Jazztel Plc v Revenue and Customs Commissioners

JurisdictionEngland & Wales
CourtChancery Division
Judgment Date03 April 2017
Neutral Citation[2017] EWHC 677 (Ch)

[2017] EWHC 677 (Ch)

High Court of Justice Chancery Division

The Honourable Mr Justice Marcus Smith

Jazztel plc
and
Revenue and Customs Commissioners

Mr. Sam Grodzinski, Q.C. and Mr. Michael Jones (instructed by PricewaterhouseCoopers Legal LLP) for the Claimant

Mr. Rupert Baldry, Q.C. and Mr. David Yates (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Defendant

Stamp duty reserve tax – 1.5% charge on issues to clearance services or in exchange for depositary receipts – Claim to restitution by way of mistake – Whether Finance Act 2004 (FA 2004), s. 320 effective to abrogate the extended limitation period under Limitation Act 1980 (LA 1980), s. 32(1)(c).

The High Court upheld the plaintiff's claim in part: payments of SDRT (at 1.5%) were made under a mistake, and with respect of some (but not all) of those payments, the restriction on claims under the Limitation Act 1980, introduced by Finance Act 2004, s. 320, was to be disapplied.

Summary:

This was a test case the subject of a Group Litigation Order. During the period relevant for the purposes of the judgment, stamp duty reserve tax (“SDRT”) was charged at the rate of 1.5% on the transfer or issue of chargeable securities to a clearance house (under Finance Act 1986, s. 96), or in exchange for depositary receipts (under Finance Act 1986, s. 93). There was no dispute that such charges were incompatible with EU law.

The taxpayer company (“J”) had at various times between 2000 and 2009 issued shares, in all but one case paying SDRT at 1.5%. A statutory repayment claim pursuant to the Stamp Duty Reserve Tax Regulations 1986 (SI 1986/1711), in respect of SDRT paid on issues of shares between December 2003 and May 2008, led to a repayment of SDRT together with simple (not compound) interest by HMRC in January 2010. A separate claim in restitution for recovery of unlawful tax under the principle in Woolwich Building Society v IR Commrs [1992] BTC 470 was subject to the six-year limitation period for Woolwich claims, and, in the circumstances, would preclude recovery of SDRT paid before December 2007; and a further damages claim for breach of EU law had been pleaded by J but had been stayed.

J had also made a claim in restitution for money paid under a mistake. In such a case, the usual six-year limitation period could be extended by the Limitation Act 1980, s. 32(1)(c), so as to run from the date the plaintiff “discovered the … mistake … or could with reasonable diligence have discovered it”. The present hearing was concerned only with this mistake claim. This was relevant to SDRT whose recovery was time-barred under the SDRT Regulations, and also to the issue of compound interest.

Judgment:

The judge said that in order to establish its mistake claim, J had to show that HMRC had been enriched at J's expense, and that such enrichment was “unjust” – that is, that at the time the payments were made J mistakenly believed that:

  • The provisions obliging J to pay SDRT were lawful; and
  • Those provisions lawfully and effectively imposed a liability on the clearance house or depositary; and
  • By reason of its contract with the clearance house/depositary, J was obliged to make the payments.

If J could establish that it had a prima facie claim in mistake, then HMRC contended:

  • That they had a limitation defence based on Finance Act 2004, s. 320; s. 320 purported to abrogate the extended limitation period in Limitation Act 1980, s. 32(1)(c), in relation to actions brought on or after 8 September 2003.
  • That they had the potential of a change of position defence, but this depended on whether they were able to overturn the Court of Appeal's judgment in Test Claimants in the Franked Investment Income Group Litigation v R & C Commrs [2016] BTC 44.

The judge said he was satisfied the various payments were made by J, and that HMRC had been enriched at J's expense. As regards the question of whether there had been “mistake”, the facts were as follows:

  • In the period between August and December 1999, J and its solicitors proceeded on the basis that the issue of shares to a clearing house would attract SDRT at 1.5%.
  • In December 1999, J's solicitors raised with J the question whether, under European law, some or all of the SDRT in question was invalid.
  • In January 2000, J's solicitors wrote to HMRC's Stamp Office making payment of SDRT referable to a December 1999 issue of shares, but reserving J's rights under European law on the basis that the UK SDRT provisions were very probably inapplicable; in March 2000 HMRC replied, rejecting J's argument.
  • In August 2000, J's solicitors wrote to HMRC making payment of SDRT in respect of a further issue of shares. No reservation of rights was included in that communication. But in connection with a later, February 2006 issue of shares, on making payment of SDRT, rights were reserved.
  • J made a further issue of shares in May 2009. This followed on the Advocate-General's Opinion in HSBC Holdings plc v R & C Commrs (Case C-569/07) [2010] BTC 13, that the UK's 1.5% SDRT charge was contrary to European law. J's solicitors notified HMRC of such share issue under reg. 4 of the SDRT Regulations, but indicated that in view of the Advocate-General's Opinion, it was asserted that no SDRT arose and accordingly no payment would be made.

Accordingly, in the period up to December 1999, there was no doubt that J considered it was liable to pay SDRT. This is what it was told by its solicitors, in unqualified terms. The legal advice received in December 1999 clearly then qualified J's state of mind. However, the judge considered J's predominant state of mind remained that the liability to pay SDRT was a lawful one. On further issues of shares, it paid the SDRT, sometimes with and sometimes without reservation of rights. Thus it was prepared to have its lawyers write and qualify its payments, and suggest to HMRC the tax was not lawful. But it did not instruct a full-fledged investigation into the tax, nor seek even a very clear formal advice.

From though the date of delivery of the Advocate-General's Opinion (in March 2009), the judge considered J doubted SDRT was lawfully due. Its approach changed, notifying the charge to tax but not paying any sum on account of tax. The judge said for present purposes he would take the date when the mistake was discovered, or could with reasonable diligence have been discovered, as the date of delivery of the Advocate-General's Opinion.

Against that background, as regards Finance Act 2004, s. 320, J argued that even though its claim was not presented until ten years after the announcement of the introduction of s. 320, the effect of s. 320 was that instead of having a period of six years from March 2009 in which to bring its claim, it had six years from the date of each payment of SDRT (these dates of payment between 2000 and 2008). The judge said this was an example of the “hidden retrospectivity” of s. 320.

In the judge's view, s. 320 infringed European law both in its express retrospectivity and its hidden retrospectivity, because there were no transitional provisions of any sort in place. The real mischief, though, was the loss of accrued rights of which their owner was ignorant – that is, the hidden retrospectivity of s. 320. The only remedy which would sufficiently protect rights which had already accrued would be to exclude from the s. 320 regime those accrued rights. Therefore, s. 320 had to be disapplied in relation to:

  • claims accruing on or prior to 8 September 2003 (the date on which s. 320 was first announced), which
  • would be time-barred according to the ordinary six-year limitation period, and which could only be vindicated by the taxpayer relying on the Limitation Act 1980, s. 32(1)(c).

As a result, J's claims in respect of 10 of the 23 payments of SDRT in question were within time and (subject to HMRC's change of position defence) could be recovered; claims to 13 of such payments were time-barred.

On HMRC's “change of position” defence, the contention was that there was some form of correlation between tax receipts and central government expenditure such that – if the revenue from the SDRT had not been received – government expenditure would have been different and, inferentially, lower. The judge made various findings of fact in this respect, but without making any determination of law. He said the matter might fall to be revisited if the Supreme Court made a ruling on the matter.

Conclusion:

The judge concluded that all the payments in question were made by J under a mistake; of these, the recovery of 13 amounts paid was time-barred. However, J could (subject always to HMRC's change of position defence) recover 10 other amounts paid, since s. 320 was ineffective as regards those amounts.

Comment:

The judge reviewed some of the ECJ judgments on retrospectivity, and considered they were intended to extend to cases of “hidden retrospectivity”.

JUDGMENT
Contents
A. INTRODUCTION Para. 1
(1) Stamp duty reserve tax Para. 1
(2) Incompatibility of SDRT with Community law Para. 8
(3) Remedies of payers of SDRT Para. 9
B. THE EVIDENCE Para. 15
(1) Factual evidence Para. 15
(2) Expert evidence Para. 19
C. THE PAYMENTS Para. 23
D. PAYMENTS BY MISTAKE Para. 28
(1) Introduction Para. 28
(2) The facts Para. 33
(i) Overview of the history Para. 33
(ii) Period 1 Para. 34
(iii) Period 2 Para. 47
(iv) Period 3 Para. 56
(v) Period 4 Para. 57
(3) Analysis Para. 61
E. SECTION 320 OF THE FINANCE ACT 2004 Para. 69
(1) Legislative history Para. 69
(2) Retrospectivity: the law Para. 73
(i) Marks & Spencer No. 2 Para. 74
(ii) Grundig No. 2 Para. 75
(iii) Fleming Parra. 76
(iv) Leeds City Council Para. 86
(3) Analysis Para. 87
(i) What is a retrospective law? Para. 87
(ii) Scope of application of Marks & Spencer No. 2 and Grundig No. 2
...

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