John Wilkins (Motor Engineers) Ltd & Ors v HM Revenue & Customs [2010] EWCA Civ 923

“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 error". Judgment in that case (under the name Metallgesellschaft Ltd and others v Inland Revenue Commissioners and Attorney General (Joined Cases C-397/98 and C-410/98) [2001] STC 452) ("Hoechst"))had in fact been delivered in March 2001, rather more than four years earlier. 20. The Commissioners replied promptly, on 16 August 2005. The letter acknowledged that the Court of Appeal had agreed in principle, in Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v Inland Revenue Commissioners [2005] STC 687 (it seems probable that the first appellant's reference to the ECJ decision should have been to the Court of Appeal's judgment) "that compound interest should be paid in certain circumstances" but added that "at present UK domestic law does not permit the award of compound interest" which they would, accordingly, not pay. 21. The first appellant's representatives continued to correspond with the Commissioners about the matter until December 2005, neither side changing its position. The correspondence included a letter from the Commissioners of 16 August 2005 firmly rejecting the claim, followed by a request, of 14 September 2005, for a "formal independent reconsideration of the Commissioners decision not [to] pay compound interest to our client" which led to a reply, simply restating the Commissioners' position, on 14 December 2005. This appeal was commenced on 9 January 2006. The disputed decision was identified as the letter of 14 December 2005. 22. The other appellants also made claims for compound interest some months after they had accepted the payments of simple interest, and each ultimately received a letter in similar vein to that sent to the first appellant on 14 December 2005. The second to third appellants made their claims in October and November 2005 and received their letters in December 2005; they served notices of appeal on 9 or 11 January 2006. The fifth appellant did not make its claim until 25 April 2006, received a letter of refusal dated 9 May 2006 and served its notice of appeal on 8 June 2006. All those appellants, too, identified the letters of refusal they had recently received as the disputed decision.”

“19 - (1) A tribunal may of its own motion or on the application of any party to an appeal… extend the time within which a party to the appeal… is required or authorised by these rules or any decision or direction of a tribunal to do anything in relation to the appeal … upon such terms as it may think fit. … (5) A tribunal may, of its own motion, or on the application of any party to an appeal …, waive any breach or non-observance of any provision of these rules … upon such terms as it may think just. ”

“34. In our judgment the Commissioners are right, and for the reasons advanced by Mr Swift. Section 83(l)(s) of the 1994 Act enables the tribunal to adjudicate on two issues: whether the Commissioners are liable to pay interest, and on the amount of any interest so payable. The communications the appellants received between September 2003 and February 2005 had two elements: the Commissioners' acceptance that some interest was due, and a determination of the amount they thought was payable. It does not seem to us that what was received then could amount to anything other than a decision susceptible of adjudication by the tribunal. There cannot, we think, be any real doubt that had the appellantswished to challenge, for example, the period covered by the calculations, they could have brought appeals to the VAT and Duties Tribunal. 35. We do not consider there is merit in the argument that the communications the appellants received notifying them of the amount of interest the Commissioners were paying did not identify themselves as decisions, which the appellants might challenge by appeal to the tribunal if they were dissatisfied. The cases on which Mr Rabinowitz relied establish no more than that it is necessary for the recipient of a communication of this kind to be able to determine what it is he has received. Although it is good practice to inform a taxpayer of his right to appeal a decision, there is nothing in the 1994 Act which requires the Commissioners to do so, and we do not think any of the appellants, all of whom had experienced advisers, could have been under any illusion that the notifications they received were something other than decisions. It is apparent from the first appellant's representatives' request, of 14 September 2005, for a "formal independent reconsideration of the Commissioners decision not [to] pay compound interest to our client" that there was no misunderstanding on their part of the nature of the communication which had been received. We observe in passing that the letters the appellants received reiterating the refusal of the Commissioners to pay compound interest also did not identify themselves as decisions, or inform the appellants of their rights of appeal, but none of the appellants has suggested that those letters did not amount to appealable decisions. 36. What, then, was the nature of the decisions? Did they amount to decisions on claims for simple interest, the decisions being to accept those claims but going no further? Or did they constitute decisions on claims for statutory interest, whatever that might be, the decisions being that amounts of interest, as calculated by the Commissioners, were due, and nothing more? In our view, the answer is clearly the latter. The appellants requested interest pursuant to statute; they were, we consider, asking for all of the interest to which they were entitled. They, like the Commissioners, may have thought mistakenly (according to the appellants' construction of s 78) that their entitlement was only to simple interest. But that does not turn their request—that is to say for everything to which the statute entitled them—into something else—that is to say the amount which they thought they were entitled to and no more. 37. We accordingly determine that the relevant decisions, giving rise to a right of appeal under s 83, were those received when the payments of simple interest were made, that is between September 2003 and February 2005. The appeals were therefore out of time.”

“47. We have found this a difficult issue, since we consider that the arguments, including those relating to prejudice, are finely balanced. There is force in Mr Swift's point that good reason should be shown if an extension is to be granted, although we agree with the appellants that the observation of Auld LJ on which he relied, made in the context of an expressly more onerous test, should be treated with some caution in other contexts. We agree with Mr Swift too that the appellants have not acted with a sense of urgency. Although it is true that the claims for compound interest were all made within the three-year time limit imposed by s 78(11) and, had they been the only claims, the second to fifth appellants would have been in time, we consider that it counts against the appellants that they did not commence their appeals once they knew or should have known that they were or might be entitled to compound interest within the same period applicable to an appeal from a decision, namely 30 days. It is one thing to say that an appeal was not made within 30 days of the decision because it was not appreciated that the claim for compound interest could be made; but once it was, or should have been, appreciated that such a claim could be made, the appellants ought to have taken steps to act promptly to appeal the earlier decision to pay simple interest. 48. Further, the possibility, to put it no higher, of an award of compound interest has been known since April 2001, and that possibility became a strongly arguable case following the High Court judgment of Park J [in Sempra on 16 June 2004] to which we have referred, factors which also count against the appellants, although it isunderstandable that they were reluctant to incur the costs of what might have been speculative appeals until the position became even clearer. 49. In the exercise of our discretion, we refuse to extend the time for bringing these appeals. Taking the factors which we have mentioned into account, and whilst appreciating that different judges might come to a different conclusion, we consider that the balance falls in favour of the Commissioners. 50. We should add that we are conscious of the fact that these are only five of a very large number of claims for compound interest made by traders in the position of these appellants. The question whether compound interest may be awarded by this tribunal, or the Tax Chamber of the First-tier Tribunal, is a matter of considerable general importance. We heard full argument on both sides on the merits of the appeals and, as will appear from the next part of this decision, we have addressed the arguments and reached concluded views. We have done so notwithstanding that these views are, as a result of our refusal to extend time for bringing the appeals, not strictly reasons for dismissing the appeals. If the appellants were to obtain permission to appeal against our decision to refuse an extension of time, we think that the Court of Appeal might prefer to have our views on the underlying issue albeit that Court will be in as good a position as us to decide the matter since the appeals have been conducted on the basis of agreed facts. 51. We consider that it would be wrong in principle to take into account, in deciding whether to extend the time for making the appeals, the fact that many other claims for compound interest are awaiting the decision in these appeals. The rights and wrongs of the recovery from the Commissioners of substantial sums of money cannot, we consider, depend on whether other claimants need to know the answer to the underlying issues. 52. This is particularly so given the case management directions which have been given in these appeals. The application for an extension of time was made a considerable time ago. The VAT & Duties Tribunal, instead of deciding that application, directed that it should be heard at the same time as the substantive appeals. It would have been quite wrong for us, in those circumstances, to have decided the extension of time point and left the substantive hearing for which everyone had prepared to another day. Those case management directions should not, however, be allowed to influence the merits of the application itself.”

“25. The language of sub-section (1) of section 80 is clear and unambiguous. It states that if VAT has been paid to the Commissioners which was not due to them, the Commissioners shall be liable to repay the amount which was not due. This is subject to a claim being made supported by appropriate documentation, to the time limit of six years and to the repayment not amounting to an unjust enrichment of the claimant. 26. No question arises in this case as to the adequacy of the form of the documentation provided in either the original or later claim and I do not see that unjust enrichment is relevant and indeed the Commissioners do not rely on it. 27. There is nothing on the face of section 80 which in terms provides that only one claim may be made. If the claimant can show that tax has been overpaid prima facie there is a liability on the Commissioners to repay it. …. 29. The Commissioners have submitted that, apart from provisional or interim claims, second claims are not to be entertained under section 80 and that “some sensible limits” have to be read into section 80 on the right to re-claim overpaid VAT. It was contended that if it were open to the taxpayer to make an unlimited number of claims for repayment on the same facts there would not be any certainty or finality and that an Appellant could bring an unlimited number of appeals against refusal to make repayments. Accordingly section 80 must be read subject to the ordinary principles of res judicata compromise waiver and estoppel. …. 41. In my judgment section 80(1) is not to be read as subject to the gloss that if a claim is made which is accepted and paid no further claim can be made in respect of the same period unless the claim were a provisional or interim claim. The section does not in my judgment distinguish between interim or provisional or other claims.”

“[7]… The test is put differently in different contexts but an appeal has to be on a point of law and, therefore, he [counsel for the Commissioners] has to go so far as to say that to allow the appeal was a legally impermissible exercise of the Tribunal’s discretion on the facts.”

“ … I would make it clear that in my opinion, whatever test is adopted, that is whether the finding that the transaction was not an adventure in the nature of trade is to be regarded as a pure finding of fact or as the determination of a question of law or of mixed law and fact, the same result is reached in this case. The determination cannot stand: this appeal must be allowed and the assessments must be confirmed. For it is universally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarised by saying that the Court should take that course if it appears that the Commissioners have acted without any evidence or upon a view of the facts which could not reasonably be entertained. When the Commissioners, having found the so-called primary facts which are stated in paragraph 3 of their case, proceed to their finding in the Supplemental Case that the transaction, the subject-matter of this Case, was not an “adventure in the nature of trade”, this is a finding which is in truth no more than an inference from the facts previously found… To say that a transaction is or is not an adventure in the nature of trade is to say that it has or has not the characteristics which distinguish such an adventure. But it is a question of law not of fact what are those characteristics, or, in other words, what the statutory language means. It follows that the inference can only be regarded as an inference of fact if it is assumed that the tribunal which makes it is rightly directed in law what the characteristics are and that, I think, is the assumption that is made.”

“[48]… the possibility, to put it no higher, of an award of compound interest has been known since April 2001, and that possibility became a strongly arguable case following the High Court judgment of Park J [in Sempra].”

“[71] There are other reasons why I do not accept the claimants' basic submission that, prior to the Court of Appeal's decision in Sempra, any proceedings commenced by them for compound interest on overpaid VAT would undoubtedly have been dismissed. [Case C-397/98 Metallgesellschaft Limited v IRC [2001] ECRI-1727, [2001] Ch. 620] arose out of domestic proceedings brought by Sempra, then called Metallgesellschaft Ltd. The proceedings were not dismissed, but were stayed pending the reference to the ECJ, which was ordered as long ago as October 1998. Following the ECJ's decision [on 8.3.2001], Sempra brought its proceedings in restitution for compound interest. Those proceedings succeeded at first instance before Park J [[2004] EWHC 2387 (Ch.), [2004] STC 1178 (16.6.2004)], and successive appeals by the Revenue to the Court of Appeal and the House of Lords were dismissed. Although Sempra itself concerned the remedy for premature payment of tax, Park J expressed the view at first instance (paras [37] to [40]) that he could see substantial arguments that the entitlement to interest on unutilised ACT (that is, ACT not set off against MCT and so, in effect, overpaid tax) should also depend on the principles of Community law explained in Metallgesellschaft rather than section 35A of the Supreme Court Act 1981. In the Court of Appeal Chadwick LJ (at para.[53]) endorsed that view. In the circumstances, I see no reason to think that, if the claimants had instituted their proceedings at any time prior to Sempra , they would have been dealt with in any more disadvantageous way than the actions commenced by Metallgesellschaft/Sempra. ”

“33. It was further put to me that if more than one claim could be brought it would be open to a taxpayer to bring a succession of claims on the same facts with a series of appeals to the tribunal in respect of each claim. In my judgment this submission is unsound also. It would not be open to a taxpayer to bring a second appeal based on the same facts. The first decision of the tribunal on the facts would be binding on both parties and neither could re-litigate the issues at a subsequent hearing.”