DISSENTING)
46.      Like Lord Wilson I also consider that the appeal should have been allowed, for the reasons he gives.
47.      Like him I do not see this as involving any departure from ordinary principles of statutory construct ion. S ection 3 m ust be construed as a whole.  It is com   mon ground that the tax under sec tion 3(1) is payable only on actual receipts.  However that subsection says nothi ng about the rate of tax. Tha t is covered by section 3( 2), which provides that “the tax shall be calc  ulated at the rate specified in the Third Schedule”.  This gave rise to no difficulty in the Act in its original form because only one rate was specified in t he Third Schedule, namely 10%.  H owever the section has  to be read for present purposes in the light of the amendments ma de by the 1998 Act by which lower rates are insert ed in respect of receipts “arising” followi ng the dates  defined by section 24.
48.      It therefore becomes important to decide whether the “tax ... calculated” under section 3(2) in relation to the same tran    saction c an vary over the course of a transaction, or if not by referenc e to w hat date it is to be fixed.  As a matter of ordinary reading of section 3(2) it seems to be clear to me that what is envisaged is a single rate for a particular “taxable receipt”, which is valid for all purposes.  If that i s correct the rate should be valid not only at the tim e the tax becomes payable, but also (under section 3(4)) at the prior time when the Manager is seeking to recover the “tax payable” from customers. Since the latte r is the first occasion on which that calculation has to be carried out, then ass uming what is contemplated is a single calculation, that must be the rate applicable for the whole transaction.  I agree with Lord Wilson’s analysis of the other sections which support this view.
49.      Mr Baker submitted that his proposed construction was necessary to avoid “absurdity”. He referred us to familiar au thorities which allow a departure from the natural meaning of the statutory wor ds where that is necessary to avoid “inj ustice or absurdity” (see for example Mangin v Inland Revenue Comrs [1971] AC 739, 746).   Lord Reid in Luke v Inland Revenue Comrs [1963] AC 557, 577 r eferred to the nee d on occasion to do some violence to langua ge to avoid “a wholly unreasonable result” (p577). However, I do not think it is necessary to go so far in or der to resolve the present case. The language of the statute is not such that th e construction which I favour requires “viol ence” to t he w ords us ed.  It is more a matter of applying a purposive approach to achieve a result whic h accords with what appears to be the Parliamentary intenti on (see pe r Lor d Steyn Inland Revenue Comrs v McGuckian  [1997] 1 WLR 991, 999).