Investment Trust Companies ((in Liquidation)) v The Commissioners for HM Revenue and Customs

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice Henderson
Judgment Date26 March 2013
Neutral Citation[2013] EWHC 665 (Ch)
Date26 March 2013
Docket NumberCase No: HC09C03091

[2013] EWHC 665 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Rolls Building, Fetter Lane

London EC4A 1NL

Before:

Mr Justice Henderson

Case No: HC09C03091

Between:
Investment Trust Companies
Claimants (in liquidation)
and
The Commissioners for her Majesty's Revenue and Customs
Defendants

Mr Laurence Rabinowitz QC and Mr Steven Elliott (instructed by PricewaterhouseCoopers Legal LLP) for the Claimants

Mr Jonathan Swift QC and Mr Andrew Macnab (instructed by Solicitor for HMRC) for the Defendants

Hearing date: 22 January 2013

FURTHER JUDGMENT

Mr Justice Henderson

Introduction

1

On 2 March 2012 I handed down judgment in the case of Investment Trust Companies (in liquidation) v HMRC [2012] EWHC 458 (Ch), [2012] STC 1150 (" ITC No. 1").

2

In the final main section of that judgment (paragraphs [149] to [171]) I considered the question whether the claimants should be confined to a modified version of the Woolwich cause of action in order to satisfy their directly effective EU rights (as I had held) to recover from HMRC that part of the consideration paid by them to the Managers for investment management services which represented VAT mistakenly thought to be due outside the "dead period", and which the Managers themselves had been unable to recover from HMRC and pass on to the claimants. This was the part of the consideration (referred to in the judgment, for ease of exposition, as "the £25") which was equal to the relevant input tax which had been brought into account and deducted by the Manager of M & G Trust during VAT accounting periods between 1992 and March 2002, with the exception of those periods ("the dead period") for which a direct claim by the Manager of M & G Trust to recover overpaid VAT from HMRC would have been validly barred by the three year limitation period in section 80(4) of the Value Added Tax Act 1984 (" VATA 1984") which was introduced (originally without any transitional provisions) with effect from 4 December 1996.

3

The very compressed summary which I have just given will probably make sense only to those who have already read ITC No. 1, and I would stress at the outset that the present judgment should be read as a continuation of my earlier judgment, to which reference should be made for the background to the case, for my decision on all of the issues in dispute apart from the final one, and for my description of the final issue and the arguments on it which were addressed to me.

4

As I explained in paragraphs [170] and [171] of ITC No. 1, I decided to adjourn determination of the final issue until after the Supreme Court had given its judgment on those issues for which it had given permission to appeal in the FII litigation, and after the Court of Justice of the European Union ("the ECJ") had given its judgment on the reference for a preliminary ruling made by Vos J in the Littlewoods case. As I said in paragraph [170]:

"… the rival submissions on this part of the case appear to me to raise issues of great difficulty and potential importance, in an area where the law is evolving rapidly, and where there is good reason to expect that authoritative guidance on at least some key aspects of the problem may be provided in the near future by either or both of the ECJ (on the reference in Littlewoods) and the Supreme Court (on the appeal in FII)."

5

The Supreme Court, sitting in a constitution of seven justices headed by Lord Hope of Craighead DPSC, delivered its judgment in FII on 23 May 2012: see Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2012] UKSC 19, [2012] 2 AC 337 (" FII (SC)"). The Grand Chamber of the ECJ then delivered its judgment in Littlewoods on 19 July 2012: see Littlewood Retail Limited v Revenue and Customs Commissioners, Case C-591/10, [2012] STC 1714 (" Littlewoods (ECJ)").

6

In the light of these judgments, the claimants and HMRC made written submissions to me on their effect in letters dated 6 August and 14 September 2012 respectively, and a further letter in reply from the claimants dated 18 September 2012. As the views expressed in these letters were widely divergent, and each side seemed to think that its position had been strengthened by the further judgments, I decided that an oral hearing would be necessary, preceded by an exchange of skeleton arguments. The further hearing took place on 22 January 2013 and occupied the whole day, with Mr Laurence Rabinowitz QC and Mr Steven Elliott again appearing for the claimants, and Mr Jonathan Swift QC and Mr Andrew Macnab for HMRC. As before, I express my gratitude to counsel and those instructing them for the clarity and high quality of the arguments addressed to me.

The decision of the Supreme Court in FII (SC)

7

It is convenient to begin by explaining how the claimants say they find support for their case on the final issue in the decision of the Supreme Court in FII (SC). Apart from a substantial and, if I may respectfully say so, very helpful introductory judgment by Lord Hope, the three main judgments were delivered by Lord Walker of Gestingthorpe, Lord Sumption and Lord Reed JJSC. Shorter (but by no means insubstantial) judgments were also delivered by Lord Brown of Eaton-under-Heywood and Lord Clarke of Stone-cum-Ebony, while Lord Dyson expressed his agreement with other justices on various issues without adding any further reasoning of his own. Due to the intrinsic complexity of the subject matter, and the differences of opinion between members of the Court on several of the issues, the decision is not an easy one to summarise or find one's way around. Nor, in the present context, would a comprehensive summary serve any useful purpose, because the claimants rely on only certain parts of the decision, while HMRC submit that any assistance to be gained from it is, at best, very limited.

8

The part of the FII litigation which matters most, for present purposes, is the broad question whether EU law (in the shape of any or all of the principles of effectiveness, equivalence, legal certainty and protection of legitimate expectations) had any, and if so what, impact on the remedies available to the test claimants under English domestic law to vindicate their San Giorgio claims to restitution of unlawfully levied tax. Allied to this question is the issue whether the Woolwich cause of action, correctly understood, would by itself be sufficient to provide an effective domestic remedy for such claims; and, if so, whether EU law also required English law to make available to the test claimants the mistake-based restitutionary remedy recognised by the House of Lords in DMG, and thus to allow them to choose between the Woolwich and DMG causes of action with the usual freedom accorded to claimants in a purely domestic context.

9

The focus of these issues was concentrated in particular on the action taken by Parliament to curtail the limitation period for mistake-based claims for the recovery of direct tax, first by the enactment of section 320 of the Finance Act 2004 (which purported to impose a six year limitation period for claims made on or after 8 September 2003, when the proposed legislation had first been announced) and then by the enactment of section 107 of the Finance Act 2007 (which purported to apply the same period retrospectively, to all such claims whenever made). In neither case did Parliament see fit to enact any transitional provisions.

10

At first instance, I had held in FII (Chancery) that HMRC were unable to rely on either section 320 or section 107 as a defence to the test claimants' San Giorgio claims, because of the absence of any transitional provisions as required by well-established principles of EU law: see FII (Chancery) at paragraphs [414] to [427]. This conclusion was, however, dependent on my view that the mistake-based DMG remedy was needed as well as the Woolwich remedy in order to satisfy the test claimants' San Giorgio rights, with the result that the two sections impinged on those rights and EU law was relevantly engaged.

11

The Court of Appeal disagreed, holding, in essence, that the Woolwich cause of action did not require a demand; that it therefore provided the test claimants with an adequate domestic remedy for their San Giorgio claims; that the EU principles of effectiveness and equivalence did not require the mistake-based DMG remedy also to be made available to them; and that the limitation period for the mistake-based claims could therefore lawfully be curtailed by Parliament without any transitional provisions, because the claimants' rights under EU law were unaffected: see the extracts from the judgment in FII (CA) quoted in ITC No.1 at paragraphs [151] to [153].

12

The Supreme Court agreed with the Court of Appeal that the Woolwich principle does not require an unlawful demand for the tax to have been made. After discussing the authorities and academic opinion on the point, Lord Walker reformulated the principle in paragraph [79] as follows:

"In these circumstances it is in my view open to this court (whether or not it was strictly open to the Court of Appeal) to state clearly that where tax is purportedly charged without lawful Parliamentary authority, a claim for repayment arises regardless of any official demand (unless the payment was, on the facts, made in order to close the transaction). The same effect would be produced by saying that the statutory text is itself a sufficient demand, but the simpler and more direct course is to put the matter in terms of a perceived obligation to pay, rather than an implicit demand. That is how it was put by Wilson J in her well known dissent in Air Canada v British Columbia [1989] 1 SCR 1161, 1214–1215 … In my view English law should follow the same course. We should restate the Woolwich principle so as to cover all sums paid to a public authority in response to...

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