Elite Mobile Plc, R (on the application of) v Customs & Excise

Where a public authority has repaid a debt before judgment, the High Court may still award interest under section 35A(3) of the Supreme Court Act 1981 in proceedings that include a claim for interest. The rate is discretionary and the judgment-debt rate is only a convenient starting point. The court may take account of statutory VAT interest rates, particularly where the statutory entitlement remains uncertain. Section 78 of the Value Added Tax Act 1994 is not an exclusive code, but it may displace section 35A under section 35A(4) where interest already runs. Community law supplies an obligation or rate only where domestic provisions provide no interest, or rates so unfairly low that they are unjust. The statutory care-and-management power in Schedule 11 does not itself authorise interest payments.

Elite Mobile plc became entitled to substantial VAT credits. Customs initially withheld payment by setting the credits off against a disputed VAT assessment, but later withdrew that decision and repaid the principal sums before judgment, offering interest under section 78 of the Value Added Tax Act 1994.

Elite sought interest at 8%, relying principally on section 35A of the Supreme Court Act 1981, Community law and, alternatively, Schedule 11 to the VATA. A separate claim for a repayment supplement under section 79 remained before the VAT Tribunal. The central questions were whether section 35A(3) applied after repayment before judgment, whether section 78 displaced it, and whether Community law or Schedule 11 required a higher rate.

1. Application and section 35A(3). Although section 35A(1) was inapplicable because there could be no judgment for the principal debt, section 35A(3) applied. Proceedings originally seeking recovery of the debt remained capable of including a claim for interest, particularly where the claim form sought further relief and the fresh grounds concerned interest. Once the debt had been paid, the court could order simple interest, but no obligation arose until the court fixed the rate.
2. Interaction with section 78. The word “error” in section 78 was not confined to inadvertence. The circumstances constituted official error, and section 78 would ordinarily impose a mandatory liability. However, section 78(2)(a) temporarily excluded interest because the VAT credits fell to be increased by a possible repayment supplement under section 79. Section 35A(4) therefore did not yet require section 35A to yield to interest actually running under section 78.
3. Rate. Pinnock v Wilkins (unreported, Court of Appeal, 23 January 1990) established that the judgment-debt rate could be a convenient starting point, subject to all the circumstances. The court considered the uncertainty concerning the section 79 supplement, the risk of later adjustment, and the absence of legislative machinery for recovering excessive interim interest. It fixed the section 78 rates as convenient and just. The statutory rates were relevant but did not form an exclusive code.
4. Community law and Schedule 11. Garage Molenheide BVBA v Belgium and The Queen (on the application of UK Tradecorp Ltd) v Commissioners of Customs & Excise supported intervention where domestic law supplied no interest or an unfairly low rate. The section 78 rates were not materially out of step with commercial rates and were not unjust. Schedule 11 paragraph 1(1) concerned the care and management of VAT and did not itself create an obligation to pay interest.
5. Permission to apply for judicial review was granted. The court’s provisional view was that declarations should specify the sums, periods and rates of interest payable, with the rates being those offered by Customs under section 78.