“After careful consideration of the ECJ judgment, we now accept that fund management services supplied to [investment trust companies] are exempt [from VAT].”
“Where a person – (a) has accounted to the Commissioners for VAT for a prescribed accounting period (whenever ended), and (b) in doing so, has brought into account as output tax an amount that was not output tax due, the Commissioners shall be liable to credit the person with that amount.”
“Where – (a) as a result of a claim under this section by virtue of subsection (1) … above an amount falls to be credited to a person, and (b) after setting any sums against it under or by virtue of this Act, some or all of that amount remains to his credit, the Commissioners shall be liable to pay (or repay) to him so much of that amount as so remains.”
“A. English Law Issues 1. Do the Investment Trusts (in principle) have mistake-based restitution claims/causes of action against [HMRC] for the Unrecovered VAT? This includes consideration of the following: 1.1. Were [HMRC] enriched as a result of the VAT Charges that were paid by the Investment Trusts to the Managers and accounted for by the Managers to [HMRC]? 1.2. If so, what is the extent of that enrichment? 1.3. Do [HMRC] remain enriched by the amounts of the Unrecovered VAT, taking into account the repayments made by [HMRC] under section 80 [VATA 1994]? 1.4. If [HMRC] were and remain so enriched, was and is that enrichment at the expense of the Investment Trusts? 1.5. If [HMRC] were and remain enriched at the expense of the Investment Trusts, was and is that enrichment unjust? 2. If the Investment Trusts have any mistake-based restitutionary claim/cause of action against [HMRC] as a matter of English law, is that cause of action excluded by statute, namely by section 80 [VATA 1994]? B. EU Law Issues 3. If the Investment Trusts have no mistake-based restitutionary claim as a matter of English law (or they do but that claim is excluded by statute), does EU law require that the Investment Trusts should be able to claim the Unrecovered VAT from [HMRC] (by means of a directly effective right to reimbursement or otherwise)? 4. In the circumstances of this case, does the statutory scheme contained in [VATA 1994] (section 80, etc) provide a remedy that satisfies the principle of effectiveness as regards the protection of the Investment Trusts’ EU law rights (if any )? 5. If EU law requires that the United Kingdom should provide the Investment Trusts with a claim for reimbursement against [HMRC], is the statutory exclusion (if any) of such claims to be disapplied to the extent necessary to allow the Claimants the mistake-based restitutionary cause of action they assert? C. Referrable Issues? 6. Is there any need for one or more questions to be referred to [the ECJ] in respect of any of the EU law issues that arise in this case?”
“Except as provided by this section, the Commissioners 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.”
“Nothing is clearer than that if parties account with each other, and sums are stated to be due on one side, and sums to an equal amount due on the other side on that account, and those accounts are settled by both parties, it is exactly the same thing as if the sums due on both sides had been paid. Indeed, it is a general rule of law, that in every case where a transaction resolves itself into paying money by A to B, and then handing it back again by B to A, if the parties meet together and agree to set one demand against the other, they need not go through the form and ceremony of handing the money backwards and forwards.”
“25. Payment by reference to accounting periods and credit for input tax against output tax. (1) A taxable person shall – (a) in respect of supplies made by him … account for and pay VAT by reference to such periods (in this Act referred to as “prescribed accounting periods”) at such time and in such manner as may be determined by or under regulations … (2) Subject to the provisions of this section, he is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowable under section 26, and then to deduct that amount from any output tax that is due from him. (3) If either no output tax is due at the end of the period, or the amount of the credit exceeds that of the output tax then, subject to subsections (4) and (5) below, the amount of the credit or, as the case may be, the amount of the excess shall be paid to the taxable person by the Commissioners; and an amount which is due under this subsection is referred to in this Act as a “VAT credit”. ... (6) A deduction under subsection (2) above and payment of a VAT credit shall not be made or paid except on a claim made in such manner and at such time as may be determined by or under regulations …”
“Every taxable person shall pay the net amount of the value added tax when submitting the regular return.”
“… in the field of VAT the function of a taxpayer such as the University, at least where it is not the final consumer of a good or service, is to act effectively as a tax collector for the Commissioners. Hence the credits for input tax and the debits for output tax … The payment of tax by a supplier en route to the ultimate consumer of the good or service is effectively on account of the value he adds to the good or service (assuming, contrary to Oscar Wilde’s observations, that added price is equivalent to added value). The purpose of the return made by such a taxpayer can therefore be said to be to determine how much tax he collects on behalf of, and therefore pays over to, the Commissioners.”
“18. Before replying to these questions, it is appropriate to describe briefly the basic principle of the VAT system and how it operates. 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. 23. In order to guarantee complete neutrality of the machinery as far as taxable persons are concerned, the Sixth Directive provides, in Title XI, for a system of deductions designed to ensure that the taxable person is not improperly charged VAT. As the Court held in its judgment in Case 15/81 Schul v Inspecteur der Invoerrechten en Accijnzen [1982] ECR 1409, paragraph 10, a basic feature of the VAT system is that VAT is chargeable on each transaction only after deduction of the amount of VAT borne directly by the cost of the various price components of the goods and services. The procedure for deduction is so arranged that only taxable persons are authorised to deduct from the VAT for which they are liable the VAT which the goods and services have already borne. 24. It follows that, having regard in each case to the machinery of the VAT system, its operation and the role of the intermediaries, the tax authorities may not in any circumstances charge an amount exceeding the tax paid by the final consumer.”
“But I have no doubt that the former interpretation is correct. This is because the payee’s obligation, which is correlative to the payer’s right to restitution, is to refund or repay the amount which he has received and which it is unjust that he should keep. “At his expense,” in my judgment, serves to identify the person by or on whose behalf the payment was made and to whom repayment is due … That person, having made the payment, is necessarily out of pocket to that extent, and the defendant’s obligation is to replenish his pocket when the circumstances are such that the money should be returned.”
“The expression “at the payer’s expense” is a convenient way of describing the need for the payer to show that his money was used to pay the payee. Thus there may well be cases where this cannot be shown, but where in truth, for example, the payer was only the conduit through which the funds of others passed to the payee. What this expression does not justify is the importation of concepts of loss or damage with their attendant concepts of mitigation, for these have nothing whatever to do with the reason why our law imposes an obligation on the payee to repay to the payer what he has no right to retain.”
“Second, 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. Were it otherwise the decision of this court in Banque Belge pour l’Etranger v Hambrouck[1921] 1 KB 321 would have been different. Some commentaries equate the phrase “at the expense of” with a subtraction from the wealth of the plaintiff. No doubt this is a useful description. But the type of restitutionary claim with which this appeal is concerned relates to a subtraction from the plaintiff’s gross wealth. The suggested defence of passing on would involve the different concept of a reduction in the net worth of the plaintiff.”
“As to Lord Steyn’s second question, it was contended that the enrichment was not at the expense of the plaintiffs because the interposition of Mr Herzig meant that the enrichment was at his expense. Lord Steyn rejected this contention, saying that directing the money through Mr Herzig did not alter the reality that the second defendants were enriched by the money advanced by the plaintiffs via Mr Herzig to the first defendants. To allow the interposition of Mr Herzig to alter the substance of the transaction would be pure formalism. Much the same applies in the present case. The reality was that the claimants’ money was used to reduce the Midland Bank loan. In the Banque Financière case, the formal ability to trace in traditional equitable terms the legal or beneficial interest in the money from the plaintiffs to the first defendants via Mr Herzig does not seem to have troubled Lord Steyn. A difference between that case and this is that the plaintiffs’ payment in that case was made in order to reduce the loan to the first defendants. In the present case, the claimants’ advance was not made specifically to reduce the Midland Bank loan account, although it was in reality so used.”
“In my judgment, the claimants are entitled to succeed in the present case on the application of Lord Steyn’s reasoning. The only material difference of fact between the two cases is that [Mortgage Express] did not make their advance specifically so that the Midland Bank loan account would be reduced. Importantly, however, [Mortgage Express] expected to obtain the security of a first legal charge and would not otherwise have made the advance. They would have no difficulty in establishing the reality that their money was used to reduce the joint Midland Bank loan account, even if, contrary to my view expressed earlier in this judgement, Mr Marshall’s submissions as to tracing were correct.”
“The enrichment will be at the expense of the claimant if in reality it was the claimant’s money which effected the improvement, i.e. the material improvement in the financial position of the defendant.”
“59. But this approach overlooks the principle on which the claim for restitution that was recognised in the Kleinwort Benson case is founded, which is unjust enrichment. As Lord Goff put it[1999] 2 AC 349 , 385, it is unjust for the defendant to retain the money paid under a mistake. The essence of the principle is that it is unjust for a person to retain a benefit which he has received at the expense of another which that person did not intend him to receive because it was made under a mistake that it was due. The claimant must prove that he acted under a mistake. But the stage when he made his mistake does not matter, so long as it can be said that if he had known of the true state of the facts or of the law at the time of the payment he would not have made it. A wrong turning half way along the journey is just as capable of being treated as a relevant mistake as one that is made on the doorstep at the point of arrival. 60. Robert Goff J said in Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd[1980] QB 677 , 694, after a careful review of the leading authorities about payments made under a mistake of fact, that it is sufficient to ground recovery that the claimant’s mistake should have caused him to pay the money to the payee. As Professor Burrows in The Law of Restitution, 2nd ed. (2002), p 136 puts it, the type of mistake does not matter. It is purely its effect on the payer that counts …”
“But, as Park J was right to recognise, if the mistake about the availability of group income relief had not existed, the ACT would not have been paid. There was an unbroken causative link between the mistake and the payment. It follows that the payments were made under a mistake.”
“For the issue of recoverability to turn upon a nice analysis as to the precise nature of the mistake of law appears to me to be almost as undesirable as it is for recoverability to turn upon whether the mistake made by the payer was one of fact or law.”
“The combined effect of all these provisions is in my judgment enough to make it crystal clear that the section 80 regime for the recovery of overpaid VAT was intended by Parliament to be both exclusive and exhaustive where the circumstances are such as to fall within the scope of the section.”
“It is argued on behalf of the university that it can choose to frame its claim, in effect, either under reg 29 or under section 80, and that the two are not mutually exclusive. As already indicated, it appears to me that, as a matter of ordinary language, if the claim (however framed) could fall within section 80(1), then the combined effect of subsections (4) and (7) mean that it is simply not open to the university to make a claim for payment or repayment outside section 80, or, therefore to avoid the limitation period laid down by section 80(4). In effect, section 80(7) provides that, if section 80(1) would provide a gateway for making the claim, then the fact that there may be another gateway, which might not otherwise face the difficulty of a time limit, will not assist the taxpayer.”
“In these circumstances, I am of the view that, on this basis, the university’s argument is correct. I do not accept that the effect of articles 17 and 18 is that the university is or was entirely free to claim input tax whenever it wanted, so that any domestic limitation period would be invalid. It also seems to me that the university’s primary right was to claim input tax in the returns for the periods in respect of which the supplies concerned were respectively actually made. However, I do not consider that its failure to do so results, on an analysis of the way in which the relevant legislation is worded, in money, whether one characterises it as VAT or anything else, having been overpaid by the university to the commissioners. Accordingly, I do not consider that the claim falls within section 80, and it therefore follows that the provisions of section 80(4) cannot be relied on by the commissioners. Further, if that is right, the provisions of reg 29 apply.”
“It would be inconsistent with section 33 to recognise a common law remedy in precisely the circumstances postulated by subsection (1) but free of the limitation contained in subsection (2A).”
“In my judgment, the authorities give clear guidance that if Parliament creates a right which is inconsistent with a right given by the common law, the latter is displaced. By “inconsistent”
“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).”
“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.”
“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? 2. Does Community law preclude a Member State from rejecting a claim for damages 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 grounds put forward by the Member State (specifically, that the undertaking is not the directly injured party and that there is no direct causal link between any loss and the conduct giving rise to liability)?”
“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 (seeCase C-291/03 MyTravel[2005] ECR I-8477 , paragraph 17, andCase 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.”
“36. To that end, it should be observed that a national legal system, such as that concerned in the main proceedings, under which a direct causal link can be established only as between the levying by the State of a duty which is not due, on the one hand, and the damage suffered by the taxable person, on the other, may not interpret that requirement in such a way as to make it virtually impossible or excessively difficult to obtain compensation for the damage suffered. 37. It follows that such a national legal system is, in principle, consistent with the principle of effectiveness, provided that the purchaser to whom the burden of that duty has been passed on by the taxable person is able, on the basis of national law, to bring his action seeking compensation for the consequential damage against that taxable person. 38. However, by analogy with the observation made in paragraph 28 above, if it were to prove impossible or excessively difficult for the taxable person to compensate the purchaser who bore the financial burden of the duty unduly paid and passed on to him for the damage suffered – in particular, in the case of the insolvency of the taxable person – the principle of effectiveness requires that the purchaser be able to bring his claim for reimbursement against the State directly, without that State being legitimately able to rely on the lack of a direct causal link between the levying of the duty which was not due and the damage suffered by the purchaser. 39. Accordingly, the answer to Question 2 is that a Member State may reject a claim for damages brought by a purchaser to whom a duty unduly paid has been passed on by the taxable person, on the ground that there is no direct causal link between the levying of that duty and the damage suffered, provided that the purchaser is able, on the basis of national law, to bring that claim against the taxable person and provided that the compensation, by that taxable person, of the damage suffered by the purchaser is not virtually impossible or excessively difficult.”
“In general, is it possible to infer from the uniform Community rules that the recipient of goods or services is the person liable for payment of tax to the revenue authorities? Is it compatible with those rules and in particular with the principles of neutrality of VAT, effectiveness and non-discrimination, not to grant under domestic law to a recipient of goods or services who is subject to VAT and who is treated under national law as being subject to the obligations of invoicing and payment of the tax, a right against the revenue authorities to claim reimbursement in cases where tax that is not due is charged and paid? Are national rules – as interpreted by the national courts – under which a recipient of goods or services may bring an action only against the supplier of the goods or services and not against the revenue authorities … contrary to the principles of effectiveness and non-discrimination in the matter of reimbursement of VAT collected in breach of Community law?”
“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. [This paragraph restates the principle of national procedural autonomy in familiar terms]. 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.”
“157. … We consider that authority does not require a demand, and that it is sufficient that the state has exacted tax, which was not lawfully due, by voluntary compliance by the taxpayer with the legislative imposition of the tax. 158. As a matter of principle, we do not see why a demand should be a requirement of a Woolwich claim. The underlying principle is that the Revenue should repay tax that has been exacted without legal justification. We can see no reason why the cause of action should be confined to those taxes that are payable on demand as against those, such as Value Added Tax (“VAT”), that are payable without a demand. Moreover, it is impossible to see why the citizen who duly accounts for and pays, by way of example, VAT, without waiting for a demand, on the assumption that the applicable legislation is valid, should be disadvantaged as against the taxpayer who refuses to account or to pay until a peremptory demand is received. 159. Woolwich itself concerned a tax that had been the subject of a demand. Counsel for Woolwich confined their submissions to the facts of their client’s case, and therefore formulated their proposed principle as a right of restitution on the part of a citizen who makes a payment in response to an unlawful demand for tax. It was therefore unnecessary for the House of Lords to consider whether the demand was an essential ingredient of the cause of action. Nevertheless, the reasoning of the majority of the Appellate Committee in Woolwich strongly supports the conclusion that a demand is not essential.”
“173. Accordingly, on this Issue, we conclude that there is no authority binding on us which requires the Woolwich cause of action to be limited to circumstances in which there has been a formal demand. The language used by the majority of the House of Lords in Woolwich, and the principles and policy endorsed by them, point away from such a limitation and support the application of Woolwich to any case where tax has been unlawfully exacted from a person by virtue of a legislative requirement, including compulsory self-assessment. It follows that the Woolwich cause of action provides an effective remedy for all the claimants’ San Giorgio claims under Community law.”
“225. We have held, in respect of Issues 11 and 12, that a demand is not an essential ingredient of the Woolwich cause of action, and that that cause of action provides an effective remedy for all the claimants’ San Giorgio claims. Thus the cause of action for repayment of monies paid under a mistake is not a cause of action required by Community law. The cause of action for repayment of monies paid under a mistake is a domestic remedy of wide application, which Community law does not require the member states to provide, attended by a limitation period (i.e.s32(1)(c) of the Limitation Act 1980 ) that goes beyond the requirements of Community law: see Marks & Spencer ([2002] STC 1036 ,[2003] QB 866 , para 35 of the judgment), in which the ECJ considered a three-year limitation period to be reasonable. Community law restricts the effectiveness of domestic legislation curtailing a limitation period applicable to a domestic cause of action that protects a Community right. That domestic cause of action is the Woolwich claim, and it is unaffected by ss320 and 107.”
“The San Giorgio principle requires our domestic law to provide an effective remedy for the repayment of unlawful tax. Neither the domestic Woolwich cause of action (if it is dependent on there having been an unlawful demand) nor the cause of action for monies paid under a mistake satisfy San Giorgio, the latter cause of action because it depends on the claimant having been mistaken when the payment was made. In these circumstances, the cause of action for the repayment of a tax unlawful under Community law must be held not to require an unlawful demand. In effect, that is Woolwich without the requirement of an unlawful demand.”
“84. Against this background, it seems to me that Mr Swift’s case is rather compelling. In FII CA, the Court of Appeal expressly favoured the Woolwich-based restitutionary claim, and held that it was sufficient to give effect to the claimants’ EU law San Giorgio rights. The Court of Appeal could have chosen to disapply s320 and s107, and allow the claimants a mistake-based restitutionary claim in addition to the Woolwich-based claim that they held was available, but they decided that it was unnecessary to do so. In the alternative, the Court of Appeal held, in effect, that they would, in preference to disapplying ss320 and 107, so as to allow a mistake-based claim, [have] disapplied the need for a demand to allow a Woolwich-based claim, even if they were wrong about a demand not being required. 85. In summary, therefore, FII CA is clear authority for the proposition that the English court will not disapply an exclusionary rule so as to allow an alternative remedy to give effect to a San Giorgio right, if another remedy is already available without the need for such a disapplication. The Court of Appeal decided obiter that the English court could choose which of two remedies should be provided to give effect to the San Giorgio right, if both required the disapplication of some domestic law rule to allow them to comply with the principle of effectiveness. 86. Applying these principles here, it seems to me that Littlewoods’ putative San Giorgio right can be given full effect, in accordance with the principle of effectiveness, by disapplying the provisions of ss78 and 80 so as to allow either a Woolwich claim or a mistake-based claim to be brought. Where FII CA does not help very much is in laying down the principles upon the basis of which the national court can choose between two otherwise available claims in these circumstances … 87. Very little argument was addressed to the question of the principles upon which the national court should choose between the national law claims and remedies in these circumstances, but applying FII CA, it seems to me that choose I must. 88. The principles that I apply should, in my judgment, be applicable in any case of this kind – even if cases with these dramatic consequences may not often occur in future. The starting point is that the national court is required by EU law to give effect to the San Giorgio right, and not to render it practically impossible or excessively difficult for Littlewoods to exercise that right. The San Giorgio right in question has yet to be defined, but on the assumptions that I am making at this stage, it will be the right to recover in respect of the use value of the overpayments of tax between payment and repayment. To allow such a right to the claimants, some rule of English law must be disapplied. In this case, the rule is the same for both restitution-based claims – namely that ss78 and 80 exclude both those claims. But it will not always be thus. For example, in FII CA itself, the domestic law rules that presented themselves as candidates for disapplication were different: the need for a demand in relation to the Woolwich claims, and the new limitation periods in s320 and s107 in relation to the mistake-based restitutionary claims. The principles applicable must balance the need to enforce the San Giorgio right on the one hand, against the need to disapply domestic law on the other hand. In addition, I think that the nature of the available causes of action is relevant – the cause of action most naturally and comprehensively giving effect to the San Giorgio right must be preferable to one that will only vindicate the right in limited circumstances. 89. In this context, I bear in mind that, if there had been no mistake by the Commissioners, s78(1) would not have applied at all … 90. Taking all these factors together, it seems to me that the cause of action that most naturally and comprehensively gives effect to Littlewoods’ San Giorgio right to the use value of the repayments is the Woolwich claim, which is applicable, as we now know it to be, to all cases where the government has exacted tax, which was not lawfully due, whether or not a demand has been made. The mistake-based restitutionary claims would only vindicate the San Giorgio right to the use value of money in some circumstances – namely where an appropriate mistake had been made. Such a claim would, therefore, be of less general application than the Woolwich claims. The rules to be disapplied are the same in this case, so that factor is neutral, but one would generally want to lean in favour of the minimum possible disapplication of domestic law. 91. The Woolwich claims here will be subject to an (EU law compliant) six-year limitation period which will reduce Littlewoods’ claims for compound interest to a relatively small amount. On the other hand, if the mistake-based restitutionary claims were to be allowed, it is common ground that the limitation period must be extended under s32(1)(c) so as to allow the full extent of Littlewoods’ claims. It might be suggested, therefore, that the approach that I have adopted is driven by a desire to protect the Commissioners from the major part of the claims to compound interest in this case. I should make it clear that I have ignored that factor, which seems to me, as a matter of law, to be entirely irrelevant.”
“94. It seems to me that, depending on how the ECJ answers the first three questions that I have posed, its guidance on this issue might be extremely valuable in reaching a final decision at this trial. The decision I have indicated above is obviously provisional, because it may change depending on the precise nature and extent of the San Giorgio right that the ECJ identifies. It would be particularly helpful to the domestic court to know whether the approach that I have outlined above is consistent with EU law. The real question, as it seems to me, is not the one that the claimants sought to formulate, but rather as to the detailed application of the EU law principle of effectiveness. It is one thing to say that the national court must not make the exercise of the EU law right practically impossible or excessively difficult. It is another thing to know whether the national court has been successful in that exercise in any particular case. It seems to me, at least, that the ECJ might want to say something about the principles upon which national courts should decide how to implement San Giorgio rights by application of the principle of effectiveness. The ECJ will plainly not descend to a consideration, for example, of the relative merits of compensation claims versus restitution-based claims in national law, or indeed as to the actual choice between two available remedies. But the ECJ may wish to comment on whether the principle of effectiveness requires national law to disapply restrictions on all available causes of action or simply the one that most effectively allows the San Giorgio right in question to be vindicated. The ECJ’s views on this point will, as I have said, be most useful to this court when it comes to take its final decision after the reference is decided.”
“If the answer to question 1 is in the negative, does the EU law principle of effectiveness require a member state to disapply national law restrictions (such as ss78 and 80 of theValue Added Tax Act 1994 ) on any domestic claims or remedies that would otherwise be available to the taxable person to vindicate the EU law right established in the Court of Justice’s answer to the first three questions, or can the principle of effectiveness be satisfied if the national court disapplies such restrictions only in respect of one of these domestic claims or remedies? What other principles should guide the national court in giving effect to this EU law right so as to accord with the EU law principle of effectiveness?”
“34. On25 October 2006 , the House of Lords decided DMG. The House of Lords resolved three issues, in the context of the overpayment of ACT on dividends in breach of EU law: first, that a taxpayer who wrongly paid tax under a mistake of law was entitled to a restitution remedy (contrary to the way in which the Commissioners had interpreted Kleinwort Benson); secondly, thats33 of the Taxes Management Act 1970 (“s33”) did not provide an exhaustive regime for the recovery of taxes paid by mistake, so as to exclude the common law restitution claim; and thirdly, that the fact that a taxpayer had a Woolwich claim (with a shorter limitation period) did not prevent it from bringing a mistake-based claim (with the benefit of an extended limitation period). It is important to understand that this last point was decided as a matter of English law, since s33 had been held not to constitute an exhaustive regime excluding common law remedies. The House was not considering what might happen if s33 had constituted an exclusive regime, and it had been necessary, so as to satisfy the EU principle of effectiveness, to disapply that exclusive regime so as to allow one or both of two common law remedies that would otherwise have been unavailable in English law. Both Lord Hoffmann (see[2007] STC 1 at [5],[2007] 1 AC 558 at [5]) and Lord Walker (at [135] – [136]) made this point clear, when they explained that all that the ECJ in Metallgesellschaft [i.e. Hoechst] had said was that the domestic court must provide a remedy despite the principle reaffirmed by the House of Lords in President of India [i.e. President of India v La Pintada Compania Navigacion SA[1985] AC 104 ] to the effect that interest is not due if the capital has been repaid. In Lord Walker’s words: “In other respects, DMG’s claim relies on ordinary domestic principles”.”