The Test Claimants in the FII Group Litigation v HM Revenue and Customs [2014] EWHC 4302 (Ch)

“105. … All the court is entitled and bound to do is to see whether s 231 can be read so that the right to a credit which is conferred extends not only to those expressly mentioned in s 231, namely resident companies, but also takes into account the rights of persons under Community law. Once that question is answered and the interpretation is given, the task of conforming interpretation is at an end. There is no further test to be applied about the ease of enforcing the rights thereby conferred or protected because persons entitled to tax credits as a matter of Community law are put onto the same footing under the section as other persons entitled to rely on the section as a matter of domestic law. … 107. It therefore falls to this court to determine the appropriate conforming interpretation. In our judgment, a conforming interpretation can be achieved simply by reading in words that make it clear that it is not just resident companies that can claim a credit under s 231 but also other persons entitled to do so by Community law to the extent that they are so entitled. The extent of that entitlement can then be investigated when the section falls to be applied, rather than the difficulties more properly arising at the point of application being erected as an objection to conforming interpretation. It will apply even if the extent of the entitlement is not fully ascertained until after the ECJ has answered any question put to it in a further reference.”

“It can be seen from this analysis [of FII (ECJ) II] that the actual foreign tax paid on the underlying profits is only relevant at the stage of determining whether there is a restriction on freedom of establishment. Having concluded that there is such a restriction, the actual tax paid becomes irrelevant. At that stage, EU law requires the UK company to receive a credit computed by reference to the nominal rate of tax applied to the underlying profits in question in the relevant foreign jurisdiction. If the actual tax paid is less than tax at the nominal rate then the amount of the tax credit would have to be topped up to an amount calculated by reference to the nominal rate up to the level of the tax charged in the UK. Conversely, if the tax paid was greater than the tax computed at the nominal rate then the amount of the tax credit would be reduced to an amount calculated by reference to the appropriate nominal rate as EU law does not require credit to be given at any level beyond the foreign nominal rate. It is therefore pointless to refer to the actual tax paid in computing the tax that could lawfully have been charged.”

“31. In such circumstances there seem to the Commission to be two ways of ensuring equal treatment. One is to exempt both domestic and foreign dividends. That solution has the drawback, as outlined above, that it may permit excessively favourable treatment of foreign dividends where the tax rate in the source State is lower than in the United Kingdom. The other, which is wholly consistent with the Court’s reasoning in Case C-446/04 [i.e. FII (ECJ) I], is to have regard solely to the nominal rate of tax in calculating the tax credit on foreign dividends.”

“For the purpose of ensuring the cohesion of the tax system in question, national rules which took account in particular, also under the imputation method, of the nominal rate of tax to which the profits underlying the dividends paid have been subject would be appropriate for preventing the economic double taxation of the distributed profits and for ensuring the internal cohesion of the tax system while being less prejudicial to freedom of establishment and the free movement of capital.”

“38. A simple example demonstrates that this must be correct. Suppose an EU company makes accounting profits of 1,000 in each of two consecutive years. The FNR is 20% and the rate of UK corporation tax is 30%. It makes a provision in its accounts for 200 in each year and so 800 is distributable in each year. However, due to timing differences in the tax computation, it pays 150 tax in the first year and 250 tax in the second year. It pays 800 of a dividend to its UK parent in each year. 39. The [Revenue] would compute the lawful tax as 100 in each year. This is achieved by grossing up the dividend by the FNR to obtain 1,000 and applying the difference between the UK rate and the FNR (30-20=10%) to that grossed up amount. This totals 200 over the two years which is 10% of the total profits over those two years (2,000). This is exactly as expected. 40. The Test Claimants would compute the lawful tax for the first year by taking a credit of 190 (20% of 950 which is the dividend of 800 grossed up by the tax paid of 150) instead of the actual tax credit of 150. This produces lawful tax of 95 (30% of 950, less 190). However, in the second year the Test Claimants would take a credit for the tax paid of 250 as it is higher than a credit at the FNR. This produces lawful tax of 65 (30% of 1050, less 250). This results in lawful tax over the two years of 160. This is 40 less than would be expected. It results from the Test Claimants’ method of taking the higher of the FNR and the foreign tax actually paid. This double counts part of the FNR for year one as it is reflected in the tax paid in year two.”

“I cannot imagine that the ECJ envisaged the enquiry into nominal rates extending beyond the state of residence of the source company. The enquiry should in principle be a simple one, which can normally be answered by looking at the published tax legislation of the source state.”

“The Belgian companies obtained tax deductions for the interest on their external borrowings and for the interest on the borrowings from HXL. Under the Belgian tax rules applicable to Co-ordination Centres HXL did not pay tax by reference to the conventional base of net income. Instead it was taxed by reference to its expenses excluding salaries and wages and interest costs, i.e. a very small taxable base. The interest income of HXL was not taxed. Dividends payable by HXL to its Belgian shareholders were largely exempt in the hands of the recipients. Only 10% of the dividend was taxable to the Belgian shareholder. Furthermore the 1989 dividends of HXL qualified for a fictitious withholding tax credit (FWT). Although no withholding tax was payable by HXL on its dividend payments the dividends were treated in the hands of the recipients as if there had in fact been a withholding tax. The FWT was available to set against not only the tax payable on the 10% of the HXL dividend which was taxable but also the other taxable income of the Belgian shareholders. The combination of these factors provided a very cheap and effective mechanism for financing Belgian trading companies and BAT Benelux became a shareholder in HXL to avail itself of this financing mechanism.”

“Belgian co-ordination centres are liable to corporate income tax at the normal (40.17%) rate, but (instead of the actual profits as shown in its financial statements) only on a notional tax base determined as a percentage of certain operating costs incurred by them. Certain items, such as personnel costs, financing costs and taxation are excluded from this base. The percentage depends on the mark-up charged to the affiliated group companies and on the type and nature of the co-ordination centre’s activities. In the absence of objective criteria, the mark-up percentage will be fixed at 8 per cent.”

“In the light of paragraph 72 of FII (ECJ) II, it appears to me that section 231(1) [of ICTA 1988] would have been compliant with EU law if it had also provided a credit in respect of dividends received from non-UK resident companies for (a) underlying tax to which the distributed profits had been subject, and (b) the nominal rate of corporation tax in the source State, but subject to an upper limit equal to the UK nominal rate of ACT.”

“The CT 61 Method 13.1 The method employed is to adapt the machinery used by the ACT system to perform the same task for domestic sourced income. 13.2 Under that system a company in receipt of income which carried a s231 credit would record the receipt as FII (the dividend plus the s231 credit) on its quarterly ACT return, known as a CT61. Where the company paid a dividend outside a group income election, it would likewise record the franked payment (the dividend plus the ACT liability) and deduct from it any FII [it] had received. Any excess FII would be carried forward. The corporate recipient of that franked payment would in turn complete the same return. That process was simplified of course by the option of paying dividends through a corporate group under a group income election so that only the ultimate parent need, in that case, prepare the CT61 return. 13.3 Importantly, although CT61s were quarterly returns, they could be aggregated over the annual accounting period concerned (paragraph 4 Schedule 13 ICTA). Thus a receipt of FII in a subsequent quarter could be carried back and credited against a franked payment in an earlier quarter provided both were in the same corporation tax accounting period. Where this occurred the company’s CT61 for the quarter in which it received FII would record the FII deduction but no franked payment and it would receive a refund of the relevant amount of ACT paid in the earlier quarter. 13.4 The Claimants’ “CT61 method” envisages adapting that process to trace the passage of “EU s231 credits” through the group. The Claimants envisage a virtual CT61 with an entry for an EU s231 credit just like FII and which is passed on with each dividend payment at each corporate level until it is received in an accounting period (see paragraph 13.3) in which the recipient pays ACT. It is then set against that ACT payment in the same way as a domestic s231 credit. The excess ACT so relieved was therefore unlawfully levied. 13.5 Two adjustments must be made to the domestic framework to accommodate this method: (a) where the foreign tax rates are below the ACT rate, the EU income will not carry a full s231 credit. If it were treated as FII (namely the dividend plus the reduced s231 credit) excess credit would be received [the explanation for this is given in a footnote]. Three approaches could accommodate this complication: (i) regard the EU income as FII but reduce the value of the EU dividend for which credit is given in the same proportion as the EU s231 credit is to a full s231 credit; or (ii) to reconstruct the dividend flows that would have occurred upon a CT61 by attributing a particular source of EU dividend to each onward dividend payment so that only the level of s231 credit attributed to that source of income is brought into account as a credit against ACT paid higher up in the group; or (iii) allocate to each dividend so much of the pool of EU s231 credits held by the dividend paying company as it may hold capped at the ACT rate upon that dividend and trace through the corporate hierarchy by this route only the EU s231 credits (i.e. as opposed to the equivalent of FII – the dividend plus the s231 credit). These approaches should produce the same outcome. For historic reasons only [again explained in a footnote] the Claimants’ methodology [in an earlier version of the walk through] adopted the more cumbersome second approach. For this revision of that methodology the simpler third method has been adopted. (b) To identify the accounting period in which EU dividend income was received is straightforward. It is recorded in the accounts of the relevant companies. To identify the precise quarter of receipt is much more cumbersome and would require investigation of bank records. This has not been done and is not necessary for the reason explained above: FII received later than franked payments in the same accounting period could be carried back to relieve the earlier payment. The date on which EU dividends were received is therefore irrelevant. The quarterly CT61s for an accounting period in effect function as part of a single composite return. The Claimants’ method therefore considers only the CT61s in a composite annual form. The only complication in doing so arises where actual FII has been received in a subsequent quarter to a franked payment so as to produce a repayment (the few instances where this arises are shown on Table 2). In that circumstance credit for the actual FII is considered to have been taken in priority to the application of the EU s231 credits (i.e. the most conservative approach is applied).” (a) where the foreign tax rates are below the ACT rate, the EU income will not carry a full s231 credit. If it were treated as FII (namely the dividend plus the reduced s231 credit) excess credit would be received [the explanation for this is given in a footnote]. Three approaches could accommodate this complication: (i) regard the EU income as FII but reduce the value of the EU dividend for which credit is given in the same proportion as the EU s231 credit is to a full s231 credit; or (ii) to reconstruct the dividend flows that would have occurred upon a CT61 by attributing a particular source of EU dividend to each onward dividend payment so that only the level of s231 credit attributed to that source of income is brought into account as a credit against ACT paid higher up in the group; or (iii) allocate to each dividend so much of the pool of EU s231 credits held by the dividend paying company as it may hold capped at the ACT rate upon that dividend and trace through the corporate hierarchy by this route only the EU s231 credits (i.e. as opposed to the equivalent of FII – the dividend plus the s231 credit). (b) To identify the accounting period in which EU dividend income was received is straightforward. It is recorded in the accounts of the relevant companies. To identify the precise quarter of receipt is much more cumbersome and would require investigation of bank records. This has not been done and is not necessary for the reason explained above: FII received later than franked payments in the same accounting period could be carried back to relieve the earlier payment. The date on which EU dividends were received is therefore irrelevant. The quarterly CT61s for an accounting period in effect function as part of a single composite return. The Claimants’ method therefore considers only the CT61s in a composite annual form. The only complication in doing so arises where actual FII has been received in a subsequent quarter to a franked payment so as to produce a repayment (the few instances where this arises are shown on Table 2). In that circumstance credit for the actual FII is considered to have been taken in priority to the application of the EU s231 credits (i.e. the most conservative approach is applied).”

“The following claims are successful in relation to the GLO issues determined in the trial: … (b) Claims for the time value of ACT on third country FIDs paid on or after 1 July 1994 and refunded under the FID regime …”

“There is no reason in principle to apply any different treatment. The task is to identify the amount of tax that the UK could lawfully charge on a FID. That amount must be determined on the same basis as for a non-FID. The fact that, under domestic law, a special regime applied to enable the Claimants to choose to match their FIDs with certain foreign profits is wholly irrelevant in working out how much tax the UK could lawfully charge on those FIDs.”

“For this part of the computation the same assumption has been adopted by both the Claimants and the [Revenue] in that total ACT paid is treated as being utilised on a FIFO basis (that is if ACT was surrendered to a subsidiary company by the ultimate parent company in year 1 and further ACT surrendered to that same subsidiary company in year 2 and the subsidiary company then utilised some of the total ACT surrendered to it by the ultimate parent company in year 3, then the [Revenue] and the Claimants have both assumed that the ACT surrendered to the subsidiary company in year 1 was utilised before the ACT surrendered in year 2.”

“4. (1) This paragraph shall have effect where – (a) a return has been made of franked payments made in any return period falling within an accounting period and advance corporation tax has been paid in respect of those payments; and (b) the company receives franked investment income after the end of the return period but before the end of the accounting period. (2) The company shall make a return under paragraph (1) above for the return period in which the franked investment income is received whether or not it has made any franked payments, or paid any foreign income dividends, in that period, and, subject to sub-paragraph (3) below, shall be entitled to repayment of any advance corporation tax paid (and not repaid) in respect of franked payments made in the accounting period in question. (3) If no franked payments were made by the company in the return period for which a return is made by virtue of sub-paragraph (2) above the amount of the repayment shall not exceed the amount of the tax credit comprised in the franked investment income received; and in any other case the repayment shall not exceed the amount of the tax credit comprised in so much of that franked investment income, if any, as exceeds the amount of the franked payments made in that return period.”

“49. Upon the payment of the dividends which attracted those ACT liabilities [i.e. the ACT paid by FCE in the accounting periods ending 31 December 1995 to 1998], the US parent companies of FCE were entitled to receive a tax credit pursuant to Article 10(2) of the UK-US double taxation convention of 31 December 1975 (SI 1980/568). The credit was calculated as one half of the ACT paid less UK tax computed at 5% of the dividend plus the half ACT credit. Ford Werke AG was not entitled to such a tax credit as the terms of the UK-German double taxation convention made no provision for any like credit. … 51. In the accounting periods ending 31 December 1995 to 1997 FCE also received dividends from its wholly owned subsidiaries in Germany, Denmark and Austria. Those subsidiaries held no interests in companies outside their territory and the dividends distributed the profits earned in those jurisdictions and upon which, in every case, tax was paid at a rate equal to or exceeding the UK corporation tax rate and full double tax relief was afforded. 52. FCE incurred no withholding tax on these dividends.”

“In the present case the first question arising on the assessment of compensation is this. If the United Kingdom legislation had permitted parent companies resident in other member states of the European Community to make a group election, and if an election had been made in respect of the dividends in question, would the parent companies have been entitled to payment of the convention tax credits they in fact received under the double taxation conventions? If they would have been so entitled then no deduction should be made in respect of these tax credits when calculating the compensation. If, however, the parent companies would not have been so entitled, then in principle – and subject to the other issues raised on this appeal – due allowance should be made in respect of these tax credits when calculating the compensation. Due allowance should be made because, in this event, the convention tax credits received by the parent companies comprise financial benefits they would not have received had the group been able to make a group income election and had the group duly done so.”

“I do not think that the revenue’s approach falls into the trap of ignoring the companies’ separate identities. What it does is to look at them instead as members of the group. I agree with Lord Scott that the relevant harm was the harm that the group suffered by reason of the breach of the parent companies’ right to freedom of establishment under article 52 of the Treaty. The breach deprived the group of the benefit of a joint election which, if there had been no breach, would have been available under section 247(1) of the 1988 Act for the benefit of the group as a whole. It would have been exercisable by the paying and the recipient members of the group jointly. It is the joint nature of the exercise that makes it appropriate to look at the group as [a] whole when the compensation is being assessed rather than the effect of the breach on each company taken in isolation.”

“20. Accordingly the loss sustained by the subsidiary cannot fairly be assessed in isolation. The commercial reality is that by not having the opportunity to make a group income election the group lost the opportunity to take advantage of a fiscal package: a package which affected the parent in one way and its subsidiary in a different way. In calculating the loss suffered by the group, that is, the parent and the subsidiary, regard must be had to both elements in the package. The effect on the parent must be considered as well as the effect on the subsidiary. The subsidiary lost the use of the money paid as ACT. In some instances, where the ACT was not set off against its mainstream corporation tax, the subsidiary lost the money altogether. But this cannot be treated as the amount of compensation payable by the Inland Revenue Commissioners without also taking into account any adverse consequence a group income election would have had on the parent. By the same token, assessment of the compensation must take into account any countervailing fiscal benefit received by the parent which would not have been available had a group income election been made. 21. Pirelli sought to side-step this difficulty by presenting their claim as a claim by the subsidiary alone. But this difference in presentation cannot make any material difference in the outcome. A group income election cannot be made, or continued in force, by a subsidiary acting alone. Pirelli cannot, by presenting their claim in this way, alter the fundamental nature of the wrong for which compensation has become payable, namely, the loss of an opportunity for the parent and the subsidiary jointly to take advantage of a single fiscal package having different effects on the parent and the subsidiary. 22. It is for this reason that assessment of the group’s overall loss, rather than the loss of the subsidiary alone, does not involve departure from the basic principle of company law that a parent company and it subsidiary are separate legal entities. Assessment of the overall loss represents the only fair way to assess the amount of loss suffered where a subsidiary and its parent have been denied the opportunity jointly to obtain a single package of this nature.”

“80. The correct analysis, in my opinion, is that the article 52 infringements of which the Pirelli claimants complain were infringements of the Pirelli parent companies’ right to freedom of establishment in the United Kingdom, that the primary measure of the loss thus caused was the financial detriment to their UK subsidiary caused by its liability to pay ACT but its inability to make group income elections, but that the benefit of the tax credits that the Pirelli parent companies would not have received but for the article 52 infringements should be brought into account. Logically, as it seems to me, the compensation should be compensation to the group for the detriment suffered by the group. Compensation that concentrates on the financial detriment of the subsidiary and ignores the financial benefit of the parent seems to me to overlook the nature of the article 52 infringement. The identity of the recipient or recipients of the compensation payable for the loss suffered by the group can be left to be decided by the group, but cannot, in my opinion, affect the quantum of the compensation.”

“Do the Claimants’ and/or the Defendants’ calculations give effect to the principles decided above? If not, in what respects do they not do so and what adjustments need to be made?”

“The essence of the claim is that the revenue was unjustly enriched because Sempra paid the tax when it did in the mistaken belief that it was obliged to do when in fact it was being levied prematurely. So the revenue must give back to Sempra the whole of the benefit of the enrichment which it obtained. The process is one of subtraction not compensation.”

“204. In addition, the Court held in paragraph 96 of its judgment in [Hoechst] that, where a resident company or its parent have suffered a financial loss from which the authorities of a Member State have benefited as the result of a payment of [ACT], levied on the resident company in respect of dividends paid to its non-resident parent but which would not have been levied on a resident company which had paid dividends to a parent company which was also resident in that Member State, the Treaty provisions on freedom of movement require that resident subsidiaries and their non-resident parent companies should have an effective legal remedy in order to obtain reimbursement or reparation of the loss which they have sustained. 205. It follows from that case law that, where a Member State has levied charges in breach of the rules of Community law, individuals are entitled to reimbursement not only of the tax unduly levied but also of the amounts paid to that State or retained by it which relate directly to that tax. As the Court held in paragraphs 87 and 88 of [Hoechst], that also includes losses constituted by the unavailability of sums of money as a result of a tax being levied prematurely.”

“… obliged to ensure that individuals should have an effective legal remedy enabling them to obtain reimbursement of the tax unlawfully levied on them and the amounts paid to that Member State or withheld by it directly against that tax.”

“In some circumstances, there is no danger that a defendant’s freedom to make his own spending choices will be compromised by ordering him to repay the market value of a benefit. The most obvious example is where the defendant receives money. Money is a universal means of exchange and defendants invariably desire things that money can buy. Hence they are invariably benefited by the receipt of money, and its face value is a reliable measure of their enrichment at the time when they received it.”

“It simply means that although the defendant was enriched by the value received, he need not repay the whole of this value because he has a partial defence to the claim – just as he need not repay it, for example, where the claim is subject to a time bar. To put this in another way, the claimant does not have to show both that the defendant received the value and that he still retains it: he only has to show that the value was received, and subsequent disenrichments must then be proved by the defendant seeking to rely on a change of position defence.”

“The purpose of section 231 was to provide the receiving company with a tax credit equivalent in amount to the ACT payable on the dividend. The tax credit was designed to avoid tax having to be paid twice on the same dividend when tax was paid on its profits by the parent company.”

“… the tax credit was always given, and given only, where the company making the qualifying distribution in respect of which it was given was liable under section 14(1) of the 1988 Act to payment of ACT on an amount equal to the amount or value of the distribution. As Mr Glick for the revenue put it, it was the payment of the ACT that made the giving of the tax credit to the recipient necessary.”

“… the clear scheme of the 1988 Act is that the payment of a dividend should be accompanied by a payment of ACT if a tax credit is to come into existence, and if exceptionally (because of a [group income election]) the payment of a dividend is not accompanied by a payment of ACT, the dividend would not give rise to a tax credit …”

“(1) It is the duty of experts to help the court on matters within their expertise. (2) This duty overrides any obligation to the person from whom experts have received instructions or by whom they are paid.”

“2.1 Expert evidence should be the independent product of the expert uninfluenced by the pressures of litigation. 2.2 Experts should assist the court by providing objective, unbiased opinions on matters within their expertise, and should not assume the role of an advocate.

“35. Further and/or alternatively, if and to the extent that the [Revenue] were initially unjustly enriched, the [Revenue] have in good faith changed their position as a consequence of the payment by the Claimants and/or the Claimants in the FII GLO of the ACT Payments and/or the equivalent payments made by the other Claimants in the FII GLO such that it would now be inequitable and/or unconscionable to require the [Revenue] to make restitution of those sums. PARTICULARS OF CHANGE OF POSITION AND OF INEQUITABILITY AND/OR UNCONSCIONABILITY 36. The sums in question formed part of the United Kingdom’s tax revenue for the relevant year in which they were paid. Those sums have been irretrievably spent, in some cases decades ago. …”

“We should restate the Woolwich principle so as to cover all sums paid to a public authority in response to (and sufficiently causally connected with) an apparent statutory requirement to pay tax which (in fact and in law) is not lawfully due.”

“This sequence of argument may have been unavoidable, but it produced the result that the court heard submissions about the attitude of EU law towards national procedures and remedies – which is an important part of this appeal – before hearing submissions about the English remedies themselves. It is more helpful to start with the issues of English law, and then assess the impact that EU law has on them.”

“336. In the first place, I can see no reason in principle why the defence of change of position should not be available to the Revenue, or indeed to any other category of defendant. No hint of any such limitation is to be found in any of the cases which were drawn to my attention, while there is, on the contrary, widespread recognition that a broadly based defence is needed in order to prevent injustice precisely because of the width and simplicity of the basic principle of unjust enrichment itself. As Lord Goff said at the end of his discussion of the subject in Lipkin Gorman, the availability of the defence will enable a more generous approach to be taken to the recognition of the right to restitution. 337. On the question of what is meant by denial of the defence “to a wrongdoer”

“343. I now turn to the factual elements of the defence. I remind myself that the mere fact that the recipient has spent the money is not enough, and that a causal connection must also be shown, on at least a “but for” basis, between the receipt and any expenditure or other change of position upon which the defendant wishes to rely. Scottish Equitable v Derby suggests, albeit in a very different factual context, that the defence is not limited to specific identifiable items of expenditure, and that it will often be inappropriate to apply too demanding a standard of proof where an honest defendant has spent the money but cannot account for it in detail. How, then, should the court approach the question in a case where the Revenue has received many millions of pounds of mistakenly paid tax over a period stretching back for more than 30 years? 344. To state the obvious, taxation is not imposed for its own sake, but in order to fund government expenditure. It is one of the two main ways in which public expenditure is funded, the other being public sector borrowing. One would expect government spending decisions, at a policy level, to be reached at least in part on the basis of the tax revenues which it has received in the past, and which it expects to receive in the future. Even if tax revenues are not spent immediately, common sense suggests that they will be used up over a fairly short period, and that it is probably safe to assume that tax receipts which predated the claims in the present case by more than six years, and therefore fell outside the scope of a Woolwich claim with its six-year limitation period, will have been exhausted well before the commencement of the action. As a matter of causation, no precise link can be demonstrated between particular receipts and particular items of government expenditure, but common sense again suggests that planned government expenditure would not have taken place at the level which it did but for the availability of the tax receipts which were taken into account in fixing departmental budgets. If all concerned, both the government and the taxpayers, proceeded on the footing that the tax was validly levied, I ask myself what is wrong with the argument that it would now be inequitable to require the Revenue to make restitution for the tax which was paid by mistake, because the money in question has long ago been spent in the public interest, and everybody assumed in good faith that it had been validly levied? I confess that, once the question is stated in these terms, the answer to it seems to me to be obvious. It would in my judgment be inequitable to require repayment in such circumstances, always bearing in mind that the claimants have a perfectly good separate San Giorgio claim for repayment of the unlawfully levied tax itself, free from any change of position defence. 345. It may be objected to my analysis that the necessary causal link is not made out, because it would always have been open to the government to raise the necessary money in a different way (for example by borrowing, or by an increase in tax rates, or by a corresponding cut in expenditure elsewhere, or by a combination of those methods) if the mistakenly paid tax had not been available to it. However, although this argument has superficial attractions, it seems to me to miss the point. What matters is the existence of a causal link between the tax revenues which were in fact received and the expenditure which was actually made. The fact that the money could have been raised in a different way is, in my judgment, neither here nor there. 346. A related objection is that, once departmental spending policy has been fixed and budgeted for, the various items or heads of expenditure should be regarded as commitments which have to be honoured, and are thus analogous with debts which have to be paid off in one way or another, rather like the mortgage in Scottish Equitable v Derby. In my view the answer to this point is again the same. Departmental spending plans are themselves likely to be predicated in part on the receipt of identifiable tax revenues, and (if so) they cannot be treated as purely extraneous obligations which the government would anywhere be under an obligation to fund.”

“The Defendants are entitled to maintain a change of position defence in respect of any mistake-based restitutionary claims which go beyond San Giorgio claims.”

“Issue 12 Is a remedy under Woolwich a sufficient remedy for EU law claims under San Giorgio, or is a remedy in mistake also required? … Issue 15 Is any change of position defence precluded by the wrongdoer principle? Issue 16 Has the Revenue demonstrated a change of position as a matter of fact? Issue 17 Is the defence of change of position available if a mistake remedy is (contrary to the Judge’s findings) not required by EU law for a San Giorgio claim? ”

“191. In any event, on our analysis and decisions, the defence of change of position does not call for consideration. It is common ground that the Community law principle of effectiveness precludes the application of any change of position defence to San Giorgio claims. For the reasons we have given, all the San Giorgio claims fall within the Woolwich cause of action. Claims for restitutionary relief based on mistake are, for the reasons we give, subject to the limitations imposed by s 33 of the Taxes Management Act 1970, the Finance Act 2004, s 320 and the Finance Act 2007, s 107 (see below). We did not understand the Revenue to be arguing for a change of position defence in relation to claims within those statutory provisions since, constrained by those limitations, they would mirror the San Giorgio claims enforceable under Woolwich. 192. In those circumstances it is not necessary to consider the submissions made by each side as to the proper legal tests and approach on change of position and as to the judge’s analysis of the defence. The defence is highly fact-sensitive, and anything we were to say about it would be obiter. The submissions and the judge’s analysis raise important and difficult questions of law and policy: see generally the discussion by Professor Elise Bant in Restitution from the Revenue and Change of Position [2009] LMCLQ 166. In all those circumstances we do not consider it appropriate to comment further on the defence. 193. Accordingly, on this Issue, we conclude for the reasons given above that the defence of change of position does not call for consideration.”

“The Defendants are in principle entitled to maintain a change of position defence in respect of any mistake-based restitutionary claims which go beyond San Giorgio claims.”

“However, Henderson J’s conclusion on the inapplicability of the change of position defence to Woolwich claims can be justified by another route. This can be termed the “stultification” bar to the application of the defence. This arises whenever the application of a particular rule would undermine an overriding policy of the law. In the context of change of position, the bar entails that the defence should be denied where its recognition would stultify the policy reason for ordering restitution. Stultification ought to be the most significant hurdle to public authorities seeking to rely on the defence in circumstances where they have received a benefit pursuant to an unlawful demand. The Woolwich principle rests on judicial recognition of a longstanding and vitally important public interest in prohibiting unlawful demands by public authorities. The policy of prohibiting such demands will be undermined if a public authority is effectively permitted to keep the benefit of the unlawful demand by relying on the defence of change of position.”

“(b) the weight to be attached to the unjust factor is greater than that to be attached to the change of position (as, for example, where the unjust factor is the unlawful obtaining of a benefit by a public authority).”

“The best explanation for this is that the justification for the Woolwich principle outweighs concern for the position of the defendant.”

“In short, as I read the speeches in the Lipkin Gorman case, the essential question is whether it would be inequitable or unconscionable, and thus unjust, to allow the recipient of money paid under a mistake of fact to deny restitution to the payer.”

“… it is submitted that in principle the better view is that public bodies should never be allowed to plead change of position in response to a claim to recover money paid as tax, whatever the ground on which the claim rests. The reason is that allowing them the defence would seriously undermine the constitutional principle that taxation must not be levied without Parliamentary authority, and the wider principle that public bodies are constrained by the rule of law. It would also unfairly cast the burden of paying for the government’s unlawful act onto an innocent taxpayer when this should properly be borne by the public at large. These are the reasons given in Canada for rejecting a defence of fiscal chaos, and in Germany for denying public bodies the change of position defence. The English courts would do well to follow suit …”

“I think that the following propositions are obvious from the foregoing analysis of the cases. First, the defence of change of position is a general defence to all restitution claims (for money or other property) based on unjust enrichment. Secondly, the question is always whether it is unjust to allow the claimant to have restitution in whole or in part. Thirdly, that itself depends on whether the defendant has so changed his position that the injustice of requiring him to repay outweighs the injustice of denying the claimant restitution (in whole or part). That can only be decided on the facts of each individual case. Fourthly, a defendant cannot rely on this defence if he has acted in bad faith or has failed to show good faith, which is not the same thing as having acted dishonestly.”

“As [Lord Goff] put it, at p 373C, a blanket rule of non-recovery, irrespective of the justice of the case, could not survive in a rubric of the law based on the principle of unjust enrichment. Instead it was for the law to evolve appropriate defences which could, together with the acknowledged defence of change of position, provide protection where appropriate for recipients of money paid under a mistake of law in those cases in which justice or policy does not require them to refund the money.”

“As Lord Goff recognised in the Woolwich and Kleinwort Benson cases, there are strong policy arguments in favour of a general common law right of recovery of wrongly exacted tax, and also strong countervailing arguments in favour of some restrictions on that right of recovery, especially as the defence of change of position could seldom, if ever, apply to wrongfully exacted tax. But the balancing of these high policy arguments is essentially a matter for the legislature.”

“Moreover, it is imperative not to lose sight of the consequence of acceding to the Test Claimants’ argument. It would produce what reasonable people looking at this case would surely regard as the grotesque result in policy and principle that claimants can go back and back, right to the start of the ACT system, and reclaim tax and interest even though the Government was acting in good faith and has irretrievably spent the money years ago in the public interest. The Test Claimants present the policies as if the only legitimate way of protecting defendants is for Parliament to reform limitation periods (which of course it has tried to do albeit without success for the purposes of this case). But that ignores the established common law method of protecting defendants against restitutionary claims which is the change of position defence.”

“The defendant has a defence to the extent that – (a) the defendant’s position has changed as a consequence of, or in anticipatory reliance on, obtaining the benefit, and (b) the change is such that the defendant would be worse off by making restitution than if the defendant had not obtained, or relied in anticipation on obtaining, the benefit.”

“30. The judge noted the view, put forward by Andrew Burrows (The Law of Restitution (1993) pp 425-428) that there is a narrow and a wide version of the defence of change of position, and that the wide view is to be preferred. The narrow view treats the defence as “the same as estoppel minus the representation” (so that detrimental reliance is still a necessary ingredient). The wide view looks to a change of position, causally linked to the mistaken receipt, which makes it inequitable for the recipient to be required to make restitution. In many cases either test produces the same result, but the wide view extends protection to (for example) an innocent recipient of a payment which is later stolen from him … 31. In this court [Counsel for Scottish Equitable] did not argue against the correctness of the wide view, provided that the need for a sufficient causal link is clearly recognised. The fact that the recipient may have suffered some misfortune (such as a breakdown in his health, or the loss of his job) is not a defence unless the misfortune is causally linked (at least on a “but for” test) with the mistaken receipt. In my view [Counsel] was right to make that concession …”

“I have been observing and commenting on it and reading material about that process.”

“(a) It is not possible to know with certainty either how the Government deployed the overpayments in question, or what it would have done had the overpayments not occurred. (b) The UK Government does not normally hypothecate revenue to particular uses and did not hypothecate the overpayments to a particular use. (c) In general terms, the overpayments could have led to: (i) reduced borrowing; (ii) increased spending; (iii) discretionary tax reductions; or (iv) some combination of (i), (ii) and (iii). (d) There are a wide range of factors which the Government takes into account in setting its borrowing, tax and spending plans. (e) In the long-run, tax receipts and spending are related to each other. (f) In the short-run, tax receipts, spending and borrowing can all fluctuate significantly and there are often variations from forecasts and plans. (g) In response to large external shocks, the Government relies on borrowing to take some of the strain in the short-term, with spending and/or taxes adjusting over time. (h) Borrowing and spending can each be adjusted by smaller amounts in the short-term. (i) The overpayments by BAT were, in any one year, very small in relation to total Government revenues or spending, but were of a size that is equivalent to or larger than the bulk of payments that the Government receives from companies and individuals. (j) The interest rate proposed by Professor Myles, based on 10-year bonds, is a reasonable measure of the cost of UK Government borrowing over the period since 1973/74.”

“88. … The answer therefore on what happened to the payments of ACT could be characterised as that it was all used elsewhere – to fund spending or reduce other taxes – to meet the Government’s objectives. 89. My experience in Government over a number of years is that this is a realistic description of the situation. Ministers look to use the resources available to them to the maximum degree possible to meet their objectives. Although tax changes are generally (not always) only made at the time of the Budget, spending decisions and allocations are regularly changed several times within the year, in response to changing forecasts and events. Having approved the initial estimates, Parliament’s approval is regularly sought for Supplementary Estimates later in the year. The last such Supplementary is submitted in March, just one month before the Government’s financial year ends, allowing adjustments to be made to spending decisions in the final month.”

“This approach is arguably generous, especially given my experience that Ministers in practice use the resources available to them to the fullest extent possible. But this approach, in which the initial payments of ACT are allocated between current spending, capital expenditure and reducing debt in proportion to the overall use of resources, is relatively simple. In the absence of any means of tracing whether the specific payments in question were actually put to extra spending, reducing taxes or reducing borrowing, it is, in my opinion, a fair approximation. I consider it is more likely to be closer to reflecting the actual use than either of the more extreme assumptions that all the payments were put exclusively to extra spending or exclusively to reducing borrowing. It also allows us to address the issue of change of position. Therefore it is the approach that I am proposing.”

“This measure indicates the relative weight that the Government placed on the competing pressures to spend, [reduce] tax revenue and reduce borrowing. The relative amount of borrowing indicates the way in which the Government has chosen to resolve this tension at an aggregate level. And the larger the deficit, the more priority the Government would likely have given to avoiding still higher borrowing.”

“14. In my evidence set out below, I have considered the approach to public finances in the UK over the period since 1973/74 and the statistical relationship between various measures of public spending and taxation. My main conclusions are as follows. (1) The level of public spending in the UK is influenced by a wide range of factors, including the health of the economy, future economic growth prospects, the political priorities of the government, and social and demographic trends, as well as the state of public finances. (2) Since 1973/74, the UK has been able to borrow frequently on the bond markets – maintaining its AAA sovereign borrowing rating until very recently … (3) As a result of its strong credit rating, UK borrowing and public debt levels have been able to fluctuate considerably over the period since 1973/74 without seriously impacting its borrowing status. The key issue influencing the response of financial markets to changes in UK public finances over this period has been broader confidence in economic policy and the medium term financial framework. While this broader confidence has been maintained, significant short-term movements in levels of public sector deficits and debt have been accommodated. (4) While there is clearly a long-term relationship between government revenues and spending, this operates in both directions – with the level of spending affecting the need to raise revenue as well as vice versa. When we have seen big disturbances in tax revenues due to changes in economic conditions – as in the mid-70s, early-90s and during the recent financial crisis – on average it has taken around 10 years for the full adjustment to take place. In the meantime, it is public borrowing which has taken the strain. (5) Statistical analysis shows that, over much shorter time-horizons, changes in tax revenues have a very limited impact on actual levels of government expenditure or spending plans. In periods from one to five years, the statistical relationship between changes in public spending and taxation is very weak. This view is also backed up by an analysis of how spending plans adjusted to changing revenue forecasts in the 1980s and 1990s. (6) The amounts of tax overpayments in this case do not appear to be material in terms of the planning of public finances in total. The overpayments were not sufficiently large to change the reported profile of tax receipts, and - to the government – represented on average a net receipt of 0.005% of tax receipts between 1973/74 and 2000/01 … 15. This analysis informs my assessment of the evidence provided by Sir Jonathan Stephens and Professor Gareth Myles. An important element of their evidence is that the UK government spent the bulk of the tax revenues in dispute – within one or two years of the revenue arising. As a result, they argue that there is little benefit to the government remaining from the tax overpayments, supporting this with a detailed model of public finances. However, their approach and analysis rests on many arbitrary and questionable assumptions and does not represent a robust methodology for evaluating this claim. (1) Their methodology implies that changes in government revenue would be reflected in immediate variations in government spending, which is not consistent with the way in which public finances were managed in practice over the relevant period. (2) Their analysis does not recognise the significant flexibility that the UK government has exercised over the relevant period in allowing public borrowing and debt levels to “take the strain” in managing public finances. (3) They do not recognise any continuing benefit to the economy and to the government from current public spending. Money allocated to current spending is deemed to be “irretrievably spent” and only capital spending creates a lasting benefit for government. Yet there are significant benefits to the economy and society from current public spending which includes any elements which add to the productive capacity of the economy in the same way as capital spending – for example through its effect on the health, wellbeing and skill levels of the workforce. (4) Their treatment of debt interest is abnormal and counter-intuitive in terms of conventional economic thinking. Instead of the normal convention of compound interest, where the value of debt interest saved would accumulate over time, debt interest saved is assumed to boost current public spending – which is then assumed to be “irretrievably spent” by the government – and hence disappears from their modelled calculations. In my opinion, this is not a sound basis for evaluating the impact on government finances of past overpayments of tax.” (1) The level of public spending in the UK is influenced by a wide range of factors, including the health of the economy, future economic growth prospects, the political priorities of the government, and social and demographic trends, as well as the state of public finances. (2) Since 1973/74, the UK has been able to borrow frequently on the bond markets – maintaining its AAA sovereign borrowing rating until very recently … (3) As a result of its strong credit rating, UK borrowing and public debt levels have been able to fluctuate considerably over the period since 1973/74 without seriously impacting its borrowing status. The key issue influencing the response of financial markets to changes in UK public finances over this period has been broader confidence in economic policy and the medium term financial framework. While this broader confidence has been maintained, significant short-term movements in levels of public sector deficits and debt have been accommodated. (4) While there is clearly a long-term relationship between government revenues and spending, this operates in both directions – with the level of spending affecting the need to raise revenue as well as vice versa. When we have seen big disturbances in tax revenues due to changes in economic conditions – as in the mid-70s, early-90s and during the recent financial crisis – on average it has taken around 10 years for the full adjustment to take place. In the meantime, it is public borrowing which has taken the strain. (5) Statistical analysis shows that, over much shorter time-horizons, changes in tax revenues have a very limited impact on actual levels of government expenditure or spending plans. In periods from one to five years, the statistical relationship between changes in public spending and taxation is very weak. This view is also backed up by an analysis of how spending plans adjusted to changing revenue forecasts in the 1980s and 1990s. (6) The amounts of tax overpayments in this case do not appear to be material in terms of the planning of public finances in total. The overpayments were not sufficiently large to change the reported profile of tax receipts, and - to the government – represented on average a net receipt of 0.005% of tax receipts between 1973/74 and 2000/01 … (1) Their methodology implies that changes in government revenue would be reflected in immediate variations in government spending, which is not consistent with the way in which public finances were managed in practice over the relevant period. (2) Their analysis does not recognise the significant flexibility that the UK government has exercised over the relevant period in allowing public borrowing and debt levels to “take the strain” in managing public finances. (3) They do not recognise any continuing benefit to the economy and to the government from current public spending. Money allocated to current spending is deemed to be “irretrievably spent” and only capital spending creates a lasting benefit for government. Yet there are significant benefits to the economy and society from current public spending which includes any elements which add to the productive capacity of the economy in the same way as capital spending – for example through its effect on the health, wellbeing and skill levels of the workforce. (4) Their treatment of debt interest is abnormal and counter-intuitive in terms of conventional economic thinking. Instead of the normal convention of compound interest, where the value of debt interest saved would accumulate over time, debt interest saved is assumed to boost current public spending – which is then assumed to be “irretrievably spent” by the government – and hence disappears from their modelled calculations. In my opinion, this is not a sound basis for evaluating the impact on government finances of past overpayments of tax.”

“Q. And when [ministers] were neither relaxed nor unrelaxed, borrowing would be the shock absorber for the time being? A. In the short term, borrowing always – as I think I recognise in my statement – takes some of the strain. Q. And how much of the strain, it all depends, does it? Is that what you are really saying? A. Yes; yes. Q. And just to make sure I understand the correlation between tax receipts and expenditure, you are talking about the correlation between tax receipts and total managed expenditure, rather than current government expenditure. Is that correct? A. Yes.”

“In a world where decisions on the appropriate level of deficit take primacy, the relative levels of taxation and spending simply follow.”

“1. In a situation in which, under national law, taxpayers have a choice between two possible causes of action as regards the recovery of tax levied in breach of European Union law, one of which benefits from a longer limitation period, the principles of effectiveness, legal certainty and the protection of legitimate expectations preclude national legislation curtailing that limitation period without notice and retroactively.”

“302. In sum, my overall conclusion on the difficult question of the meaning of the “adequate indemnity” test in paragraph 29 of the ECJ’s judgment is that it requires payment of an amount of interest which is broadly commensurate with the loss suffered by the taxpayer of the use value of the tax which he has overpaid, running from the date of payment until the date of repayment.”

“419. If I have correctly understood the judgment of the ECJ in the present case, it seems clear to me that the claimants will only receive an “adequate indemnity” for their loss occasioned by the overpayments of VAT if they are paid, at least, a sum which represents the use value of the overpayments in the hands of the Government. Strictly speaking, the use value which EU law entitles them to receive is the lost use value to themselves of the sums overpaid. It is common ground that such value would be greater than the use value to the Government, given the Government’s ability to borrow at below ordinary market rates. The claimants are, of course, not compelled to seek to recover the maximum remedy afforded to them by EU law, and nobody suggests that they have forfeited their right to claim compound interest merely because they are content to limit their claim to the use value of the overpaid tax in the Government’s hands rather than their own. 420. It was necessary to award compound interest in Sempra so as to satisfy that company’s right under EU law to be paid the use value of the prematurely levied ACT. Now the ECJ has confirmed that there is a right to interest under EU law in respect of all repayments of taxes levied contrary to EU law, the same consequences must in my judgment follow. Only compound interest will suffice to satisfy the claimants’ EU law right to interest. I would therefore hold that the Revenue’s attempt to limit the restitution which it has to make to the benefit which it actually received from the overpayments is contrary to EU law, even it be assumed that, in a purely domestic context, this is all the English law of restitution would require.”

“If it is correct to compute any component of the restitution due to the Claimants by reference to interest, what interest rates and rests are to be applied?”

“46. The key point is that at the present time there are financial transactions available that permit money to be carried forward into the future (saving) or to be brought from the future to the present (borrowing). In a developed financial system such as that in the UK these transactions will be almost risk-free. These financial transactions ensure that the rate of discount used in the present value calculation is equal to the rate of interest. The rate of discount is only affected by personal attitudes when there is risk about the future receipt of payments. 47. Now consider the very different question of placing a present value on the receipt of £100 a year ago. Following the approach set out above to valuing a future receipt the principle is to find the amount today that is equivalent to the past receipt. 48. The fundamental difference between the two situations is that there are no financial transactions that can transfer money backward in time. Nor are there any contracts one can enter into today to bring money forward from the past. This should be distinguished from the act of saving in the past to carry money into the present. When viewed from the present this is an action that cannot be undertaken. 49. Therefore, it has to be concluded that the present value of a sum of money in the past cannot be determined by an arbitrage argument using financial transactions. For this reason there is no established principle to which appeal can be made to determine the present value of a past amount. The “time value of money” is not simply obtained by compounding.”

“The correct position is that the present benefit of past revenues received by the government can only be determined by analysing how the government used those revenues. Since there is no hypothecation it is not possible to identify the use of any particular funds. The question therefore requires an empirical answer based on the average use of resources by the government.”

“85. The third substantive problem I see with the valuation model set out by the HMRC experts concerns their treatment of debt interest. The modelling carried out by Professor Myles is abnormal and counter-intuitive as it substantially reduces the size of the claim relative to more conventional economic methodologies. In normal circumstances, the value of money that has been received by an organisation or entity over a prolonged period would be expected to attract interest – and this interest would compound over time. The UK government is a large borrower, and so to the extent that it receives money – due to overpaid taxes – that it would otherwise have borrowed on the capital markets, it receives a benefit. In normal circumstances, that benefit will accumulate over time in money terms as the interest saved reduces the amount of debt that has to be rolled over. Effectively, compound interest reflects this process. 86. Professor Myles adopts a very different approach. He assumes – like additional revenue – that the bulk of the interest saved allows a boost to public spending, with a small proportion allocated to deficit reduction. As the vast majority of this increase in public spending flows through to current expenditure, it is then assumed to be “irretrievably spent”, like the substantial part of the initial tax overpayment. As a result, the compounding effect is put into reverse. Professor Myles’ formula degrades, rather than compounds, debt interest. As a result of this approach, and the other assumptions Professor Myles uses in his model based on Sir Jonathan Stephens’ report, the valuation he arrives at is just over £34m. To put this into context, it is less than 10% the value of the overpaid tax uprated to 2012/13 prices …, even before any interest is added.”

“These are valuations where there has been a mispayment in the past of some form or some sum of money in the past that then needs to be compensated for in the present, which seems similar to what we have here.”

“The crucial insight in the speeches of Lord Nicholls and Lord Hope is, if I may respectfully say so, the recognition that what Lord Nicholls calls income benefits are more accurately characterised as an integral part of the overall benefit obtained by a defendant who is unjustly enriched. Full restitution requires the whole benefit to be recouped by the enriched party: otherwise “the unravelling would be partial only” …”

“36. Furthermore the interest in question in the present case is, as the Court of Justice stressed … the principal sum itself. In my opinion the decision in the Westdeutsche case does not address this point. We were not asked to overrule that decision, because it is distinguishable on this ground. Furthermore, the basis of Sempra’s claim, as the common law has now recognised, is unjust enrichment. I do not think that it is open to the common law, when it is providing a remedy in unjust enrichment, to decline to apply the principle on which that remedy is founded when the principal sum to be awarded is being calculated. As Lord Nichols points out (see para 99), there is now ample authority to the effect that interest losses which are recoverable as damages should be calculated on a compound basis where the evidence shows that this is appropriate. The same rule should be applied to the restitutionary remedy at common law.”

“267. The unlawful payments of ACT made from 1973 to 1999, and the unlawful payments of ACT made under the FID regime from 1994 to 1999, were in my view plainly made under a mistake about the lawfulness of the tax regimes under which they were paid. I am satisfied from the evidence, both written and oral, that this was not obvious to anybody within the BAT group at the time, since everybody proceeded on the footing that the tax in question was lawfully due and payable. There was no question of paying the tax under protest, as in Woolwich. It is only now, in the light of the decision of the ECJ, that a mistake can be seen to have been made.”

“It is from these documents and the conversations with our tax advisers which followed that we became aware of the argument that ACT paid in the circumstances of BAT might be a breach of Community law and might be recoverable.”

“Before Park J gave judgment in [DMG] on 18 July 2003, no one could reasonably have counted on being able to recover tax on the ground of mistake of law. They might have thought that there were strong arguments to that effect, but I do not believe that they could reasonably have assumed when deciding how long they had in which to bring their claims that those arguments would prevail. Even after Park J’s judgment, the right to recover tax on the ground of mistake of law was being challenged on appeal on serious grounds. The existence of such a right was rejected by the Court of Appeal [2006] Ch 243 and was not definitively established until the judgment of the House of Lords [2007] 1 AC 558 on 25 October 2006.”

“202. It is right to point out that this is substantially the same principle as that on which the test claimants themselves rely when they say (with the support of the House of Lords in Deutsche Morgan Grenfell) that they cannot be taken to have discovered their mistake about the lawfulness of the United Kingdom’s corporation tax regime until the Court of Justice definitively decided the point. By the same token, the test claimants cannot be taken to have assumed that they had a right to recover the tax on the ground of mistake at a stage when they had arguments and hopes but no definitive decision.”

“111. Lord Sumption holds, at para 199, that reasonable persons in the position of the test claimants would not, until Park J’s judgment in DMG on 18 July 2003, have counted on being able to recover tax on the ground of mistake of law; and that even after that decision the existence of such a claim was being challenged on serious grounds. He concludes from that proposition that no one in the position of the test claimants could have had a reasonable and realistic expectation of recovering tax on the ground of mistake. 112. I cannot disagree with that conclusion …”

“After 1998 English lawyers knew that the recovery of money paid under a mistake of law (perhaps including a mistake of tax law, subject to arguments on exclusive remedies) had become a real possibility, although it was by no means a firmly established cause of action. But until the decision of the Court of Justice in [Hoechst] on 8 March 2001 there was no general appreciation that the UK corporation tax regime was seriously open to challenge as infringing the Treaty. Henderson J did not make any detailed findings about this, since the principle of legitimate expectations does not seems to have been argued as a separate issue before him. But he did … make a general finding of fact about mistake: [Lord Walker then quoted paragraph 267 of FII (High Court) I down to the words “was lawfully due and payable”] 104. After 8 March 2001 a well advised multi-national group based in the UK would have had good grounds for supposing that it had a valid claim to recover ACT levied contrary to EU law, with at least a reasonable prospect that the running of time could be postponed until then (but not subsequently) by the operation of section 32(1)(c) of the Limitation Act 1980. During 2002 the opinion of the Advocate General and the judgment of the Court of Justice in M & S, while possibly not adding much to the earlier jurisprudence, spelled out very clearly, for UK companies and lawyers, both the capacity and the limits of national legislation in curtailing limitation periods in proceedings for recovery of tax levied in breach of EU law.”

“Under section 32(1)(c) of the 1980 Act, the limitation period applicable to that action began to run from discovery of the mistake of law giving rise to the payment of the tax, in the present case, the date of delivery of the judgment in the Metallgesellschaft case, namely 8 March 2001.”