Littlewoods questions

LittlewoodsThe Littlewoods Ireland website proudly proclaims that it is Ireland’s leading online store. Since 1923, Littlewoods ran a mail- and phone-order catalogue sales business; and it is now the brand name of a successful internet retail sales company. Littlewoods are also the plaintiffs in an interesting case involving restitution of overpaid taxes. In Littlewoods Retail Ltd v HM Revenue and Customs [2010] EWHC 1071 (Ch) (19 May 2010), 15 claimants within the Littlewoods group of companies claimed compound interest amounting more than £1 billion on overpayments of VAT between 1973 and 2004. Subject to the outcome of a reference to the Court of Justice of the European Union (CJEU), their claim failed. In [2010] EWHC 2771 (Ch) (04 November 2010) Vos J has now decided on the questions to be referred to the CJEU.

The background to the claim is the interplay between two important principles. First, in Case 199/82 Amministrazione delle Finanze dello Stato v San Giorgio [1983] ECR 3595, [1983] EUECJ R-199/82 (9 November 1983) the ECJ (as the CJEU then was) held that where a member state has received taxes and duties in breach of EU law, it must repay them. Second, in Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 (HL) (pdf), the House of Lords that that a taxpayer was entitled to restitution of overpaid tax as of right.

Littlewoods is simply the most recent case grappling with the inter-relationship between these two principles. For example, in Deutsche Morgan Grenfell Group v Inland Revenue Commissioners [2006] UKHL 49, [2007] 1 AC 558 (25 October 2006) the House of Lords held that a taxpayer who mistakenly overpaid tax was entitled to restitution at common law on the grounds of mistake, and that the claim was not excluded by section 33 of the Taxes Management Act, 1970. In Sempra Metals v Inland Revenue Commissioners [2007] UKHL 34, [2008] 1 AC 561 (18 July 2007) the House of Lords held that the Court could award compound interest for such claims. In Test Claimants In the Franked Investment Group Litigation v Commissioners of the Inland Revenue [2010] EWCA Civ 103 (23 February 2010) and FJ Chalke Ltd v Revenue & Customs [2010] EWCA Civ 313 (25 March 2010) the Court of Appeal considered the impact of the San Giorgio remedial obligation on domestic restitution claims and defences, especially the defence of change of position. And in Parabola Investments Ltd v Browallia Cal Ltd [2010] EWCA Civ 486 (05 May 2010) the Court of Appeal considered the limits of the Sempra decision.

In his first judgment in Littlewoods, Vos J held that the claimants’ claims based upon Woolwich and mistake were, as a matter of English law, excluded by sections 78 and 80 of the Value Added Tax Act 1994, but he agreed to referr to the CJEU the question of whether that exclusion is contrary to EU law. Moreover, he held that if the CJEU found that it is, then he would hold that sections 78 and 80 of VATA 1994 could not properly be construed so as to conform with EU law and must be dis-applied to allow the claimants to make claims based upon the Woolwich principle. In his view, such claims would most naturally and comprehensively give effect to the claimants’ San Giorgio right to the use value of the repayments.

Treading paths illuminated by the various judgments in FII and Chalke, Vos J held that, as a matter of principle, the defence of a change of position is available in English law to a mistake-based restitutionary claim, but not to a Woolwich-based claim. Since only Woolwich claims were in play by this point, the absence of the defence to such claims was a significant holding of principle. Nevertheless, he went on to hold that, even if it were available, the defence of change of position would fail on the facts because the claimants’ VAT payments were not material to government spending decisions in each fiscal year, so that the Commissioners failed to prove that they had increased their spending in any way on the basis of the expectation or the happening of the overpayment. He also provisionally held that, if it had been made out on the facts, it should be given effect as a matter of EU law in answer to San Giorgio claims for the use value of overpayments of tax, but he indicated that he would also refer this matter to the CJEU.

In his second judgment in Littlewoods last week, Vos J clarified the various questions for reference to the CJEU as follows:

Question 1: Where a taxable person has overpaid VAT which was collected by the Member State contrary to the requirements of EU VAT legislation, does the remedy provided by a Member State accord with EU law if that remedy provides only for (a) reimbursement of the principal sums overpaid, and (b) simple interest on those sums in accordance with national legislation, such as section 78 of the Value Added Tax Act 1994?

Question 2: If not, does EU law require that the remedy provided by a Member State should provide for (a) reimbursement of the principal sums overpaid, and (b) payment of compound interest as the measure of the use value of the sums overpaid in the hands of the Member State and/or the loss of the use value of the money in the hands of the taxpayer?

Question 3: If the answer to both questions 1 and 2 is in the negative, what must the remedy that EU law requires the Member State to provide include, in addition to reimbursement of the principal sums overpaid, in respect of the use value of the overpayment and/or interest?

Question 4: If the answer to question 1 is in the negative, does the EU law principle of effectiveness require a Member State to disapply national law restrictions (such as sections 78 and 80 of the Value Added Tax Act 1994) on any domestic claims or remedies that would otherwise be available to the taxable person to vindicate the EU law right established in the Court of Justice’s answer to the first 3 questions, or can the principle of effectiveness be satisfied if the national court disapplies such restrictions only in respect of one of these domestic claims or remedies?

What other principles should guide the national court in giving effect to this EU law right so as to accord with the EU law principle of effectiveness?