Case No: HC/2009/APP/0148
Neutral Citation Number: [2010] EWHC 970 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 5 May 2010

Before :

MR JUSTICE ROTH
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Between :

	COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS	Appellants	
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	THE ATRIUM CLUB LIMITED	Respondent	

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Nigel Pleming QC and Owain Thomas (instructed by HMRC Solicitors) for the Appellants
Messrs Eversheds for the Respondent submitted a written submission but they, and the Respondent, did not appear

Hearing date: 19 April 2010
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Judgment
MR JUSTICE ROTH : 
1.	This is an appeal by the Commissioners for Her Majesty’s Revenue and Customs (“HMRC”) against the decision of Sir Stephen Oliver as president of the VAT and Duties Tribunal (“the Tribunal”) of 21 January 2009 (“the Decision”).   By the Decision, the Tribunal allowed the appeal of The Atrium Club Limited (“Atrium”) and set aside the decision of HMRC that Atrium was liable to be assessed for VAT on the supply of sporting services to members of the Atrium Club (“the Club”) after 1 March 2000 when those supplies were ostensibly made by AAB Sports Limited (“AAB”).  
2.	HMRC had held that Atrium was liable to assessment on two distinct and alternative bases:
i)	that notwithstanding the arrangements involving AAB, the supplies to members of the Club were in reality made by Atrium and not by AAB; or
ii)	that the arrangements whereby supplies were made by AAB amounted to an “abusive practice” within the principle established by the European Court of Justice (“ECJ”) and so the resulting advantage was to be denied by redefining the arrangements for VAT purposes as supplies made by Atrium.
3.	The Tribunal set aside the decision of HMRC on both those grounds.  This appeal by HMRC is confined to the second ground.  The leading case in the ECJ on the “abuse” principle was decided after HMRC’s original decision but before the matter came before the Tribunal: Case C-255/02 Halifax v Customs  and Excise Comrs [2006] ECR I-1609, [2006] Ch 387 (“Halifax”) and the principle is now commonly referred to as the “Halifax principle”.  Accordingly, it is accepted by HMRC on this appeal that (subject to any redefinition under this principle for the purposes of VAT) the supplies of services to members of the Club in the relevant period were, as a matter of law, made by AAB.
4.	An appeal from the Tribunal to the High Court is on a matter of law only: Tribunals and Inquiries Act 1990, section 11.
5.	Atrium resists this appeal and, by its solicitors, has submitted to the Court a full and helpful written skeleton argument.  However, for financial reasons which are understandable but unfortunate, Atrium has not participated in the oral hearing of the appeal.   The Court has the benefit of the reasoning of the Tribunal.  Nonetheless, and although Mr Nigel Pleming QC as leading counsel for HMRC has of course assisted the Court in accordance with his duty as an advocate where the other side is not represented, the Court therefore did not have full adversarial argument in a case that raises a difficult point on the application of the “abuse” or Halifax principle.
THE LEGISLATION 
6.	Fundamental to the arrangements under scrutiny in this case are the so-called “sporting exemption” and “land exemption” under the relevant VAT legislation.
7.	The sporting exemption is one of the “exemptions for certain activities in the public interest” in Article 13.A of the Council Directive 77/388/EEC (“the Sixth Directive”), and is set out in paragraph 1(m).  It is implemented in the United Kingdom by section 31 and Item 3 of Group 10 of Schedule 9 to the Value Added Taxes Act 1994 (“VAT Act 1994”), which as amended with effect from 1 January 2000 covers:
“The supply by an eligible body to an individual, except, where the body operates a membership scheme, an individual who is not a member, of services closely linked with and essential to sport or physical education in which the individual is taking part.”
8.	Item 3 is followed in the statute by a number of notes, of which Notes 2A and 2B provide, insofar as material:
“(2A)	…  “eligible body” means a non-profit making body which -
(a)	is precluded from distributing any profit it makes, or is allowed to distribute any such profit by means only of distribution to a non-profit making body;
(b)	applies in accordance with Note (2B) any profits it makes from supplies of a description within Item 2 or 3; and 
(c)	is not subject to commercial influence.
(2B)	For the purposes of Note (2A)(b) the application of profits made by any body from supplies of a description within Item … 3 is in accordance with this Note only if those profits are applied for one or more of the following purposes, namely –
(a) the continuance or improvement of any facilities made available in or in connection with the making of the supplies of those descriptions made by that body; 
(b) the purposes of a non-profit making body.”
9.	The land exemption is set out in Article 13.B(b) of the Sixth Directive and implemented in the United Kingdom by section 31 and Item 1 of Group 1 of Schedule 9 to the VAT Act 1994, which covers:
“The grant of any interest in or right over land or of any licence to occupy land,…”
THE FACTS
10.	A full account of the facts is set out in the decision of the Tribunal and it is sufficient to provide a shorter summary here.
11.	Atrium started business in 1991, trading as “Atrium Health Club” offering a gym and sporting facilities at its premises in Ely.  It has at all material times been owned by Mr and Mrs Bradney who are also directors.  Its income is derived mainly from fees paid by way of subscriptions from “members” for the right to use the Club and additional guest fees.
12.	Atrium accordingly accounted for VAT on the supplies of sporting services made through the Club until December 1996.  The membership subscriptions and guest fees were the consideration for these supplies.
13.	With effect from 1 December 1996, after receiving advice from VAT consultants, AIC (Isle of Man) Limited (“AIC”), a new structure was set up.  A separate company, Atrium Health Club Limited (“Atrium Health”), also owned by Mr and Mrs Bradney, was established with a memorandum and articles that prevented it from distributing profits.  A “User Agreement” was entered into whereby Atrium granted Atrium Health the right to use the facilities at the Club premises for five years to provide these to its own customers.  Under that agreement, an annual user fee was payable by Atrium Health to Atrium of £245,000, which AIC explained was set at just under Atrium Health’s expected turnover.  
14.	Thereafter, Atrium Health took over the running of the Club, collected the members’ fees and paid the staff salaries and the user fees to Atrium.  As found by the Tribunal (at para 16), the new structure was “designed to transform the supplies relating to the Club activities from standard-rated to exempt.”  The Decision states further (at para 28):
“The design was for Atrium Health to make the exempt supplies as a non-profit making organisation and for Atrium to obtain an exempt annual fee of just under the aggregate of the membership subscriptions received by Atrium Health.”
Accordingly, on the basis that Atrium Health was a non-profit making body, it did not account for VAT on its fees, relying on the sporting exemption, nor did Atrium on the fees received under the licence to use the premises and facilities, relying on the land exemption.
15.	I should add that Mr Bradney explained in his evidence that this structure was set up to make the Club competitive with local authorities whose supplies of sports and fitness services were exempt from VAT.
16.	However, the terms of the sporting exemption were amended with effect from 1 January 2000 by the VAT (Sports, Sports Competitions and Physical Education) Order 1999 (SI 1999/1994).  The amendments substituted the concept of an “eligible body”, with the accompanying Notes set out above, for what was previously simply referred to as a “non-profit making body”.  In the light of that, Mr and Mrs Bradney and Atrium recognised that the structure involving Atrium Health set up on the advice of AIC would no longer be effective (although I should make clear that HMRC do not accept that Atrium Health ever qualified as a “non-profit making body” in any event).  Mr Bradney learnt of a scheme designed to preserve the benefits of the sporting exemption being offered by another tax consultancy, WJB Chiltern plc (“WJB Chiltern”).  It is only the new arrangements set up on the advice of WJB Chiltern that are at issue in this case.
17.	What the Decision calls the “WJB Chiltern scheme” was discussed by a representative of WJB Chiltern with Mr and Mrs Bradney in February 2000.  The terms of engagement of WJB Chiltern, agreed to by Atrium on 14 February 2000, stipulated that the services to be provided were “the structure developed by Chiltern to allow certain sports clubs to take advantage of the exemption from VAT in Schedule 9 Group 10”.  The scheme involved the setting up of a new company which was independent of the Bradneys and Atrium. As explained by WJB Chiltern in its letter of 17 February 2000:
“In establishing a new structure to avoid the imposition of VAT from 1st January 2000, it is necessary to utilise a new non-profit making company which is totally divorced from the proprietary business, and the existing non-profit making company….”
The existing non-profit making company will cease to trade and will transfer its business to a new non-profit making company which will take a new licence over the premises from the Atrium Club Limited.”
18.	Accordingly, on the advice of WJB Chiltern, AAB was established as a company limited by guarantee. Its constitution prohibited the distributions of surpluses.  Its original directors were the administrative manager and manager of the Club (respectively, Ms Jo Forman and Mr Stuart Flude), who did not need to put up any capital for the new company but would be fully responsible for its operation.  The arrangements were achieved by a series of agreements prepared by WJB Chiltern.  In particular, a “Non-Exclusive Turnover Licence Agreement” (“the Turnover Licence”) dated 31 March 2000 was concluded between Atrium and AAB, whereby Atrium granted AAB, with effect from 1 March 2000, the non-exclusive right to occupy the premises of the Club and to carry on the Atrium Club business on the premises, in return for a licence fee of £2000 plus 50% of the net turnover of AAB per month “or such other amount as [Atrium] may determine” every six months on 90 days’ notice.  The Agreement was terminable by Atrium at any time on 90 days notice, whereas AAB could terminate only after three years (i.e. on 1 March 2003) on 90 days notice, and then similarly every three years thereafter.
19.	Among the other agreements was an equipment hire agreement between Atrium and AAB for the hire to AAB of all the equipment required to run the gym for a monthly charge of £500 plus VAT (increased on 31 January 2001 to £1000 plus VAT); an agreement whereby Atrium granted AAB the right to use the trading style “The Atrium Club” for a monthly royalty of £1 plus VAT; and a transfer of business agreement between Atrium Health and AAB whereby AAB acquired from Atrium Health the business of the Club previously run by Atrium Health.
20.	Several of the factual findings of the Tribunal are to be noted:
i)	From March 2000 the sporting business of the Club was run by AAB, which kept separate books and business records, employed all the staff (existing staff contracts were transferred to AAB from Atrium Health),  collected the members’ subscriptions and committed itself to supply the facilities of the Club to the membership.  However, the Club continued to operate under its existing name and rules as regards its members. (Paras 59, 60, 63 and 70).
ii)	Those involved set up and operated the new structure as an enduring arrangement.  “Their expectation was that the scheme worked and that the supplies of sporting services to members and other club users were and will continue to be exempt.” (Para 65).
iii)	The Turnover Licence was “an integral part of the WJB Chiltern scheme”.  It was designed “to strip out any surpluses arising to AAB thereby effectively removing AAB’s capacity to make a profit and to pass those surpluses on to Atrium in the form of exempt licence fees.” (Paras 81 and 77).
iv)	There is a “strong inference” that the scheme was set up by the Bradneys and WJB Chiltern in advance of the appointment of Ms Forman and Mr Flude as directors of AAB. (Para 47).
21.	The Tribunal also found that the terms of the Turnover Licence were so one-sided, as regards Atrium’s unilateral right to terminate and to uplift the licence fee, that “AAB’s proprietorship of the Club business hung by a thin thread” (para 70).
THE LIABILITY OF AAB TO VAT
22.	On 29 April 2004, HMRC issued a decision regarding the VAT treatment of the arrangements between Atrium and AAB.  The primary decision was that Atrium continued to be liable for VAT on supplies of services to members of the Club.  But in the alternative, HMRC held that AAB was liable since under the arrangements put in place it did not satisfy the conditions of the sporting exemption.  A protective assessment was subsequently issued on that basis on AAB in the sum of £457,131 for the period 1 March 2000 to 31 December 2005.
23.	AAB accepted that it was unlikely to be able to challenge this liability and since it had no funds with which to pay the assessment, it went into liquidation in early 2006.
24.	The Tribunal held that AAB was correctly assessed to VAT.  The jurisprudence on VAT avoidance had developed since 2000 and whether a body making sporting supplies was a “non-profit making organisation” within Article 13.A(1)(m), and thus an eligible body within item 3 of Group 10 in Schedule 9, was to be determined by the “aim” which it pursues when making the supply, looking at the transactions in their full factual context:  Messenger Leisure Developments Ltd v R&CC [2005] EWCA Civ 648, STC 1078.  
25.	Here, but for the Turnover Licence, AAB would have systematically made surpluses and the aim of that licence agreement was to pass over to Atrium the profits that would otherwise have been earned.  Accordingly, viewing the supplies by AAB in their full factual context, AAB was not an eligible body and its supplies were not exempt from VAT.  See the Decision at paras 80-81.
THE HALIFAX PRINCIPLE
26.	The preliminary ruling of the ECJ in Halifax concerned transactions set up so as to enable the deduction of VAT input tax in circumstances where most of the supplies by the taxpayer were exempt.  The circumstances were thus rather different from those in the present case.  However, the Grand Chamber of the ECJ set out general principles that apply to the treatment of VAT avoidance arrangements: 
“69.	The application of Community legislation cannot be extended to cover abusive practices by economic operators, that is to say transactions carried out not in the context of normal commercial operations, but solely for the purpose of wrongfully obtaining advantages provided for by Community law (see, to that effect, Case 125/76 Cremer [1977] ECR 1593, paragraph 21; Case C-8/92 General Milk Products [1993] ECR I-779, paragraph 21; and Emsland-Stärke, paragraph 51).
70      That principle of prohibiting abusive practices also applies to the sphere of VAT.
71      Preventing possible tax evasion, avoidance and abuse is an objective recognised and encouraged by the Sixth Directive (see Joined Cases C-487/01 and C-7/02 Gemeente Leusden and Holin Groep [2004] ECR I-5337, paragraph 76).
72      However, as the Court has held on numerous occasions, Community legislation must be certain and its application foreseeable by those subject to it (see, in particular, Case C-301/97 Netherlands v Council [2001] ECR I-8853, paragraph 43). That requirement of legal certainty must be observed all the more strictly in the case of rules liable to entail financial consequences, in order that those concerned may know precisely the extent of the obligations which they impose on them (Case 326/85 Netherlands v Commission [1987] ECR 5091, paragraph 24, and Case C-17/01 Sudholz [2004] ECR I-4243, paragraph 34).
73      Moreover, it is clear from the case-law that a trader’s choice between exempt transactions and taxable transactions may be based on a range of factors, including tax considerations relating to the VAT system (see, in particular, BLP Group, paragraph 26, and Case C-108/99 Cantor Fitzgerald International [2001] ECR I-7257, paragraph 33). Where the taxable person chooses one of two transactions, the Sixth Directive does not require him to choose the one which involves paying the highest amount of VAT. On the contrary, as the Advocate General observed in point 85 of his Opinion, taxpayers may choose to structure their business so as to limit their tax liability.
74      In view of the foregoing considerations, it would appear that, in the sphere of VAT, an abusive practice can be found to exist only if, first, the transactions concerned, notwithstanding formal application of the conditions laid down by the relevant provisions of the Sixth Directive and the national legislation transposing it, result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions.
75      Second, it must also be apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage. As the Advocate General observed in point 89 of his Opinion, the prohibition of abuse is not relevant where the economic activity carried out may have some explanation other than the mere attainment of tax advantages.” 
27.	The Court went on to hold (at para 94) that if on that basis an abusive practice has been found to exist, then:
“… transactions involved in an abusive practice must be redefined so as to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice.”
28.	The approach to be adopted in applying the Halifax principle has been considered by the Court of Appeal in WHA Ltd v R&CC [2007] EWCA Civ 728, [2007] STC 1695.  After citing from the ruling of the ECJ, Lord Neuberger (in a judgment with which the other members of the court agreed), stated (at [12]):
“The abuse issue can usefully be considered by answering four questions, which appear to emerge from the passages I have quoted from the judgment in Halifax. First, does the Scheme, or an aspect of the Scheme, result in the accrual of a tax advantage which, as HMRC assert, is "contrary to the purpose of" the provisions of the Sixth Directive? Secondly, if so, was it, as HMRC contend, the "essential aim" of the Scheme, or of the relevant aspect, that a tax advantage be obtained? Thirdly, if so, are there any special features of the Scheme itself, or of the law relating to it, which should nonetheless prevent the abuse argument succeeding? Fourthly, if not, can (and must) the Scheme, or the relevant part, be "redefined"? ”
29.	In applying the first of those tests to the facts of that case, Lord Neuberger rejected the submissions on behalf of the taxpayer that each step in the scheme should be considered separately and that it was wrong to look at the scheme as a whole.  He said (at [22]):
“While I accept the soundness of the approach in classic VAT cases (indeed, we adopted it when considering whether the Scheme worked when considered at face value), I do not consider that it can possibly be appropriate when considering whether a scheme infringes the purpose of the Sixth Directive. Otherwise, a scheme would never be liable to attack on the basis of the principle established in Halifax. Effectively by definition, each step of such a scheme would be unassailable (as it would otherwise be unnecessary to invoke the abuse principle). Accordingly, on this argument, the scheme itself would be unassailable. Indeed, if this argument were correct, the European Court would have decided Halifax differently. The whole point of the principle is that, although each step of the scheme in question works, the overall effect of the scheme is unacceptable.”
IS THERE AN ABUSE WITHIN THE HALIFAX PRINCIPLE?
30.	The Tribunal held that the Halifax principle was not engaged because the first condition for its application, as set out in Lord Neuberger’s four questions, was not satisfied.  The intention was that the supplies of the Club’s services by AAB should fall within the sporting exemption, but as a matter of fact and law they did not.  The essential reasoning of the Tribunal is expressed in paragraph 78:
“Did the tax advantage sought from the WJB Chiltern scheme result?   In my view (and for the reasons that I will give … below) it did not.   AAB’s supplies were all, contrary to the plans and expectations of WJB Chiltern, of Mr and Mrs Bradney and of Atrium, standard rated.   The liquidation of AAB in 2006 was not part of the scheme.   It follows that the initial condition for the operation of the Halifax principle has not been satisfied.   The fact that the obtaining of the tax advantage was the “essential”, albeit misplaced, aim of the scheme does not reinstate the operation of the Halifax principle.”
31.	HMRC challenge that reasoning on the basis that it considers only the position of, and advantage to, AAB and fails to consider the overall working of the scheme, and that it therefore fails to take account of the working of the scheme in “real, economic terms”.  AAB is an artificially imposed intermediary, whereas the real question is whether Atrium achieved a tax advantage from the scheme considered as a whole.
32.	In my judgment, the Tribunal was correct in stating that to answer the first question (whether a tax advantage resulted) “it is necessary to identify what tax advantage the scheme sought to achieve” (para 77).   The correct characterisation of that advantage is critical.  If the only tax advantage sought by the scheme was to render the supplies of sporting services by the Club exempt from VAT, then it follows that the scheme failed.  But, with all respect to the very experienced president of the Tribunal, I do not think that is the correct way to characterise the advantage which the scheme involved.  
33.	When Atrium itself operated the Club and made supplies of sporting services, it accounted for VAT on the consideration for those supplies.  The WJB Scheme, which replaced the AIC scheme, was designed to secure for Atrium the net proceeds of the supplies by the Club free from liability to VAT.  That was to be done through establishing a new company to operate the Club that would make the supplies as a non-profit making organisation without attracting VAT, and pay over all the benefit derived from those supplies to Atrium by way of a licence fee under a Turnover Licence which similarly did not attract VAT.  This combination of inter-related elements was essential to the scheme.  And the latter element was necessary not in order to remove AAB’s capacity to make a profit, since AAB could have used all the net proceeds for the development of the Club facilities without losing its non-profit making status, but so as to pass the profit over to Atrium without VAT being incurred.  Accordingly, I do not accept Atrium’s submission, as set out in its skeleton argument, that use of the land exemption was no part of the arrangements seeking to achieve a tax advantage.
34.	There is no doubt that Atrium indeed received payment on the basis which I have just described.  Accordingly, I consider that the scheme resulted in Atrium achieving a real benefit.  And, in my judgment, that benefit is properly to be regarded as a tax advantage since Atrium was not liable to pay VAT on the fee under the Turnover Licence whereas AAB, although - contrary to the parties’ understanding – not within the sporting exemption and thus liable to account for VAT on the Club’s supplies, had by payment of that fee removed its ability to discharge such a liability.  It seems to me that an arrangement which results in that situation is contrary to the purpose of the exempting provisions in the Sixth Directive. 
35.	In that regard, I should address the submission in Atrium’s written argument that the non-payment of VAT was due to the fact that HMRC did not correctly assess AAB as liable to VAT at the time of its decision, i.e. in April 2004.   Atrium submits that “there is no evidence to suggest that the Directors of AAB Ltd would not have made provision in some way if AAB Ltd were to have been assessed for a lesser sum at the time of the officer’s decision in order to ensure that the company was able to continue as a going concern (eg, through a simple personal bank loan).”  However, as Mr Pleming pointed out, by 2004, the VAT liability was already over £300,000 and there was evidence in the form of advice to AAB from BNB Tax Consultants dated 27 January 2006 that AAB would not have the resources to meet such a bill, either immediately or over an extended period.  
36.	However, that is not an end of the matter.  Although Atrium achieved that advantage, as a matter of law an essential element in the scheme was unsuccessful since the supplies by AAB were not exempt.  As the Tribunal noted, it was no part of the scheme that AAB should be unable to satisfy a VAT liability or go into liquidation.  Is this fatal to application of the Halifax principle?  If paragraph 22 of Lord Neuberger’s judgment in the WHA case is applied literally, it would be: here one step in the scheme manifestly does not work.  
37.	Although Lord Neuberger’s observations are of course to be accorded great respect, I do not think that they are to be applied like a statute.  In this passage of his judgment, he was responding to a submission by the taxpayer that once each individual step in the scheme works it was impermissible to consider the scheme as a whole.  That submission was rejected as fundamentally inconsistent with the basis of the Halifax principle.  But that does not mean that if on consideration of the scheme as a whole it is found to produce a tax advantage, application of the Halifax principle is precluded because an individual step in the scheme did not succeed.  I do not consider that Lord Neuberger should be taken to have had in contemplation such a situation, which is no doubt unusual.  That of course begs the question whether the scheme does produce a tax advantage when one of the individual steps involved does not work, but that is a distinct question which I have addressed above.
38.	The next question is whether it was an essential aim of the WJB Scheme that a tax advantage be obtained.  On that, HMRC relies on the holding by the Tribunal that this was the essential aim of the scheme: para 82.  I am not sure that HMRC is entirely correct in that regard, since the Tribunal was referring to the tax advantage which it had identified, whereas I have characterised the tax advantage in a different and broader manner.  However, it seems to me clear from the Tribunal’s findings that a tax advantage, more broadly construed, was indeed the essential aim of the scheme.  That was the whole reason for the establishment of AAB and the various agreements entered into, all drafted by WJB Chiltern
39.	Atrium submits that the underlying aim was that the Bradneys wished to move back away from the business while retaining as an investment the property on which the Club had its premises.  In that regard, Atrium contends that the Turnover Licence is to be regarded as an ordinary relationship between landlord and third party tenant, with “property costs” naturally a primary expense to any business running a health and fitness club.  However, although I accept that the Bradneys may have been keen to give up actually running the business, in other respects these contentions are inconsistent with the factual findings by the Tribunal as to the nature of the Turnover Licence and its terms, and the way the fee was calculated so as to represent all profits from running the Club.  The focus under this question is on the arrangements comprising the scheme.  The essential aim of those arrangements was to implement a mechanism whereby the net proceeds of the business continued to accrue to the Bradneys’ company, Atrium, with the benefit of exemption from VAT.
40.	I also agree with the Tribunal that there are no special features here which should otherwise prevent the abuse arguments from succeeding, and indeed none have been suggested on behalf of Atrium.
REDEFINITION
41.	If the Halifax principle accordingly applies, it is necessary to redefine the arrangements so as “to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice.”  That is an obligation, not a matter of discretion, as the ECJ makes clear in paragraph 94 of its ruling: para 27 above.   It is only if the tax has been fully paid (and not overpaid) and where no rights of third parties need protection, that such redefinition may be academic and therefore unnecessary: WHA at [57].
42.	HMRC contend that the redefinition should be to treat the supplies by the Club as made by Atrium and not by AAB for tax purposes.  The Tribunal rejected that contention, albeit that this part of the Decision was obiter in the light of its rejection of the primary case on abuse.  
“84.	I am not satisfied that HMRC’s redefinition can stand.   It does not “re-establish the situation that would have prevailed in the absence of the transactions constituting the abusive practice”.   That situation must at least be a real world one.   Here the real world situation consisted of Atrium which from December 1996 to the present time has not operated the gym and has had no staff.   Atrium had nothing to offer the members.   By contrast AAB had the means of providing the service to members.   It was set up to last.   Everyone involved, from Mr and Mrs Bradney to the actual Club members, expected this state of affairs to continue and it did so until called to a halt at the initiative of HMRC.  And even then the Club activities did not revert to Atrium; they were passed on to FAB Ltd which has continued until this day to carry them on as principal under the management of Jo Forman, Stephen Bradley and other members of staff.
85.	To redefine effectively, in the manner of HMRC’s decision, would involve disregarding the contracts between AAB and its members and disregarding the transfer of engagements of the staff from Atrium Health to AAB (and particularly the activities of key players responsible for running the Club such as Jo Foreman and Stuart Flude).   Atrium had nothing to offer to the members and the staff had no reason for being re-engaged by Atrium.”
43.	The Tribunal proceeded to suggest another way in which the transaction might be redefined, namely by aggregating the agreements between Atrium and AAB so as to deprive the Turnover Licence of its status as a leasing of immovable property and render the fees payable under the Licence as consideration for a standard rated supply.
44.	I asked Mr Pleming whether the question of the correct redefinition is a matter of law on which there is only one answer, or whether it is rather a case of possible alternative ways of redefining the transactions subject to review by the court on principles analogous to Wednesbury.   I am told that there is no authority directly bearing on this issue.  However, some guidance can be derived from the consideration of redefinition (also obiter) by Lord Neuberger in WHA.  After discussing two possible redefinitions that were there suggested, he concluded (at [58]): “… either of the two proffered redefinitions appears to me acceptable.”  That strongly suggests that there is not necessarily one right way of redefining a scheme.
45.	In my view, the Tribunal’s objection to the redefinition put forward by HMRC is misplaced.  The redefinition under the Halifax principle is not designed to create a situation which can be sustained in practice.  It is a purely notional device, for the purpose of assessment to tax, that may inevitably involve ignoring the terms of existing contracts.  Once it is acknowledged that the essential aim of the WJB Scheme was the avoidance of VAT, and that the transactions created by that scheme to introduce AAB as the supplier of services that remitted the net proceeds to Atrium were the basis on which the abusive practice was constituted, it seems to me that a permissible view of what would have prevailed in the absence of those transactions is that AAB would never have been interposed in the supply at all.  The Club would have been operated by Atrium, as it had been before the previous, abortive AIC scheme was introduced.  It may be that the Bradneys would have, as it were, taken a back seat and left the running of the Club to Ms Forman and Mr Flude, but that is irrelevant for present purposes. 
46.	I can see that another possibility of what would have prevailed in the absence of the abusive practice is supported by what apparently happened after HMRC intervened and AAB went into liquidation: i.e. that the running of the Club would indeed have been transferred to a new company, but one which charged its members for VAT and accounted for supplies to HMRC.  However, the whole point of the redefinition is to enable the tax advantage which results from the abusive arrangements to be neutralised, and a redefinition in those terms would obviously not achieve that objective.
47.	In those circumstances, although the redefinition put forward by HMRC may be described as radical (as I note was one of the two alternatives regarded as acceptable in WHA), I do not find it open to objection.  I therefore see no reason to consider whether the redefinition suggested, somewhat tentatively, by the Tribunal, and not urged by HMRC, might be an acceptable alternative.
CONCLUSION
48.	Accordingly, I will allow the appeal and redefine the supplies made by AAB of sporting services as supplies made by Atrium.   I will hear Counsel as to what form of order is appropriate in the circumstances.