Woolwich Equitable Building Society v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE GLIDEWELL,LORD JUSTICE RALPH GIBSON,LORD JUSTICE BUTLER-SLOSS |
| Judgment Date | 22 May 1991 |
| Judgment citation (vLex) | [1991] EWCA Civ J0522-9 |
| Docket Number | 91/0548 |
| Court | Court of Appeal (Civil Division) |
| Date | 22 May 1991 |
[1991] EWCA Civ J0522-9
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR JUSTICE NOLAN)
Royal Courts of Justice
Lord Justice Glidewell
Lord Justice Ralph Gibson
Lord Justice Butler-Sloss
91/0548
MR JOHN GARDINER, Q.C., MR NICHOLAS UNDERHILL and MR JONATHAN PEACOCK, instructed by Messrs Clifford Chance, appeared for the Appellants (Plaintiffs).
MR ANTHONY GRABINER, Q.C., and MR ALAN MOSES, Q.C., instructed by the Solicitor of Inland Revenue, Somerset House, Strand, WC2R 1LB, appeared for the Respondents (Defendants).
In his judgment, Ralph Gibson L.J. explains the judicial review proceedings which resulted in the relevant parts of the 1986 regulations being declared ultra vires and therefore void insofar as they purported to require the payment by building societies of tax on dividends and interest paid by such societies for the period immediately preceding 6th April 1986. He also summarises the circumstances in which the Woolwich paid the total sum of £56,998,000 to the Revenue, including the relevant correspondence before and at the time of payment, and the history of this action. I gratefully adopt what Ralph Gibson L.J. says.
I therefore need only summarise briefly certain of the facts referred to by Nolan J. and Ralph Gibson L.J. in their judgments, which are in my view necessary for the determination of this appeal. They are:
"First and foremost, the requirements of the Regulations as amplified in communications from the Revenue amounted on their face to lawful demands from the Crown. Woolwich would have expected any refusal of payment to lead to collection proceedings which would have been gravely embarrassing for Woolwich, the more so as it would have been the ony building society refusing to pay. Any publicity suggesting that Woolwich might be in difficulty in meeting its financial obligations, or that alone amongst building societies it was pursuing a policy of confrontation with the Crown, might have damaging effects far outweighing Woolwich's prospects of success on the issue of principle. Secondly, Woolwich feared that if it failed in its legal arguments it might incur penalties. Thirdly, the three payments to which I have referred formed parts of larger quarterly payments, the other parts of which were agreed to have been correctly charged. At the time when the payments were made, it had not been possible to identify the amounts in dispute. Fourthly, Woolwich was not, of course, to know at the time of the payments that it would succeed in the Judicial Review proceedings. Had Woolwich failed in those proceedings, it would have faced a bill for interest, which would not have been deductible for tax purposes, in an amount far exceeding the net return which Woolwich could have obtained from investing the money withheld."
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(i) From the start, the Woolwich challenged the validity of the regulations, even when they were in draft.
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(ii) The form on which the Woolwich was required to make a return for the period ending 31st May 1986 and for subsequent quarterly periods, and the accompanying Notes for Guidance, made it clear that when each form was returned to the Revenue it had to be accompanied by payment of the amount calculated in accordance with the form. There was also in the Notes a reminder that interest was chargeable on tax paid late, which was not an allowable deduction for tax purposes.
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(iii) All three payments made by the Woolwich were made without prejudice to their contention that the regulations were ultra vires.
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(iv) At the same time as it made the first payment on 16th June 1986—to be precise on the following day—the Woolwich applied for leave to move for judicial review of the validity of the regulations.
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(v) Nolan J. summarised the factors which induced Woolwich to make the three payments in the following terms:
The judge found in relation to these reasons:
"It seems to me, judging from the language of paragraph 4(1) of Schedule 20 Finance Act 1972, that Woolwich could reasonably have anticipated at least the raising of an assessment under paragraph 4(3), and possibly the issue of a writ pursuant to Section 68 Taxes Management Act 1970 with the result in either case of highly undesirable publicity for Woolwich if it had withheld the very large sums claimed by the Revenue to be due……. The substantial point made by Woolwich in the first of its reasons for making the payment lies in the damage to its reputation which it feared from failing to meet an ostensibly lawful claim for tax, and the importance of this factor is something upon which the judgment of Woolwich is entitled to respect. Again, although the risk of penalty proceedings must have seemed remote, there being no question of negligence, let alone fraud, on the part of Woolwich, and although Mr. Green and Mr. Bousher say that in practice there was no risk of penalty proceedings at all, I can understand that the prospect of being even technically in breach of a penal provision if it failed in the Judicial Review proceedings is one which would weigh with Woolwich. And there can be no dispute about the significance of the interest factor. Subject to the outcome of the present case, the scales in this respect were tilted heavily in favour of the Revenue. I accept that, as a practical matter, Woolwich had little choice but to make the three payments."
Nolan J. gave his decision in the judicial review proceedings on 31st July 1987. He declared the regulations ultra vires and void. Before that date, the writ in the present action claiming repayment of the capital sum with interest had been issued. Although the Revenue appealed against Nolan J.'s decision, by agreement pending the hearing of the appeal it made repayment of the capital sum, leaving the issue as to whether the interest was payable to be decided later.
The Woolwich's claim therefore is to interest on the capital sum, calculated from the various dates on which it paid the three sums which make up the total to the date of Nolan J.'s judgment in the judicial review proceedings. The claim is made under section 35A of the Supreme Court Act 1981 which, so far as is relevant, provides:
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"(1)…In proceedings…in the High Court for the recovery of a debt…there may be included in any sum for which judgment is given simple interest, at such rate as the Court thinks fit or as Rules of Court may provide, on all or any part of the debt…in respect of which judgment is given, or payment is made before judgment, for all or any part of the period between the date when the cause of action arose and
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(a) in the case of any sum paid before judgment, the date of the payment."
It follows that in order to succeed in its claim to interest the Woolwich must show:
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(i) that the Revenue was under a legal obligation to repay the capital sum, and thus owed the Woolwich a debt; and
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(ii) that the Woolwich had a right to be repaid, so that its cause of action arose, at the dates on which it made the three payments which together totalled £56,998,000.
The case argued for the Woolwich before Nolan J. and in this court can be summarised as follows:
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(i) The primary submission of Mr Gardiner is that a subject who makes a payment in response to an unlawful demand for tax, or any like demand, i.e. a demand for which there is no basis in law, immediately acquires a prima facie right to be repaid the amount so paid. This is a distinct head of the law of restitution.
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(ii) Alternatively, the Woolwich made payment under duress, and thus had an immediate right to claim repayment.
The response of Mr Grabiner for the Revenue, before this court as before Nolan J., is:
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(i) There is no such general principle as that suggested by the Woolwich.
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(ii) The facts of this case do not come within the established principles of restitution of sums paid under duress.
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(iii) Thus the Revenue were under no obligation to make any repayment, and did so only as a matter of grace.
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(iv) Alternatively, Nolan J. was correct to find an implied agreement that the Revenue would hold the monies paid by the Woolwich as a deposit on account of tax which might be held to have been due at the dates of payment. The judge held that on this basis the Woolwich only became entitled to reclaim the money once the risk that the tax might be due was set at nought and thus interest only began to run from that date, i.e. the date of Nolan J.'s judgment in the judicial review proceedings.
The principal issue is therefore, is there such a general principle of law as that for which the Woolwich contends? If so, what, if any, are the limitations on the operation of that principle? This issue, which is obviously of considerable importance, has been much discussed by distinguished academic commentators, but has not been directly the subject of any modern decided case.
I think it right to draw a distinction between cases in which a plaintiff claims restitution, i.e. repayment from a defendant who is a private citizen or body or who, although acting on behalf of a public body, had received the payment in the course of a commercial transaction between them, and cases in which the defendant is an instrument or officer of central or local government, exercising a power to require payment of a tax, customs duty, licence fee or other similar impost. Cases in the first category are clearly part of ordinary private law. Cases in the second category, however, seem to me properly to fall in the sphere of what is now called public law. The main distinguishing feature between the two types of case is that in the public...
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