Littlewoods Retail Ltd & Ors v HM Revenue and Customs

Sections 78 and 80 of the Value Added Tax Act 1994 form an exhaustive regime for repayment of overpaid VAT and statutory interest where their express conditions apply. At English law, they exclude Woolwich and mistake-based restitutionary claims for additional interest. The statutory provisions cannot be read differently merely to conform to a possible EU right to recover the use value of overpaid tax; if such a right exists, dis-application rather than interpretation would be required. A change of position defence is available to a mistake-based restitutionary claim, but not to a Woolwich claim founded on unlawful exaction. The assessment of restitution is concerned with the recipient’s enrichment, not the claimant’s loss. The court provisionally preferred a Woolwich remedy if EU law required further relief, and referred questions concerning the EU remedy and available defences to the ECJ.

Fifteen companies in the Littlewoods group claimed compound interest on VAT overpayments made between 1973 and 20 October 2004. Principal sums and statutory simple interest had largely been repaid under sections 78 and 80 of the Value Added Tax Act 1994. The claims for the further time value of the money were advanced both on the Woolwich restitutionary basis and for mistake of law.

The trial was confined to liability issues. Some related VAT disputes remained before the First-tier Tribunal. The court considered whether the statutory regime excluded the common-law claims, whether that exclusion was compatible with EU law, the appropriate domestic remedy if it was not, the availability and factual basis of change of position and exhaustion of benefits arguments, and the measure of any restitutionary recovery.

1. As a matter of English law, sections 78 and 80 of the Value Added Tax Act 1994 applied directly to the overpayments and created a closely regulated and exhaustive regime for repayment and interest. The exclusionary words in section 78(1) referred to other statutory interest provisions, such as section 85A, rather than preserving common-law restitutionary claims. The Woolwich and mistake-based claims were therefore excluded.

2. The court considered the EU-law issue unresolved and referred questions to the ECJ. Its provisional view was that repayment of principal and statutory simple interest might satisfy EU law, but the final answer depended on the scope of the San Giorgio principle and whether it required recovery of the use value of the overpayment.

3. If EU law required further relief, sections 78 and 80 could not be construed so as to permit compound common-law interest without contradicting the legislation’s fundamental features. They would instead have to be dis-applied. Provisionally, only the Woolwich claim should be permitted, because it was generally available for unlawful exaction whereas a mistake-based claim depended on proof of an appropriate mistake.

4. A change of position defence was available to a mistake-based restitutionary claim but not to a Woolwich claim. The Woolwich claim remained founded on the unlawful exaction of tax, and the defence was not presently available against a wrongdoer. An exhaustion of benefits argument was similarly available only insofar as it was a species of change of position.

5. The Commissioners had not established change of position on the facts. They failed to prove that government spending decisions had increased because of the overpayments. The government had nevertheless received a benefit by the end of each fiscal year, and the extent of any later benefit was a matter for quantum rather than a true change of position defence.

6. Following Sempra Metals Ltd v Inland Revenue Commissioners [2008] 1 AC 561, the provisional measure of restitution was compound interest reflecting the cost of national government borrowing, subject to proof that the Commissioners had benefited less. The measure was not limited by the claimant’s loss.

7. The issues affected by EU law were provisional and the proceedings were not finally concluded. The court would hear counsel on the precise reference under CPR Part 68 and determine the remaining issues after the ECJ’s ruling.

The judgment was a first-instance decision. It recorded that certain related VAT issues were stayed before the First-tier Tribunal and that the court would refer questions of EU law to the ECJ before finally concluding the liability issues.