Littlewoods Ltd and Others v HM Revenue and Customs

JurisdictionEngland & Wales
CourtChancery Division
JudgeMR JUSTICE VOS,Mr Justice Vos
Judgment Date19 May 2010
Neutral Citation[2010] EWHC 1071 (Ch)
Docket NumberCase Nos: HC08C03780 AND HC08C03781
Date19 May 2010

[2010] EWHC 1071 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Before Mr Justice Vos

Case Nos: HC08C03780 AND HC08C03781

Case No: HC08C03780

Case No: HC08C03781

Between
(1) Littlewoods Retail Limited
Claimants
(2) Shop Direct Home Shopping Limited (formerly Little Woods Shop Direct Home Shopping Limited)
(3) Reality Group Limited
(4) Shop Direct Group (formerly Shop Direct Group Limited)
(5) Shop Direct Limited
and
The Commissioners for Her Majesty's Revenue and Customs
Defendants
Between
(1) Little Woods Limited
Claimants
(2) Brian Mills Limited
(3) Burlington Warehouses Limited
(4) Janet Frazer Limited
(5) John Moores Home Shopping Service Limited
(6) Littlewoods Warehouses Limited
(7) Peter Craig Limited
(8) Little Woods Retail Limited
(9) Reality Group Limited
(10) Shop Direct Group
(11) Kay and Company Limited
(12) Abound Limited
and
The Commissioners for Her Majesty's Revenue and Customs
Defendants

Mr Laurence Rabinowitz QC, Mr Steven Elliott, Mr Richard Vallat (instructed by Weil, Gotshal & Manges) for the Claimants

Mr Jonathan Swift QC, Mr Andrew Macnab, Mr Peter Mantle, and Mr Imran Afzal (instructed by Solicitors for HM Revenue & Customs) for the Defendants

Hearing dates: 20-23, and 26 April 2010

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

MR JUSTICE VOS

Index to Judgment

Section

Paragraph

Introduction

1

The issues

8

Factual and legal background

10

Sections 78, 80 and 85A of VATA 1994

23

A chronology of relevant previous decisions

27

Issue 1: Are the Woolwich claims and/or the mistake-based claims, as a matter of English law, and without reference to EU law, excluded by sections 78 and 80 of VATA 1994?

45

Issue 2: If the Woolwich claims and/or the mistake-based claims are excluded by sections 78 and 80 of VATA 1994, is that exclusion contrary to EU law?

63

Issue 3: If issue 2 is answered in the affirmative, can sections 78 and 80 of VATA 1994 be construed so as to conform with EU law (and if so, how), or must they be dis-applied so as to allow either (a) only the Woolwich claims, or (b) both the Woolwich claims and the mistake-based claims?

72

Issue 4: Is HMRC entitled to deploy a ‘change of position’ and/or an ‘exhaustion of benefits’ defence to (a) the Woolwich claims and/or (b) the mistake-based claims? If so, are these defences made out in fact and to what extent?

97

Issue 4A: Is a change of position defence available in English law to (a) a Woolwich claim, and/or (b) a mistake-based restitutionary claim?

101

Issue 4B: Is an exhaustion of benefits defence available in English law to (a) a Woolwich claim, and/or (b) a mistake-based restitutionary claim?

110

Issue 4C: Have the Commissioners made their change of position defence good on the facts to (a) the Woolwich claims, and/or (b) the mistake-based restitutionary claims?

112

Issue 4D: Have the Commissioners made their exhaustion of benefits defence good on the facts to (a) the Woolwich claims, and/or (b) the mistake-based restitutionary claims?

126

Issue 4E: Assuming a change of position defence is available and has been made good on the facts, can it be given effect as a matter of EU law in answer to San Giorgio claims for the use value of overpayments of tax?

132

Issue 4F: Assuming an exhaustion of benefits defence is available and has been made good on the facts, can it be given effect as a matter of EU law in answer to San Giorgio claims for the use value of overpayments of tax?

141

Issue 5: In principle, is the measure of recovery for the Woolwich claims and/or the mistake-based claims to be measured by reference to (a) a conventional rate of interest compounded, or (b) the actual benefit enjoyed by the Commissioners, or (c) a compound rate of interest reflecting the cost of national government borrowing, or in some other way? And is the measure limited to the lower of the value of (a) the use of which the Claimants have been deprived and (b) the value of the use which the Commissioners received?

142

Questions for the ECJ

148

Conclusions

149

Mr Justice Vos

Mr Justice Vos

Introduction

1

In these two claims, a total of 15 claimants within the Littlewoods group of companies (together “Littlewoods”) claim compound interest amounting to some £1 billion on overpayments of VAT made over more than 30 years between 1973 and 20 th October 2004.

2

In this period, Littlewoods overpaid a total of some £241,001,426. The Commissioners for Her Majesty's Revenue and Customs (the “Commissioners”) have already repaid some £204,774,763, although the balance of some £36,226,663 remains outstanding and is the subject of ongoing appeals to the First-tier Tribunal (the “Tribunal”). The repayments of principal have been made pursuant to section 80 of the Value Added Tax Act 1994 (“ VATA 1994”). The Commissioners have also repaid simple interest of £268,159,135 on these principal sums at the statutory rates prescribed by section 78 of VATA 1994.

3

Littlewoods advance their claims to what they plead as the “time value of the sums enjoyed by the Commissioners”, by way of compound interest, on two bases recently recognised by English law. First, they seek restitution on the principle enunciated by the House of Lords in Woolwich Equitable Building Society v. IRC [1993] AC 70 (“ Woolwich”). Secondly, they seek restitution grounded on a mistake of law on the principle established by the House of Lords in Kleinwort Benson Ltd v. Lincoln City Council [1999] 2 AC 349 (“ Kleinwort Benson”).

4

On 28 th April 2009, Chief Master Weingarten directed that there should be a trial of “all issues of liability in advance of and separately from all issues of quantum (including any related or associated issues of causation)”. On the same date, the claims in these proceedings that are the subject of the appeals to the Tribunal were stayed pending its decision. I need say no more about the quite separate issues that will arise before the Tribunal. This is the trial of the issues of liability directed to be tried by the Chief Master.

5

The parties have agreed that, if I were to decide that sections 78 and 80 of VATA 1994, as a matter of English law, provided a regime for the repayment of overpaid VAT and for the payment of interest on such overpayments, which excluded common law and equitable claims for compound interest (as Henderson J decided in F.J. Chalke Ltd. v. Revenue and Customs Commissioners [2009] STC 2027 (“ Chalke Chancery”) at paragraphs 57-75), I should refer certain questions of European Union (“EU”) law that would then arise to the Court of Justice of the European Union (which I shall refer to by the commonly used abbreviation “ECJ”).

6

As will appear, I have decided that there should indeed be a reference to the ECJ. But I have nonetheless formed the view that I should decide the issues of liability that I can decide at this stage, and give my preliminary views, subject to the outcome of that reference, on those that I cannot yet decide. The parties have not, however, been able to agree the precise terms of the reference that I should make, so I will need to consider those terms in the course of this judgment. As will become apparent, whatever views as to EU law the ECJ expresses, the matter will have to return to this Court for final decisions to be reached in the light of the ECJ's ruling. In these circumstances, the trial of liability issues should not be regarded as having been in any way concluded by this judgment. It will only be so concluded when the parties have advanced whatever submissions are appropriate at that stage, and this Court has had the opportunity to consider the ECJ's ruling. As matters stand now, it seems to me that it may well be appropriate for any quantum issues that arise to be heard at the same time as the conclusion of this Court's trial of the liability issues, but that can be decided at a directions hearing once the ECJ's ruling is to hand.

7

The issues that need to be determined in this case have been the subject of an extraordinary number of recent decisions by courts and tribunals at all levels in recent years. In deciding this case, I have sought to avoid going over old ground or muddying already muddied waters. Instead, I have tried, wherever possible, to rely upon the formidable legal analysis that has already been undertaken, and only to add to it or depart from it where necessary for the decision of specific issues before me.

The issues

8

I invited the parties at an early stage to agree a list of issues that required to be decided, but they never quite succeeded in doing so. I take the view, however, that the following main issues arise for decision:—

i) Issue 1: Are the Woolwich claims and/or the mistake-based claims, as a matter of English law, and without reference to EU law, excluded by sections 78 and 80 of VATA 1994?

ii) Issue 2: If the Woolwich claims and/or the mistake-based claims are excluded by sections 78 and 80 of VATA 1994, is that exclusion contrary to EU law?

iii) Issue 3: If issue 2 is answered in the affirmative, can sections 78 and 80 of VATA 1994 be construed so as to conform with EU law (and if so, how), or must they be dis-applied so as to allow either (a) only the Woolwich claims, or (b) both the Woolwich claims and the mistake-based claims?

iv) Issue 4: Is HMRC entitled to deploy a ‘change of position’ and/or an ‘exhaustion of benefits’ defence to (a) the Woolwich claims and/or (b) the mistake-based claims? If so, are these defences made out in fact and to what extent?

v) Issue 5: In principle, is the measure of recovery for the Woolwich claims and/or the mistake-based claims to be...

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