British Telecommunications PLC v The Commissioners for HMRC

British Telecommunications plc ("BT") appeals against a decision released by the Tax Chamber of the First-tier Tribunal ("the FTT") on 29 June 2020 ([2020] UKFTT 0278 (TC)) that its appeal be struck-out on the grounds that it had no real prospect of success or was an abuse of process.

The histories of BT's appeal and of the availability of VAT relief for bad debts in the UK is long and complicated. Because those histories are essential to an understanding of the issues before us, we set them out below.

With effect from 1 January 1978, Article 11C(1) of the VAT Sixth Directive (which has direct effect) provided as follows:

UK domestic legislation made no provision for bad debt relief until 1 October 1978.

Section 12, Finance Act ("FA") 1978 introduced the “Old Scheme” for bad debt relief. This was replaced (with modifications that are not material to this appeal) by s22 Value Added Tax Act 1983 (“VAT Act 1983”) with effect from 26 October 1983. The Old Scheme was in effect in relation to supplies made between 2 October 1978 and 26 July 1990.

The Old Scheme entitled (but did not require) taxable persons to make claims for bad debt relief to HM Customs and Excise (a predecessor to HMRC - for convenience, references in this decision to “HMRC” are to be taken as including HM Customs and Excise where relevant).

It was a requirement for any claim under the Old Scheme that the conditions in s12(2) FA 1978 (and subsequently s22(2) VAT Act 1983) were met. These required, amongst other things, that the customer had become insolvent (“the Insolvency Condition”).

The regulations governing the Old Scheme required claims for bad debt relief to be made on the VAT return for the period in which the supplier (in the case of this appeal – BT) received the relevant document evidencing the customer’s insolvency (or proving its claim in the customer’s insolvency). HMRC had discretion to allow claims to be made in returns for later periods. HMRC exercised this discretion by a public notice which permitted claims to be made under the Old Scheme in VAT returns for any later accounting period. But this discretionary treatment was withdrawn with effect from 1 April 1991. From that date it was no longer possible for an Old Scheme claim to be made in a VAT return for an accounting period subsequent to the period in which the supplier received the relevant insolvency document.

The Old Scheme was replaced by a new scheme by FA 1990. However, paragraph 9(1), Schedule 13, Value Added Tax Act 1994 (“VAT Act 1994”) permitted claims under the Old Scheme to continue to be made. The Old Scheme was finally closed by s39(5) FA 1997, which prohibited Old Scheme claims from being made after 19 March 1997.

In practice, given the nature of BT’s customers, the Insolvency Condition could not be satisfied for many of BT’s bad debts, as the amounts involved for each customer were too small to enable an insolvency procedure to be triggered. In consequence BT was unable to claim relief under the Old Scheme in respect of a large number of its bad debts.

Section 24, FA 1989 made provision for recovery of overpaid VAT where a person had paid an amount to HMRC by way of VAT but “which was not [VAT] due to them”. Section 24(4) provided for a six-year time limit on claims (from the time the amount had been paid). But, if the payment had been made by mistake, the limitation period was extended to six years from “the date on which the claimant discovered the mistake, or could with reasonable diligence have discovered it” (s24(5)). Section 24(7) provided that HMRC were not liable to make repayments of amounts not due to them otherwise than under s24. With the enactment of the VAT Act 1994, s24 FA 1989 was repealed and replaced by s80 VAT Act 1994.

Section 80, VAT Act 1994 was amended by FA 1997 to impose a three-year limitation period on claims. The amendment had retrospective effect back to 4 December 1994, and no provision was made for a transitional period. In consequence of the well-known decisions of the Court of Justice of the European Union in Marks and Spencer v CCE (Case C-62/00) and the House of Lords in Fleming (t/a/Bodycraft) v HMRC [2008] UKHL 2, s121 FA 2008 was enacted to disapply the three-year limitation period to claims made before 1 April 2009. The effect was to create a window in which s80 claims could be brought for accounting periods prior to 4 December 1996. The “Fleming window” ran from 19 March 2008 (when s121 came into force) until 31 March 2009.

For the period of the Fleming window (19 March 2008 to 31 March 2009) the relevant provisions of s80 VAT Act 1994 were as follows:

In consequence of various statutory amendments, since 22 April 2011 s80 has included a four-year limitation period, with no extensions for cases of mistake.

It is not disputed that at all material times, taxpayers enjoyed directly effective rights under Article 11C(1) of the Sixth Directive, including that the consideration in respect of which they had to account for VAT was to be reduced in the event of total or partial non-payment of that consideration.

This appeal concerns BT's rights under Article 11C(1) arising in consequence of the non-payment of consideration by customers who did not pay their phone bills.

From 1 January 1978 until 1 October 1978, UK domestic legislation made no provision for the reduction in taxable consideration due to bad debts. From 1 October 1978, although UK domestic legislation made provision for bad debt relief under the Old Scheme, BT was unable to claim relief because it was not able to satisfy the Insolvency Condition. This was because the amounts owed by consumers were typically too small to trigger a formal insolvency process as required by the Insolvency Condition. To take an obvious example, most unpaid phone bills were not large enough to reach the threshold at which BT was able to issue a bankruptcy petition.

On 30 March 2009, BT invoked its directly effective rights under the Sixth Directive and wrote to HMRC claiming repayment of VAT for which it had accounted on supplies made to customers in the period from 1 January 1978 to 31 March 1989 where the customer had failed to pay BT either in part or at all for the supplies (“the bad debt claims”). HMRC refused the bad debt claims and BT appealed against that decision to the FTT on 29 April 2010.

It is helpful to divide the bad debt claims into two elements - the first covering claims for the period from 1 January 1978 to 30 September 1978 ("the Nine Month Claim") when there was no bad debt scheme in the UK, and claims relating to the remaining period ("the Main Claim").

On 6 May 2010, the FTT released its decision allowing the appeal of GMAC UK plc against HMRC's refusal of bad debt relief in respect of supplies of cars on hire purchase made between 1978 and 1990 ([2010] UKFTT 202 (TC)). HMRC appealed against that decision to the Upper Tribunal.

The legal issues that arose in relation to GMAC's appeal were similar to those that arose in BT's case, and BT wanted to "catch up" with GMAC's appeal. BT therefore sought to have the determination of its appeal transferred from the FTT to the Upper Tribunal, pursuant to Rule 28 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 ("the FTT Procedure Rules"). Such a transfer can take place for appeals categorised as "complex" (as was BT's), at the direction of the Chamber President of the FTT with the concurrence of the President of the Tax and Chancery Chamber of the Upper Tribunal. Following a joint application by both BT and HMRC, Judge Bishopp (then Chamber President of the FTT) wrote to the parties on 26 April 2011 stating that he was prepared to direct such a transfer providing that the Upper Tribunal would not be required to determine issues of fact and quantum, and that Mr Justice Warren (then President of the Tax and Chancery Chamber of the Upper Tribunal) was prepared to concur in a transfer on that basis.

BT and HMRC were unable to reach agreement on a statement of facts. Following correspondence between the parties and the Tribunals, the Tribunals notified the parties that Judge Bishopp and Mr Justice Warren were willing to agree to the transfer of a preliminary issue under Rule 28 (again subject to the proviso that the Upper Tribunal would not be required to determine any issues of fact). BT proposed that five questions be referred to the Upper Tribunal as a preliminary issue – however HMRC objected to two of these questions (relating to the incompatibility of the insolvency condition in the VAT bad debt scheme with EU law) on the grounds that they could not be addressed without the tribunal having made relevant findings of fact.

Ultimately the parties were able to reach agreement that three questions be determined by the Upper Tribunal as a preliminary issue. On 26 January 2012 directions were released by the FTT and the Upper Tribunal transferring the following three questions to be determined by the Upper Tribunal as a preliminary issue:

GMAC’s appeal and the BT preliminary issue were heard together on 13 to 15 February 2012. On 3 August 2012, the Upper Tribunal released its decision ([2012] UKUT 279 (TCC)) in relation to both. It answered the first two questions partly in favour of BT, and the third question in favour of HMRC:

A reference was made to the Court of Justice of the European Union on an issue that arose in the GMAC appeal, but not in the BT preliminary issue. In consequence, the BT and GMAC appeals then moved forward on separate paths.

With the permission of the Upper Tribunal, HMRC appealed to the Court of Appeal, and BT cross-appealed.

The hearing in the Court of Appeal took place on 29 to 31 October 2013. A dispute arose in advance of the hearing (after the service of skeleton arguments in January and February 2013) as to whether the skeletons accurately reflected the factual background. An application was made to the FTT by BT for the determination of the disputed issues of fact. This application was dismissed by the FTT on the basis that if the Court of Appeal identified a residual factual issue, it could remit that matter to the FTT.

The Court of Appeal handed down its decision on 13 April 2014 ([2014] EWCA Civ 433). The Court of Appeal allowed HMRC’s appeal against the Upper Tribunal’s answer to issue 2, but dismissed its appeal against the answer to issue 1. It dismissed BT’s cross appeal against the answer to issue 3. Applications for permission to appeal to the Supreme Court were dismissed.

On 9 May 2014 BT applied to the Supreme Court for permission to appeal. On 11 December 2014 the Supreme Court ordered that the application be refused

We heard a number of submissions on the language that the Supreme Court used in refusing permission. We find that an analysis of the precise terms used by the Supreme Court does not take us forward. The only point to be taken is that the decision of the Court of Appeal was not subject to any further appeal.

On 17 February 2015, the FTT wrote to BT asking how it wanted to proceed with its appeal in the light of the decisions of the Supreme Court and the Court of Appeal.

In accordance with directions issued by the FTT, on 29 February 2016 BT provided a statement of the legal and factual issues that it considered remained to be resolved by the FTT. On 15 March 2016, HMRC applied to the FTT for an order pursuant to Rule 8(3)(c) of the FTT Procedure Rules that BT’s appeal be struck out on the grounds that the statement disclosed no reasonable prospect of success. The FTT started to hear HMRC’s applications on 17 July 2017, the application went part-heard and resumed on 6 to 7 February 2019. The FTT’s decision allowing the strike-out was released on 29 June 2020.

An application by BT made on 8 May 2018 that HMRC be barred from taking any further part in the proceedings under Rule 8(3)(c) (on the grounds that there are no reasonable prospects of HMRC’s case succeeding) has not been pursued in the light of the FTT’s decision to strike-out BT’s appeal.

BT now appeals, with the permission of the FTT, to the Upper Tribunal.

BT submits that its claim for bad debt relief has not been finally resolved by the answers given by the Court of Appeal to the three preliminary questions. It submits that there remain open issues for determination by the FTT. In particular, BT submits that the answer given by the Court of Appeal to question 3 of the preliminary issue does not address whether BT's letter of 30 March 2009 can be construed as a claim falling within s80(1B) VAT Act 1994, and whether a claim under s80 is time barred.

Mr Cordara submits that there are two "routes" by which s80 is engaged in relation to bad debts. The first is that, in accounting for output tax on customer bills that subsequently go bad, BT is making a (retrospective) overpayment of VAT for the purposes of s80(1). The second is that BT was entitled to make a claim under s80(1B) because the VAT arising on a bad debt would automatically be set off against payments made in subsequent accounting periods – so that the subsequent payment would be in part an overpayment.

Mr Cordara acknowledges that the Court of Appeal decided that BT could not rely on s80(1) to make a claim for repayment of overpaid VAT (as a consequence of a customer not paying his bill) – see the judgment of Rimer LJ at [125]-[127]:

However, Mr Cordara submits that the Court of Appeal said nothing about s80(1B), and its decision needs to be read in the light of its subsequent decision in Iveco Ltd v HMRC [2017] EWCA Civ 1982.

Mr Cordara submits that HMRC’s position in BT's appeal is inconsistent with the position they adopted in Iveco, where they successfully argued that Iveco's analogous claim had to be made under s80. The taxpayer in Iveco was a trader selling commercial vehicles. The taxpayer gave a discount to its customers depending on the number of vehicles purchased during a specified period – this discount was effected through a rebate mechanism at the end of the period. Thus, the output tax recorded on the taxpayer’s VAT return for the VAT accounting period in which a vehicle was sold would correctly reflect the undiscounted price paid by the taxpayer for the vehicle at the time of supply. However, because of the eventual rebate paid to the customer, there was an overall overpayment of output tax. Mr Cordara submits that BT's position is analogous to that of the taxpayer in Iveco, in that BT correctly accounted for output tax on the supplies made to its customers in the VAT accounting period in which the supply was made, but, because of the failure of some customers to pay their bills, there was an overall overpayment of output tax.

Mr Cordara referred us to the judgment of Newey LJ in Iveco at [53]-[54]:

Mr Cordara submitted that paragraph [54] was particularly apt to describe BT's case – and asked us to consider reading that paragraph substituting "BT" for "Iveco" wherever it occurred.

Mr Cordara submits that in Iveco the Court of Appeal held that:

Mr Cordara further submits that there is nothing on the face of the decision of the Court of Appeal in its judgment in BT which prevents BT from arguing that s80(1B) is engaged by its claim. Mr Cordara submits that he raised s80(1B) before the Court of Appeal, but this point was not addressed in its decision. He also submits that the Court's judgment focussed exclusively on s80(1). Mr Cordera drew attention to [126] and submitted that Rimer LJ was making the point that in BT's case, output tax was properly due when it made its supply to its customer, and at the time when BT filed its VAT return for the relevant accounting period, there was no overpayment. The overpayment only arose as a consequence of a subsequent event, namely, the non-payment by the customer of his bill. This was the reason, so he submitted, why Rimer LJ held that s80(1) is not engaged.

Mr Cordara then submits that by contrast the same argument does not apply to s80(1B) which the Court of Appeal did not consider in their judgment. Section 80(1B)(a) is engaged when a VAT overpayment arises "… otherwise than as a result of … an amount that was not output tax due being brought into account as output tax." Mr Cordara submits that Rimer LJ's reasoning at [126] does not apply in the case of s80(1B)(a) because this provision is only engaged in circumstances where the amount paid to HMRC is not output tax that was not due. In other words, says Mr Cordara, the payment has to be output tax that was due as output tax at the time but in respect of which there was a particular reason why it was not due (such as an unexercised set-off of the kind discussed in Iveco).

Finally, Mr Cordara submits that the Court of Appeal's judgment in Iveco covered all elements of Article 11C(1), including unpaid debts. As such, they are the principles that govern this case, even if they are inconsistent with those applied by that same Court in its determination of the preliminary issue. The failure by the Court of Appeal in BT's appeal to address the s80(1B) point limits the scope and effect of its decision to this case. Mr Cordara submits that the failure by the Court of Appeal to address the s80(1B) point leaves it open and means that we can follow Iveco for the purposes of the appeal before us.

We do not agree with Mr Cordara.

Mr Cordara acknowledges that he made submissions on the application of s80(1B) before the Court of Appeal (and they were also raised in BT's application for permission to appeal to the Supreme Court). We find that the Court did in fact address BT's submissions on the engagement of both s80(1) and s80(1B) in its judgment. Rimer LJ's judgment at [125] to [127] addressed s80 as a whole, possibly because preliminary issue 3 is phrased by reference to s80 as a whole and not by reference to its individual subsections. It would have been strange if the Court had not responded to Mr Cordara's submissions. At [125] to [127] Rimer LJ held that s80 is not engaged in relation to claims for bad debt relief, and we read his judgment as referring to s80 as a whole, including both s80(1) and s80(1B).

Although the Old Scheme did not give effect to BT's directly effective rights because of the Insolvency Condition, it was nonetheless the prescribed or accepted mechanism for giving effect to Article 11C(1) in respect of claims for bad debts under domestic UK law. In those circumstances, we find that EU law principles required BT to make its bad debt claim under the domestic regime, but suitably moulded to give effect to the taxpayer's directly effective EU law rights. In the case of BT's bad debt claims, it was straightforward to mould the domestic regime by eliminating the Insolvency Condition. Moreover, this was the express finding which Rimer LJ made in the Court of Appeal at [88] in answer to preliminary issue 1:

The same requirement for the moulding of domestic law can also be seen, for example, in the judgment of Henderson LJ of the Court of Appeal in Répertoire Culinaire v HMRC [2017] EWCA Civ 1845. Following a referral to the CJEU, it was determined that the UK's implementation of an EU exemption from excise duty for cooking wine was too restrictive. Henderson LJ determined that the appropriate mechanism to give effect to the appellant's directly effective rights was that it should have made a claim under the relevant domestic regulations, but disapplying the irregular provisions.

The potential for s80 to be used as the mechanism for making claims for relief for bad debts was also considered by the Court of Appeal in GMAC's appeal: see [2016] EWCA Civ 1015. It is not disputed that the key deficiency in the Old Scheme (at least as regards BT) was the inclusion of the Insolvency Condition, which failed the EU requirement of proportionality. This was discussed by Floyd LJ at [126] to [134] of his judgment who also confirmed that bad debt relief must be claimed under the Old Scheme (appropriately moulded) and not under s80:

In Iveco, Newey LJ considered the decisions of the Court of Appeal in both BT and GMAC and expressly referred to the paragraphs from Floyd LJ's judgment which we have cited above. He confirmed at [38] that VAT bad debt relief does not arise automatically, but "has always been something that a creditor must claim". In other words, absent a claim by the taxpayer, bad debt relief does not arise.

We also reject Mr Cordara's argument that s80(1B) was engaged (even if s80(1) was not). He faces the difficulty that subsection (1B) applies to payments to HMRC of “an amount by way of VAT that was not VAT due to them” (otherwise than as a result of bringing into account as output tax an amount that was not output tax due which properly falls within the ambit of subsection (1)). But in BT's case, output tax was properly due and charged when the supply was made. Mr Cordara's answer to this point is that an automatic set-off takes place between VAT currently due and VAT no longer due on the bad debt in a prior accounting period and that an overpayment arises when BT makes a payment in a subsequent accounting period. He described this as a kind of statutory magic which is brought about by Article 11C(1). However, Rimer LJ specifically addressed and rejected this argument in the Court of Appeal at [30]:

Further, in both Iveco and GMAC, the respective appellants submitted that s80 produced an inconsistency of treatment because it applies to price reduction cases (such as bulk discount rebates given as incentives to customers) but not to bad debts. In both cases, the Court of Appeal rejected that argument and held that there was no such inconsistency. Article 11C(1) expressly provides that member states can determine conditions to give effect to the reduction in the VATable consideration and the inclusion of a requirement in UK domestic legislation for a claim to be made is both consistent with Article 11C(1) and not disproportionate. We agree with Mr Beal that there are good reasons for the different treatment of claims for bad debts and claims for other reductions in the amount of the consideration. For example, in the case of bulk discount rebates, it is clear when the reduction in the consideration occurs. But the same cannot be said for the timing of the reduction in consideration due to a bad debt. There may be many reasons why consideration may be left unpaid, and a debt does not become "bad" purely as a result of its non-payment. Moreover, the precise timing of recognition is usually a decision for the creditor. It is for these reasons, therefore, that the bad debt regulations do not prescribe a specific time at which the consideration is reduced but rather for the taxpayer to determine whether the debt is bad and then give the taxpayer the option of claiming relief.

We find that in relation to its Main Claim, BT should have claimed bad debt relief under the Old Scheme moulded to give effect to the requirements of the Sixth Directive. We also find that the Court of Appeal decided this issue and rejected the argument which Mr Cordara also advanced before us.

As for the Nine Month Claim, it raises two separate issues. The first is the treatment of bad debts where the supply was made before the Old Scheme came into effect on 1 October 1978, but the debt became bad after that date. The second is the treatment of bad debts where both the supply and debt became bad before 1 October 1978. The Upper Tribunal considered that both situations were covered by the Old Scheme (suitably moulded):

The Court of Appeal held that either the Old Scheme (suitably moulded) applied or that BT had a claim in restitution which had become long since statute-barred. Rimer LJ stated as follows at [118]:

We are satisfied, therefore, that both the Upper Tribunal and the Court of Appeal determined the Nine Month Claim just as they determined the Main Claim. For completeness’ sake, we note that Rimer LJ also held at [127] that BT's letter of 30 March 2009 was a claim for bad debt relief, and could not be construed as a claim in respect of an overpayment of VAT under s80.

Cause of action estoppel was defined by Lord Sumption in Virgin Atlantic Airways v Zodiac Seats UK Ltd [2013] UKSC 46 at [17] as follows:

Issue estoppel arises where the necessary ingredient of one claim or appeal involves an attack on the same finding made in an earlier decision. It was also described by Lord Sumption in Zodiac at [17] as follows:

Because of the Caffoor principle, issue estoppel does not strictly arise in relation to a tax appeal where the tax is charged on a periodic basis and the appeal in question relates to a different period. In Littlewoods v HMRC [2014] EWHC 868 (Ch) Henderson J held that the Caffoor principle applied to VAT.

Although issue estoppel may not apply to tax appeals, Henderson J held in Littlewoods that repeated attempts to re-litigate the same issue without good reason might amount to “Henderson v Henderson” abuse of process, and that the FTT retained a discretion to strike-out an appeal on those grounds (see [191]). He referred in particular to Lord Bingham of Cornhill’s speech in Johnson v Gore Wood & Co [2002] 2 AC 1, where he articulated the following principle at 31B:

Although issue estoppel has a diminished role to play in many tax cases under the Caffoor principle, that principle has no application here. Not only are BT seeking to redetermine matters relating to the same accounting periods, but they are seeking to redetermine matters decided in these very same proceedings. We consider the relevant principle here to be that stated by Diplock LJ (as he then was) in Fidelitas Shipping v V/O Exportchleb [1966] 1 QB 630 at 642B:

We have found that both the s80(1) and the s80(1B) issues were raised before the Court of Appeal, and that the Court decided these issues in favour of HMRC. The Supreme Court then refused permission to appeal. We find that the decision of Court of Appeal binds BT and BT is estopped from continuing to pursue these issues. If there was any doubt about the matter, we would have found that it would be an abuse of process for BT to continue to pursue the s80 point applying the test set out by Lord Bingham in Johnson v Gore-Wood.

Having decided that BT cannot make a claim under s80 in respect of relief from bad debts, the other issues raised by BT can be addressed briefly.

The Old Scheme was closed by s39(5) FA 1997, which prohibited Old Scheme claims from being made after 19 March 1997. In its answer to preliminary issue 2, the Court of Appeal held that the termination of the Old Scheme by s39(5) was effective, and so BT's bad debt claim under the Old Scheme (appropriately moulded) was time barred from 19 March 1997. To the extent that BT has a claim in restitution for the Nine Month Claim, that too was clearly statute barred. In summary, the Court of Appeal decided that:

It follows, therefore, that BT's 30 March 2009 claim must fail, and that there are no other issues that remain to be resolved.

The FTT Procedure Rules gives the FTT discretion to strike out an Appellant’s case if it has no reasonable prospect of success. Rule 8(3)(c) states as follows:

In HMRC v Fairford Group plc [2014] UKUT 329 (TCC) the Upper Tribunal addressed the approach that should be taken in the FTT when dealing with an application to strike out. The Fairford Group appeal related to an MTIC fraud and Judge Brooks declined to strike-out the appeal in the FTT because he could not conclude that the taxpayers had no reasonable prospect of challenging HMRC’s evidence without a detailed examination of that evidence. In doing so he formulated the following test at [41]:

The Upper Tribunal amplified this guidance in First de Sales Limited Partnership v HMRC [2019] 4 WLR 21. The tribunal cited the judgment of Lewison J (as he then was) in Easyair Limited v Opal Telecom [2009] EWHC 339 and stated as follows at [33]:

In Shiner and Sheinman v HMRC [2018] EWCA Civ 31 the Court of Appeal also held that Rule 8(3)(c) extends to striking out on the grounds that the proceedings amount to an abuse of process including appeals subject to either cause of action estoppel or issue estoppel: see [19].

We have reached the conclusion (a) that all issues in this case were resolved by the Court of Appeal's answers to the three preliminary questions and, in the alternative, (b) that it would be an abuse for BT to continue to pursue the s80 issues. It must follow, therefore, that Judge Morgan was right to strike out BT's appeal on the grounds that BT’s case no longer has any reasonable prospect of success. Mr Cordara recognised this in his submissions, when he said that our answer to the arguability of the s80 points will be the answer to whether Judge Morgan was right to strike BT out: "If you are persuaded that we have an arguable point, then she was wrong and if you're not, then she was right". We therefore uphold her decision to strike out BT’s appeal.

BT raised a number of other issues in relation to the FTT's decision. Many of these fall away as a consequence of our finding that the Court of Appeal decided that a claim for relief for bad debts could not be made under s80. Accordingly, we do not propose to address BT's submissions on those issues. In particular, because the Court of Appeal found that s80 is not engaged, it is irrelevant to decide what (if any) facts it is necessary to prove in relation to the terms or validity of a s80 claim.

Other issues were raised in BT's Skeleton Argument including a number of issues going to the procedural fairness and due process of the proceedings before the FTT. But as BT did not pursue them in the course of oral argument before us, we do not propose to address those submissions in this decision.

Finally, BT complains that by striking out the appeal, the FTT prevented it from leading factual evidence, even though the stage for consideration of factual evidence had not yet been reached. Mr Cordara also submits that the Court of Appeal did not purport to make findings of fact and that any comments that it made on factual matters should be treated as provisional and subject to later proof (if challenged).

We disagree. We are satisfied that it was unnecessary for the Court of Appeal to assume or decide any contested issues of fact in coming to its decision. To the extent that the Court relied on or assumed any matters of fact, these related either to the construction of documents which had already been introduced in evidence or a general understanding of how BT's bad debts arose. For example, the Court of Appeal referred to BT's letter of claim letter dated 30 March 2009. But BT itself chose to introduce the letter before the Upper Tribunal and the Court of Appeal. Further, there was no real dispute as to why the Insolvency Condition could not be satisfied, and quantification of BT's claim becomes irrelevant given that BT's claim has failed, and there are no other issues that remain to be resolved.

BT also submitted that it was necessary for the FTT to decide the factual issue whether it had an expectation that the Old Scheme would not be abolished and, if so, whether this expectation was a legitimate one. We reject that submission. In our judgment, it is based on a misunderstanding about the general principles of EU law relating to the amendment of legislation, which include a principle that no reasonable and circumspect operator is entitled to expect that a legislative regime will continue indefinitely. The question what a reasonable and circumspect operator would have expected is an objective test and is a matter of law (see Plantanol GmbH & Co KG v Hauptsollant Darmstadt (Case C-201/08)). The Court of Appeal clearly took the view that the passage of time coupled with the long run off for the old regime was sufficient to conclude that a four-month notice period was satisfactory for the termination of the Old Scheme. We are satisfied that evidence of BT's subjective expectations would not have been relevant to any decision on the compatibility of the termination of the Old Scheme with EU general law principles.

If BT had considered that the Court of Appeal had made inappropriate findings of fact, its remedy was to raise these when seeking permission to appeal to the Supreme Court. It did not do so. We note that BT's Grounds of Appeal before the Supreme Court included a submission that the Court of Appeal had overlooked the fact that there had yet to be any factual enquiry in this case, but this was raised in the context of whether BT had behaved prudently in the period prior to bringing its claim, which is irrelevant to any factual determinations made by the Court of Appeal (including, but not limited to, the determination of whether adequate notice had been given of the termination of the Old Scheme).

Finally, we note that BT’s submission, that the FTT should have directed a further hearing to decide the contested issues of fact, was inconsistent with BT's opening submissions to the Upper Tribunal in February 2012 that a decision on the three preliminary questions would dispose of the whole appeal and that the construction of the 30 March letter was a question of law. We are fully satisfied that BT was right first time.

In the light of the decision of the Court of Appeal in respect of the three preliminary questions, we conclude that there is no reasonable prospect of BT's bad debt claims succeeding. We find that the FTT made no error of law in deciding to strike-out BT's appeal.

For these reasons, the appeal is dismissed.

Any application for costs in relation to this appeal must be made in writing and served on the Tribunal and the person against whom it is the order be made within one month after the date of release of this decision as required by rule 10(5)(a) and (6) of the Tribunal Procedure (Upper Tribunal) Rules 2008.