John Wilkins (Motor Engineers) Ltd v HM Revenue and Customs and Others

JurisdictionEngland & Wales
JudgeLord Justice Etherton,Lord Justice Longmore,Lord Neuberger MR
Judgment Date14 April 2011
Neutral Citation[2011] EWCA Civ 429,[2010] EWCA Civ 923
Docket NumberCase No: A3/2009/2483 and A3/2009/2438 LON/06/0096, LON/08/1101
CourtCourt of Appeal (Civil Division)
Date14 April 2011

[2010] EWCA Civ 923

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM UPPER TRIBUNAL TAX AND CHANCERY CHAMBER

Before: Lord Justice Laws

Lord Justice Etherton

and

Lord Justice Sullivan

Mr Justice Warren and Judge Colin Bishopp

Case No: A3/2009/2483 and A3/2009/2438

LON/06/0069, LON/06/0067, LON/06/0094

LON/06/0096, LON/08/1101

Between
(1) John Wilkins (motor Engineers) Ltd
(2) Squire Furneaux Group
(3) Margaret Elizabeth Williams as Executrix for Robin Allan Williams (deceased)
(4) John Pudney Limited t/a Horsham Car Centre
(5) Lookers Plc
Appellants
and
Commissioners for Her Majesty's Revenue & Customs
Respondents

Mr Michael Conlon QC and Nicola Shaw (Instructed by McGrigors LLP) for the First to Fourth Appellants

Laurence Rabinowitz QC and James Henderson (instructed by Reynolds Porter Chamberlain LLP) for the Fifth Appellant

Jonathan Swift QC, Mr Peter Mantle and Mr Philip Woolfe (instructed by HMRC Solicitors Office) for the Respondents

Hearing dates: 24th June 2010

Approved Judgment

LORD JUSTICE ETHERTON

Introduction

1

These are appeals by 5 appellants from a decision of the Tax and Chancery Chamber of the Upper Tribunal (Mr Justice Warren, President, and Judge Colin Bishopp) dated 15 September 2009. The appeals form part of an expanding galaxy of litigation in which taxpayers, who have overpaid VAT to the respondents, the Commissioners for HM Revenue and Customs (“the Commissioners”), claim entitlement to compound interest, rather than simple interest, on those overpayments as a matter of EU and domestic law. These appeals are restricted to procedural points. They are appeals against the decision of the Upper Tribunal that the appellants’ respective notices of appeal to the Upper Tribunal were out of time, and against the Upper Tribunal's refusal to exercise its power to extend the time for bringing the appellants’ appeals.

Background

2

The appellants are motor traders who made overpayments of VAT throughout the period 1973 to 1996 in respect of bonus payments made to them by motor manufacturers on the purchase of demonstrator vehicles and in respect of the margin attained on the sale of demonstrator vehicles. Input tax credit was not claimed on the purchase of the demonstrator vehicles because the recovery of input tax on such vehicles was “blocked” by domestic legislation. The appellants carry on unrelated businesses. The fifth appellant, Lookers plc (“Lookers”), is the representative member of a VAT group which includes many subsidiaries trading at locations throughout the United Kingdom.

3

Judgments of the European Court of Justice (“the ECJ”) in Case C-317/94 Elida Gibbs Limited -v- Customs and Excise Commissioners [1997] QB 499, [1996] STC 1387 (on 24 October 1996) (in respect of ‘manufacturers’ bonuses) and Case C-45/95 European Commission -v- Italian Republic [1997] STC 1062 (on 25 June 1997) (in respect of the sale of demonstrator vehicles) established that VAT had been overpaid as a result of the failure properly to transpose Community law into domestic law. The excess tax has all been repaid to the appellants. The Commissioners have also paid simple interest on the capital sums repaid. The appellants claim, however that they are entitled, not merely to simple interest on the overpayments, but to a sum calculated as compound interest. They rely particularly on the decision of the ECJ in Case C-446/04 Test Claimants in the FII Group Litigation –v- Inland Revenue Commissioners [2007] STC 326 and the speeches in the House of Lords in Sempra Metals Ltd -v- Revenue and Customs Commissioners [2007] UKHL 34, [2008] 1 AC 561 (“Sempra”).

4

There has been a plethora of litigation concerning that issue. In Littlewoods Retail Limited -v- Commissioners for HM Revenue and Customs [2010] EWHC 1071 (Ch). (19. 5.2010) Mr Justice Vos has directed that the question whether a taxable person, who has overpaid VAT, is entitled under EU law to more than simple interest on the principal sums overpaid be referred to the ECJ, now the Court of Justice of the European Union. In that case, and in F.J. Chalke Limited –v- Commissioners for HM Revenue and Customs [2010] EWCA Civ. 313 (25. 3.2010) on appeal from F.J. Chalke –v- Commissioners for HM Revenue and Customs [2009] EWHC 952(Ch.) (Henderson J), the taxpayers asserted a restitutionary claim at common law for the time value to the Commissioners of the overpayments, from the time of receipt until repayment. There were a number of other issues in Chalke and Littlewoods, but they are not relevant to the present appeals.

5

The present appeals arise, not out of restitutionary claims at common law, but out of claims for interest pursuant to section 78 of the Value Added Tax Act 1994 (“the 1994 Act”). The appellants’ contention is that, in accordance with the Marleasing principle ( C-106/90 Marleasing SA v La Comercial Internacional de Alimentation SA [1990] ECR I-4135), that section must be interpreted so as to conform with EU law, which they say requires compound interest to be paid by the Commissioners on overpayments of VAT. Appeals in respect of claims pursuant to section 78 fell within the jurisdiction of the VAT and Duties Tribunal (“the VAT Tribunal”) until 1 April 2009. From that date, the appeals came within the jurisdiction of the Tax Chamber of the First-tier Tribunal. In the present case, the appeals were originally made to the VAT Tribunal, which directed that they be joined so that they could proceed and be heard together. Following the transfer of jurisdiction to the Tax Chamber of the First-tier Tribunal, they were allocated to the complex category, pursuant to which a direction was made that the appeals be transferred to and determined by the Upper Tribunal. They were, in fact, the first appeals to be heard by the Finance and Tax Chamber of the Upper Tribunal (“the Tribunal”).

6

The chronology of the appellants’ claims for payment of interest is helpfully set out in paragraphs 15 – 22 of the decision of the Tribunal, which I gratefully adopt. They said:

“15. On various dates in May and June 2003 the appellants’ representatives submitted claims to HMRC for repayment of the VAT which had been paid in excess of the amount which was properly due. A claim had already been made by the first appellant's accountants, but it had not been accepted because, until the delivery of the ECJ's judgment in [Case C-62/06 Marks & Spencer plc v. Customs and Excise Commissioners [2002] ECR 1–6325], the Commissioners believed it was time-barred. The first four appellants had the same representatives whose letters of claim, in very similar form, for repayment of the capital sums included a request that “statutory interest is paid to my client”. The fifth appellant's representatives wrote, in June 2003, to make the claim for payment of the capital sum and ended with a “request that our client is paid statutory interest”. None of the requests was otherwise qualified.

16. Not surprisingly, some of the appellants’ relevant records had been destroyed and some estimation and negotiation of the claims was necessary. The capital sums claimed were paid, in some cases after supplementary claims had been made, and in others not until disputes between the parties on the capital sums had been resolved, on various dates between August 2003 and January 2005. The capital sums due are no longer in issue.

17. On 2 September 2003, the first appellant received an interest calculation from the Commissioners showing £18,936.66 as due; it represented simple interest over a certain period. This amount was paid on or about 3 October 2003. In fact, the interest had been calculated over too short a period, and in a letter also dated 2 September 2003 the first appellant questioned the arithmetic of the payment and asked for “the interest to be recalculated for the original claim compounded from 1973”. A second payment was made on 12 December 2003; the document which accompanied it referred to “Statutory interest…. under VAT Act Section 78” and said nothing about compounding. It is common ground that the interest represented by the two payments was calculated using the rates prescribed by the 1998 Regulations, without compounding. Despite the earlier request for compound interest and the absence of any response to it, the second payment was accepted without immediate comment.

18. The remaining appellants received interest, also calculated at the statutory rates without compounding. The second appellant's claim for capital and interest was made on 23 June 2003 and the payment on 2 April 2004; the third appellant's claim on 29 May 2003 and the payment on 18 February 2005; the fourth appellant's on 28 May 2003 and 19 January 2005 respectively. The fifth appellant's claim was made on 27 June 2003 and payments of interest were made to it in August 2004 and on 24 January 2005. None of the accompanying letters, which appear to have been in a standard form, included any explicit comment about whether the interest had been calculated on a simple or compound basis, but the accompanying calculations made it clear that it was the former. In each case the payment was accepted, again without immediate comment.

19. On 3 August 2005—and therefore nearly 20 months after it had received the second interest payment—the first appellant wrote again to the Commissioners. It had noticed what it thought was an arithmetical error in the calculation of the capital sum due, which is of no present importance, but its letter went on to remind the Commissioners of its letter of 2 September 2003, and the request contained in it that the interest due be compounded, noting that interest had not in fact been compounded. It also referred to “a recent tax case (Sempra Metals) in the European Court of Justice” in which “it was decided that it was appropriate to award compound interest in the case of official...

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