Sempra Metals (formerly Metallgesellschaft Ltd) v Commissioners of Inland Revenue
| Jurisdiction | UK Non-devolved |
| Judge | LORD HOPE OF CRAIGHEAD,LORD NICHOLLS OF BIRKENHEAD,LORD SCOTT OF FOSCOTE,LORD WALKER OF GESTINGTHORPE,LORD MANCE |
| Judgment Date | 18 July 2007 |
| Neutral Citation | [2007] UKHL 34 |
| Date | 18 July 2007 |
| Court | House of Lords |
and another
[2007] UKHL 34
Appellate Committee
Lord Hope of Craighead
Lord Nicholls of Birkenhead
Lord Scott of Foscote
Lord Walker of Gestingthorpe
Lord Mance
HOUSE OF LORDS
Appellants:
Ian Glick QC
Rupert Baldry
Gerry Facenna
(Instructed by Solicitor's Office, HM Revenue and Customs)
Respondents:
Laurence Rabinowitz QC
Francis Fitzpatrick
Steven Elliott
(Instructed by Slaughter & May)
My Lords,
This is a case about the award of interest. Questions about interest usually arise where the claim is presented as ancillary to a claim for a principal sum for which the court is asked to give judgment for the recovery of a debt or as damages. Less usually they can arise where interest is sought on a principal sum which has been paid before judgment. But in this case interest is the measure of the principal sum itself.
The question is how that sum should be measured. It is agreed that the calculation of interest should be the method of measurement for the sum that is to be awarded. But the parties are at issue as to how the interest should be calculated. The choice is between simple interest and compound interest. If simple interest is used, it is agreed that it should be at the rate that is appropriate for the calculation of an award of interest under the statute. If compound interest is used, various methods of calculation are available and there is a dispute as to how it is to be calculated in this case. That issue, however, is peripheral to the important question of principle which arises on this appeal: is the claimant who seeks a remedy on the ground of unjust enrichment entitled to an award for restitution of the value of money that is measured by compound interest?
Interest: an introduction
The question of principle is much easier to state than it is to answer. But it may be helpful, before turning to the facts, to set the scene by looking briefly at the question of interest generally and then seeing how the issue in this case fits in to that wider context.
The jurisdictional routes in English law to an award of interest are to be found in statute, equity and the common law. Simple interest is available under the statute on a sum for which judgment is given for the recovery of a debt or damages or where a sum of that kind is paid before judgment: see section 35A(1) of the Supreme Court Act 1981, inserted by the Administration of Justice Act 1982, section 15(1) and Schedule 1, Part I. Interest is available in equity in cases that lie within equity's exclusive jurisdiction, especially in cases of fraud or against a trustee or other person in a fiduciary position in respect of profits improperly made. It is also available in the exercise of equity's jurisdiction in aid of rights that are enforceable at common law. In cases that lie within equity's exclusive jurisdiction compound as well as simple interest is available. As Steven Elliott, "Rethinking Interest on Withheld and Misapplied Trust Money" [2001] 65 Conv 313 puts it, when applying the inherent jurisdiction the courts have been able to craft interest awards that meet economic realities. But where equity is invoked in aid of the common law the reverse is true. In Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 the House held, by a majority, that it would be usurping the function of Parliament if it were in equity to award compound interest in aid of the bank's common law claim for repayment of the principal sum, as the court was not authorised to award compound interest in the exercise of its common law jurisdiction under the statute.
The common law jurisdictional route is more complicated. The general rule of English common law is that the court has no power, in the absence of any agreement, to award interest as compensation for the late payment of a debt or damages: London, Chatham and Dover Railway Co v South Eastern Railway Co [1893] AC 429. The decision in that case does not fit happily with Lord Westbury's statement in Carmichael v Caledonian Railway Co (1870) 8 M (HL) 119, 131, which identified the principle that still applies in Scots law, that interest can be demanded only in virtue of a contract express or implied "or by virtue of the principal sum of money having been wrongfully withheld, and not paid on the day when it ought to have been paid." But the House felt bound to apply the law of England that was laid down by Lord Tenterden CJ in Page v Newman (1829) 9 B & C 378, 381 and endorsed by Lord Tenterden's Civil Procedure Act 1833. In 1952, however, it was recognised that loss due to late payment might be recoverable if it constituted special damage within the contemplation of the parties under the second limb of Hadley v Baxendale (1859) 9 Ex 341: Trans Trust SPRL v Danubian Trading Co Ltd [1952] 2 QB 297. This modification of the common law rule was approved in President of India v La Pintada Compania Navigacion SA [1985] AC 104.
To allow a claimant to recover special, but not general, damages for loss of the use of money is widely seen as illogical. In Hungerfords v Walker (1989) 171 CLR 125, 142 Mason CJ said that it subverted the second limb in Hadley v Baxendale from its intended purpose, which was to allow loss arising from special circumstances of which the defendant had actual knowledge in cases where the loss did not fall within the first limb because it did not arise from the ordinary course of things. The decision in London, Chatham and Dover Railway Co v South Eastern Railway Co seemed to have been based on the view that interest by way of damages was too remote: see also Trans Trust SPRL v Danubian Trading Co Ltd [1952] 2 QB 297, 306, per Denning LJ. Why then, Mason CJ asked, is the claimant not entitled to recover damages for the loss of the use of money when the loss or damage was reasonably foreseeable as liable to result from the relevant breach or tort?
The claim that is made in this case, however, is for restitution. It is presented as a claim for the time value of money by which the defendant was enriched unjustly. The claimant submits that the common law requires that it be paid a sum which represents the value of the money over the period of that enrichment, and that this sum falls to be calculated by compounding interest over that period. It has been held that in an action for money had and received the net sum only can be recovered: Moses v Macferlan (1760) 2 Burr 1005; Fruhling v Schroeder (1835) 2 Bing (NC) 78 and Johnson v The King [1904] AC 817, applying London, Chatham and Dover Railway Co v South Eastern Railway Co [1893] AC 429. But interest has been awarded at common law where restitution follows the reversal on appeal of a previously satisfied judgment: Rodger v Comptior d'Escompte de Paris (1871) LR 3 PC 465. Various other exceptions have been recognised: see Heydon v NRMA Ltd No 2 (2001) 53 NSWLR 600, 603-606, per Mason P. Furthermore the claim in this case is not for more than what was had and received by the defendant. What was had and received was the enrichment. It is the enrichment itself that is to be valued, not anything more than that.
In NEC Semi-Conductors Ltd v IRC [2006] STC 606, para 173, Mummery LJ said that the question how restitutionary relief of the kind that is sought in this case should be assessed was not settled by La Pintada, as the claim is not for an entitlement to interest, as creditors, on a debt or on damages by way of compensation for loss of the use of the money that was unjustly demanded and retained by the defendant. I respectfully agree with him, and I would approach the issue in this case from the same starting point. I would hold that it is open to your Lordships to examine this issue on the basis that the answer to it is to be found in the law of unjust enrichment. It is not foreclosed by the decisions of this House in Westdeutsche [1996] AC 669 and La Pintada [1985] AC 104, neither of which addressed the issues that arise in this case.
The ECJ's judgment
As Park J explained in the introduction to his judgment [2004] STC 1178, para 3, this case is about companies which, because they had to pay part of their mainstream corporation tax prematurely, suffered a timing disadvantage which conferred a corresponding timing advantage on the Revenue. We now know that the absence of the power to make group income elections in the case of these companies which resulted in the premature payment of corporation tax was contrary to article 52 of the EC Treaty (now article 43) which guarantees freedom of establishment: Metallgesellschaft Ltd v Inland Revenue Commissioners [2001] Ch 620. Community law requires that the companies must be provided with a remedy in domestic law which will enable them to recover a sum equal to the interest which would have been generated by the advance payments from the date of the payment of the ACT until the date on which the MCT became chargeable: para 88.
The European Court of Justice explained in para 87 of its judgment in Metallgesellschaft that the breach of Community law arose not from the payment of the tax itself but from its being levied prematurely. The purpose of the award of interest covering loss of the use of the sums paid by way of ACT is to restore the equal treatment in the levying of the tax which was guaranteed by article 52 of the Treaty. The expression "loss of use" suggests that what was primarily in contemplation was a remedy in damages. But the Court made it clear in para 81 of its judgment that it was not for it to assign a legal classification to the actions brought by the claimants in the national court to obtain this...
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Table of cases
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