Jazztel Plc v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judgment Date | 25 February 2022 |
| Neutral Citation | [2022] EWCA Civ 232 |
| Year | 2022 |
| Court | Court of Appeal (Civil Division) |
[2022] EWCA Civ 232
Lord Justice Newey, Lord Justice Singh and Sir Launcelot Henderson
Court of Appeal (Civil Division)
Stamp Duty Reserve Tax (SDRT) – Claim for restitution of 23 payments of tax under mistake of law – Limitation Act 1980, s. 32 – Six-year limitation period under Finance Act 2004 (FA 2004), s. 320 – Incompatibility with EU law – Was s. 320 to be disapplied in respect of payments made before 9 September 2003 – Following Fleming (t/a Bodycraft) v R & C Commrs [2008] BVC 221, Yes – HMRC's appeal dismissed – When, following Test Claimants in the Foreign Investment Income Group Litigation v R & C Commrs [2020] BTC 30, could claimants be said to have discovered or could they with reasonable diligence have discovered their mistake – Except, in respect of the last payment, more than six years before claim made – Claims for restitution of all those 22 payments therefore time-barred – Amended grounds of HMRC's appeal upheld.
The Court of Appeal:
- upheld the decision of the High Court that HMRC could not rely on FA 2004, s. 320 to deny Jazztel recovery of tax paid in the payments (nine in number) made before 8 September 2003, but for reasons other than those given by the Judge; but
- allowing HMRC's amended appeal, applying the Supreme Court's judgment in Test Claimants in the Test Claimants in the Foreign Investment Income Group Litigation v R & C Commrs [2020] BTC 30, Jazztel had discovered or ought with reasonable diligence to have discovered its mistake for the purposes of Limitation Act 1980, s. 32(1) more than six years before making its claim for restitution in respect of all but the final payment and that its claim was therefore time-barred in respect of those payments
This case is part of the long-running group litigation concerning claims for restitution of unlawfully levied SDRT. Jazztel's case was added to the group litigation in December 2014 and was designated as the test claim for two issues. The hearing before the High Court and now before the Court of Appeal was concerned only with the mistake claim.
Over a period ranging from January 2000 to May 2008, Jazztel made 23 payments of SDRT under either FA 1986, s. 93(1), which charges tax at a rate of 1.5% in connection with the issue of depositary receipts for chargeable securities or FA 1986, s. 96(1), which imposes SDRT at the same 1.5% rate on the issue of shares into a clearance service.
Before it made its second payment (“Payment 2”) on 7 January 2000, Jazztel was informed by its legal advisers that there were “good arguments that the operation of SDRT in some circumstances is against European law”. When the cheque was sent to HMRC, the advisers wrote on 11 January 2000 in the accompanying letter that the payment was being made to avoid interest or penalties if, notwithstanding their view to the contrary, SDRT was ultimately found to be payable. Their letter formally requested repayment of the tax being paid on the basis that there were very good grounds for the view that the SDRT (and stamp duty) charges concerned were in breach of European law. Correspondence with HMRC followed, but in May 2000, the advisers told HMRC that Jazztel was not at present proceeding with the unlawfulness argument.
A further 14 payments had been made by March 2006, when the advisers made Payment 15 and wrote to HMRC stating that the payment was without prejudice to Jazztel's right to contest the validity of the charge and claim repayment of the SDRT. All further payments were made with the same covering note.
It was on 1 October 2009 that the unlawfulness of the charge under FA 1986, s. 96 was finally established by the ECJ's judgment in HSBC Holdings plc v R & C Commrs (Case C-569/07) [2010] BTC 13 and the like unlawfulness of the FA 1986, s. 93(1) charge was established by the FTT in HSBC Holdings plc and the Bank of New York Mellon Corporation [2012] TC 01858, against which no appeal was made.
Jazztel made a statutory claim for repayment under Stamp Duty Reserve Tax Regulations 1986 (SI 1986/1711), reg. 14 for some of the tax in time and HMRC repaid the tax, with simple interest. On 19 December 2013, Jazztel made a claim for restitution for recovery of unlawful tax under the principle in Woolwich Building Society v IR Commrs [1992] BTC 470 (a “Woolwich claim”) and a claim in restitution for money paid under a mistake (a “Kleinwort Benson claim”) under the principle established in Kleinwort Benson Ltd v Lincoln City Council [1998] UKHL 38.
It was accepted that the Woolwich claim was time-barred in respect of payments made before 19 December 2007 due to the six-year limitation period. Kleinwort Benson claims, however, could potentially benefit from the extended limitation period under Limitation Act 1980, s. 32(1)(c), to the extent that they were not restricted under the amendments made by FA 2004, s. 320. The extended limitation period was six years from the date when the claimant discovered the mistake or could with reasonable diligence have discovered it. FA 2004, s. 320 purported to disapply the extended period in respect of all actions relating to tax brought after 8 September 2003. The retrospective nature of s. 320 and its complete lack of a transition period led to a challenge as to the compatibility of s. 320 itself with EU law. That challenge was ultimately successful before the ECJ in Test Claimants in the Franked Investment Income Group Litigation v IR Commrs (Case C-362/12) [2014] BTC 27. The ECJ held that s. 320 was incompatible with EU law to the extent that it retroactively curtailed some taxpayers of their right to repayment without any transitional arrangements.
It was only the Kleinwort Benson claim that was the subject of the case before the High Court and before the Court of Appeal.
Section 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 that would sufficiently protect rights that 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 the intention to enact what became 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's reliance on Limitation Act 1980, s. 32(1)(c).
Accordingly, the Judge held that HMRC could not rely on s. 320 to deny Jazztel recovery of those payments made before 9 September 2003 (“Payments 1 to 9”) but that s. 320 legitimately time-barred recovery of those payments made subsequently to 8 September 2003 (“Payments 10 to 22”). Payment 23 had been made less than six years before the date of claim and hence Jazztel's right of restitution in respect of that payment was not in dispute.
HMRC appealed against the judgment in respect of Payments 1 to 9, whereas the plaintiffs, Jazztel, cross-appealed against the judgment in respect of Payments 10 to 22.
HMRC's argument in respect of Payments 1 to 9 was, essentially, that s. 320 did not effectively prevent Jazztel from making claims for overpaid tax within a reasonable period, given that in-time claims for restitution in respect of all of Payments 1 to 9 could still have been made within the curtailed six-year period imposed by s. 320.
Jazztel's argument in respect of Payments 10 t0 22 was that the Judge's reasons for dismissing its claim in relation to those payments was inconsistent with the principles of EU law established in Marks & Spencer plc v C & E Commrs (Case C-62/00) [2002] BVC 622, as subsequently applied by the House of Lords in Fleming (t/a Bodycraft) v R & C Commrs [2008] BVC 221. It accepted, however, that, pending an appeal to the Supreme Court, the decision of the Court of Appeal in Leeds City Council v R & C Commrs [2016] BVC 2 resolved the issue in favour of HMRC.
The appeal was adjourned to await the judgment of the Supreme Court in Test Claimants in the Foreign Investment Income Group Litigation v R & C Commrs [2020] BTC 30, which was delivered on 20 November 2020 (“FII (SC) 2”). By a majority of 5 to 2, the Supreme Court held that whereas Limitation Act 1980, s. 32(1)(c) did indeed extent to mistakes of law as well as of fact, the House of Lords had come to the wrong conclusion in (Deutsche Morgan Grenfell Group plc v IR Commrs [2006] BTC 781) as to the date of the claimant's discovery of the mistake. This was not, as Morgan Grenfell had ruled, when a court of final jurisdiction established the claimant had a well-founded cause of action but the point at which the claimant discovered, or could with reasonable diligence have discovered, the claimant's mistake in the sense of recognising that a worthwhile claim had arisen.
In the light of this decision, HMRC applied to add to its grounds of appeal that the Judge had erred in failing to hold that Jazztel was time-barred in respect of all but the last payment (i.e. in respect of Payments 1 to 22) as they had all been made more than six years before the date of the claim. Jazztel opposed the application.
As a consequence of the above, the issues before the Court of Appeal were:
- Had the High Court correctly disapplied FA 2004, s. 320 in relation to Payments 1 to 9 and
- Should HMRC have permission to amend its grounds of appeal so as to introduce the contention that proceedings in respect of Payments 1 to 22 were all out of time in the light of FII (SC) 2?
The judgment of the Appeal Court was given by Lord Justice Newey and Sir Launcelot Henderson. Lord Justice Singh concurred and gave a brief...
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