The Court of Appeal has recently upheld the decision of the High Court in the case of InsuranceWide.com Services Ltd (“InsuranceWide”) v Revenue and Customs Commissioners; Revenue and Customs Commissioners v Trader Media Group Ltd (“Trader Media”). The court has affirmed the earlier decision that introductory services supplied by online insurance providers can be VAT exempt insurance intermediary services.
As in the lower courts, HMRC argued that both InsuranceWide and Trader Media provided nothing more to their customers than a “click through” facility to the websites of insurance companies. They further contended that the two taxpayers could be neither “insurance brokers” nor “insurance agents”, since they had no legal relationship with either the insured nor the insurer and were accordingly unable to benefit from the insurance intermediary exemption for VAT.
In rejecting these arguments, the Court of Appeal found that the essential characteristics of an insurance broker or insurance agent are that it either brings together insurance companies and potential insureds or acts as an intermediary between insurance companies and potential insureds. In order to meet the VAT exemption, it is not necessary for an insurance broker or agent to carry out all the activities associated with insurance brokerage or agency; it is sufficient if the insurance agent or broker is one link in a chain of persons bringing together the insurer and the insured. The fact that neither taxpayer had a legal relationship with either party to the insurance contract was considered irrelevant.
It remains the case that pure advertising does not fall within the limits of the VAT exemption for insurance intermediary services. Analysis of what the taxpayer actually does in connection with the insurance policy is required when determining whether the VAT exemption is available.
This decision is good news for providers of insurance introductory services, as it is now clear that they should fall within the scope of the insurance intermediary exemption. It would appear unlikely that the Supreme Court will grant HMRC leave to appeal, given the unanimity of the Court of Appeal judgment.
In-House Lawyers May Not Enjoy Legal Privilege in the EU
On 29 April 2010, the Advocate General Kokott (the “AG”) rendered her opinion on the scope of legal professional privilege (“LPP”) in the European Union, suggesting that, insofar as EU antitrust investigations are concerned, communications with in-house lawyers should not be legally privileged. The European Court of Justice is not bound by the AG’s opinion, only informed by it. However, it is worth noting that
AG Kokott is one of the most senior and highly respected AGs. AG Kokott’s opinion was delivered in the context of an appeal brought by Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd (the “Appellants”) against a judgment of the General Court (formerly known as Court of First Instance) that rejected the Appellants’ claim that internal correspondence between the general manager and the in-house lawyer of the Akzo Nobel group were legally privileged and as such not discoverable by Commission officials.
The issues raised in this appeal have triggered strong feelings in the international business and legal communities and this is also confirmed by the number of third parties seeking to be admitted as interveners in the present case before the Court of Justice.
There are opposing views on the matter: some believe that the European courts have provided too literal, and unhelpful, interpretations of obsolete principles, and they call for the rules governing the client-attorney relationship to be revised to coincide with the important evolution of the in-house counsel role in the modern era. Others argue that the scope of LPP is sufficiently expanded to include internal communications of in-house counsel if those occur in contemplation of obtaining external legal advice and, therefore, that no further expansion of the scope would be advisable.
The final judgement of the Court of Justice is not expected for several months. We note that the judges will also have to rule on an objection of admissibility raised by the Commission in this case. If the Court of Justice accepts the Commission’s objection, it will not rule on the merits of the case, arguably leaving the whole subject still open.
The Arguments of the Appellants and the Conclu sions of AG Kokott
The Appellants were supported by a number of interveners in their pleadings.
First of all, the Appellants contested the scope of LPP as it was applied by the General Court. In this respect they submitted that the General Court erred in law because it applied a purely literal interpretation of the 1982 AM & S judgment that set the principles for the application of LPP in the European Union. The AG considers that the General Court was right to find that LPP does not extend to internal company or group communications with in-house lawyers, even if they are enrolled at the Bar or a Law Society. She pointed out that the AM & S judgment set the criteria for the independence of lawyers not only positively (by reference to their ethical obligations) but also negatively (by reference to the absence of an employment relationship). She considers that in-house lawyers cannot act independently as they generally exhibit a considerably stronger personal identification with the corporation for which they work and its corporate policy and strategy.
The Appellants added that the General Court breached the principle of equality by treating in-house lawyers enrolled with the Bar or a Law Society differently from external lawyers, especially since they both are subject to the same professional and ethical obligations. The AG found that the situation of an in-house lawyer, even one who is enrolled with the Bar or a Law Society, is different from, and thus not comparable with, the situation of an external counsel. She concluded that the difference in the degree of independence between an in-house and an external counsel means that their situation is not similar and that, therefore, the principle of equal treatment cannot have been infringed.
The Appellants submitted alternatively that the General Court, in any event, erred in law as it disregarded significant legal developments occurring since the 1982 AM & S case, and, consequently, infringed the rights of defence and the principle of legal certainty.
More precisely, the Appellants made reference to the lack of uniformity in the treatment of in-house lawyers enrolled with the Bar or a Law Society in different Member States and suggested that the EU law should be brought into line with the legal position of a minority of Member States that recognised LPP for all enrolled lawyers. The AG considers that the fact that a few Member States reserve a different treatment does not mean that a harmonisation is imperative on this matter.
The Appellants added that the General Court should have taken into consideration modern antitrust enforcement in the EU, which requires self-assessment and leads to an increasing need for internal corporate advice and implementation of compliance programs. They argued that the advice of in-house lawyers is particularly valuable in day-to-day business because it can be obtained in a timely and economical manner and because it is based on an intimate knowledge of the undertaking concerned and of its business. The AG dismissed these arguments and pointed out that it is this special proximity of an in-house lawyer to the business that calls into question the lawyer’s independence. She repeated that there are no elements that would justify the departure from the AM & S precedent.
Furthermore, the Appellants submitted that the current status of LPP violates the principle of legal certainty and the rights of defence (including the right to an unimpeded advice, defence and representation). The Appellants submitted that the difference in the treatment of in-house lawyers by some Member States renders undertakings uncertain of their rights as the protection granted to in-house lawyers would depend on whether the investigations are undertaken by national or Community authorities. In response, the AG considers that the current regime provides legal certainty about the position under EU law and she clarified that if a national competition authority conducts an investigation for a national case, then national rules would apply. However, when there is a Commission investigation, then EU law rules would apply.
Finally, in relation to their second plea, the Appellants argued that the ruling of the General Court infringed their right to unimpeded advice, defence and representation. More precisely, they put forward that the current EU law position infringes Article 6(3)(b) and (c) of the European Charter of Human Rights (ECHR), according to which those charged with a criminal offence have the right to have adequate time and the facilities for the preparation of their defence and to defend themselves in person or through legal assistance of their choosing. The AG dismisses this submission and notes that the ECHR has not yet expressed support for the recognition of LPP for in-house lawyer internal communications, but, in addition, it has expressed an understanding of independence of lawyers which is not dissimilar to that expressed by the Court of Justice in the AM & S case.
A number of other arguments were put forward by the Appellants and interveners including: the fundamental right to property and freedom to choose a profession; the principles of conferral and of national procedural autonomy; and the scope of the LPP should be extended to lawyers subscribed to the Bar Associations of third countries. These submissions were also dismissed by the AG.
The AG proposes that the appeal should be dismissed in its entirety. She also proposes that if the Court finds differently in its ruling, then the case should be referred back to the General Court for further clarification of the facts.