Littlewoods Retail Ltd and Others v The Commissioners for HM Revenue & Customs

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice Henderson
Judgment Date28 March 2014
Neutral Citation[2014] EWHC 868 (Ch)
Docket NumberCase Nos: HC08C03780 and 03781
Date28 March 2014

[2014] EWHC 868 (Ch)



Rolls Building

Royal Courts of Justice

Fetter Lane, London, EC4AA 1NL


Mr Justice Henderson

Case Nos: HC08C03780 and 03781

Littlewoods Retail Limited and Others
The Commissioners for Her Majesty's Revenue & Customs

Mr Laurence Rabinowitz QC, Mr Steven Elliott, Mr Maximilian Schlote and Mr Michael Jones (instructed by Weil, Gotshal & Manges) for the Claimants

Mr Jonathan Swift QC, Mr Andrew Macnab, Mr Peter Mantle and Mr Imran Afzal (instructed by the General Counsel and Solicitor to HMRC) for the Defendants

Hearing dates: 28 October — 1 November, 4–8, 11–13 November 2013

Mr Justice Henderson




I. Introduction


II. The factual and procedural background


(1) Witnesses of fact


(2) The claimants and the relevant VAT groups


(3) The underlying facts


(4) The agreed VAT treatment of agents' commission until 1997


(5) The disputes and the procedural history from 1997 onwards


(6) The corporation tax assessments


III. The decisions in Littlewoods (CA) and Grattan (ECJ)


(1) Littlewoods (CA)


(2) Grattan (ECJ)


IV. 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?


V. The underlying tax issue: as a matter of EU law, were the VAT payments in question due?


VI. Estoppel and abuse of process


(1) Introduction


(2) Issue estoppel


(a) General requirements


(b) The Arnold exception


(c) The application of issue estoppel to tax cases


(d) The technical issues


(i) The same issue


(ii) Privity


(3) Contractual estoppel: the 2008 section 85 Agreement


(4) Abuse of process


(5) Summary of conclusions


VII. The adequate indemnity issue


(1) Introduction




(2) British Sugar and Irimie


(3) Adequate indemnity


(4) Has the payment of simple interest provided Littlewoods with an adequate indemnity for the loss of use value of the overpaid VAT?


VIII. Conforming construction or disapplication?


(1) Introduction


(2) Conforming construction


(3) Disapplication


IX. Change of position and exhaustion of benefits


X. What is the measure of the claimants' recovery?


XI. Quantum


(1) The right approach to quantification of Littlewoods' claims


(2) The expert evidence of Professor Kay and Dr Richardson


(a) Government borrowing costs


(b) The time value of money


(c) The actual benefit to the Government from the use of the money


(3) The views of Vos J in Littlewoods (No. 1)


(4) Conclusions on the measure of benefit


(5) Is the Revenue's approach to quantification inconsistent with EU law?


(6) Should the saving of additional corporation tax be taken into account under English law, and (if so) how should it be computed?


(a) The position under English law


(b) Quantification


XII. Final conclusions


I. Introduction


Over 13 days between 28 October and 13 November 2013 I heard the resumed trial of these two actions, in which the claimants (to which I will often refer collectively as "Littlewoods") seek to recover from the Commissioners for Her Majesty's Revenue and Customs ("HMRC" or "the Revenue") the compounded use value of sums of money which they paid as value added tax ("VAT") between 1973 and 2004. HMRC have subsequently refunded to Littlewoods the principal amounts of those sums, on the footing that they were overpaid, together with simple interest at the statutory rates provided for by section 78 of the Value Added Tax Act 1994 (" VATA 1994"). After allowing for the simple interest received, the total amount claimed as representing the compounded use value of the principal sums repaid, from the dates of the original payments to HMRC until 31 October 2013, comes on the claimants' preferred approach to quantification to no less than £1,212,646,369, or approximately £1.2 billion.


The first part of the trial of the two actions ("the First Trial") took place before Vos J (as he then was) on 20 to 23 and 26 April 2010. He handed down his reserved judgment on 19 May 2010: see Littlewoods Retail Ltd and others v Revenue and Customs Commissioners, Littlewoods Ltd and others v Revenue and Customs Commissioners, [2010] EWHC 1071 (Ch), [2010] STC 2072 (" Littlewoods (No. 1)"). In his judgment, Vos J finally determined a number of English law issues relating to liability and the defences available to the Revenue. He also decided that certain questions of EU law relating to liability and remedies needed to be referred for a preliminary ruling to the Court of Justice of the European Union ("the ECJ"), and following a further hearing on 1 and 2 November 2010 he settled the terms of the order for reference in a judgment handed down on 4 November 2010: see [2010] EWHC 2771 (Ch), [2011] STC 171.


In Littlewoods (No. 1), Vos J helpfully discussed the main issues of EU law and expressed his preliminary views on them. He also considered some questions of principle relating to the quantification of the claims, and again expressed provisional views on them, in the course of his discussion of the English law defences. I feel sure, however, that he did not intend to rule definitively on any issue of quantum, not least because all such issues had been reserved for the second stage of the trial and he had not yet heard full (if any) argument on them. At a case management conference held on 28 April 2009, Chief Master Winegarten had directed "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)". The First Trial was the trial of those issues, which expressly included HMRC's defence of change of position.


Advocate General Trstenjak delivered her Opinion on the questions referred to the ECJ on 12 January 2012, and a Grand Chamber of 13 judges gave its judgment on 19 July 2012: see Case C-591/10, Littlewoods Retail Ltd and Others v Her Majesty's Commissioners for Revenue and Customs, [2012] STC 1714 (" Littlewoods (ECJ)"). Unfortunately, any hopes that this judgment might provide a clear and unambiguous answer to the question of liability which lies at the heart of the present case proved optimistic. Not for the first time, both sides found themselves able to claim, with at least superficial plausibility, that their case had been substantially vindicated. Much argument before me has, of necessity, been devoted to elucidation of the guidance given by the ECJ, and in particular to the question of what the Court meant when it said in paragraph 29 of its judgment:

"In this case, that principle [ the EU principle of effectiveness] requires that the national rules referring in particular to the calculation of interest which may be due should not lead to depriving the taxpayer of an adequate indemnity for the loss occasioned through the undue payment of VAT."


At a hearing for directions on 17 October 2012, Vos J ordered that there should be "a further hearing for the resumed trial of all outstanding liability issues together with the trial of all quantum issues", and that this trial should take place on the first available date after 1 October 2013. That is indeed the further trial which has now taken place before me, but the position has been complicated by two further developments which I must now mention.


The first development is the promotion of Vos J to the Court of Appeal, which was announced in April 2013 and took effect from October 2013. This meant that, unless he could be released from his duties in the Court of Appeal, Vos J would be unable to hear the resumed trial. In the event, he ruled in a judgment which he delivered on 30 April 2013 (see paragraph 10 below) that it was not imperative, although it would be desirable, for him to sit on the resumed hearing: see [2013] EWHC 1310 (Ch) at [21] to [27]. I was subsequently nominated by the Chancellor of the High Court to succeed Vos J as the trial judge, so I found myself in the slightly invidious position of resuming part-heard a trial which had begun before a different judge. I have been greatly assisted in discharging that task by the very full and careful judgments which Vos J has already delivered.


The second development is of a more fundamental nature. Both the First Trial and the reference to the ECJ proceeded on the footing, expressly admitted by HMRC in their defences, that the claimants had overpaid the relevant amounts of VAT. As I shall explain in more detail later in this judgment, the liability of HMRC to repay the principal amounts of VAT had been established, first, by the decision of the Court of Appeal in Customs and Excise Commissioners v Littlewoods Organisation Plc [2001] EWCA Civ 1542, [2001] STC 1568 (" Littlewoods (CA)"), and secondly, by HMRC's decision on 20 October 2004 to concede liability in relation to "the 10% element" in appeals which were pending before the Value Added Tax and Duties Tribunal ("the Tribunal"). On top of that, HMRC conceded on the eve of the First Trial that the overpayments of VAT made by Littlewoods had all been made under a mistake of law, and that Littlewoods could not have discovered this mistake until, at the earliest, 26 October 2001 when the decision of the Court of Appeal in ...

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