Jersey Choice Ltd v HM Treasury

Factual and Procedural Background

The Appellant is a horticultural mail-order business incorporated in The Islands. It exported low-value goods to consumers in The State. At the relevant time those consignments benefited from a domestic measure known as Low Value Consignment Relief (“LVC Relief”), which removed liability to Value Added Tax (“VAT”) for parcels not exceeding £15 (or EUR 22).

Concerned that some traders were exploiting LVC Relief through “round-tripping” schemes, the Respondent promoted s 199 of the Finance Act 2012. That provision withdrew LVC Relief where low-value goods were despatched to The State from The Islands under “distance-selling arrangements” with effect from 1 April 2012.

On 29 March 2018 the Appellant issued a claim for Francovich damages, alleging that removal of the relief infringed EU free-movement rules (articles 28, 30 & 34 TFEU) and general principles such as equal treatment, fiscal neutrality and proportionality.

The High Court (Judge Johns QC, 27 November 2020) struck out the claim for disclosing no reasonable cause of action; the Court of Appeal (Judge Green, Judge Arnold, Judge Snowden, 17 December 2021) dismissed the Appellant’s appeal save on an abuse-of-process point that is not pursued further. The present judgment concerns the Appellant’s further appeal to the Supreme Court.

Legal Issues Presented

1. Whether the impugned VAT charge is properly characterised as internal taxation (article 110 TFEU) or as a charge having an effect equivalent to a customs duty (articles 28 & 30 TFEU).
2. Whether a trader established in a territory inside the EU customs union but outside the VAT area (The Islands) can rely on EU general principles to claim Francovich damages for the exercise of a Member State’s discretion under article 23 of the Exemptions Directive.
3. Whether the lower courts failed to protect the Appellant’s fundamental rights under EU and Convention instruments (article 19 TEU, article 47 of the Charter, article 6 ECHR and article 1 of Protocol 1).
4. If any breach were established, what remedy should the Court afford.

Arguments of the Parties

Appellant's Arguments

• The 2012 withdrawal of LVC Relief imposed a charge equivalent to a customs duty, violating articles 28 & 30 TFEU. That prohibition is strict and directly effective.
• Selective removal of the relief only for imports from The Islands unlawfully discriminated between like situations and distorted competition, breaching EU principles of equal treatment, fiscal neutrality and proportionality.
• The measure fell outside the scope of article 23 of the Exemptions Directive, or was at least exercised ultra vires because it was liable to affect competition.
• Those breaches were “sufficiently serious” to trigger State liability under Francovich.
• The strike-out was inappropriate because factual disputes (e.g., the Agricultural Flat-Rate Scheme) required trial.

Respondent's Arguments

• The charge is internal taxation forming part of the VAT system; under settled case-law articles 28 & 30 do not apply where article 110 applies.
• EU law imposes no obligation to treat different third territories equally; therefore the principles of equal treatment and fiscal neutrality are not engaged.
• The Channel Islands are “third territories” for VAT purposes even though they sit inside the customs union; article 110 TFEU is expressly inapplicable to imports from such territories.
• No arguable breach of general principles is disclosed; consequently the pleading shows no reasonable prospect of success.

Table of Precedents Cited

Court's Reasoning and Analysis

Characterisation of the Charge (Issue 1): The Court held that VAT payable after LVC Relief was withdrawn is part of a general system of internal taxation. Although imposed when goods cross the frontier, it applies equally to comparable domestic supplies. Under settled case-law a levy cannot simultaneously be an internal tax and a customs duty; therefore articles 28 & 30 TFEU are irrelevant.

Discrimination & General Principles (Issue 2): The Channel Islands are listed in article 6(1) of the VAT Directive and are “third territories” for VAT purposes. EU law contains no general obligation to extend equal treatment to different third territories. Consequently, selective withdrawal of LVC Relief does not infringe the principles of equal treatment, fiscal neutrality or proportionality. Even if the measure were discriminatory, that would be tested under article 110 TFEU, which does not apply to direct imports from outside the VAT area.

Fundamental-Rights Allegations (Issue 3): Effective-remedy provisions (article 19 TEU, article 47 Charter, ECHR) presuppose an underlying breach. As no arguable breach of EU law was identified, those provisions could not found a claim.

Procedural Posture: On a strike-out application the pleaded facts are assumed true, but the claim must nevertheless disclose a legally sustainable cause of action. The Court concluded it did not.

Holding and Implications

Holding: DISMISSED.

The Supreme Court affirmed the strike-out. The VAT charge is internal taxation; the free-movement provisions and general-principle arguments therefore fail as a matter of law. No trial is required.

Implications: The decision confirms Member States may differentiate between territories outside the VAT area when exercising their discretion under article 23 of the Exemptions Directive, and that businesses in such territories cannot invoke EU equal-treatment principles to claim Francovich damages when reliefs are withdrawn. No new precedent is set beyond clarification of existing case-law.