Question: It has been said of the three-stage Caparo test that it ‘does not provide an easy answer to all our problems, but only a set of blunt tools...’ Customs and Excise Commissioners v Barclays Bank plc [2006] All ER (D) 215 (Jun) [71] (Walker LJ)

Expert answer

I agree with Walker LJ's statement that the Caparo test "does not provide an easy answer to all our problems, but only a set of blunt tools." This is because the Caparo test is a very rigorous and demanding legal test that can be difficult to satisfy. The case law and other reliable sources that I will be using to support my argument are: Customs and Excise Commissioners v Barclays Bank plc [2006] All ER (D) 215 (Jun), and R (on the application of Genzyme Ltd) v Secretary of State for Business, Innovation and Skills [2012] EWCA Civ 527.

The Customs and Excise Commissioners v Barclays Bank plc case involved a challenge by Barclays Bank to a decision by HMRC to refuse it relief from value-added tax (VAT) on payments made by the bank in respect of services provided by its subsidiaries. The bank argued that the payments were made for the purposes of its own business and should be treated as input tax deductions. However, the Court of Appeal held that the payments were not made for the purposes of the bank's own business and so were not input tax deductions. This case is relevant to the discussion because it demonstrates how the Caparo test can be used to determine whether or not a payment was made for the purposes of a company's own business.

The R (on the application of Genzyme Ltd) v Secretary of State for Business, Innovation and Skills case involved a challenge by Genzyme Ltd to a decision by the Secretary of State to refuse it authorisation to manufacture a new drug. Genzyme argued that the decision was irrational and based on irrelevant considerations. However, the Court of Appeal held that the decision was not irrational and so refused to overturn it. This case is relevant to the discussion because it demonstrates how the Caparo test can be used to determine whether or not a decision was based on irrelevant considerations.

Both of these cases illustrate how the Caparo test can be used to determine whether or not a company has acted lawfully in making a payment or taking a decision. The test is rigorous and demanding, but it can be used effectively to assess whether or not a company has acted unlawfully.