FJ Chalke Ltd & Anor v Revenue & Customs

A reasonable domestic limitation period may be applied to claims enforcing directly effective Community-law rights. It must be no less favourable than the period for comparable domestic claims and must not make enforcement virtually impossible or excessively difficult.

A mistake extends time under section 32(1)(c) of the Limitation Act 1980 only where it is an essential element of the cause of action. Ignorance of the applicable law or of a possible remedy does not ordinarily suspend time. A payment or acknowledgment cannot revive a claim already barred under section 29(7).

F.J. Chalke Limited and A.C. Barnes (Wokingham) Limited had paid VAT on manufacturers’ bonuses and on the onward sale of demonstrator vehicles. The principal sums and simple interest had been repaid. The claimants then sought compound interest, relying on Community-law principles and domestic restitution.

Henderson J dismissed both claims. He held that the claims were time-barred, that later statutory repayments did not acknowledge the separate restitutionary claims, and that the Community-law principle of effectiveness did not suspend limitation. The claimants appealed those conclusions. HMRC also challenged the finding that Community law might require compound interest. The central issues were the operation of limitation and acknowledgment rules, and whether Community law required an extension or suspension of time.

The appeal was dismissed unanimously. Etherton LJ gave the judgment, with Patten and Mummery LJJ agreeing.

1. Compound interest under Community law. The court considered that the interaction between the San Giorgio principle, the principles of effectiveness and equivalence, and compound interest on overpaid VAT was not clear. The issue was sufficiently important to justify a reference to the Court of Justice when a proper opportunity arose. No reference was necessary in these proceedings because the claims were time-barred.
2. Section 32(1)(c). The Court of Appeal’s decision in Test Claimants in the Franked Investment Group Litigation v IRC, [2010] EWCA Civ 103, was binding. A mistake is relevant under section 32(1)(c) of the Limitation Act 1980 only if it is an essential element of the cause of action. The claimants’ mistakes about the three-year cap and compound interest did not qualify. Their extended limitation periods therefore expired by June 2003.
3. Acknowledgment and part payment. Section 29(7) of the Limitation Act 1980 prevented a right of action already barred by limitation from being revived by a later payment or acknowledgment. In any event, the 2004 payments were made under the statutory VAT scheme and did not relate to the separate common-law restitutionary claims for compound interest.
4. Effectiveness and limitation. A national limitation rule is compatible with Community law where it is equivalent to the rule for comparable domestic claims and leaves an effective period for enforcement. The claimants had approximately one year after Marks & Spencer v Customs and Excise Commissioners, Case C-62/00, to sue before the extended period expired. That was adequate. Ignorance of the right to compound interest, or the subsequent development of domestic law in Sempra, did not alter the result.
5. Section 121 of the Finance Act 2008. Section 121 concerned the statutory three-year cap on claims under section 80 of the Value Added Tax Act 1994. It did not extend time for separate restitutionary claims. The court therefore left the alternative defences and the pre-1978 issue undecided.

1. Court of Appeal (Civil Division): dismissed the appeal from Henderson J’s judgment.
2. High Court (Chancery Division): Henderson J, judgment handed down on 8 May 2009, dismissed the claims for compound interest.