#6842 - Test Claimants In Fii Group Litigation V. Irc I - Restitution of Unjust Enrichment BCL

Test Claimants in FII Group Litigation v. Commissioners of Inland Revenue

Facts

The case arose from the fact that, after the decision of the European Court in Hazel which held that the discriminatory tax structure which provided for exemption for ACT payments to companies resident in the UK was held unlawful by the EU Court, the UK government effected several amendments to the internal tax law. One of them was to reduce the period of limitation for actions based on mistaken payments from 6 to 3 years. Another was to provide that the limitation period runs from the date of payment and not from the date when the mistake was discovered, or was with reasonable diligence discoverable.

The argument of the assesse here (ironically) was that the remedy in Woolwich was not available to them – this argument was based on the assessee’s contention that that remedy is available only when tax had been paid in pursuance of a demand made by the Revenue. Since the tax here was paid by means of voluntary self-assessment, that was held inapplicable. This would lead to the result that the only remedy for tax collected in accordance with a scheme that was invalidated by Hazel would be the one provided by Deutche Morgan Greenfell. The assesse sought to rely on this fact to argue that the amendments to UK law meant that they did not have an effective remedy for breach of EU law.

Holding

Lord Walker

Mr Rabinowitz criticised the Court of Appeal's reasoning and conclusion on the following grounds (in very brief summary): first, that it was contrary to binding authority, that is the decisions of the House of Lords in Woolwich and DMG; second, that it was contrary to what he described as the "conventional understanding" of Woolwich; third, that it would create uncertainty, both as to the boundaries of any extended Woolwich principle and in the general development of the law of unjust enrichment.

The Law Commission in its report, Restitution: Mistakes of Law and Ultra Vires Public Authority Receipts and Payments (1994) (Law Com No 227) took the view that a demand was not necessary, in these words:

“Lord Goff's reasons for the new restitutionary right, described above, also sustain these inferences, as they are based on the special position of the state and other public bodies. They do not focus on the particular requirements of a 'demand' or a 'tax'; but on the manifest injustice of allowing monies unlawfully extracted from the subject by a public authority to be retained by it.”

These high principles should not depend on the details of the procedure adopted for the levying and payment of any particular tax, especially in an age when (for reasons of economy and efficiency) the trend is towards self-assessment of as many taxes as possible. ACT was self-assessed, as already noted, and so was the tax which HMRC sought to charge under the ultra vires Income Tax (Building Societies) Regulations 1986 inWoolwich.

“Perceived obligation to pay” – Not Demand

In these circumstances it is in my view open to this court (whether or not it was strictly open to the Court of Appeal) to state clearly that where tax is purportedly charged without lawful parliamentary authority, a claim for repayment arises regardless of any official demand (unless the payment was, on the facts, made in order to close the transaction). The same effect would be produced by saying that the statutory text is itself a sufficient demand, but the simpler and more direct course is to put the matter in terms of a perceived obligation to pay, rather than an implicit demand.

Wilson J in her well known dissent inAir Canada v British Columbia(1989) 59 DLR (4^th) 161, 169:

“It is, however, my view that payments made under unconstitutional legislation are not 'voluntary' in a sense which should prejudice the taxpayer. The taxpayer, assuming the validity of the statute as I believe it is entitled to do, considers itself obligated to pay. Citizens are expected to be law-abiding. They are expected to pay their taxes. Pay first and object later is the general rule. The payments are made pursuant to a perceived obligation to pay which results from the combined presumption of constitutional validity of duly enacted legislation and the holding out of such validity by the legislature. In such circumstances I consider it quite unrealistic to expect the taxpayer to make its payments 'under protest'.”

Lord Goff stated in Woolwich that he found this reasoning "most attractive." The Supreme Court of Canada has in recent years, in a judgment of the Court delivered by Bastarache J, unanimously approved this passage from her dissenting speech: Kingstreet Investments Ltd v New Brunswick (Finance) [2007] 1 SCR 3, para 55. In my view English law should follow the same course. 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 does not equate to absence of basis

Mr Rabinowitz suggested that there would also be uncertainty in the general development of the English law of unjust enrichment. There is vigorous debate among legal scholars on this topic at present, and uncertainty as to the outcome. But to decide that an official demand is not a prerequisite to a claim for the recovery of tax paid when not due ought not to add appreciably to the uncertainty. It would not be a decisive step towards a general "absence of basis" principle in place of the "unjust factors" approach that has prevailed in the past. It would merely be creating, in Mr Rabinowitz's metaphor, a rather larger island of recovery in respect of undue tax.

Lord Sumption

Background

The issue on this appeal is whether the United Kingdom was entitled to change the law relating to the running of the limitation period, without notice or transitional provisions for actions which were pending or in the pipeline. The commissioners say that the change related only to actions to recover tax paid under a mistake of law and that there are other causes of action unaffected by the change which satisfy the United Kingdom's obligation to provide an effective means of recovering the tax. The Test Claimants say, in bald summary, (i) that every cause of action available to them for common law restitution is, on analysis, an action for relief against the consequences of a mistake and therefore affected by the change, (ii) that so far as there are other causes of action available to them which are not affected by the change, they are subject to legal limitations which make it impossible to regard them as an effective means of recovery, and (iii) that irrespective of the fate of points (i) and (ii) the United Kingdom was not entitled to curtail, without notice or transitional provisions, the availability of any cause of action which might serve their purpose.

Whether a “demand” is required?

In spite of the importance attached to this point in argument, it can I think be dealt with quite shortly. The speeches of the majority in Woolwich Equitable [1993] AC 70 are full of expressions which, read literally and out of their analytical context, might support the suggestion that the cause of action recognised in that case...