Investment Trust Companies v Revenue And Customs [2015] EWCA Civ 82

“45. These provisions make it clear, in my judgment, that HMRC should indeed be regarded as enriched by the £25, because although the £25 was not paid to HMRC by the Managers, it was nevertheless used to give them a credit, at HMRC's expense, for the input tax attributable to their investment management services which was wrongly thought to be deductible on the footing that the services were not exempt from VAT. HMRC therefore ended up out of pocket to the extent of the input tax. It is simply irrelevant to this analysis that the input tax is in principle the same as tax for which the Managers' own suppliers were liable to account as output tax at the previous stage in the supply chain.”

“68. The real question, therefore, is whether claims of the present type should be treated as exceptions to the general rule. So far as I am aware, no exhaustive list of criteria for the recognition of exceptions has yet been put forward by proponents of the general rule, and I think it is safe to assume that the usual preference of English law for development in a pragmatic and step by step fashion will prevail. Nevertheless, in the search for principle a number of relevant considerations have been identified, including (in no particular order): a) the need for a close causal connection between the payment by the claimant and the enrichment of the indirect recipient; b) the need to avoid any risk of double recovery, often coupled with a suggested requirement that the claimant should first be required to exhaust his remedies against the direct recipient; c) the need to avoid any conflict with contracts between the parties, and in particular to prevent "leapfrogging" over an immediate contractual counterparty in a way which would undermine the contract; and d) the need to confine the remedy to disgorgement of undue enrichment, and not to allow it to encroach into the territory of compensation or damages. 69. Many of these considerations present no difficulty in the present case. There is no risk of double recovery, because the claimants have in effect exhausted their remedies against the Managers. The Managers have obtained the maximum repayments from HMRC available under the domestic statutory scheme, and have passed on those repayments in full to the claimants. I am also satisfied that no claim for breach of contract could lie against the Managers at the suit of the claimants. Although the possibility of such claims was mooted at various stages in the oral argument, I agree with Mr Rabinowitz that there has been no breach by the Managers of their contracts with the investment trusts, and that the terms in the investment management agreements which required payment of VAT "if applicable", or words to similar effect, did not impose any warranty or obligation to ensure that the VAT charged was in fact lawfully due. The only remedy of the investment trusts against the Managers in respect of the overpaid tax was therefore a restitutionary one, based on mistake. If, however, any such claim were now to be brought, the Managers would have a cast iron defence of change of position, having accounted to HMRC for the entirety of the tax as output tax, and having retained no benefit from it. 70. Similarly, it is not suggested that the present claims against HMRC would conflict in any way with the contractual arrangements between the investment trusts and the Managers; and the claims are limited to disgorgement of the unlawful tax by which HMRC have been enriched. 71. The requirement of causation, however, is more problematic. As I have already pointed out, there is no strict causal connection between the payment of the VAT element of the invoices submitted by the Managers to the claimants, and the payment of the VAT by the Managers to HMRC. The Managers were liable to account for the VAT to HMRC once they had supplied the relevant services, and the obligation of the claimants to pay the Managers was purely contractual: see paragraph 50 above. It cannot even be said that the VAT was paid or accounted for to HMRC out of the money paid by the claimants to the Managers, or that the VAT would not have been paid but for the payments by the claimants to the Managers. 72. On the other hand, the scheme of VAT, as explained by the ECJ in Elida Gibbs and echoed by Neuberger J in the Sussex University case, is to impose the burden of the tax on the final consumer, and to make the suppliers of the goods or services the collectors of the tax on behalf of the tax authorities. In other words, VAT is a tax on the consumer, collected by the supplier, and paid or accounted for to HMRC. Viewed in this way, the nexus between the consumer and HMRC could hardly be closer or stronger, and in economic terms the person at whose expense unlawful VAT is paid to HMRC is indubitably the consumer. I remind myself at this point that "at the expense of" is not a statutory requirement, and (as the subrogation cases show) it can be satisfied by reference to the underlying commercial reality of a transaction. To recognise that the test is satisfied in the present case would not, as Mr Swift submitted, be to dismiss the structure of the VAT legislation as mere formalism, but rather to give due weight to the economic reality which explains and underpins that structure.”

“19. The basic principle of the VAT system is that it is intended to tax only the final consumer. Consequently, the taxable amount serving as a basis for the VAT to be collected by the tax authorities cannot exceed the consideration actually paid by the final consumer which is the basis for calculating the VAT ultimately borne by him. 20. Thus, in Case 89/81 Staatssecretaris van Financiën v Hong Kong Trade [1982] ECR 1277, paragraph 6, the Court held that it was apparent from the First Directive … that one of the principles on which the VAT system was based was neutrality, in the sense that within each country similar goods should bear the same tax burden whatever the length of the production and distribution chain. 21. That basic principle clarifies the role and obligations of taxable persons within the machinery established for the collection of VAT. 22. It is not, in fact, the taxable persons who themselves bear the burden of VAT. The sole requirement imposed on them, when they take part in the production and distribution process prior to the stage of final taxation, regardless of the number of transactions involved, is that, at each stage of the process, they collect the tax on behalf of the tax authorities and account for it to them.”

“… the words ‘at the expense of the plaintiff’ on which the authority placed such reliance do not appear in a statute and should not be construed or applied as if they did. In my view they do no more than point to the requirement that the immediate source of the unjust enrichment must be the plaintiff”

“It is important to remember that, as Millett LJ pointed out in Boscawen v Bajwa [1996] 1 WLR 328, 335, subrogation is not a right or a cause of action but an equitable remedy against a party who would otherwise be unjustly enriched. It is a means by which the court regulates the legal relationships between a plaintiff and a defendant or defendants in order to prevent unjust enrichment. When judges say the charge is “kept alive” for the benefit of the plaintiff, what they mean is that his legal relations with a defendant who would otherwise be unjustly enriched are regulated as if the benefit of the charge had been assigned to him.”

“When the Bank gave its undertaking to release its charges on Rush Green Hall, and thus release the purchase monies for the purchase of Great Oak Court, there was, as I have held, a transfer of value from the Bank to Melissa. Moreover, if one asks Peter Gibson LJ's question, namely whether it can properly be said that the Bank "is the provider of the money used to discharge the debt", the answer in the present case is that it is. Certainly that is true if one asks whether the Bank is the source of the monies used as a matter of economic reality. I therefore see no reason in principle or justice why the Bank should not be entitled to the remedy of subrogation.”

“[57] I agree with Henderson J that these are relevant considerations in deciding the question of whether an indirect benefit was conferred at the Claimant's expense. But the various factors to which he refers are not, and were not I think intended to be, rigid principles. Far less can it be said that if one or more of the factors can be said to be adverse to the claim, the claim is necessarily doomed to failure.”

“62. I therefore accept Mr Shaw's submission that the fact that Mirren did not reimburse anyone for the Intertrade payment until after the Intertrade payment had been made does not matter. On the judge's findings, the Intertrade payment and the other payments made throughout the chain of substitutions was made on the faith of the arrangement that Mirren would provide reimbursement. By making that arrangement, Mirren exploited and used the value inherent in Relfo's money that had been paid into Mirren's account. 63. In my judgment, Mr Shaw is correct in his submission that Agip is authority for the proposition that monies held on trust can be traced into other assets even if those other assets are passed on before the trust monies are paid to the person transferring them, provided that that person acted on the basis that he would receive reimbursement for the monies he transferred out of the trust funds. The decision in Agip demonstrates that in order to trace money into substitutes it is not necessary that the payments should occur in any particular order, let alone chronological order. As Mr Shaw submits, a person may agree to provide a substitute for a sum of money even before he receives that sum of money. In those circumstances the receipt would postdate the provision of the substitute. What the court has to do is establish whether the likelihood is that monies could have been paid at any relevant point in the chain in exchange for such a promise. I see no reason in logic or principle why this particular way of proving a substitution should be limited to payments to or by correspondent banks.”

“78. The [“Direct Providers Only Rule” (“DPR”)] raises some immediate questions. Why should the law impose a rule that there can be no claim in unjust enrichment unless the defendant happens to receive the benefit directly from the claimant rather than from the claimant via a third party, and then allow a long list of what might be called ad hoc exceptions? The answer to this question is that DPR is a rule about limiting the substitution of new property or rights for the property which leaves the claimant's hands. It may be very unjust to allow the claimant to recover the new property or rights if he has no tracing claim, for example, where the immediate recipient made a gift to the defendant of an amount equal to what he had received from the claim and this transaction of gift was independent of his transaction with the claimant. The claimant may, moreover, end up being able to recover his property from a number of defendants at different stages in the chain. 79. On this basis, the "exceptions" represent the boundaries (thus far ascertained) of recoverability for indirect unjust enrichment. It is not enough for the claimant to show the defendant is better off by the amount by which the claimant is worse off. That does not even satisfy a "but for" test of causation. Some greater link is required to be shown. 80. Likewise the list of exceptions raises questions. The exceptions are a motley collection. Some of them are principles from other areas of law, such as trust law, and some of them are remedies, such as subrogation, which do not constitute a basis of liability. They are not, therefore, principles for imposing liability for unjust enrichment carved out of the DPR.”

“92. I agree with Henderson J that the "reality" which May LJ was invoking was not confined to strictly legal reality, but could in appropriate circumstances include a broader underlying commercial or economic reality (judgment, [65]). 93. This court accepted in Menelaou that the bank had released the charge over the parents' house with a view to its obtaining security over the daughter's house. The majority relied on economic reality. Moses LJ, however, did not think it was necessary to rely on economic reality as such on the grounds that this test was uncertain and that a decision-maker might use this concept because he was unable to articulate his real reasoning. … 95. Menelaou is, of course, a case about subrogation and thus one only of the exceptions listed in section 8(2) of the Restatement. Nonetheless, particularly read with the passage from the speech of Lord Hoffmann in Banque Financière and the dictum of May LJ set out above, the decision strongly supports the view that the law is moving towards identification of a general principle.Overall the court must find that there is a sufficient link between the formation of the transaction whereby the claimant conferred a benefit on the direct recipient (or was entitled to receive a benefit) and the transaction under which the defendant obtained a benefit to make the enrichment unjust. I do not read the judgments of Gloster and Floyd LJJ as taking any different view on that point. Moreover, in deciding whether there is a sufficient link, the court will look at the substance and not the form. 96. Any principle for unjust enrichment against indirect recipients will have to be refined in later cases. For now, the criteria identified by Henderson J will no doubt be of assistance. They identify important policy considerations for the application of the law in this area. As I see it, they are consistent with there being some ultimate general principle.”

“103. However, for the reasons given by Floyd LJ in paragraphs 115 to 122 of his judgment, and despite my initial reluctance, I am nonetheless satisfied that we are able to conclude that the arrangement by which Mr Gorecia benefited and enriched Bhimji Varsani using Relfo's money was in the circumstances in reality equivalent to a direct payment and demonstrated a sufficient causal connection to support a remedy in unjust enrichment. 104. Like Floyd LJ I do not consider that this is a suitable case for the court to attempt to articulate general principles as to the circumstances in which a claim for unjust enrichment might lie, notwithstanding that that the defendant has not received his benefit directly from the claimant. It is clear from the cases to which Arden LJ has referred that the court has not limited the remedy to cases falling within what Professor Burrows in The Restatement refers to as "the direct providers only" rule and that there are exceptions to the rule. Again this is not a suitable case in which to explore the extent of those exceptions. What one can say is that on the basis of the evidence as found by the judge this was clearly a case which demonstrated the necessary causal link between the payment and the gain to justify an unjust enrichment claim.”

“113. The "direct transfers only" rule, for which there is also eminent academic support, represents the other extreme of the spectrum of possible tests to which I referred in paragraph 107 above. In fact, adherence to the direct transfers only rule makes it unnecessary to ask whether there is a sufficiently close causal connection, or, alternatively, if one does ask the question it will answer itself. A direct transfer from A to B must be sufficiently close - it could not be closer. However, as Arden LJ has amply demonstrated, the courts have not rigidly observed a direct transfers only rule, and exceptions have been recognised: see per Henderson J in Investment Trust Companies (In liquidation) v Revenue & Customs Commissioners [2012] EWHC 458 (Ch); [2012] STC 1150. This suggests, at the very least, that something less than the direct transfers only rule, by way of a general test of the necessary connection, may suffice. … 115. The present case is not one in which I would wish to attempt to lay down any general rule applicable to determine causation in unjust enrichment cases. In particular I would not wish to attempt, because it is not necessary, an analysis of precisely how much liberalisation of a direct transfers only rule, or how much tightening of a "but for" test, will ultimately prove to be appropriate. However, in my judgment, the factual findings made by the judge in the present case made his conclusion that there was a sufficiently close causal connection an inevitable one. Indeed, provided one focuses on substance and not on form, or as it is put in some of the cases, on economic reality, the facts in the present case showed that the arrangement by which Mr Gorecia benefited and enriched Bhimji Varsani using Relfo's money were equivalent to a direct payment. I would draw attention to some of those findings.”

“103. My next point is that there is nothing in the wording of subsection (7) which expressly makes its ambit co-extensive with that of subsection (1). On the contrary, subsection (7) provides in apparently unqualified terms that, except as provided by section 80, HMRC shall not be liable "to credit or repay any amount accounted for or paid to them by way of VAT that was not VAT due to them". It is true that these words are most naturally and easily read as referring to the taxable person who paid or accounted for the overpaid VAT in the first place; and this impression is strengthened by the references to crediting and repayment of undue tax earlier in the section. Nevertheless, I consider it at least possible to read the words "repay any amount" as including repayments by HMRC to somebody other than the taxable person himself. The first meaning of "repay" in the Oxford English Dictionary, second edition, is: "To pay back (money or its equivalent); to refund, return (a sum or amount owed); to give money or goods in discharge of (a debt or loan)." In my judgment, a payment made by HMRC to the claimants, in response to a common law restitutionary claim, of an amount equal to the undue tax received from or accounted for by the Managers, could be described without any abuse of language as a "repayment" by HMRC of the undue tax by which they had been directly or indirectly enriched. I agree with the submission of Mr Swift that enough force can be given to the notion of payment back inherent in the prefix "re" by looking at the matter from HMRC's point of view, without any need to insist that the recipient of the repayment should be the same person as the original payer. I also see no insuperable difficulty in treating the concept of repayment as extending to the full amount of the enrichment, even though the amount actually paid to HMRC was the £75, not the full £100. I therefore conclude that a construction of subsection (7) which would include within its ambit claims by end consumers such as the claimants in the present case is linguistically an available one, even if it is not the most natural way of reading the words. 104. At this point, purposive considerations appear to me to be decisive. The evident purpose of section 80, so far as taxable persons are concerned, is to provide exhaustive and exclusive machinery for the recovery of undue VAT, subject to a relatively strict time limit for the making of claims. It is thus common ground that the Managers could not make restitutionary claims against HMRC in respect of VAT overpaid by them during the dead period, although in the absence of section 80 there would be nothing to prevent them from advancing such claims, with the benefit of the usual six year limitation period and mistake-based extensions to it pursuant to section 32(1)(c) of the Limitation Act 1980. Given that Parliament has decided to enact this limited regime in relation to the taxable persons by whom the undue VAT was paid or accounted for to HMRC, it seems to me inconceivable that Parliament could have intended a more generous regime to be available to the end customers by whom the economic burden of the unlawful tax was actually borne. It would make no sense to limit recovery by the tax collector, but to expose the Exchequer at the same time to far more extensive claims by the "real" taxpayer. Furthermore, it could not plausibly be suggested that the position of end customers was somehow overlooked, because the section contains a defence of passing on, and (as I have already explained) regulations make elaborate provision for the benefit of repayments to suppliers to be passed on to their customers. It would be wholly inconsistent with this limited and carefully regulated scheme if claims by the end customers fell outside its scope.”

“24. (1) Where a person has paid an amount to the Commissioners by way of value added tax which was not tax due to them, they shall be liable to repay the amount to him. (2) The Commissioners shall only be liable to repay an amount under this section on a claim being made for the purpose. (3) It shall be a defence, in relation to a claim under this section, that repayment of an amount would unjustly enrich the claimant. (4) No amount may be claimed under this section after the expiry of 6 years from the date on which it was paid, except where subsection (5) below applies. (5) Where an amount has been paid to the Commissioners by reason of a mistake, a claim for the repayment of the amount under this section may be made at any time before the expiry of 6 years from the date on which the claimant discovered the mistake or could with reasonable diligence have discovered it. (6) A claim under this section shall be made in such form and manner and shall be supported by such documentary evidence as the Commissioners prescribe by regulations; and regulations under this subsection may make different provision for different cases. (7) Except as provided by this section, the Commissioners shall not be liable to repay an amount paid to them by way of value added tax by virtue of the fact that it was not tax due to them.”

“that entitlement to the repayment of charges levied by a Member State contrary to the rules of Community law is a consequence of, and an adjunct to, the rights conferred on individuals by the Community provisions prohibiting charges having an effect equivalent to customs duties or, as the case may be, the discriminatory application of internal taxes. Whilst it is true that repayment may be sought only within the framework of the conditions as to both substance and form, laid down by the various national laws applicable thereto, the fact nevertheless remains, as the Court has consistently held, that those conditions may not be less favourable than those relating to similar claims regarding national charges and they may not be so framed as to render virtually impossible the exercise of rights conferred by Community law.”

“37. It must be pointed out in that regard that, in the absence of Community rules on applications for the repayment of taxes, it is for the domestic legal system of each Member State to lay down the conditions under which such applications may be made; those conditions must observe the principles of equivalence and effectiveness, that is to say, they must not be less favourable than those relating to similar claims founded on provisions of domestic law or framed so as to render virtually impossible the exercise of rights conferred by the Community legal order (see, inter alia, Case C-30/02 Recheio - Cash & Carry [2004] ECR I-6051, paragraph 17, and Case C-291/03 MyTravel [2005] ECR I-8477, paragraph 17). 38. Also, the Sixth Directive does not contain any provisions relating to the adjustment by the issuer of the invoice of VAT which has been improperly invoiced. The Sixth Directive merely defines, in Article 20, the conditions which must be complied with in order that deduction of input taxes may be adjusted at the level of the person to whom goods or services have been provided. In those circumstances, it is for the Member States to lay down the conditions in which improperly invoiced VAT may be adjusted (Schmeink & Cofreth and Strobel, paragraphs 48 and 49). 39. In the light of the case-law cited in the two preceding paragraphs, it must be conceded that, in principle, a system such as the one at issue in the main proceedings in which, first, the supplier who has paid the VAT to the tax authorities in error may seek to be reimbursed and, second, the recipient of the services may bring a civil law action against that supplier for recovery of the sums paid but not due observes the principles of neutrality and effectiveness. Such a system enables the recipient who bore the tax invoiced in error to obtain reimbursement of the sums unduly paid. 40. It must also be borne in mind that, according to settled case-law, in the absence of relevant Community rules, the detailed procedural rules designed to ensure the protection of the rights which individuals acquire under Community law are a matter for the domestic legal order of each Member State, under the principle of the procedural autonomy of the Member States (see, inter alia, Case C-78/98 Preston and Others [2000] ECR I-3201, paragraph 31, and Joined Cases C-392/04 and C-422/04 i-21 Germany and Arcor [2006] ECR I-0000, paragraph 57). 41. In that regard, as rightly submitted by the Commission, if reimbursement of the VAT becomes impossible or excessively difficult, in particular in the case of the insolvency of the supplier, those principles may require that the recipient of the services to be able to address his application for reimbursement to the tax authorities directly. Thus, the Member States must provide for the instruments and the detailed procedural rules necessary to enable the recipient of the services to recover the unduly invoiced tax in order to respect the principle of effectiveness. 42. The answer to the second part of the second question must therefore be that the principles of neutrality, effectiveness and non-discrimination do not preclude national legislation, such as that at issue in the main proceedings, according to which only the supplier may seek reimbursement of the sums unduly paid as VAT to the tax authorities and the recipient of the services may bring a civil law action against that supplier for recovery of the sums paid but not due. However, where reimbursement of the VAT would become impossible or excessively difficult, the Member States must provide for the instruments necessary to enable that recipient to recover the unduly invoiced tax in order to respect the principle of effectiveness.”

“The Commission recalls the court's rulings, in particular Schmeink & Cofreth, to the effect that Member States must provide for rectifying errors in invoicing VAT, including both rectifying the invoice and reimbursing the tax wrongly paid. It submits that that duty flows from the principle of neutrality and from the prohibition of unjust enrichment (here, on the part of the tax authorities). Member States may choose whatever procedure is suitable, provided that the principle of effectiveness is respected. A situation in which normally only the supplier, as person liable for the tax, may seek reimbursement from the tax authorities and the customer must seek reimbursement from the supplier, under civil law, appears in principle acceptable. However, provided that any risk of tax loss is wholly eliminated, the principle of effectiveness might require the customer to be able to claim against the tax authorities if recovery by the normal procedure proved “virtually impossible or excessively difficult” (for example, in Reemtsma's case, if its Italian supplier had ceased to exist). Finally, the principle of non-discrimination would require any Member State which allowed an action against the tax authorities for a customer established in its territory to allow the same right of action to a customer established in another Member State.”

“1. Does Community law preclude a Member State from rejecting a claim for reimbursement brought by an undertaking to which excise duty imposed contrary to a directive has been passed on, where such rejection – in circumstances such as those of the present case – is on the ground that it is not the undertaking that paid the duty to the State?”

“19. By its first question, the national court asks the Court of Justice, in essence, whether a Member State may oppose a claim for reimbursement brought by an operator to whom the amount of the duty unduly paid has been passed on, on the ground that he is not the person liable for payment of that duty and has therefore not paid out the corresponding amount to the tax authorities. 20. In order to answer that question, it should first be borne in mind that the right to a refund of charges levied in a Member State in breach of the rules of EU law is the consequence and complement of the rights conferred on individuals by the provisions of EU law prohibiting such charges. The Member State is therefore required in principle to repay charges levied in breach of EU law (see Case 199/82 San Giorgio [1983] ECR 3595, paragraph 12; Case C-264/08 Direct Parcel Distribution Belgium [2010] ECR I-731, paragraph 45; and Case C-398/09 Lady & Kid and Others, [2011] ECR I-0000, paragraph 17). 21. However, by way of exception to the principle of the reimbursement of charges incompatible with EU law, the repayment of duties wrongly levied can be refused only where repayment would entail unjust enrichment of the persons concerned, that is to say, where it is established that the person required to pay such charges has actually passed them on to the purchaser directly (see, to that effect, Lady & Kid and Others, paragraphs 18 and 20). 22. In such circumstances, the burden of the charge levied but not due has been borne not by the taxable person, but by the purchaser to whom the cost has been passed on. Accordingly, to repay the taxable person the amount of the charge already collected from the purchaser would be tantamount to paying him twice over, which may be described as unjust enrichment, whilst in no way remedying the consequences for the purchaser of the illegality of the charge (Joined Cases C-192/95 to C-218/95 Comateb and Others [1997] ECR I-165, paragraph 22, and Lady & Kid and Others, paragraph 19). 23. It appears from this that the right to the recovery of sums unduly paid helps to offset the consequences of the duty’s incompatibility with EU law by neutralising the economic burden which that duty has unduly imposed on the operator who, in the final analysis, has actually borne it. 24. That said, it should also be noted that, in accordance with settled case-law, in the absence of EU rules governing claims for the repayment of taxes, it is for the domestic legal system of each Member State to lay down the conditions under which those claims may be made; subject, nevertheless, to observance of the principles of equivalence and effectiveness (see Case C-291/03 MyTravel [2005] ECR I-8477, paragraph 17, and Case C-35/05 Reemtsma Cigarettenfabriken [2007] ECR I-2425, paragraph 37). 25. In that regard, given the purpose of the right to the recovery of sums unduly paid, as recalled in paragraph 23 above, observance of the principle of effectiveness requires that the conditions under which an action may be brought for recovery of sums unduly paid be fixed by the Member States, pursuant to the principle of procedural autonomy, in such a way that the economic burden of the duty unduly paid can be neutralised. 26. From that perspective, it has been held that, if the final consumer is able, on the basis of national law, to obtain reimbursement through the taxable person of the amount of the charge passed on to him, that taxable person must in turn be able to obtain reimbursement from the national authorities (see Comateb and Others, paragraph 24). In the same way, a national legal system which allows the supplier who has paid VAT to the tax authorities in error to seek reimbursement, and which allows the recipient of the services to bring a civil law action against that supplier for recovery of the sums paid but not due observes the principle of effectiveness, as that system enables the recipient who bore the tax invoiced in error to obtain reimbursement of the sums unduly paid (see Reemtsma Cigarettenfabriken, paragraph 39). 27. It follows that a Member State may, in principle, oppose a claim for the reimbursement of a duty unduly paid made by the final consumer to whom that duty has been passed on, on the ground that it is not that consumer who has paid the duty to the tax authorities, provided that the consumer – who, in the final analysis, bears the burden of that duty – is able, on the basis of national law, to bring a civil action against the taxable person for recovery of the sums unduly paid. 28. However, if reimbursement by the taxable person were to prove impossible or excessively difficult – in particular, in the case of the insolvency of that person – the principle of effectiveness requires that the purchaser be able to bring his claim for reimbursement against the tax authorities directly and that, to that end, the Member State must provide the necessary instruments and detailed procedural rules (see Reemtsma Cigarettenfabriken, paragraph 41). 29. Accordingly, the answer to Question 1 is that a Member State may oppose a claim for reimbursement of a duty unduly paid, brought by the purchaser to whom that duty has been passed on, on the ground that it is not the purchaser who has paid the duty to the tax authorities, provided that the purchaser is able, on the basis of national law, to bring a civil action against the taxable person for recovery of the sum unduly paid and provided that the reimbursement, by that taxable person, of the duty unduly paid is not virtually impossible or excessively difficult.”

“134. As I have already indicated, I can see no good reason to confine the concept of impossibility or excessive difficulty to insolvency of the Managers, or to similar external causes which impact on their financial ability to meet otherwise valid claims against them. From the perspective of the claimants, the amount for which they are prima facie entitled to claim reimbursement is the full amount of the unlawful VAT which they paid to the Managers, i.e. the £100. The fact that the Managers may be able to recover only £75 from HMRC has no bearing on the fact that the amount actually paid by the claimants was the full £100. That is also the amount, as I have held, by which HMRC have been unjustly enriched at the claimants' expense. Thus, to the extent that the claimants are unable to recover the £100 from the Managers, it seems to me to follow that reimbursement of the claimants by the Managers has, as a matter of fact, proved impossible. I conclude, therefore, that the principle of effectiveness is at least potentially engaged in the claimants' favour.”

“138. Mr Rabinowitz's answer to this submission was briefly as follows. He accepted that the claimants had a prima facie restitution claim against the Managers on the basis of mistake. He also accepted that Mr Swift's analysis might have force if the £25 had always stayed with the Managers, and if HMRC had never been enriched by the £25. But, he said, HMRC were in fact enriched by the full £100, for all of which the Managers had duly accounted to HMRC, even though the payments which they actually made were of the net amounts of £75. Accordingly, the Managers had a good change of position defence in relation to the full £100, and any attempt by the claimants to recover the £25 from the Managers would fail. 139. I accept the argument for the claimants on this point. It seems to me that the Managers changed their position in relation to the entirety of the £100 when they accounted for it as output tax in their quarterly VAT returns. The fact that they also received credit for the associated input tax does not in my judgment alter the position. The receipt of the credit was simply a consequence of the operation of the VAT rules which everybody was operating on the mistaken assumption that the investment management services were not exempt. Nor do I consider it relevant to enquire what the Managers would have done in the hypothetical situation where it was known to all concerned that the services were in fact exempt, not least because in that event there would have been no payment of £100 by the investment trusts in the first place, and the question of recovering it from the Managers would therefore not have arisen.”