Jazztel Plc v The Commissioners for HMRC

EU law permits reasonable limitation periods for recovering unlawfully levied tax, but retrospective shortening requires clear and adequate transitional arrangements fixed in advance. Without them, the defect is structural. The shortened period must be disapplied for claims accrued before the change until compliant arrangements are promulgated.

Actual or constructive knowledge of the right to claim is not itself required by EU law. For domestic limitation under section 32(1)(c) of the Limitation Act 1980, discovery occurs when the claimant knows, or could with reasonable diligence know, that a worthwhile mistake-based claim exists. A taxpayer who has made an effective repayment claim cannot deny discovery. HMRC’s appeal was allowed in part and claims concerning Payments 1 to 22 were held statute-barred.

Jazztel claimed restitution of unlawfully levied stamp duty reserve tax and related relief from HMRC. The payments were made between 2000 and 2008. The High Court found that they had been made under a mistake and held, in the judgment under appeal, that the retrospective limitation provision in section 320 of the Finance Act 2004 could not defeat claims concerning payments made before 8 September 2003, but did defeat later claims.

HMRC appealed the first conclusion. Jazztel challenged the second, while accepting that the post-8 September 2003 issue had been resolved against it below by Leeds City Council. HMRC also sought permission to rely on the Supreme Court’s later interpretation of section 32 of the Limitation Act 1980. The central questions were whether section 320 required disapplication for accrued claims and whether Jazztel had discovered its mistake more than six years before issuing proceedings.

1. Retrospective limitation. Newey LJ and Sir Launcelot Henderson held that EU law does not require actual or constructive knowledge of a tax right before a reasonable limitation period expires. However, the retrospective shortening of a limitation period for accrued claims, without express transitional arrangements, leaves a structural defect in the legislation. The court cannot cure that defect case by case. The reasoning in Fleming [2008] UKHL 2 was binding and required the disapplication of section 320 of the Finance Act 2004 for all mistake-based claims concerning unlawful SDRT payments made before 8 September 2003.
2. Post-September 2003 payments. The Court accepted the position established by Leeds City Council [2015] EWCA Civ 1293: section 320 did not infringe EU law where the claim had not accrued before its commencement and sufficient time remained to sue.
3. Discovery of mistake. Following FII (SC) 2 [2020] UKSC 47, discovery under section 32(1)(c) means knowing, or being able with reasonable diligence to know, that a mistake has been made so as to justify preliminary steps or recognition of a worthwhile claim. A final authoritative judgment is unnecessary. The objective and evidence-sensitive question is whether the claimant had reached that stage.
4. Application and permission to amend. The Court granted HMRC permission to amend. Jazztel’s solicitors’ letter of 11 January 2000 identified the legal basis for repayment and constituted an effective claim under regulation 14 of the Stamp Duty Reserve Tax Regulations 1986. Jazztel therefore had discovered its mistake by that date. The existing materials established the point without a further hearing, so Payments 1 to 22 were time-barred.
5. Singh LJ agreed with the joint judgment and added that Fleming remained binding even though HMRC advanced a different argument on appeal. HMRC’s appeal was dismissed as to the pre-8 September 2003 limitation issue but allowed on the discovery issue.

• Court of Appeal (Civil Division): HMRC’s appeal concerning the retrospective limitation issue was dismissed, but permission to amend was granted and the appeal on discovery of mistake was allowed. Payments 1 to 22 were held statute-barred.
• High Court, Chancery Division: In Jazztel Plc v The Commissioners for HMRC [2017] EWHC 677 (Ch), the judge found mistake and ruled for the claimants on the pre-8 September 2003 issue but for HMRC on the post-8 September 2003 issue.