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	England and Wales High Court (Administrative Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Peakviewing (Interactive) Ltd. & Ors v Secretary of State for Culture, Media and Sport [2002] EWHC 1531 (Admin) (23 July 2002) URL: http://www.bailii.org/ew/cases/EWHC/Admin/2002/1531.html Cite as: [2002] EWHC 1531 (Admin)

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IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice London WC2A 2LL
		July, 23, 2002

Mr Justice Lawrence Collins:

I Introduction

1. The first claimant, Peakviewing (Interactive) Ltd (“Peakviewing”) is an independent film maker which produces films and television programmes. The second claimant, Tanmarsh Communications Ltd (“Tanmarsh”), is its parent company. The third claimant, Peakviewing Transatlantic BV (“Peakviewing Transatlantic”), is a Dutch company which, as owner and distributor of films produced by the group, has entered into various sale and leaseback arrangements in relation to the films. Peakviewing Interactive (Isle of Man) Ltd, an Isle of Man company in the group, commissions Peakviewing to make the programmes.
2. Peakviewing’s promotional literature describes itself as one of the United Kingdom’s leading independent film makers. Although Peakviewing has produced some conventional films (on which, the evidence suggests, losses were made), this case concerns a remarkable business venture undertaken by it. Since the year 2000 it has made 334 series of five minute films, normally consisting of 26 films in each series. Most of the films are in its Viewing4Leisure series, which consist of five minute programmes with titles such as “A Guide to Self-catering and Camping in Guernsey,” “Pubs/Bars - Scotland,” “Hotels - (North of England)” and “B&Bs/Guest Houses - Isle of Man”.
3. Peakviewing describes Viewing4Leisure as a completely cross-platform, interactive leisure, travel and tourism business, enhancing all technologies from traditional television right through to interactive TV, broadband and 3G mobile technologies. It is said to consist of thousands of bespoke 5 minute programmes on selected venues, activities and destinations, predominantly for the leisure, travel and tourism industry, and with 8,500 episodes completed, it is a comprehensive viewer experience, which “is truly world-wide in scope”.
4. The remarkable aspect of the business is this. Although more than 8,500 of these films have been made, it would seem that none of them has been commercially shown or exploited. The actual direct cash costs of producing the films are about £35,000 per series, but as a result of inter-group charges the average production costs are claimed to be more than £700,000 per series. Each of the series has been, or will be, sold to partnerships of higher-rate taxpayers on sale and leaseback arrangements. All but 11.5% of the price is held to secure bank guarantees of the lease payments, but the part retained by the Tanmarsh group is sufficient to give it a profit on the costs of production, notwithstanding that the films have never been shown, and that there is no immediate prospect of their being shown.
5. In November 2001 Customs and Excise carried out a search and seizure operation at the premises of the Tanmarsh group and its accountants in connection with its investigation into the validity of VAT repayment claims of more than £18 million, and since that time the Special Compliance Office of the Inland Revenue (which deals with tax avoidance and evasion) has also been investigating the claims for tax relief made in connection with films produced by the Tanmarsh group. The claimants strongly deny that there have been any VAT irregularities.
6. Tax relief is not available to the taxpayers who acquire the films on their acquisition expenditure under the Finance (No. 2) Act 1992, unless the films are certified as British films by the Secretary of State for Culture, Media and Sport under the Films Act 1985. Officials in her Department (“DCMS”) became concerned at a number of matters arising on applications made in late 2001 and early 2002 for certification of 168 series, consisting of more than 4,000 five minute films. They expressed those concerns to Peakviewing in a lengthy correspondence.
7. In particular, DCMS considered that each production was in effect a 5 minute advertisement for a typical pub, club, hotel etc in the high streets of cities in the United Kingdom or abroad, which looked inexpensive to make. Substantial sums were being paid by Peakviewing to its parent company for completion bonds which seemed unnecessary. Peakviewing appeared to have no firm plans in place for exploiting and recouping the costs of the hundreds of millions of pounds worth of product which it claimed to have produced. It appeared that sale and leaseback on “Viewing4Leisure” provided a net cash benefit (i.e. income received over third party costs incurred) to the company, for each series; that the net cash benefit from 64 series was £4,096,960; and that the group managed to remain largely in a positive cash flow position despite the fact the films were said to have cost about £250 million and yet had never been sold to anyone except for sale and leaseback purposes. DCMS took the view it was not possible to consider the application of the production cost test under the Films Act 1985 for the purpose of determining whether the films were British films (i.e. whether or not 70% of production costs had been incurred in respect of production activities within the UK) unless it could first be satisfied as to what the true production costs were.
8. In March 2002 the Inland Revenue shared with DCMS some of the information which had emerged from the VAT and tax investigations, and on March 27, 2002 DCMS informed Peakviewing that it had received information from the Inland Revenue which (in light of the concerns that DCMS already had) cast doubt on the applications. On May 3, 2002 DCMS informed Peakviewing of the issues which arose from the Inland Revenue information: the production costs were extraordinary, and DCMS believed that by entering costs which were not true costs, Peakviewing was able to cover its real costs and overheads and make a profit solely out of sale and leaseback transactions; DCMS believed that the overwhelming majority of the costs of production stated on the applications were not the true costs, and that they had not actually been paid and received; the costs which Peakviewing claimed to have paid in relation to the services (as producers) of Elizabeth Matthews, Paul Matthews, and Peter Matthews did not appear as monies received by those persons in their personal tax returns (albeit that the same accountant had prepared both the schedules of costs attached to the Peakviewing applications for certificates, and the individual tax returns).
9. Accordingly, DCMS indicated its intention to refuse the applications for certificates, but invited comments from Peakviewing. On May 15, 2002 Peakviewing’s solicitors, Messrs Davenport Lyons, said that, even if all the production costs queried were disregarded both the production cost requirement and the labour cost requirement were still satisfied. The letter also sought a definitive response from DCMS as to whether the applications for certificates would be granted or refused; and on May 23, 2002 they required a decision on the grant/refusal of the applications for certificates by close of business on May 24, 2002. On May 24, 2002 DCMS refused the applications for the certificates.
10. A constant theme of the correspondence from Peakviewing and its solicitors was that none of the concerns raised by DCMS related to whether or not the films qualified or did not qualify for a certificate; and that even if all the costs which had been questioned were excluded, all of the series, including those made in Hong Kong and Singapore, would qualify under the production cost requirement and that most of the applications had a 100% qualifying spend in any event. The central question in this case is whether the Secretary of State is entitled to refuse to issue certificates until the questions on the expenditure have been satisfactorily answered.

II Legislative and financial framework

11. The combined effect of section 42 of the Finance (No. 2) Act 1992 and section 48 of the Finance (No. 2) Act 1997 is that film production and acquisition expenditure on qualifying British films costing £15 million or less can be written off in full.^[1]
12. Under these provisions, a taxpayer who has incurred expenditure on either the production or acquisition of a qualifying film, tape or disc as defined in section 43 is entitled to claim a capital allowance equal to 100% of the amount of the expenditure in the year in which (a) the expenditure is incurred and (b) the film is completed. The amount of the claim is limited to the lesser of (i) the costs of production; (ii) £15 million; and (iii) the acquisition costs, in the case of an acquisition. Section 48 “does not apply to so much of any expenditure falling within section 42(3) of the Finance (No.2) Act 1992 (Acquisition Expenditure) as exceeds the amount of the total production expenditure on the film concerned”: Finance (No.2) Act 1992, section 48(3).
13. Section 43 defines a “qualifying film” as “a master negative of a film certified by the Secretary of State under Schedule 1 to the Films Act 1985 as a qualifying film for the purposes of” the relevant capital allowances legislation (Capital Allowances Act 1990, section 68 or Finance (No. 2) Act 1992, section 40D). Qualifying tapes and discs are similarly defined.
14. Investors can take advantage of the tax reliefs through sale and leaseback arrangements with producers. In the typical sale and leaseback transaction, the producer sells the film to a partnership of individuals with higher rate tax liability and with profits sufficient to utilise the tax relief, and the film is leased back over a period of (say) 15 years. Most of the sale price is placed on deposit to secure a bank guarantee of the rental payments, with the remainder (in the present case 11.5%) as the net benefit to the producer. The effect of the relief is to defer tax, since the rental payments are taxable in the hands of the partners.
15. For example, an investor may make an investment of £550,000 in the purchase of a film by a personal provision of £100,000 and a bank loan of £450,000. This results in a loss of £550,000 which in turn generates a tax allowance of £220,000 for the taxpayer. The lease payments are sufficient over 15 years to cover the loan repayments which the taxpayer is required to make. Thus the investment is risk free from the point of view of the taxpayer. Any income to the taxpayer arising from the lease (and as such taxable) is spread over a 15 year period.
16. The powers of the Secretary of State under the Films Act 1985 are exercised by the Secretary of State for Culture, Media and Sport, and are administered by her officials in DCMS. By section 6 of the 1985 Act, Schedule 1 of the Act has effect with regard to the certification of a master negative, tape or disc of a film as a qualifying film, tape or disc for the purposes of the 1992 Act.
17. The relevant provisions of Schedule 1 are these. Each part of a series of films is to be treated as a separate film, but the Secretary of State may direct that a number of films shall be treated as a single film if they form a series with not more than twenty six parts with a combined playing time of not more than twenty six hours and if, in the opinion of the Secretary of State, the series constitutes a self-contained work or is a series of documentaries with a common theme: paragraph 1(3), (4). In the present case each series of 26 episodes has been treated as a single film.
18. An application for certification of a film may be made by any person who has “incurred expenditure” on production: paragraph 2(1). By paragraph 2(3) the applicant shall “(a) produce to the Secretary of State such books and other documents relating to it; and (b) furnish to the Secretary of State such other information with respect to it, as the Secretary of State may require for the purposes of determining the application.”
19. Paragraph 3(1) of Schedule 1 provides that, if the Secretary of State is satisfied that a master negative, tape or disc with respect to which such an application is made is a “British film” for the purposes of Schedule 1, “then he shall certify that negative, tape or disc as a qualifying film, qualifying tape or qualifying disc for the purposes” of the tax legislation, and by paragraph 3(2) if he is “for any reason not satisfied” he shall refuse the application.
20. Paragraph 4 provides that, subject to paragraph 5, a film is a British film “if all the requirements specified in sub-paragraphs (2) to (4) are satisfied with respect to it”.
21. The first requirement (paragraph 4(2)) is that throughout the period during which the film is being made, the maker of the film is (if not a natural person) “a company which is registered in a member State and in the case of which the central management and control of business is exercised in a member State.”
22. The second requirement (paragraph 4(3)) is that “at least 70 per cent of the total expenditure incurred in the production of the film was incurred on film production activity carried out in the United Kingdom”.
23. The third requirement (paragraph 4(4)) is that “not less than the requisite amount of labour costs (as determined under paragraph 7) represents payments paid or payable in respect of the labour or services of (a) Commonwealth citizens, (b) citizens of a member State or (c) persons ordinarily resident in a Commonwealth country or member State”. The requisite amount is defined in paragraph 7(2)(a) as 70% of the total labour costs.
24. Paragraph 6(1) provides:

“For the purposes of this Schedule the labour costs of a film shall be taken to be, subject to paragraph 8, the total amount of the payments paid or payable in respect of the labour or services of persons directly engaged in the making of the film, in so far as those payments are attributable to the making of that film”.

25. Paragraph 8 of Schedule 1 provides:

“Where it is material, in connection with an application under paragraph 2 in relation to a negative, tape or disc of a film, to ascertain the labour costs of the film or the proportion of those costs which represents payments in respect of the labour or services of persons of any particular class, then -

(a) if it appears to the Secretary of State that any sum which, as part of those costs, is paid or payable in respect of the labour or services of any particular person is so great as not to be a bona fide payment by way of remuneration for the said labour or services, the Secretary of State may direct that that sum, or part of that sum, shall be disregarded in ascertaining the said labour costs or the said proportion thereof, as the case may be; and

(b) if it appears to the Secretary of State that no sum or a sum so small as not bona fide to represent all the remuneration therefore is paid or payable as part of those costs in respect of the labour or services of any particular person, the Secretary of State may direct that such sum, or (as the case may be) such greater sum, as may be specified in the direction shall be treated as so paid or payable”.

26. Paragraph 9 provides for a person aggrieved by a decision of the Secretary of State to refuse or revoke certification to apply to the High Court.
27. Paragraph 10 provides for regulations prescribing the form of applications and the particulars and evidence to be provided. The Films (Certification) Regulations 1985 (SI 1985 No. 994), as amended by SI 1999 No. 2244, provide for (inter alia): an independent accountant’s report stating whether the labour and production costs requirements have been met (Regulation 5(b)); and a statement by the applicant showing the total expenditure incurred in the production of the film, and the percentage that was incurred on film production activity carried out in the United Kingdom (Regulation 6, particular E, as amended).

III The applications and the refusal of the certificates

28. Viewing4Leisure comprises 334 series of 26 episodes of five minutes duration. Production began on the series in August 2000. Peakviewing says that the films are intended to be aired in the traditional way through special interest television channels, on video and DVD and, in addition, are designed to be aired in a new and unique fashion using the new technologies of broadband delivery systems and interactive television.
29. In the year 2001 DCMS issued certificates for films in the Viewing4Leisure series and also in the “Let’s…” series, a series for pre-school children with titles such as “Let’s Make Music.” DCMS was considering excluding from the certificates management fees and bonuses, and the fees payable to the individual producers and the executive in charge of production. Peakviewing challenged this in judicial review proceedings, but the case was resolved by agreement in July 2001.
30. On July 20, 2001 Mr Colin Green of DCMS wrote to Ms Elizabeth Matthews, a director of Peakviewing and Peakviewing Transatlantic, to outline the principles to be applied by DCMS in considering applications for certification by Peakviewing. The following points were made: (1) DCMS took the view that paragraph 8 of Schedule 1 gave the Secretary of State the power to disregard certain labour costs of films even in cases where to do so did not affect the ability of the films to qualify for certifications, if it considered that, in the light of the size of the payment, it was a bona fide remuneration for labour and services; (2) the Inland Revenue, whilst no doubt taking account of the details contained in a certificate issued by the Secretary of State, did not regard themselves as bound by any view reached by the DCMS in the process of such certification in assessing the tax consequences of such certification.
31. Since December 2001 Peakviewing has made 168 applications for certificates for more than 4,000 of these films, and it is those applications which are the subject of these proceedings. 164 are in the Viewing4Leisure series and 4 are in the “Let’s…” series (Let’s Go; Let’s Bag It; Let’s Explore Nature; and Let’s Cook).
32. There was a lengthy correspondence between January and May 2002, mainly conducted by Ms Matthews for Peakviewing, and Mr Green for DCMS. It is not necessary for present purposes to set it out in full. What I shall do is to pick out three of the concerns expressed by DCMS as an illustration of the approach it was taking and Peakviewing’s responses, and then set out the correspondence which led to the refusal of certification. The three matters are (a) the amounts payable to Tanmarsh for completion bonds; (b) the actuality of payments; and (c) the prospects for genuine exploitation of the films.

The Tanmarsh completion bonds

33. The applications included as an element in the total production cost of each Viewing4Leisure series the cost of a bond at £60,188. On January 18 Mr Green said that in comparison with industry norms, the £60,188 completion bond fee seemed high for a mass-produced documentary series, and that many series nowadays appeared to be made without expenditure on a bond. Ms Matthews answered on January 23: she repeated what she had said the previous year, namely that they were confident that at the time it was set the level of premium charged by the bonding side of their business was customary; and that while she agreed that a bond was not always necessary and might not be necessary if they were producing one of the series in isolation, the fact that they were producing 30 series increased the risk. She added that the completion bond was an undertaking by Tanmarsh to provide costs in excess of the budget, and they did not reinsure.
34. On February 8 Mr Green asked, given that Tanmarsh was the financier of the series in any event, whether she could clarify what merit there was in a fee totalling as much as £60,188 going back from the production company to Tanmarsh for the service. He asked what services the fee covered, since they did not reinsure, and whether it was still the case that the bond had never had to be called on for any of the series, of which there had been 200 by then; and what was the perceived risk in production of the latest series which required a bond to cover it, and in what way did mass producing those series increase the risk rather than spread it. On February 21 he reverted to the question of the bond for the Let’s Go series at £156,598, and asked her to confirm if it was an undertaking by Tanmarsh. He asked:-

“1. If so, and if Tanmarsh Communications Ltd. is the financier of the series, could you clarify what merit is there in a fee totalling so much as £156,598 (on “Let’s Go”) going back from the production company to the financier Tanmarsh Communications Ltd. for this service?

2. Given that you do not reinsure, what services at Tanmarsh Communications Ltd does this fee of £156,598 cover?

3. Is it the case that the bond had never had to be called upon for any of these “Let’s” series?

4. What is the perceived risk in the case of those series that required a ‘bond’ to cover it? In what way does producing large numbers of the ‘Let’s’ series increase a ‘risk’ rather than spread it…”

35. In an e-mail on February 25 (and also in a substantially similar letter on the following day) Ms Matthews confirmed that the bond had never been called, and said:

“The desire of all those making a business of providing the finance to fund film production, and in particular, the desire of all those making a commitment to fund overcost, is not to have to incur such costs. The fact that there are bond companies at all means that on balance, fewer productions call upon the bond than don’t call upon the bond and that a profit is to be made from the activity.

As to perceived risk, when the rate was set it was - and continues to be - an Industry accepted rate.

The risk of overcost is the same for every production and as financiers, we insist that provision be made to cover it. Although we have decided not to seek an external bond, we recognise the need for provision nonetheless to be made and hold the fees that we would otherwise pay to third parties as our reserve. If no overcost is incurred on one production, then the profit on fees earned on earlier productions are a means of ensuring that such funds are available on future productions.

Many large companies have faltered or failed as a result of failing to take proper alternative internal measures to cover or spread the risk of overcost - however small it might have appeared at the time - having taken the view that no external bond is required. I worked for a large multinational that collapsed precisely because of this issue. What is more, so extensive was the number of small companies failing for this exact same reason that not long after Channel 4 began commissioning independents, it had seriously to address this exact problem.”

36. On March 19 Mr Green said he was puzzled about her answer, and asked in what sense there would be a “profit” to Tanmarsh, given that the production company paying for the bond is returning to Tanmarsh funds it received from Tanmarsh. On the same day she said that a prudent financier either took out a third party bond or otherwise took steps to ensure that funds were available in the event of an overspend. Tanmarsh chose not to pay a bond fee to third parties but to hold on to the saving thereby generated as a reserve. Because the fee was charged to the production company and retained by Tanmarsh it would constitute part of Tanmarsh’s profit if no overcosts were incurred. She added: “May I remind you that it is not the role of the DCMS to second-guess commercial judgments but simply to ensure that the appropriate tests for certification have been met.”
37. On March 26 she said:

“As to the bond, the bond is irrelevant to qualification and consideration of this issue cannot possibly legitimately hold up consideration of an application. It is included in the statement of expenditure only because you have advised that it must be. It is a cost that is pro-rated as between UK and non-UK activity and is not a labour cost. Whether we have a bond or charge a fee internally for a similar service or how much we charge has absolutely no bearing on the certification process. It is a commercial judgment. The DCMS was not created to second-guess commercial judgments….”

Payments and source of finance

38. The series which were the subject of the applications were said to have a production cost of £117 million. Another theme of the correspondence is DCMS’s concern that the production costs might be in the main simply book entries between group companies. On January 18 Mr Green asked for a list of the parties providing finance for the films and of the types of finance. He also asked whether all of the amounts of money declared in the application had been received by the persons supplying the services. On January 23 Ms Matthews said she was not sure what relevance the source of finance had, but in any event 100% of the costs of production was provided by Tanmarsh. All of the costs had been incurred, and there were no costs which were contingent.
39. On February 8, Mr Green asked whether she meant that all of the amounts of money declared in the application had been received by the persons and companies whose services they were in respect of. On February 25 she simply referred to the Finance Acts, the Films Acts, and the opinion letter required, and concluded: “On [the] basis that ‘occurred’ has the meaning generally accepted and as [conventionally] stated as an unconditional obligation to pay, then all of the costs as set out in the statement of production costs have been incurred”.
40. On March 19, Mr Green asked whether her answer to his question whether all of the money had been received by the persons and companies whose services they were in respect of, was effectively “No, but there is an unconditional obligation to pay”. On the same day Ms Matthews replied that the answer was no: “A direct answer would be that the unconditional obligation to pay has been met. Payment has been made.”

Exploitation

41. The third aspect of concern which emerges from the correspondence is whether the production of the films had any genuine commercial purpose. On February 21 Mr Green referred to Ms Matthews having told him in 2001 that the “Let’s” series was to be broadcast on a new Internet channel to be set up in 2002, and asked whether this would happen and within what time-scale. On February 21, she told him that the first launch of Viewing4Leisure would be in Singapore in May: “Singapore was chosen as our partner as it has one of the world’s highest penetration of high speed cable connections and a Government committed to new media – in a way that goes beyond rhetoric!”
42. On March 19 Mr Green asked whether that meant that there was presently no United Kingdom launch scheduled and that the sales estimates were being revised downwards. Ms Matthews replied:

“We have not revised our sales estimates downwards at all. They remain valid although were we to revise them we would be putting them up. The Singapore site is the test site for the international broadband launch and we are currently in heavy negotiations with a number of broadcasters in the UK for the UK launch, a date for which has not yet been set. What we are doing, however, is launching a test with One2One and Ericsson in the UK to test the mobile phone version of the series and a test with Manx Telecom and Siemens in the Isle of Man as a further test of the broadband application. Both of these tests are scheduled over the next three months.”

43. On March 25, Mr Green asked for further information about the exploitation of the series. He referred to a letter in February 2001 in which she had said that their intention was to launch their own pre-school and family channel by the end of 2002, and asked whether he was correct to assume that a broadcaster such as Sky would carry their own channel. On the same day Ms Matthews replied:

“It is still our intention to launch or own pre-school channel by the end of the year but you seem obsessed with the UK and UK carriers. The UK is not the only - it is certainly not the biggest - media market and we are not limiting ourselves by so thinking. We are not ‘hoping’ for anything. We are making it happen.

We have a number of options. The Sky signal is carried by a particular satellite. The same satellite carries a lot more than just Sky. We can choose that satellite if we wish or any other. We can uplink from the UK or from anywhere else for that matter. We can downlink via Sky or via cable. How we do it and when we launch is our decision. We may do it in concert with an existing channel, or we may launch our very own channel. We may do it by satellite or we may do it via cable. Our business plan is coming together nicely and we have the finance to launch. Frankly, the only thing holding us up is your interference since these unconscionable and quite unjustifiable delays are causing horrendous damage.”

Refusal to issue certificates

44. On March 27, 2002 Mr Gibbins of DCMS wrote to Ms Matthews to say that in addition to the material which she had supplied, they had received further information that day, and expected supplementary information shortly, which all cast doubt on the bona fides of the applications. They could not therefore issue certificates at that time for any of the applications which were outstanding.
45. On the following day Peakviewing’s solicitors Messrs Davenport Lyons wrote to Mr Green requiring DCMS to make a decision on the application. They said that their client had responded to the queries although, as they were not labour costs, the department had no grounds for refusing them under paragraph 8 of Schedule 1. The fees had no materiality to the eligibility of the films for certification, and the films would qualify whether or not those costs were included.
46. On April 3, Mr McFarlane replied and said that the applications from Peakviewing were most unusual. They had asked questions but had not been satisfied with the answers, and had received further information the previous week from the Inland Revenue which added to their concerns and cast doubt on the bona fides of the information in the applications.
47. On April 5, Messrs Davenport Lyons, solicitors for Peakviewing, complained that DCMS had failed to provide any details about the information received or concerns that it had, making it impossible for their client to respond to the letters in any meaningful way. They asked DCMS to provide details of all the issues which cast doubt on the information, in particular the information received from the Inland Revenue, and allegations made in relation to the auditor, and their concern that the majority of costs were not true costs. Once the information had been provided, their client would be in a position to address any queries that they might have in relation to its applications. If DCMS felt that their client had not adequately dealt with questions raised in previous correspondence, they asked the department to identify the specific concerns and they would clarify the situation for them immediately and provide them with any additional information required.
48. In response, on May 3 Mr McFarlane said that they had considered information received from the Inland Revenue, and raised the following particular points:

(1) They had asked questions but had not been satisfied with the answers, for example, the reasons given for the very high nature of the fees in the applications, and whether the fees had actually been paid and received.

(2) An internal paper titled “Keys to profitability in production” and a letter from Ms Matthews to Lombard North Central suggested that the films could be a profit centre if costs could be charged at 10 times the actual cost. Consequently, DCMS believed that by entering costs which were not true costs, Peakviewing was able to cover its real costs and overheads and make a profit solely out of sale and leaseback receipts

(3) That was supported by DCMS’s understanding that none of the Viewing4Leisure series had ever been sold.

(4) A company document showed the benefits to be gained for each of 64 series of Viewing4Leisure:

Total cost £861,000

Sale & Leaseback (11.5%) £99,015

Less out of pocket cash costs £35,000

Net cash benefit £64,015

(5) In the tax year 2000/01 the management fees, producers fees and directors fees were said to be payable by Tanmarsh/Peakviewing companies under an unconditional obligation. As auditor of the Peakviewing/Tanmarsh companies, Roger Downes also took the view that they would be paid by the companies concerned and that they were properly included in the statement of costs which were included in the applications for certificates from DCMS. DCMS understood that at exactly the same time he took the opposite view in respect of the tax returns prepared for Elizabeth Matthews, Paul Matthews and Peter Matthews. If the entitlement to these payments from the companies was unconditional in the hands of the recipients then the management fees, directors fees and producers fees should have been included on the tax returns by the individuals concerned.

(6) DCMS had information which suggested that Mr Downes of Andorran Ltd had been too closely involved in the running of the Peakviewing companies and was in consequence not in a position to give an independent statement as to a true and fair view of the costs incurred by the company as shown in the applications.

49. The letter concluded:

“We believe the majority of the costs stated on the applications are not the true costs that have been incurred, and we do not believe the bulk of the costs have actually been paid and received. We intend to reject the recent applications, and withdraw previous certificates on the same basis. We would appreciate your clients comments on this or any of the above.”

50. On May 15 Messrs Davenport Lyons said that the contents of the letter were not accepted. They said that they did not intend to deal with every issue raised in the letter, but emphasised that DCMS had expressly accepted the charging structure in correspondence the previous year. Even if the department was right about the client not having incurred the costs it was indisputable that their client had paid out substantial costs to third parties and could produce evidence to show this. Out of those costs not less than 70% were incurred on activities in the United Kingdom and 100% of the labour employed was qualifying labour. On that basis alone the films qualified for certification. They asked DCMS to reconsider its position, and allow the applications.
51. After a telephone conversation in which DCMS had said that it would need two weeks to make a final decision, Davenport Lyons wrote on May 23 to require a final decision by close of business on May 24. On May 24 DCMS wrote to say that they had given the client the opportunity to make comments on the department’s concerns and they had not done so, and had instead asked for a decision by that day; “In the absence of any further information from them we are rejecting the applications.”

IV The contentions

52. This is an application under paragraph 9 of Schedule 1, which provides for a person aggrieved by a decision of the Secretary of State to refuse or revoke certification to apply to the High Court. The application challenges the refusal by the Secretary of State to grant certificates under the 1985 Act certifying that various films are “British films”. The claimants ask the court to declare that the Secretary of State has no power to disregard costs (1) where such costs are not labour costs and (2) where the inclusion or exclusion of such costs in the total labour costs of a film cannot affect the film’s qualification as a British film.
53. The claimants ask the court to declare that, as at April 17, 2002, all of the conditions required for the grant of certificates under the 1985 Act were satisfied in respect of the applications in question, and accordingly to direct the Secretary of State to grant certificates in respect of such applications. The claimants also ask the court to direct an inquiry into damages sustained by reason of the Secretary of State’s wrongful exercise of powers under the 1985 Act, because Peakviewing will be impaired in its ability commercially to exploit the films without certification, as returns on the films will be reduced in territories where nationality based quotas are applied; and/or will be unable to qualify for tax benefits under the UK statutory regime; the loss of income to Peakviewing will jeopardise its business and the employment of staff by Peakviewing and Tanmarsh and the Tanmarsh group of companies; and Peakviewing Transatlantic will be in breach of sale and leaseback agreements entered into in respect of the films.
54. The claimants say that the Secretary of State’s position is based on (1) a legal error and (2) a mistaken view of the facts. The error is said to be to concern herself with the amount of the costs of the films, rather than with the statutory questions of (a) where such costs were incurred and (b) to whom the labour costs were paid or payable. The factual error is the assumption that the costs stated in the applications for certificates were not in fact incurred. This error arises from failures by the Secretary of State’s officers (and more particularly, Inland Revenue officers, whose advice is said to have directed the Secretary of State in this case) to understand the claimants’ business, and some basic errors such as assuming that costs incurred in Rand were incurred in Sterling.
55. There are two essential features of a certifiable British film. The first is that 70% of the cost of making it is incurred in the UK. The second is that 70% of the people who work on it are qualifying persons. The 1985 Act is not concerned with how much films cost to make. It is concerned with where and by whom films are made.
56. Each of the films in question was made by a company registered and managed in the European Union (in this case, in the United Kingdom): this satisfied the requirement in Schedule 1, paragraph 4(2). As to production costs, the great majority of the applications had 100% UK expenditure. In the case of the 54 applications filed in December 2001, eight of the series were recorded in Singapore and twelve of the series in Hong Kong. Of those twenty, eighteen had 13% non-UK expenditure and two had 14% non-UK expenditure. At least 70% of the production costs of each film were incurred in the United Kingdom: this satisfied the requirement in Schedule 1, paragraph 4(3). At least 70% (and in fact 100%) of the labour costs of each film were paid or payable to qualifying persons, which satisfied the requirement in Schedule 1, paragraph 4(4) (the labour cost requirement).
57. If disregarding particular labour costs will have no bearing on the satisfaction of the labour costs test, because at least 70% of the costs which are not disregarded are paid or payable to qualifying persons, then the costs are not “material” for the purposes of paragraph 8. In a case where 100% of the labour costs are paid or payable to qualifying persons, then the amount of such costs cannot be material. Even if most of those costs are disregarded, the labour cost test will still be satisfied.
58. A certificate is granted in respect of a film, not in respect of the costs of a film. The requirements of Schedule 1 focus on the proportion of costs which satisfy the stated criteria. They do not include a general power to regulate costs, or act as a general reviewer of the level of labour or production costs. Paragraph 8 empowers the Secretary of State to consider the bona fides only of labour costs, not of production costs generally; and empowers the Secretary of State to disregard certain labour costs only when these costs are material to the assessment of labour costs for the purposes of the labour costs test. Nothing in Schedule 1 empowers the Secretary of State to give any direction as to the bona fides of any costs other than labour costs under paragraph 8. If any issues arise as to tax entitlements in respect of certified British films, these issues may be dealt with by the Inland Revenue acting within its statutory powers.
59. Notwithstanding the absence of any such general power, the Secretary of State’s refusal of certificates is based upon expressed concern not about the proportion of costs (the relevant consideration when assessing whether the films should be certified) but about levels of costs. The DCMS letter of May 3, 2002 contains no reference to the statutory criteria for the grant or refusal of certificates, and no reference to the production cost or labour cost tests. There is no consideration of whether costs relate to activity within the UK, or relate to work done by qualifying persons.
60. The Secretary of State appears to have undertaken a role as tax investigator or critic of accountancy methods. Neither of these is the role prescribed for the Secretary of State by the Films Act. In respect of each of the films in question, the statutory conditions necessary for the grant of certificates were satisfied, and accordingly the refusal of certificates was unlawful and irrational.
61. In addition, DCMS unfairly and wrongly took into account information which it had not disclosed to Peakviewing and in respect of which it had no opportunity to comment. In particular it is said that the information relied upon by the Inland Revenue in these proceedings (and therefore also by DCMS in coming to their decision to refuse certification) had been seriously misunderstood (for example because the Revenue treated documents showing figures as if they were in sterling when in fact they were in South African Rand).
62. The position of the Secretary of State is that paragraph 2(1) of the Schedule makes it clear that the application serves a single purpose, namely certification of the film, and that the sole consequence of certification is that any certified film is a “qualifying film” for the purposes of the Finance (No. 2) Act 1992. Thus, from the outset, the direct link between the provisions of the 1985 Act, and those of the relevant tax legislation is made plain. The process of certification is carried out for a specific purpose, and with a specific consequence in mind, namely satisfaction of one of the criteria for the tax benefit which can be obtained under the taxation legislation. The issue of the certificate is an integral step towards obtaining a tax benefit.
63. The provisions in Schedule 1 should be read so as to promote a coherent scheme which avoids the possibility of evasion of the object of the tax scheme – i.e. that tax benefits should be based on the actual cost of the production of the film; and of effectively permitting Peakviewing (or any other applicant in a similar position) to benefit from its own wrong. On the facts of the present case it appears that the only purpose of producing the films is to exploit them through sale and leaseback arrangements and in turn, the sale and lease-back arrangements are only viable (i.e. will only provide the tax benefits sought by the tax payers in the film partnership) based on the level of production costs as claimed by Peakviewing in its applications.
64. Where, as on the facts of the present case, there is at the time when the application for the certificate is made, a clear and reasonable basis for concluding that the claimed costs of production are not the actual costs of production, it is artificial to contend that the Secretary of State should simply ignore that fact. There is no need to construe the role of the Secretary of State in so narrow a fashion. Having regard to the reality of the situation there is every reason to conclude that it is within the powers of the Secretary of State to refuse to grant certificates to applications which are not based on the real costs incurred in production.
65. Paragraph 8 of Schedule 1 does not serve as an exhaustive statement of the ability of the Secretary of State to refuse an application made on a false basis, but rather provides the Secretary of State with an option (in relation only to the labour cost requirement) to treat an application as if it had been made on the basis of different information. The existence of this discretion does not alter the fact (a) that the Secretary of State is still entitled to refuse an application under Schedule 1 on the basis that the information relevant to the labour cost requirement is not correct (i.e. may choose not to exercise the discretion under paragraph 8, but may simply refuse the application under paragraph 3(2)); and (b) that the Secretary of State is entitled to refuse an application on the basis of the production cost requirement if she concludes that the application has been made on the basis of facts that are not true.
66. According to DCMS, Peakviewing obtains a sum equivalent to 11.5% of the sale price of the film, which enables it to cover the actual production costs of the film plus a profit from which it can invest in further films for the process to be repeated. The 11.5% is sufficient because Peakviewing significantly overstates the costs of production. However, for the purpose of obtaining tax relief the value of the film sold to and leased back from the tax payer would have to be ascertained since this determines the legitimacy of the claim for tax relief. In turn, the cost of production of the film is in practice the primary reference point for determining the value of the film that has been purchased in the above manner.
67. Based on the information available to it (including information provided by the Inland Revenue) DCMS believes that these production costs are vastly inflated. In relation to each series, of the £720,000 claimed as production costs, only a very small proportion – in the region of £35,000 – has been incurred in relation to sums paid to third parties (and as such is expenditure which is capable of being verified). The remainder of the production costs claimed appear to arise by way of transactions between companies within the Peakviewing group of companies.
68. During the correspondence that has taken place since the first of these applications was made, Peakviewing’s position has been that all the expenditure stated on the application form has been incurred and paid. Based on the information available to it, and having regard to the amounts involved the DCMS does not believe that this can be the case. In particular although Peakviewing claims to have spent in the region of £117 million on the productions, there is no obvious source for this amount of money. No outside investors have been involved, and none of the films has been exploited in the ordinary way e.g. by exhibition to the public in cinema, by broadcast or otherwise (save for sale and lease-back agreements referred to above).

V Conclusions

69. The essence of the argument of the claimants is that even if the details of expenditure are inadequate or give rise to concern as to their genuineness the Secretary of State cannot refuse to certify a film if the film would qualify if that expenditure were stripped out. The essence of the argument of the Secretary of State is that where the details of expenditure are inadequate or do not represent genuine expenditure, or where the Secretary of State considers that the application involves tax evasion by the use of false expenditure, the Secretary of State is not bound to issue a certificate until she is satisfied that the claimed expenditure has been incurred and is genuine.
70. I consider that the Secretary of State is right as a matter of law for the following reasons. Under paragraph 2(1) the application must be made a person who has “incurred expenditure.” By paragraph 2(3), for the purposes of considering whether or not a certificate should be granted the Secretary of State is entitled to require production of “such books and other documents” as she may require. By paragraph 2(4) any information provided may be required to be supported by a statutory declaration of the truth of its contents.
71. The production cost requirement in paragraph 4(3) is that 70% of “the total expenditure incurred in the production of the film was incurred in film production activity” in the United Kingdom. The labour cost requirement relates to payments paid or payable. In practice, the labour cost requirement is merely a specific aspect of the production cost requirement since it concerns a specific element of the overall production costs, i.e. the amount spent on the labour and services of individuals engaged in producing the film. Neither requirement can be applied in the context of any specific application unless the overall production costs are ascertained.
72. The reference to expenditure being “incurred” for the purposes of the production cost requirement in paragraph 4(3) must mean expenditure which has actually been incurred; and the reference to payments “paid or payable” for the purposes of the labour costs requirement in paragraph  4(4) must mean payments which have actually been paid or are actually payable.
73. It would otherwise be impossible to attempt to apply either the production cost requirement or the labour cost requirement. Without knowing what was the total amount of expenditure that was incurred, it is impossible to apply the 70% requirement in relation to “the total expenditure incurred …” That is why the Films (Certification) Regulations 1985 require the applicant to show the total expenditure.
74. There is no reason to treat paragraph 8 of Schedule 1 as an exhaustive statement of the ability of the Secretary of State to refuse an application made on a false basis. Rather it provides the Secretary of State with an option (in relation only to the labour cost requirement) to treat an application as if it had been made on the basis of different information.
75. I accept the submission for the Secretary of State that the meaning for which the claimants contend, that costs incurred does not mean actual costs incurred, would require the Secretary of State to ignore the substance of transactions which formed the basis of the level of production costs claimed by an applicant even if it was apparent that those transactions were sham transactions; and would prevent the reading of the provisions of Schedule 1 to the 1985 Act in a manner which was consistent with the relevant tax legislation.
76. Where there is a clear and reasonable basis for concluding that the claimed costs of production are not the actual costs of production, the Secretary of State cannot simply ignore that fact. It is within the powers of the Secretary of State to refuse to grant certificates to applications which are not based on the real costs incurred in production. This is particularly so when her officials know that the films will be bought by individuals for a sale price which reflects those costs, and that they will claim tax relief on the acquisition cost, and the relief may be refused or withdrawn if the expenditure did not take place on the ground that the expenditure is lower than the acquisition cost.
77. I do not accept the claimants’ argument that the certificates must be issued on the ground that, even if the disputed costs are disregarded, the films still qualify. First, it is clear that the claimants are not suggesting that the costs should actually be disregarded (since that would destroy the object of their exercise). They are only saying that, if they were disregarded, the films would qualify.
78. In my judgment the Secretary of State is right to contend that this argument is flawed. In substance this argument is to the effect that if the Secretary of State does not believe that the information provided on the application form is accurate (and for that reason would not grant a certificate), she may then determine whether or not a certificate should be issued on the basis of an independent analysis derived from the Secretary of State’s investigations rather than from information supplied and verified by the applicant. In principle, the requirement under Schedule 1 is to consider the application that has actually been made. An application made on the basis of total production costs of £700,000 is a completely different application to one made on the basis of total production costs of £35,000.
79. If the Secretary of State reasonably believes that the information on the application form relating to production expenditure incurred is materially inaccurate, and the application is not modified and her concerns are not allayed, then she is entitled to take the view that the applicant has not shown that it has incurred the requisite proportion of expenditure (because there is no valid base figure against which the calculate the percentage). In those circumstances she is entitled to come to the conclusion that she is not satisfied that the film is a British film, and would then be obliged (under paragraph 3(2)) to refuse the application.
80. There is abundant material in the correspondence, and in the evidence of Ms Matthews for the claimants, to justify the position of DCMS. What emerges from the correspondence and the evidence, in my judgment, is this. First, in relation to the three matters I gave as examples (the completion bond, the question whether payments were received, and the commercial exploitation of the films) Ms Matthews is often vague and evasive, when she is not assimilating Peakviewing to a major Hollywood studio. Second, in their letter of May 15 Davenport Lyons did not deal with any of the points made by DCMS in the letter of May 3, notwithstanding that in their letter of April 5 they had stated that an immediate response to any points raised would be provided. The only point made by way of response was the assertion that the matters raised were not material since if all the elements of costs that were now in dispute were disregarded (i.e. taken out of the application both as production costs and as labour costs), the applications would still satisfy the requirements under Schedule 1 to the 1985 Act.
81. Third, even in her evidence Ms Matthews did not deal adequately with the matters which I have mentioned or with the DCMS letter of May 3. On the completion bond, she said:

“Since December 2001, the DCMS have also raised a number of questions in correspondence concerning the fee charged by Tanmarsh for the provision of the in-house completion bond.

As a prudent investor in films, Tanmarsh requires proper provision to be made for any costs which exceed the budgeted amount. Many companies have gone bust because they have failed to do so. This can be done by taking out a bond with a third party, or by taking prudent internal measures, supported by an internal fee.

The completion bond does not affect the production cost test because it is pro rated between costs incurred in the UK and costs incurred outside of the UK in accordance with the Guidelines issued by the DCMS. As such, the enquiries from the DCMS are irrelevant to the determination of the production cost test.”

82. This is not readily comprehensible in the context of Peakviewing’s business, but it does not deal with the specific concerns of DCMS concerning the amount of the bond in relation to the costs of the series or the reality of the risk.
83. In her first witness statement in support of this application, Ms Matthews did not answer any of the points made by DCMS in the letter of May 3. In her second witness statement she did not deal with the points made except to this extent: (a) she asserted that the Peakviewing companies were genuine film production companies making genuine films; (b) she denied that the accountant, Mr Downes of Andorran Ltd, was heavily reliant for business on the Tanmarsh group, but she said that because of the concern of DCMS about the independence of Andorran Ltd, they had engaged MRI Moores Rowland to produce a second set of accountants’ reports; (c) the documents which the DCMS suggested that the group charged 10 times the actual costs did not mean that: they meant that “that if we merely charge at an arm’s length rate often enough, we will cover the cash flow on the overhead.” But she also said that DCMS did not seem to understand that one block of Viewing4Leisure did not generate sufficient cash flow to completely cover the overhead costs which were necessary to run it.
84. The MRI Moores Rowland reports that the production cost and labour costs requirements have been met are in the DCMS standard form in accordance with Regulation 5(b) of the Films (Certification) Regulations 1985, but add (like the Andorran Ltd reports) a reference to the labour and production figures, for example: “For the purposes of identification, the labour costs that we have examined total £433,053 and the production costs total £698,285” (report on “Manchester the Vibrant City – Dining Out in Manchester”). This cannot be taken to be an endorsement, or report on, or audit, of the figures.
85. Ms Matthews had this to say about the commercial exploitation of the films:

“Our management accounts prepared on this basis show turnover of £223,000,000 and a gross profit across the Group of £14,000,000… The turnover is largely represented by intra-group sales. External sales amounted to £26,600,000, up from around £6,000,000 last year. Although the balance of the revenue may fall away on a consolidation, the profit will not. We have £97,000,000 of cash in the bank, although the bulk of this is subject to charges in support of our obligations to pay lease rentals.”

86. All this is saying is that intra-group sales have been £223 million and transactions on sale and leaseback have produced £26.6 million most of which is deposited to secure the bank guarantee of the rental payments.
87. She says that they have pointed out to DCMS on numerous occasions that, in relation to Viewing4Leisure and the Let’s series, they are making an investment in content for traditional broadcast and in the new media technologies of broadband delivery, interactive television and 3-G. The revenue which is projected to be earned from mobile phone data supply alone is expected –by the eminent authorities quoted in the business case – to top three trillion dollars by 2010. All of this revenue is dependent on content, of which, at the moment, there is very little. She goes on:

“Despite this it is not true that the series has not been sold. Every series has been sold to Peakviewing Transatlantic BV and, in relation [to] the majority of the series, on terms that guarantee to Tanmarsh the return of the full costs of production, as reflected in the statements of expenditure accompanying the applications for certification. Following a re-organisation, Peakviewing Transatlantic BV is no longer a member of the Tanmarsh group. Every series has also been sold to partnerships managed by Future Film and the thirty two series in the latest block have been co-produced by co-production partners who have made a significant net cash contribution to the series which they expect to recoup in full… We chose Singapore, incidentally, because it has one of the world’s best-developed broadband markets…. On-line spending reached S$22.3 billion in 1999, was S$25.93 billion in 2000 and is predicted to rise to S$34.9billion by the end of 2002.”

88. In her second witness statement in these proceedings Ms Matthews said:

“The launch of the traditional broadcast channel, the first step in the launch of the interactive offering, later this year has been put on hold, pending resolution of this dispute, as has the building of the broadband delivery application.

Despite this it is not true that the series has not been sold. Every series has been sold to Peakviewing Transatlantic BV and, in relation the majority of the series, on terms that guarantee to Tanmarsh the return of the full costs of production, as reflected in the statements of expenditure accompanying the applications for certification. Following a re-organisation, Peakviewing Transatlantic BV is no longer a member of the Tanmarsh Group. Every series has also been sold to partnerships managed by Future Film and the thirty two series in the latest block have been co-produced by co-production partners who have made a significant net cash contribution to the series which they expect to recoup in full.”

89. All of this confirms that there has been no commercial exploitation. It is not for me to decide whether the expenditure claimed to have been incurred has in fact been incurred, still less to decide whether the Peakviewing operation is a genuine one. But I am satisfied that on the basis of the material available to DCMS it was entitled to refuse to issue certificates until it had been reasonably satisfied on the points which it had raised. I am satisfied also that there is no valid ground of objection based on the communications between DCMS and the Inland Revenue. The central concerns of DCMS were already apparent before its meeting with the Inland Revenue in March 2002. They included the cost of, and need for, the completion bond; the cost of various services which were provided by other group companies; the amounts paid to various individuals for their services in relation to the production of the films; whether or not the expenditure claimed on the application forms had actually been paid; the source of the finance used to fund the production costs; and any arrangements that were in place in relation to the commercial exploitation of the films that had been made. Peakviewing was well aware of the concerns that the DCMS had, and had a full opportunity to respond to those points as it thought fit so to do.
90. The information which was provided to the DCMS by the Inland Revenue did not give rise to new issues, but underlined the concerns which DCMS already had. It may be that some of the particular points raised by Mr Read in his evidence to confirm the doubts (but not by DCMS in correspondence), may have suffered from a misunderstanding of the documents, in relation to such matters as what currency was being referred to, or of the numbers of crew involved. But the principal points which arose from the previous correspondence and from the Inland Revenue information were set out in the letter of May 3, 2002, on which DCMS invited comments. The subsequent letters from Peakviewing’s solicitors conspicuously failed to deal with it. Peakviewing had the opportunity to comment, but simply chose not to take it. Nor does the evidence in these proceedings deal with the concerns in such a way that it could be concluded that DCMS would act unreasonably or irrationally were it to continue to maintain that it is not satisfied with the adequacy of the information.
91. The challenge therefore fails.
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MR JUSTICE LAWRENCE COLLINS: For the reasons as given in the judgment which I have handed down, the challenge fails.

MR GOUDIE: My Lord, your Lordship should have had, I think, from my learned friend a note of four typographical matters.

MR JUSTICE LAWRENCE COLLINS: Yes. Are there some more?

MR GOUDIE: No, my Lord. I have not found any more.

MR JUSTICE LAWRENCE COLLINS: Thank you.

MR GOUDIE: My Lord, I ask your Lordship's permission to appeal to the Court of Appeal. As your Lordship appreciates, this is the --

MR JUSTICE LAWRENCE COLLINS: I am rather inclined to, unless I can be persuaded otherwise.

MR GOUDIE: Yes.

MR SWIFT: Sorry, my Lord?

MR JUSTICE LAWRENCE COLLINS: I am rather inclined to give permission to appeal, unless I am persuaded otherwise.

MR SWIFT: My Lord, the anticipated points my learned friend Mr Goudie is going to make are perhaps the points that are in my Lord's mind. I say simply this. Clearly, your decision did involve a question of construction of the meaning and effect of the terms of the schedule. However, having regard to the terms of the judgment, it did not appear from those that it was a matter which ultimately was regarded by my Lord as being one which was finely balanced. It appears to have been one which, having considered the arguments on either side, there was a clear answer to it.

My Lord, further, in relation to the application of the facts of this case to the answer to the construction question, there seems to have been no doubt in my Lord's mind as to the existence of no reasonable basis for the decision taken by the Secretary of State in this matter.

My Lord, in those circumstances, I would say that there is no reason for you to give permission to appeal, and that if an application is to be made, it should be made to the Court of Appeal.

Now, I appreciate Mr Goudie's response to that is probably going to be along the lines of, well, we have this date in August; it is all terribly important; it needs to be determined by then; we just do not have time to make an application for permission to the Court of Appeal. My Lord, in response to that, I would say that that is not a persuasive argument. Clearly, if the claimant is able to convince the Court of Appeal that this is something that is worthy of a second hearing, the Court of Appeal usually goes out of its way to accommodate, insofar as it is able, the timetable of the parties, and the appeal itself could be considered either at the same time as the application for permission or immediately thereafter.

So, my Lord, I would say there is no basis upon which you should grant permission to appeal.

MR JUSTICE LAWRENCE COLLINS: Although I have come to a clear view on the substance, I do think I should give permission to appeal because there is obviously an arguable point of law there.

MR GOUDIE: Thank you.

MR SWIFT: My Lord, I also apply for my costs.

MR GOUDIE: My Lord, I cannot resist that.

MR JUSTICE LAWRENCE COLLINS: No. Very well.

MR GOUDIE: My Lord, we are very grateful to your Lordship for having delivered the judgment with such expedition.

MR JUSTICE LAWRENCE COLLINS: Thank you very much.