British Telecommunications Plc v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judgment Date | 28 April 2021 |
| Neutral Citation | [2021] EWHC 1095 (Ch) |
| Year | 2021 |
| Court | Chancery Division |
[2021] EWHC 1095 (Ch)
Mr Justice Miles
England & Wales High Court (Chancery Division)
Value added tax – Application for summary judgement on a claim for unjust enrichment – Output tax overpaid from 1 January 1978 to 31 March 1989 – Bad debt relief – The old scheme, introduced 1 October 1978 – FA 1978, s. 12 (re-enacted VATA 1983, s. 22) – An exhaustive scheme – Overpayments from 1 October 1978 – Claim out of time – Claim dismissed – Overpayments from 1 January 1978 to 30 September 1978 – Potential enrichment of HMRC – Real prospect of success – Claim to proceed – Application partially successful.
The High Court have partially upheld an application, by HMRC, for summary judgement on a claim for restitution for unjust enrichment arising from bad debt relief claims for overpayments of output tax from 1 January 1978 to 31 March 1989. The court dismissed claims made during the period of the old bad debt relief scheme but allowed the claim for periods prior to 1 October 1978 to proceed.
BT wrote to HMRC on 30 March 2009 claiming a repayment of VAT overpaid in respect of its supplies to customers in the period from 1 January 1978 to 31 March 1989 where the customer had failed to pay them either in part or at all. HMRC refused the claim and BT appealed that decision to the tribunal on 29 April 2010. They also issued this common law claim to the High Court on 30 June 2010. The common law claim was stayed until 2020 pending the statutory appeal. The proceedings in the statutory appeal reached the Court of Appeal where BT's claim for bad debt relief under the old scheme (for supplies from 1 October 1978 to 26 July 1990) was dismissed. An alternative claim under VATA 1994, s. 80 was also dismissed (R & C Commrs v British Telecommunications plc [2014] BVC 24). HMRC then applied, successfully, for a summary judgement on the claim. BT have applied and received permission to appeal the decision of the FTT in approving the application to strike out the claim.
Under UK VAT legislation, BT had to account for output tax on services billed to customers. They contended, under directly applicable EU law, if the customer failed to pay their bill, they were entitled to a refund of tax, including by right of set-off against subsequent VAT liabilities. They argued the overpayments were made in the mistaken belief no such right to refund or set-off existed and, as a result, they were due restitution for the unjust enrichment of what is now HMRC.
The old scheme gave the taxpayer an option to claim. It was not automatic, and it only applied if the debtor had become insolvent. This created practical difficulties for BT in that the bad debts that were likely to arise were below the minimum bankruptcy level and would not have been worth the cost of insolvency proceedings. A new BDR scheme was introduced on 26 July 1990 and, almost seven years later, FA 1997, s. 39(5) repealed the old scheme and prohibited any further claims being made under the old scheme after 19 March 1997. No claim for BDR was made by BT under the old scheme before 19 March 1997.
The Court of Appeal found BT had a directly enforceable right under art. 11 of the Sixth Directive. The insolvency condition under the old scheme had been unlawful and infringed BT's directly enforceable rights. But it was no longer open (in 2009) to BT to make a claim under the old scheme which had been repealed. BT's lack of awareness that it could have brought the claim was irrelevant. The enactment of FA 1997, s. 39(5) had not infringed BT's rights to claim bad debt relief in respect of supplies prior to 31 March 1989 and should not be disapplied. The court of appeal also found the only right BT had to claim for overpaid VAT before the introduction of the old scheme, if it did not fall within the old scheme, was a common law restitutionary claim (against unjust enrichment) and not a claim under VATA 1994, s. 80.
BT claimed, in these proceedings, that it overpaid HMRC because the UK failed to allow a taxpayer to apply for a set off or refund of VAT when full consideration was not received from the customer. The requirements the UK imposed made it impossible or excessively difficult to make a claim. It wrongly believed those requirements to be lawful and made the overpayments in the mistaken belief that it did not have a right to refunds or deductions. It acted under a mistake of law by making payments without any refund or set-off.
HMRC issued an application seeking to strike out BT's claim. There was no dispute about the principles for striking out. The court must consider whether the claimant had a realistic prospect of success. BT submitted the court should only decide a point of law summarily if satisfied the point was clear. HMRC submitted the old scheme operated to exclude or oust common law claims, there had been no unjust enrichment of HMRC, and in relation to the period before the introduction of the old scheme, the claim was statute barred.
Mr Justice Miles noted the many authorities on whether a legislative scheme was intended to exist alongside common law remedies before adopting the propositions outlined by Hickinbottom LJ in Southern Gas Networks plc v Thames Water Utilities, which are reproduced at para. 67 of this decision, to address the question of whether a common law remedy would be incompatible with the statutory scheme and therefore could not have been intended to coexist with it.
The court agreed with HMRC the old scheme was a comprehensive and exclusive scheme for refunds of bad debt that did not allow for a common law remedy. Several features of the scheme were highlighted in support of this view.
- The old scheme was specifically enacted to implement art. 11(C)(1);
- Article 11(C)(1) expressly allowed member states to set out conditions for the recovery of tax;
- The statutory claim therefore covers the same ground as the common law remedy;
- Parliament enacted a series of procedural and substantive conditions that had to be complied with, including the insolvency condition, so that the remedy was a qualified one. Parliament could not, therefore, have intended the taxpayer could have made a claim without fulfilling those conditions;
- The statutes provided specifically for appeals;
- There were detailed, and prescriptive, provisions for determining the outstanding amount;
- There were provisions for repayment of any refunds, placing further qualifications on the statutory remedy;
- The procedure was expressed to be distinct from the procedure for restitution of overpaid tax in VATA 1994, s. 80;
- By enacting FA 1997, s. 39(5) Parliament decided to bring down the shutters on claims under the old scheme.
BT submitted the various features of the scheme did not show a legislative intent to exclude the common law. They could co-exist. This was rejected because it would make the various qualifications optional and that could not be a sensible view of what Parliament intended.
BT also suggested the old scheme could not be read as excluding its directly enforceable rights as that would mean it had no effective remedy. The High Court also rejected this argument and referred to the previous Court of Appeal decision in the statutory appeal. Specifically, their finding it had always been open to BT to bring claims on the basis the insolvency condition was unlawful and incompatible with EU law. The problem was not that they had no right to recovery; it was that they had failed to make the claim in time.
HMRC was therefore entitled to summary judgement or to have the claim for the period from 1 October to 31 March 1989 struck out.
On the question of unjust enrichment, HMRC submitted BT did not overpay any tax and therefore there was no unjust enrichment. BT did not exercise a right available to it in time to seek a deduction but, although HMRC did accept this had benefitted them economically, they argued there was no transfer of value when BT did not claim a refund under the old scheme and therefore no enrichment and nothing unjust about retaining receipt of tax paid to it.
BT argued this was too narrow a view of the law of restitution for mistake of law, which should be expansive. Following the decision of Deutsche Morgan Grenfell Group plc v IR Commrs [2006] BTC 781, it was not whether the sums were due but whether the taxpayer had paid more than it should have done. BT employees had not understood they were entitled to deduct amounts in respect of bad debts when the insolvency condition was not satisfied and therefore BT ended up paying more to HMRC than it would otherwise have done. The High Court concluded BT had a realistically arguable case on these grounds. The legal issues were complex and it was a developing area of law that would require more argument than the summary process allowed.
BT considered it had an unjust enrichment claim for monies paid, under a mistake of fact, in the first nine months of the claim since the UK was required to implement art. 11(C)(1) by 1 January 1978 but there was no statutory mechanism in place until 1 October 1978. HMRC argued the claim was barred under the Limitation Act 1980. It was common ground claims are generally barred after six years. However, if the claim was based on a mistake and s. 32(1) of that Act applied, the six years would only begin to run from when the mistake was discovered or, could have been discovered. HMRC submitted the claim was not for relief from the consequences of a mistake. BT had simply failed to bring an in-time claim. Alternatively, the mistake was discoverable well before 30 June 2004.
The High Court concluded BT had a reasonable prospect of succeeding in the argument that any enrichment of HMRC was the consequence of a mistake and that the claim was for relief against the consequences of that mistake. It also accepted BT's submissions a taxpayer could reasonably have supposed UK legislation complied with EU law. BT claimed there was no authority, or even...
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British Telecommunications Plc v The Commissioners for HM Revenue and Customs
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