Building Societies Ombudsman Company Ltd, R (on the application of) v Customs & Excise [2000] EWCA Civ 270 (26 October 2000)

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11. The PCTA resolution, and the Finance Act's enactments to the same effect, permitted the Commissioners to recover by way of a fresh assessment any difference between their repayment liability under the three year cap and any greater liability under the previous regime (I am putting the matter very broadly at present, and shall address the statutory language below). Accordingly, on 1 May 1997 the Commissioners issued an assessment for £692,029 against BSOC (the "clawback assessment"). These proceedings arise from BSOC's application (in CO/3093/97, dated 29 December 1997) for judicial review of that assessment.
12. BSOC's application came before Moses J. Four issues were raised before him, and the same issues have been debated again in this court on appeal. The first two are issues of construction of the statutory language, but also involve a resolution of the effect of the tribunal's decision: did it or did it not involve a determination of the Commissioners' liability to repay the amount of BSOC's claim? On the basis that it did, BSOC submits that the retrospective effect of the three year cap does not extend to revisiting the amount of the Commissioners' judicially determined liability. The third issue concerns the exercise of the Commissioners' discretion to issue the clawback assessment: was that discretion fairly and rationally exercised? The fourth issue concerns the relevance of Community law and raises the question whether such law can be invoked to challenge the legality of the clawback assessment.
13. Moses J decided all four issues against BSOC. He held that the tribunal's decision did not concern the Commissioners' liability to pay BSOC's claim, but that even if it did, the three year cap applied retrospectively to rewrite the extent of the Commissioners' liability to repay: the Commissioners were therefore entitled to make a clawback assessment (issues 1 and 2). In determining whether they should make such an assessment, they had exercised their discretion fairly and rationally (issue 3). Finally, he held that Community law had no further relevance once English law had implemented, as it had, the requirements of EC Council Directive 77/388, the Sixth Council Directive of 17 May 1977 on the harmonisation of the laws of the member states relating to turnover taxes (the "Sixth Directive") (issue 4).
14. I mention here briefly a second application for judicial review which is also before the court. This arose in the following circumstances. On 12 June 1997 BSOC had lodged an appeal against the clawback assessment with the VAT tribunal. The Commissioners, relying on section 84(3A) of VATA, applied to the tribunal for that appeal to be dismissed unless BSOC paid to or deposited with them the amount in dispute. That application was never heard by the tribunal, for both it and the appeal itself were overtaken by events when (rightly or wrongly) it became common ground between BSOC and the Commissioners that the tribunal did not have jurisdiction to hear an appeal against the Commissioners' exercise of their discretion to issue an assessment. As a result, BSOC proceeded instead to its (first) application for judicial review. To this was added a second application, CO/3374/97, which sought to challenge the Commissioners' decision to require the amount in dispute to be secured by payment or deposit. Since both parties treated BSOC's appeal to the tribunal as without jurisdiction, it is hard to see how the Commissioners' reaction to that appeal can have a life of its own. Moses J dealt with it in passing in two sentences, saying that he need not detail the circumstances which gave rise to it or the issues raised by it, since all such matters could be decided in the context of the first application. The Commissioners say that in argument before Moses J the second application was treated as moot. This court has received no separate argument addressed to this application, other than a written submission from BSOC that, were the fourth issue concerning community law to be decided in its favour, then the Commissioners' demand for security over the amount in dispute compounded the unlawfulness complained of, by clogging the taxpayer's access to a remedy. I do not see how any issue under the second application properly arises for decision. This court is not concerned with the abortive appeal to the tribunal. BSOC has not been required to deposit the clawback assessment as a condition of pursuing its (first) application in court, and does not lack for a remedy, if it succeeds on the merits of its case. Whether BSOC succeeds or fails, it seems to me that its second application is indeed moot, and I propose to say nothing more about it.
The legislation
15. I turn next to the legislation with which this appeal is concerned, beginning with section 80 of VATA, the amended terms of which are central to issues one and two.
Section 80 of VATA
16. Section 80 is entitled "Recovery of overpaid VAT" and provides the means by which a taxpayer can recover money paid as VAT which was not VAT due. Prior to the PCTA resolution effective as of 4 December 1996, section 80(4) and (5) had provided as follows:
"(4) No amount may be claimed under this section after the expiry of 6 years from the date on which it was paid, except where subsection (5) below applies.
"(5) Where an amount has been paid to the Commissioners by reason of a mistake, a claim for the repayment of the amount under this section may be made at any time before the expiry of 6 years from the date on which the claimant discovered the mistake or could with reasonable diligence have discovered it."
Subsection (5) applied to the case of BSOC, which is why, subject to the new three year cap, BSOC had been entitled to recover all VAT paid by it back to the time of its registration in 1987.
17. As a result, however, of the PCTA resolution and the Finance Act 1997, the amended section 80 provided as follows. The previous subsections (4) and (5) were deleted. I shall set out the amendments in italics:
"(1) Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not VAT due to them, they shall be liable to repay the amount to him.
(2) The Commissioners shall only be liable to repay an amount under this section on a claim being made for the purpose.
(3) It shall be a defence, in relation to a claim under this section, that repayment of an amount would unjustly enrich the claimant.
(3A) (3B) (3C)...
(4) The Commissioners shall not be liable, on a claim made under this section, to repay any amount paid to them more than three years before the making of the claim.
(4A) Where -
(a) any amount has been paid, at any time on or after 18^th July 1996, to any person by way of a repayment under this section, and
(b) the amount paid exceeded the Commissioners' repayment liability to that person at that time,
the Commissioners may, to the best of their judgement, assess the excess paid to that person and notify it to him.
(4B) For the purposes of subsection (4A) above the Commissioners' repayment liability to a person at any time is -
(a) in a case where any provision affecting the amount which they were liable to repay to that person at that time is subsequently deemed to have been in force at that time, the amount which the Commissioners are to be treated, in accordance with that provision, as having been liable at that time to repay to that person; and
(b) in any other case, the amount which they were liable at that time to repay to that person.
(4C) Subsections (2) to (8) of section 78A apply in the case of an assessment under subsection (4A) above as they apply in the case of an assessment under section 78A(1).
(6) A claim under this section shall be made in such form and manner and shall be supported by such documentary evidence as the Commissioners prescribe by regulations; and regulations under this subsection may make different provision for different cases."
18. It may be observed that new subsection (4), which contains the three year cap, does not itself give any indication that the new limitation period is intended to be retrospective. For that, it is necessary to go to the Finance Act 1997 and in particular its section 47(2) (see at para 26 below), which makes it clear that the three year cap is intended to apply as from 18 July 1996, and even to claims for repayment of VAT made before that date. That retrospectivity is then obliquely picked up in section 80(4B)(a) of VATA, which deals, in conjunction with section 80(4A), with the Commissioners' new powers to issue a clawback assessment after they have already made a repayment of VAT.
19. It is convenient to mention here that section 80(3) had always contained a provision providing the Commissioners with a defence where repayment "would unjustly enrich the claimant". That could arise where a taxpayer had charged its customers VAT and had no means of repaying to its customers their aliquot share of a recovery from the Commissioners. Subsection (3) was now amplified by more detailed provisions contained in new subsections (3A), (3B) and (3C) relating to the defence of unjust enrichment, as part of the same process of the amendment of section 80 which is the subject matter of these proceedings. These provisions are not directly relevant, however, since the Commissioners have never raised a defence of unjust enrichment and it is accepted that BSOC is able to return its VAT recovery to its members.
20. Section 80(4C) provides that section 78A (also introduced on 4 December 1996) applies to an assessment under section 80(4A). Section 78A(3) provides that an assessed amount shall be deemed to be VAT due, as follows:
"Where an amount has been assessed and notified to any person under subsection (1) above, that amount shall be deemed (subject to the provisions of this Act as to appeals) to be an amount of VAT due from him and may be recovered accordingly."
This provision is relevant to BSOC's argument under issue 4 below, that the clawback assessment is subject to attack under principles of Community law.
21. Section 80(6), which remained unchanged, states that claims for repayment should be made in the form and manner prescribed by regulation. Regulation 37 of the Value Added Tax Regulations 1995 provides that -
"37. Any claim under section 80 of the Act shall be made in writing to the Commissioners and shall, by reference to such documentary evidence as is in the possession of the claimant, state the amount of the claim and the method by which that amount was calculated."
22. This regulation is relevant to an argument under issue 3, as to whether BSOC had made a repayment claim prior to 18 July 1996 so as to come within the Commissioners' policy not to issue a clawback assessment under section 80(4A) where such a claim had been made and agreed before 18 July 1996.
Other provisions of VATA
23. Section 83 deals with appeals to a VAT tribunal. It sets out the jurisdiction of such tribunals under headings (a) to (z). The relevant heading under which BSOC brought its repayment claim before the tribunal in November 1996 was heading (t). Thus section 83(t) provides -
"83. Subject to section 84, an appeal shall lie to a tribunal with respect to any of the following matters -...
(t) a claim for the repayment of an amount under section 80..."
24. Finally, it is relevant (to submissions made under both issues 3 and 4) to point out that refunds of input VAT come within a different regime from repayment of overpaid VAT, and also that local authorities and other like bodies have in this context specific provision made for them in section 33. BSOC submits that it is analogous to a local authority, since it carries out regulatory activities pursuant to a statutory scheme. Section 33 provides as follows:
"(1) Subject to the following provisions of this section, where -
(a) VAT is chargeable on the supply of goods or services to a body to which this section applies, on the acquisition of any goods by such a body from another member State or on the importation of any goods by such a body from a place outside the member States, and
(b) The supply, acquisition or importation is not for the purpose of any business carried on by the body,
the Commissioners shall, on a claim made by the body at such time and in such form and manner as the Commissioners may determine, refund to it the amount of the VAT so chargeable."
25. Section 33(3) lists the bodies to which the section applies. The list is headed by "a local authority" and the other bodies mentioned include river and drainage boards, transport, health, police and lighthouse authorities, new town commissions, the BBC, and "any body specified for the purposes of this section by an order made by the Treasury". In this connection I should also mention that BSOC submits that it is a body "governed by public law" for the purposes of article 4(5) of the Sixth Directive. That refers to "States, regional and local government authorities and other bodies governed by public law" (see at para 30 below).
The Finance Act 1997
26. The amendments to section 80 of VATA were enacted by section 47 of the Finance Act 1997. That section, enacting the previous PCTA resolution in similar terms, also contained other provisions of relevance to the argument in this court. Thus after section 47(1) had substituted the new three year cap in subsection (4) of (amended) section 80 for its previous subsections (4) and (5), section 47(2), (3) and (4) continued as follows:
"(2) Subject to subsections (3) and (4) below, subsection (1) above shall be deemed to have come into force on 18^th July 1996 as a provision applying, for the purposes of the making of any repayment on or after that date, to all claims under section 80 of the Value Added Tax Act 1994, including claims made before that date and claims relating to payments made before that date.
(3) Subsection (4) below applies as respects the making of any repayment on or after 18^th July 1996 on a claim under section 80 of the Value Added Tax Act 1994 if -
(a) legal proceedings for questioning any decision ("the disputed decision") of the Commissioners, or of an officer of the Commissioners, were brought by any person any time before that date,
(b) a determination has been or is made in those proceedings that the disputed decision was wrong or should be set aside,
(c) the claim is one made by that person at a time after the proceedings were brought (whether before or after the making of the determination), and
(d) the claim relates to -
(i) an amount paid by that person to the Commissioners on the basis of the disputed decision, or
(ii) an amount paid by that person to the Commissioners before the relevant date (including an amount paid before the making of the disputed decision) on grounds which, in all material respects, correspond to those on which that decision was made.
(4) Where this subsection applies in the case of any claim -
(a) subsection (4) of section 80 of the Value Added Tax Act 1994 (as inserted by this section) shall not apply, and shall be taken never to have applied, in relation to so much of that claim as relates to an amount falling within subsection (3)(d)(i) or (ii) above, but
(b) the Commissioners shall not be liable on that claim, and shall be taken never to have been liable on that claim, to repay any amount so falling which was paid to them more than three years before the proceedings mentioned in subsection (3)(a) above were brought."
27. It is section 47(2) which makes the three year cap retrospective. The three year period is subject to a relaxation in the detailed circumstances covered by subsections (3) and (4): see para 101 below.
The Provisional Collection of Taxes Act 1968
28. It is relevant to consider the terms of the PCTA for the purpose of issue 2 below, which raises the question whether the three year cap as enacted in the Finance Act could be said to be a provision (1) "affecting" the amount which the Commissioners were liable to repay at the time of repayment (23 January 1997) and (2) "subsequently" deemed to have been in force at that time (for the purpose of section 80(4B)(a)). Since the PCTA resolution was prior rather than subsequent to the date of repayment, only section 47 of the Finance Act 1997 could chronologically constitute such a provision. But can section 47 be said to "affect" the amount of the Commissioners' liability at the time of repayment, if the PCTA resolution was already in effect?
29. Section 1 of the PCTA provides as follows:
"(1) This section applies only to...value added tax...
(2) ...where the House of Commons passes a resolution which...provides...for the variation...of an existing tax...the resolution shall, for the period specified in the next following subsection, have statutory effect as if contained in an Act of Parliament...
(3) The said period is...in the case of a resolution passed in November or December in any year, one expiring with 5^th May in the next calendar year..."
The Sixth Directive
30. Reference will be made below (at para 124f) to the following article of the Sixth Directive.
"4(5). States, regional and local government authorities and other bodies governed by public law shall not be considered taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with these activities or transactions."
The background facts
31. A skeleton of the facts has been set out in the Introduction section above, but it is now necessary to fill in the background in greater detail.
32. I have already mentioned BSOC's application to the Commissioners on 18 April 1995 for an appealable determination as to its VAT status. The Commissioners replied on 20 June 1995, to request further information. During the interim, the ICAEW decision had been handed down by a VAT tribunal, upholding the Commissioners' own argument that ICAEW was not VAT liable. BSOC complains about this period of two months as constituting unnecessary delay. BSOC's accountants, BDO, replied promptly to the Commissioners' request, on 28 June 1995. There was then a delay of almost three months, of which BSOC also complains, until the Commissioners' next communication of 18 September 1995. Their letter apologised for the delay, but explained that the matter had been passed to "our Headquarters section" in the light of national implications. The letter argued that BSOC's current VAT status was correct, because membership of any particular Ombudsman scheme was voluntary. However, it ended by saying that the position regarding similar bodies in other industries was being researched, and asked for BSOC's reaction "to assist us in coming to a final decision". There was then a break in the correspondence for some 4½ months until 2 February 1996, when BDO wrote to the Commissioners elaborating reasons why BSOC's activities were not taxable. BSOC cannot complain about this delay. On 13 February 1996 Tuckey J delivered his judgment in the ICAEW case, upholding the tribunal's decision. He granted permission to appeal.
33. The Commissioners replied to BDO's letter on 5 June 1996, some 3½ months after BDO's letter. BSOC again complains about this delay. The Commissioners apologised for "the delay in ruling on this matter", explaining that they were waiting for Tuckey J's judgment. In the light of that, they conceded that BSOC's regulatory activities undertaken in the capacity of an Ombudsman did not constitute business activities and were therefore not liable to VAT. They reserved the right, however, to revisit the question in the light of a future judgment on appeal from Tuckey J.
34. BSOC submits that this concluded a claim for repayment, pointing out that the Commissioners had as much information as to the quantum of BSOC's right to repayment of VAT as it had itself. However, although it can be said that the principle of a right to repayment was settled, subject to any appeal in ICAEW, I cannot see that BSOC had submitted any claim for repayment at this stage. Regulation 37 of the VAT Regulations 1995 (see above), pursuant to section 80(6) of VATA, requires a claim for repayment to be in writing and to state the amount of the claim and the method of its calculation. BSOC had complied with none of this. BSOC submits that a claim for repayment was implicit in its application of April 1995, but I do not agree. BSOC had resolved the status of its activities for the future, and, if necessary, for the past: but it had not made a claim for repayment. In theory, a defence of unjust enrichment could have been asserted.
35. On 18 July 1996 the three year cap was announced. The announcement made clear that, subject to Parliamentary approval, the cap was to take immediate effect. The reason given for it was that Government had become concerned at the increasing amounts of revenue at risk "in taxation boundary disputes". The announcement also said that -
"For claims already made but not paid (including those subject to ongoing litigation), the three year limit will apply from the date of the claim or the commencement of litigation, whichever is the earlier."
36. One can see in that the forerunner of what was to become section 47(3)/(4) of the Finance Act. Changes were also forecast to the defence on unjust enrichment "which enables Customs to refuse a refund of tax where the business making the claim would receive a windfall benefit".
37. Also on 18 July 1996 a "Dear Colleague Letter" ("DCL") was distributed to all collectors and chief investigation officers in Customs and Excise from the VAT Policy Directorate. It made clear that pending parliamentary approval for the three year cap -
"In the meantime claims are to be dealt with as if the legislation were already in place. Anyone suggesting that this is ultra vires in advance of specific Parliamentary approval being given should be told that it is a sensible revenue protection measure. Serious complaints about this should be acknowledged only, and passed, after refund of the capped amount, to Mrs Campion..."
38. On 2 August 1996 BDO wrote again to the Commissioners. The letter said that
"in order to preserve any relevant time-limits relating to the recovery of overpaid VAT or statutory interest, I am instructed to serve notice of claim for the VAT overpaid to date by the company since its effective date of registration. Details of the claim will be sent in due course."
39. This language is consistent with the view I have expressed that there had been no previous claim for repayment.
40. This letter also made the point that BSOC was concerned that the Commissioners' ruling on VAT liability was only provisional, since the position might change on appeal in ICAEW. It therefore suggested that it would continue levying VAT on its members unless the Commissioners could either issue a definitive ruling or undertake not to reverse its decision retrospectively. On 8 August 1996 the Commissioners replied to say that it would not apply any change arising from the outcome of an appeal in ICAEW retrospectively.
41. On 13 August 1996 BDO wrote to "enclose details of a claim in the sum of £1,306,212.60". The details were in a schedule attached. I have already made the point that the claim was understated by reason of the omission from the schedule of BSOC's first return. In my judgment this was when BSOC first made its claim for repayment.
42. On 14 August 1996 BDO wrote to thank the Commissioners for their assurance that any change in their ruling arising out of an appeal in ICAEW would not be applied retrospectively. The letter continued:
"Relying on that assurance, the company will expect its VAT registration to be cancelled and will, in due course, refund to building societies the VAT to be refunded by the Commissioners less professional costs incurred by the society in relation to this issue."
43. This reflects the position I have already mentioned: in practice no issue of unjust enrichment did arise in connection with BSOC's claim.
44. On 2 September 1996 the Commissioners replied to both letters of 13 and 14 August, to say -
"With the introduction of the three year limit on repayment claims, the consequences of which may [a]ffect your client's claim, I have referred the case to our Headquarters Section responsible for this area to seek their opinion. I have stressed the urgency of the matter and hope to be able to give you a full reply in the near future."
45. There was no follow-up by the Commissioners. This was the period during which the Commissioners in other repayment claim cases were issuing letters of refusal or deferral. It may be said that the Commissioners' letter of 2 September 1996 was neither the one thing nor the other: but in the context of the dispute then currently before the RCOG tribunal, there is no difficulty in reading the Commissioners' letter of 2 September 1996 as part of a strategy of refusal or deferral. As Mr Dermot McLellan, BDO's Director of VAT Services, has deposed, he was aware from other cases in which he was involved that the Commissioners were adopting a policy of treating repayment claims as if the Government announcement had already effected a change in legislation, and on this basis refusing or delaying repayment of claims in excess of the three year cap "for reasons similar to those given to me on 2^nd September".
46. The Commissioners' evidence is contained in the affidavits of Mrs Maureen Campion, a senior officer within the VAT Policy Directorate. In her first affidavit she deals with this period in the autumn of 1996 in the following terms:
"27. After the announcement, the Commissioners thought very carefully how best to balance the interests of individual claimants seeking refunds, (the vast majority of which went back more than 3 years, in some cases considerably more), with the interests of taxpayers at large, and how best in the circumstances to use departmental resources. They decided their policy would be to carry on with their usual procedures for checking claims but that where a refund was due and the quantum was correct, to defer that element of a refund which they believed to be caught by the proposed time limit which they expected would be approved by Parliament.
28. On 13 August 1996 BSOC made a claim for money overpaid as VAT. This claim was in the sum of £1,306,212.60. The claim was dealt with in accordance with the Commissioners policy described at paragraph 27 above. However, by 14 November 1996 the Commissioners had not paid BSOC any of the claim..."
47. Later in her affidavit she stated (in paragraph 40(e)) that "when BSOC's claim was received the local staff checked its accuracy and they noticed it was too low and corrected it. This was clearly to BSOC's advantage, as it increased its refund by £28,354".
48. Thus the evidence is that the Commissioners had checked BSOC's claim when received, and had agreed it as far as it went and had even found that it was understated by £28,354; but had not paid it because of its policy of deferral of "that element of a refund which they believed to be caught by the proposed time limit". That policy had not led the Commissioners to pay the amount indisputably due as being within the (proposed) three year cap.
49. It was in these circumstances that the VAT tribunal issued detailed reasons for its decision in the RCOG appeal on 29 October 1996. As stated above, the tribunal ruled that the Commissioners' policy was unlawful and that the claims made in the RCOG proceedings were due and should be paid.
50. By 14 November 1996 the Commissioners had still not given to BSOC the full reply which it had promised in their letter of 2 September. It was on 14 November, therefore, that BSOC lodged its notice of appeal with the VAT tribunal. The appeal form requested that the appellant should "attach a copy of the Decision (assessment or letter) of Customs and Excise which you dispute. Or, if you cannot attach a copy of the disputed decision, complete section 2..." Section 2 of the form asked inter alia for the date and nature of the "disputed decision". Nothing was attached (although the box referring to an attached decision was ticked) and section 2 was not filled in. BSOC did, however, fill in section 3 ("Reason for Appealing") as follows:
"The Commissioners have no discretion to delay or defer payment of £1,306,212.60 on the grounds that "capping" legislation is to be introduced."
51. It would seem, therefore, that BSOC was treating the Commissioners' continued silence against the background of their letter of 2 September and the well-known context of the RCOG appeal as tantamount to a decision to delay or defer "payment of £1,306,212.60" pending the introduction of the three year cap. It may be observed that BSOC's reason mentions delaying "payment of £1,306,212.60", not merely delaying processing of its claim. In fact, as Mrs Campion's affidavit makes clear, BSOC's claim had been processed (internally), but the Commissioners were sitting on it.
52. On the same day, 14 November, BSOC also lodged a notice of application for an extension of time. This was necessary if the appeal was lodged outside 30 days from "the disputed decision". The grounds for the application given were that BSOC had delayed lodging its appeal pending the RCOG decision, but had received advice to commence proceedings before "capping" legislation was introduced. This is a further indication that BSOC was indeed treating the Commissioners' letter of 2 September together with the ensuing silence as tantamount to a refusal or deferral, but was anxious to press ahead with its claim, by way of appeal, pending any change in the law.
53. On 19 November 1996 Keene J delivered his judgment in Kay. As Keene J said (at 1522f) -
"For these reasons, I conclude that the Commissioners of Customs and Excise do not have a discretion to defer payment of sums due from them to the taxable person, once a claim by the latter has been established as well-founded, as is the case in the present applications. It follows that their policy of 18 July 1996 in this respect and their decisions challenged in these applications were ultra vires and unlawful. The applicants are entitled to payment of the outstanding sums without further delay."
54. On 28 November the total amount of £1,334,573 was authorised for payment by the Commissioners. It is plain upon the Commissioners' own evidence that that authorisation had been held up by their unlawful policy of deferral, and that it was Keene J's judgment, upholding the view of the RCOG tribunal, that broke the logjam.
55. On 29 November the Commissioners therefore applied to the VAT tribunal in BSOC's appeal for that appeal to be allowed. This is an important document, for it contains the language of what ultimately became the tribunal's decision by consent. The application was worded as follows:
"TAKE NOTICE that the Respondents hereby apply for the following direction:-
1. That following the tribunal decisions in Royal College of Obstetricians and Gynaecologists, Kay and Company Limited, GUS Home Shopping Limited, Colaingrove Limited, Greenlee Group Plc, W M and J Greenwood, this appeal be allowed for the same reasons and on the same terms as the aforementioned cases without further hearing of the tribunal.
2. That the directions at (1) be without prejudice to
(i) the Commissioners' right to pursue a right of appeal in this case should any successful appeal occur in the cases set out in paragraph (1) in relation to the jurisdiction of the tribunal to hear appeals in matters [where] neither liability or quantum is in dispute; and
(ii) the Appellant's right to appeal in relation to the Tribunal's powers to direct the payment of sums due which the Commissioners are statutorily liable to pay.
3. That the Commissioners do pay the reasonable costs of the Appellant, to be taxed, if not agreed."
56. As stated at the outset of this judgment, the tribunal made a direction on 2 December that in the absence of any objection being notified within 14 days that application was allowed as being unopposed. Thus on 16 December 1996, at a time when the PCTA resolution was already in effect (as from 4 December), the tribunal's decision in BSOC's appeal became final.
57. Also on 2 December, the same day as the tribunal made its direction, the Commissioners wrote to BDO to inform them that in the light of Keene J's judgment "the outstanding claim has now been processed and authorised for payment", including the £28,354 extra deriving from BSOC's first return. An "important qualification" was emphasised, as follows:
"RIGHT OF CUSTOMS TO RECOVER AMOUNTS PAID
If Parliament agrees in the forthcoming Budget that a 3 year limit is appropriate from 18 July 1996 then Customs will require back the amount repaid to your client as a result of this letter."
58. Before Moses J and again in this court the Commissioners submitted that the acceptance of BSOC's claim was not the subject of adjudication or determination in BSOC's appeal but was processed (after the delay caused by their wrongful policy of deferral) outside BSOC's tribunal appeal and subject to the warning contained in their letter of 2 December. Therefore, the Commissioners submit, there was no judicial determination of BSOC's claim, merely its payment subject to a reservation. This is partly a matter of fact and partly a matter of legal analysis. It is convenient to deal with this submission at this point.
Was BSOC's claim determined in the tribunal appeal, or merely paid outside the appeal?
59. A number of points regarding the Commissioners' 29 November application to the tribunal should be emphasised. First, the appeal was allowed, in accordance with the wording of the application, "for the same reasons and on the same terms as" the RCOG decision. Therefore it will be necessary to look at that decision. Secondly, the application refers to the RCOG decision, that is to say the tribunal decision, not the Keene J judgment in Kay, even though that had already been delivered. To the extent, therefore, that there may be differences between the RCOG decision and the Kay judgment, it will be the former that ought to guide the meaning and effect of the decision in the BSOC appeal. Thirdly, the Commissioners' capitulation, expressed in the terms of their application, was not complete, for two reservations were expressly made, one of them in favour of the Commissioners. That was the Commissioners' right to pursue an appeal in the BSOC case should any successful appeal occur in the RCOG case "in relation to the jurisdiction of the tribunal" where neither liability nor quantum was in dispute. The other reservation was BSOC's right to appeal in relation to the tribunal's powers to direct the payment of sums due from the Commissioners. There was no other reservation. In particular, there was no reservation regarding a right to revisit the decision, should the three year cap materialise. That can be contrasted with the reservation emphasised in the Commissioners' letter of 2 December. Fourthly, the fact that the reservation with respect to the tribunal's jurisdiction was expressed to relate to "matters [where] neither liability or quantum is in dispute" shows that the Commissioners had not been minded to dispute liability or quantum, other than by reference to their policy of deferral. That is consistent with the fact that payment of the whole of BSOC's claim, plus a further £28,354, had already been authorised. Fifthly, the same point is to be inferred from the reservation permitting BSOC to appeal in relation to the tribunal's powers to direct payment by the Commissioners of what was due (put in because the RCOG tribunal had held that it did not have that power). Sixthly, that second reservation also indicates that the Commissioners considered that BSOC's appeal was directed at the specific recovery of its claim, and not merely at a question as to the Commissioners' discretion to defer payment. Seventhly, the fact that the Commissioners did not appeal on the question of jurisdiction indicates that they were content to accept the tribunal's jurisdiction in the BSOC case, even if they could have objected to it.
60. I turn next to the RCOG decision, which will illuminate the terms of the Commissioners' application. Before the RCOG tribunal, the Commissioners had not disputed the appellants' repayment claims either as a matter of principle (eg on the ground that the appellants were taxable persons or making taxable supplies, or by reference to a defence of unjust enrichment), or as a matter of quantum. Rather, their defence consisted in two main points: a preliminary point as to jurisdiction, to the effect that the tribunal had no jurisdiction where neither liability nor quantum were in issue; and, if that failed, the point that they were entitled in their discretion to defer even otherwise unanswerable claims in the light of the imminence of legislation enacting the three year cap.
61. In RCOG, both points failed. There is no longer of course any question as to the failure of the second point, on which Keene J agreed. There remains, however, an issue in this court as to the significance of the first point. As to that, the RCOG tribunal held that jurisdiction existed whether or not there was any dispute as to liability or quantum (para 145), but that in any event there was such a dispute. The matter was put as follows (at para 143):
"I accept that there is no dispute as to the amount the Commissioners ought to pay or repay to each of the six appellants under the law as it currently stands: but there is a dispute as to the amount that the Commissioners are in fact prepared to pay. Therefore I am quite satisfied and hold that a dispute exists between the appellant and the Commissioners in each of the cases with which I am dealing as to the amount which each such appellant is entitled to have paid or repaid to it."
A little later, at para 146, the following was added:
"First, there is [Mr Cordara's] submission that the Commissioners cannot assert, by purporting to accept that the sum claimed by each appellant is due and then refusing to pay it, that their denial that it is payable immediately does not go to liability. I entirely agree with him that the claim for payment or repayment in each case is a claim to enforce the Commissioners' statutory duty to pay or repay, [ss. 25(3) and 80(1)], my reasons for doing so being those advanced by Mr Cordara."
62. In coming to these conclusions, Mr Demack, the chairman of the tribunal, relied on well known cases in arbitration law, where the jurisdiction of an arbitral tribunal depends on the existence of a "dispute", a word commonly found in arbitration clauses: see Tradax International SA v. Cerrahogullari TAS (The M Eregli) [1981] 3 All ER, Ellerine Brothers (Pty) Ltd v. Klinger [1982] 1 WLR 1375 and Hayter v. Nelson and Home Insurance Co [1990] 2 Lloyd's Rep 265. Those cases clearly demonstrate that a debtor who simply ignores a claim, however indisputable, is in dispute with his creditor: only such an admission as amounts to an agreement to pay the claim avoids the need to refer the claim within the time limit stipulated. Thus even if the Commissioners' failure to follow up their letter to BDO of 2 September 1996 should be regarded simply as a failure to state their position one way rather than another, as distinct from an effective application of their policy of deferral, there would still be a dispute. As Templeman LJ said in Ellerine v. Klinger at 1383H:
"But the fact that the plaintiffs make certain claims which, if disputed, would be referable to arbitration and the fact that the defendant then does nothing - he does not admit the claim, he merely continues a policy of masterful inactivity - does not mean that there is no dispute. There is a dispute until the defendant admits that a sum is due and payable, as Kerr J said in the Tradax case."
63. In my judgment the conclusions of the RCOG tribunal were entirely sound and in accordance with principle and authority. In effect, the Commissioners were saying: "We agree that under the present law we are liable in the sum claimed. But that is not the end of the matter. The law is about to be changed retrospectively. That entitles us to defer making payment of the sum claimed. When the law is changed, a lesser sum will be due. Rather than seek to reclaim the amount that would under the new law turn out to have been overpaid, we are entitled in our discretion to hang on, without paying, until only that lesser sum need be paid." That is, in truth, a dispute about both liability and quantum. It is rather like a defence based (purely) on an alleged set-off, the right to assert which is in dispute.
64. By referring to the RCOG decision, the Commissioners were accepting that the reasons and terms of that decision applied equally to the BSOC appeal. They were accepting that a monetary claim for repayment was being made against them, which they were not disputing save on the points taken in RCOG, being jurisdiction and a right to defer.
65. In this court Mr Paul Lasok QC, on behalf of the Commissioners, nevertheless submitted that the only issue before the tribunal in BSOC's appeal was the policy of deferral and nothing more. There never had been a refusal or deferral of BSOC's claim. That was why BSOC's notice of appeal had neither referred to nor attached any disputed decision. The merits of BSOC's claim for repayment were simply not before the tribunal and BSOC's submission otherwise was an audacious attempt to concoct an appeal on the merits of the claim. In the circumstances, the RCOG decision could not be incorporated wholesale into the BSOC appeal.
66. I am unable to agree with this submission. Because the Commissioners never followed up their letter of 2 September 1996 it was indeed difficult for BSOC to pinpoint by reference to any single document a "disputed decision". Nevertheless, in the circumstances, which were well known to the parties, BSOC wished its claim for "payment of £1,306,212.60" to be made without deferral or delay, just as in the RCOG decision. By referring to that decision in their application, the Commissioners were accepting that its reasons and terms were equally applicable to the BSOC appeal. They were accepting that a monetary claim had been made against them, which they were not disputing save on the grounds put forward in the RCOG case, namely jurisdiction and the right to defer. Once those points had been lost, as they had been, they were prepared to pay up, and prepared for that concession, subject to the terms of their application, to be recorded in a decision of the tribunal. Thus, to reflect the wording of the Commissioners' own application, "this appeal be allowed". What was the appeal? It was for "payment of £1,306,212.60" on the ground that the Commissioners have no discretion to delay or defer such payment.
67. It follows that I also cannot agree that the critical document pursuant to which BSOC's repayment claim was met was the Commissioners' letter of 2 December, as distinct from their application of 29 November, which in due course became the tribunal's direction of 2 December and decision of 16 December. I say so for the following reasons. First, the Commissioners' own evidence is that BSOC's claim was processed on its receipt, but then held up by reason of their policy of refusal or deferral, the policy which led in turn to RCOG's and to BSOC's appeals: it follows that the clearance of BSOC's claim for repayment was not the result of a process separate from and outside of BSOC's appeal, but arose from the Commissioners' decision to consent to the claim for repayment inherent in that appeal. Secondly, the application of 29 November was earlier in time than the letter of 2 December. And thirdly, the application was intended to result in a formal decision, by consent, which reflected the bilateral and mutually acceptable outcome of BSOC's appeal - whereas the letter was a merely unilateral document. If in such circumstances, the Commissioners had wished to impose on BSOC any form of obligation to restore to the Commissioners the difference between what was due before and after the enactment of the three year cap, or even, as the letter purported to do, to reserve the Commissioners' right to claim some form of recoupment of the whole sum paid, then the application was the place to set out the nature of such stipulations or reservations.
68. As it is, all that the letter did in this respect was to inform BSOC that, if the three year cap was enacted, then "Customs will require back the amount repaid to your client as a result of this letter". Such a statement was in any event inappropriate. At most it was an attempt to forecast a right that the Commissioners might have been given by statute. There was, however, no attempt to seek BSOC's agreement to any repayment, if Parliament were to approve the three year cap. In any event, Parliament never gave to the Commissioners the right to require back "the amount repaid to your client", and the Commissioners never ultimately sought to make that demand. At most, the Commissioners were given a discretion, which they were required to exercise fairly and rationally, to assess the difference that the three year cap would have made, and to require payment of that.
69. The fact that the letter of 2 December 1996 went beyond BSOC's claim in so far as the additional sum of £28,354 was concerned was relied on by the Commissioners as an indication that BSOC's claim was dealt with wholly outside the tribunal appeal. I do not agree. When the Commissioners were prepared to agree to pay BSOC's claim of £1,306,212.60 and thus to consent to BSOC's appeal, there was nothing to stop them adding to the repayment the sum involved in the first return which BSOC had overlooked. The fact remained that BSOC had never claimed that additional sum, and the Commissioners acted with meticulous generosity in adding it in to the repayment. That might have led to an alternative argument that, at any rate so far as the repayment of that £28,354 was concerned, BSOC's appeal and the tribunal's decision could be of no relevance: but no such argument was advanced. The parties were prepared to stand or fall on the broader arguments addressed, making no distinction between the £1,306,212.60 and the £28,354.
70. I should mention that Keene J in Kay did not agree in all respects with the reasoning of the RCOG decision. Thus he had "grave doubts" as to whether the VAT tribunal did have jurisdiction under section 83(t) to determine the legality of the Commissioners' policy of deferral (at 1517j/1518b). This was because in his view (at 1518a):
"There was in fact no issue before the tribunal as to the commissioners' liability to the applicants or as to the amount of that liability. Thus the applicants clearly had valid claims for certain identified sums of money. What was in issue was whether the commissioners had the power to defer making payment on those claims. It does not seem to me that that question properly fell within the terms of s 83(t)."
71. Keene J gave no further reasons for those doubts. Quite apart, however, from the fact that the tribunal's decision in the BSOC appeal refers to the reasoning in the RCOG decision and not to the reasoning in the Kay judgment, I am satisfied that there was an issue before the RCOG and BSOC tribunals both as to liability and as to quantum (for the reasons which I have sought to explain above). But even if it were to be said that there was no such issue, I do not see why (but need not decide whether) that would deprive the tribunal of jurisdiction. After all, if a taxpayer comes up against a tax authority which says "I agree your claim, but I will not pay it" or "I will choose when to pay it", why cannot that taxpayer appeal to a tribunal which, in the words of section 83(t), has jurisdiction over "a claim for the repayment of an amount under section 80"?
The background facts (resumed)
72. On 4 December 1996 the three year cap came into effect, but that did not lead the Commissioners to withdraw their application, or to object to it, or to appeal (if they could) on the basis of a change in the law.
73. In the light of the three year cap, a DCL was distributed on 22 January 1997. I shall quote parts of it as being relevant to issue 3 below. Thus -
"Treatment of refund claims made by "payment" traders
We have received legal advice that capping should not apply to those "payment" traders [ie taxpayers whose output VAT generally exceeds their input VAT] whose specific claims were agreed by 18 July 1996 but not paid. But where there is no firm evidence in writing that a claim was agreed by 18 July, that claim will be capped. All other claims will be capped, except where we received a claim before 18 July and because of undue delay by the Department it was not agreed by 18 July...
Q. Why aren't repayment traders claims capped?
A. ...Because they are in a repayment position they have not overpaid VAT. In essence by accounting for too much output tax these traders have failed to recover all the input tax they are entitled to. In other words, rather than paying us too much VAT, the trader has recovered less than entitled. Counsel has advised that this means that s80 does not bite. Claims made by "repayment" traders will not be capped until the VAT Regulations are amended later this year.
Q. How do I decide whether my trader is repayment or payment?
A. We take the view that a repayment trader is one who has submitted returns over a period of time which puts them generally into a repayment position...
Q. Some traders whose claims were in the pipeline but were either not settled, or settled but not paid will have been subject to the 3 year cap. Are there any transitional rules?
A.The intended effect of the legislation is to cap traders' claims for repayments. As such any traders whose claims were not agreed by 18 July 1996 are subject to the cap. However, we do accept that traders whose claims were subject to undue departmental delay are exceptionally to be repaid and the effect of the cap does not apply...
Q. What is undue delay?
A. This is difficult to define precisely, as local factors as well as common-sense play a role. However, Departmental delay does not include reasonable time taken in correcting traders' claims for repayments if they were incorrect, or if they lacked supporting evidence; or if traders took an inordinate time to reply to Department requests for further information...
Q. New assessment powers?
A. From 4 December Customs can assess any "amounts by way of VAT" which have been repaid and related statutory interest, which are more than three years old and which have been paid to traders on or after 18 July 1996. Assessments should not be issued until specific instructions have been issued.
Q. ...Why haven't dentists and universities been capped?
A. When the legislation was announced in July it was originally hoped to catch these traders. However, it only became clear in the run up to the Budget that it would not be possible to catch claims for input tax by repayment traders under the revised legislation. Because of the nature of the changes secondary legislation, ie the VAT Regulations, has to be amended. These changes cannot be retrospective and cannot be implemented until at least early 1997...
Q. What about local authorities?
A. Local authorities' activities are split between business and non-business activities...However, in line with commercial traders, any VAT connected to local authorities' business activities will be subject to the cap. Output tax mistakenly charged on non-business activities, such as building control fees, will continue to be refunded.
Although on the face of it local authorities are repayment traders, you should split their business/non-business activities to give a true picture."
Q. What about traders who should never have registered?
A. VAT should only be repaid if we registered the trader in error or under protest. If because of later tribunal or court precedent, it transpires that that the trader should never have been registered, any repayments will be capped. This is because those decisions have served to clarify the law. However, note comments about payment/repayment traders."
74. On 23 January 1997 the Commissioners repaid to BSOC the sum of £1,334,573. A further sum of interest followed later.
75. Nothing further happened until 4 April 1997, when BDO wrote to the Commissioners with reference to their letter of 2 December 1996, to enquire whether BSOC could safely repay the refunded VAT to their members and so to seek confirmation "that the Commissioners no longer intend to impose a 3-year limit in the circumstances of this case". The Commissioners rely on this letter as indicating that BSOC always recognised that they had been caught by the three year cap. However, BSOC would have been foolish to distribute the repayment to their members if there was any chance of a clawback. I do not regard BDO's letter as of any assistance in deciding the issues before the court.
76. On 1 May 1997 the Commissioners replied to the enquiry, following up earlier telephone exchanges. Their letter informed BDO of an assessment, relating to all VAT periods prior to 13 August 1993 (three years prior to BSOC's claim of 13 August 1996), in the sum of £692,029. That led in due course to BSOC's appeal to the VAT tribunal against this clawback assessment and to the current proceedings.
Issue one: Can the Commissioners make a clawback assessment in relation to a claim which has already been the subject of a tribunal decision?
77. This issue raises a question of construction under the amended section 80, but depends in the first place on the Commissioners' liability to repay in response to BSOC's claim having been settled by the tribunal's decision.
78. On behalf of BSOC, Mr Cordara QC submitted as follows. (1) Under subsection (4A) of Section 80 the Commissioners' power to issue a clawback assessment depends on there having been a repayment to a taxpayer of an amount which "exceeded the Commissioners' repayment liability to that person at that time" (subsection (4A)(b)). (2) The time in question is the time of payment, in the present case 23 January 1997. (3) At that time the amount of "the Commissioners' repayment liability" had been settled by the tribunal's decision of 16 December 1996. (4) That decision involved an issue estoppel as to the amount of the Commissioners' repayment liability. (5) In any event the clawback provisions did not extend to undoing the effect of a prior judicial decision.
79. On behalf of the Commissioners, Mr Lasok QC accepted the first two propositions, but questioned the last three. He submitted: as to (3), that the tribunal decision had not settled the amount of the Commissioners' liability, since there had never been any dispute before the tribunal as to the amount of that liability; as to (4), that for the same reason there could be no issue estoppel, and that in any event the principle of issue estoppel did not operate in a case like the present; and as to (5), that the statute was intended to operate retrospectively even in a case where judicial determination had preceded a clawback assessment, as was shown by the fact that, under section 47(2) of the Finance Act, the three year cap applied to "any repayment on or after that date" viz 18 July 1996, and under section 80(4A) of VATA the right to make a clawback assessment arose in any case where "any amount has been paid, at any time, on or after 18^th July 1996" which exceeded the Commissioners' repayment liability at that time.
80. The first question to determine is, therefore, whether the BSOC tribunal decision had settled the amount of the Commissioners' repayment liability. As to this question, Moses J held as follows:
"I accept Mr Cordara's proposition that no question of an obligation to make immediate repayment rather than to defer could arise unless there was a liability under section 80(1) of the 1994 Act. But, to my mind, it does not follow that there had been any decision as to liability. There was no dispute as to liability and thus no decision by the Tribunal. Liability was assumed. Although it is correct that the issue of liability is logically prior to the issue as to whether there was an obligation to make immediate repayment it does not follow that the tribunal made any decision as to the issue of liability. In the context of the appeal and decision in The Royal College of Surgeons the decision of the Tribunal only related to the policy of deferment and not the issue of liability. It was in that context that the parties reserved their position in relation to the obligation to make payment in paragraph 2 of the application dated 29 November 1996. Accordingly, in my judgment, the decision of the tribunal did not amount to a final determination of the Commissioners' repayment liability. Thus, BSOC cannot rely upon that decision as determining its repayment liability for the purposes of section 80(4A).
Dr Lasok, on behalf of the Commissioners, supports his argument that the decision could not determine the amount of the Commissioners' repayment liability for the purposes of section 80(4A) on two further grounds. Firstly, he points out that absent any dispute as to liability there could be no question in relation thereto. I agree. Whilst it is true that the issue of liability precedes the question of an obligation to pay, it does not follow that the Tribunal had any jurisdiction in the instant case to determine liability. In my judgment, since there was no dispute as to liability the Tribunal had no jurisdiction to determine it. BSOC cannot point to any dispute as to liability which might have given rise to an appeal in relation to liability whatever the true construction of section 83(t).
Secondly, Dr Lasok raises the question as to whether the Tribunal had any jurisdiction to rule upon the power of the Commissioners to defer payment. In ex parte Kay (q.v. supra) Keene J took the view that the question of whether the Commissioners had power to defer making payment did not properly fall within section 83(t) (see 1517h to 1518b). I share Keene J's doubts although I do not think it necessary to determine that issue. Even if the Tribunal did have jurisdiction to determine that question it is of no assistance to BSOC who must establish that there was a decision as to liability in order to demonstrate that there was no power to raise an assessment under section 80(4A). For the reasons I have given it has not done so."
81. In my view, however, for reasons that I have already given in an earlier section of this judgment, I am unable to agree with this passage. I recapitulate those reasons briefly. In the first place, liability was not assumed, it was litigated: it was because liability was neither assumed nor admitted that BSOC was required to appeal to the tribunal. Otherwise, BSOC would have been paid. It was not paid because the Commissioners were following their policy of refusal or deferral. As the DCL of 18 July 1996 stated - "In the meantime claims are to be dealt with as if the legislation were already in place." Secondly, liability (and quantum) were disputed. The Commissioners were unwilling to pay BSOC its claim save upon the basis that the three year cap was already in force, or save upon the basis that the repayment liability would be deferred until the cap was in place. Thirdly, as Moses J himself stated a number of times, the issue of liability was logically prior to the issue whether there was an obligation to make immediate payment. Fourthly, consideration of BSOC's notice of appeal and of the terms of the Commissioners' application shows that the parties were in dispute as to a claim to payment of £1,306,212.60. Fifthly, the reasons and terms of the RCOG decision, incorporated into the BSOC tribunal decision, confirm that the BSOC case was in pari materia with the former. Sixthly, since there was a dispute as to liability (and quantum), the tribunal had jurisdiction to determine liability (and quantum). Seventhly, the incorporation of the reasons of the RCOG decision is inconsistent with Mr Lasok's submission that the tribunal lacked jurisdiction.
82. The second question relates to issue estoppel. Mr Lasok asked rhetorically: Why does this matter, if upon a true construction of the legislation the clawback provisions do not override a prior judicial decision? Therefore, it is the third question, Mr Cordara's proposition (5), that is decisive. I agree. Nevertheless, the question of issue estoppel was debated, and I will express my view of it. Mr Cordara relied on In re South American and Mexican Company, Ex parte Bank of England [1895] 1 Ch 37 where Lord Herschell LC said (at 50) -
"The truth is, a judgment by consent is intended to put a stop to litigation between the parties just as much as is a judgement which results from the decision of the Court after the matter has been fought out to the end. And I think it would be very mischievous if one were not to give a fair and reasonable interpretation to such judgments, and were to allow questions that were really involved in the action to be fought over again in a subsequent action."
83. Mr Cordara also relied on Hoystead v. Commissioner of Taxation [1926] AC 155 (PC) where the Commissioner was not allowed to take in a subsequent year a point which he had been prepared to assume against himself in a previous year's assessment. Lord Shaw said (at 165/6):
"Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted...Thirdly, the same principle - namely, that of setting to rest rights of litigants, applies to a case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken. The same principle of setting parties' rights to rest applies and estoppel occurs."
84. I do not suppose any of that was controversial. Nevertheless, Mr Lasok submitted that, even if he failed on the prior question, nevertheless the issue in the present proceedings is a different issue from the issue in the BSOC tribunal appeal. In the latter case, the issue was the amount of the Commissioners' repayment liability under the unamended section 80, whereas in the present proceedings the issue is the amount of the Commissioners' repayment liability under the amended legislation. I agree with Mr Lasok to this extent, that if it were the case that the amended legislation entitled the Commissioners by their clawback assessment to override any prior judicial decision, then it would follow not only that the statute would have to be given its effect, but also that the issues as to the amount of the Commissioners' repayment liability would, were a clawback assessment to be issued, inevitably have to be looked at again, and if necessary relitigated again, under each of the two regimes. That I suppose indicates that the critical question does arise under Mr Cordara's proposition (5).
85. The oddity about this case, however, is that the tribunal's decision was overtaken by the new legislation in the period between its formulation in provisional form (on 2 December) and its final status (on 16 December). In these circumstances, the question whether the amount of the Commissioners' repayment liability had changed during that period was never addressed. Regarding the matter in that light, I am inclined to analyse the current question not so much in terms of issue estoppel per se as in terms of the broader principle in Henderson v. Henderson (1843) 3 Hare 100 at 115:
"The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time."
86. Thus Mr Cordara also relied on this principle, submitting that the Commissioners ought to have withdrawn or objected to their application, or should at any rate have appealed the tribunal decision, in the light of the new legislation - which they must in any event have been well aware was in the wings. Similarly, Mr Lasok was also prepared to argue the relevance of this principle, citing Arnold v. National Westminster Bank Plc [1991] 2 AC 93 for the proposition that it did not apply in special circumstances, such as those pertaining to the present case.
87. In Arnold a first rent review, in 1983, under a long lease gave rise to arbitration and an appeal to the court in which a point of construction was decided upon a certain basis. The tenant sought leave to appeal to the court of appeal and was refused, and no further appeal lay against the judge's refusal of a certificate under section 1(7)(b) of the Arbitration Act 1979. Subsequent decisions in other cases, however, showed that the first decision was wrong. The tenant therefore commenced fresh litigation to determine the basis upon which future rent reviews should be conducted. The landlord relied on issue estoppel as a bar. However, the courts at every level up to and including the House of Lords rejected that plea. It was pointed out that the statement of principle in Henderson v. Henderson was expressed to be subject to "special cases". At 110G/111C Lord Keith of Kinkel said this:
"Estoppel per rem judicatam, whether cause of action estoppel or issue estoppel, is essentially concerned with preventing abuse of process. In the present case I consider that abuse of process would be favoured rather than prevented by refusing permission to reopen the disputed issue. Upon the whole matter I find myself in respectful agreement with the passage in the judgment of Sir Nicolas Browne-Wilkinson V.-C. where he said [1989] Ch. 63, 70-71:
"In my judgment a change in the law subsequent to the first decision is capable of bringing the case within the exception to issue estoppel. If, as I think, the yardstick of whether issue estoppel should be held to apply is the justice to the parties, injustice can flow as much from a subsequent change in the law as from the subsequent discovery of new facts. In both cases the injustice lies in a successful party to the first action being held to have rights which in fact he does not possess. I can therefore see no reason for holding that a subsequent change in the law can never be sufficient to bring the case within the exception. Whether or not such a change does or does not bring the change within the exception must depend on the exact circumstances of each case." "
88. Special circumstances were held to exist in that case in the facts that there was no right of appeal, that the prior decision had been subsequently shown to be plainly wrong, that it would be unjust for the tenant to be bound at successive rent reviews over a further twenty years by a construction which was generally regarded as erroneous and for the landlord to receive a much higher rent than he would be entitled to on a proper construction of the lease, and that the public interest in seeing an end to litigation had little weight where there would in any event need to be arbitration at each successive rent review (at 110).
89. Applying these principles to the present case, it seems to me that if the tribunal decision had occurred prior to the change in the law, then, provided that no appeal was open on the basis of the new law, there could have been no estoppel. But that was not the position here. It does not seem to me that the doctrine of special circumstances assists the Commissioners in this case. On the contrary, this case seems to me to fall perfectly well within the general words of the citation from Henderson v. Henderson. Moreover considerations of abuse of process or of the justice or injustice of the situation do not operate in the Commissioners' favour. Prior to the three year cap, BSOC had a valid claim to recover everything that they had paid, by mistake, by way of VAT. They never ought to have been registered for VAT. The Commissioners ultimately recognised that claim by the repayment that they made. Without advance warning, the three year cap sought to limit that claim to payments made only in the previous three years. Such retrospective legislation is possible under the undiluted principle of the sovereignty of Parliament (I put on one side for the present considerations of the European Convention of Human Rights ("ECHR") and of Community law), but it is not favoured and the extent of any retrospectivity is regarded with a watchful eye. In these circumstances if the Commissioners wished to preserve to the full extent possible the limitation on their repayment liability which the new legislation gave to them, then it seems to me that they should have been astute to ensure, once that new regime was in effect from 4 December 1996, a date which they would have had the advantage of being able to anticipate, that any question of the amount of their liability in current litigation was addressed by reference to their current rights and liabilities, such as they were. Of course, if that new regime permitted them to rewrite their liability even against the background of a judicial decision which determined it, then they could afford to be relaxed about such matters. But if not, then it seems to me that prima facie they would be bound.
90. I say prima facie, because there is one other argument which bears on the question under consideration, and that is the Commissioners' submission that the principle of estoppel does not operate (at any rate in any formal sense) in cases of judicial review. In Kay (at 1516/7) Keene J had to consider whether the doctrine of issue estoppel prevented the Commissioners from rearguing before him the question which the RCOG had determined against them, namely the unlawfulness of their policy of deferment. Keene J held that the doctrine did not apply to judicial review, inter alia because such applications are brought in the name of the Crown, so that the parties are not identical; also because the court is dealing with what are essentially issues of public law. Moses J said that he need not resolve this question, because in his view there had been no decision in relation to liability which touched on any question arising under section 80(4A), a matter on which I have expressed my disagreement. It happens that this submission has been argued only lightly in this court, and we have not been invited to visit the authorities relied on by Keene J. In these circumstances I am reluctant to decide the point, and would prefer merely to hazard the opinion that, whatever may be the position regarding a question as to the Commissioners' powers (the issue before Keene J), when it comes to a question such as the amount of the Commissioners' repayment liability, the principle of Henderson v Henderson ought to prevent relitigation.
91. It will be unnecessary to decide this submission unless the third question, which arises under Mr Cordara's proposition (5), turns out to require such decision. I shall therefore proceed to that proposition.
92. The third question, therefore, is a question of construction as to the extent to which the retrospective provisions of the amended legislation are intended to operate. Does the amended statute apply to a case where there has already been a judicial decision as to the amount of the Commissioners' repayment liability? In particular, do the clawback provisions apply to a case where a judicial decision precedes the clawback assessment?
93. Mr Cordara relies on the general presumption that a statute is not intended without clear words retrospectively to override judicial decisions or to remove rights acquired by virtue of a previous court decision. It is not disputed that the decisions of a tribunal such as the VAT tribunal fall within that presumption. Section 16(1) of the Interpretation Act 1978 provides the following guidance:
"...where an Act repeals an enactment, the repeal does not, unless the contrary intention appears, -...(b) affect the previous operation of the enactment repealed or anything duly done or suffered under that enactment; (c) affect any right, privilege, obligation or liability acquired, accrued or incurred under that enactment;...(e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability...; and any such investigation, legal proceeding or remedy may be instituted, continued or enforced...as if the repealing Act had not been passed."
94. Of course, where the "contrary intention" does appear, effect would have to be given to it. A leading modern authority on the interpretation of statutes from the point of view of their retrospective effect is The Boucraa [1994] AC 486. At 524G/525H Lord Mustill emphasised the disposition against giving retrospective effect to statutes, but counselled against treating all statutes and situations alike, pointing out that the rationale of the rule was based not so much in generic formulae as in simple fairness and common sense as applied to an analysis of the particular statute in question. He also observed that the degree to which a statute is retrospective will likewise depend on the same approach.
95. I address myself therefore to the wording of section 47 of the Finance Act and to the amendments it brought to section 80 of VATA within the context of that section as a whole.
96. In this connection, I would repeat the observation made above, that amended section 80(4) of VATA (ie section 47(1) of the Finance Act), the three year cap, does not itself give any indication that it is intended to be retrospective, and for that aspect of the matter it is necessary to turn to section 47(2) of the Finance Act. For convenience, I will set out the words of section 47(2) again:
"(2) Subject to subsections (3) and (4) below, subsection (1) above shall be deemed to have come into force on 18^th July 1996 as a provision applying, for the purposes of the making of any repayment on or after that date, to all claims under section 80 of the Value Added Tax Act 1994, including claims made before that date and claims relating to payments made before that date."
97. Such a broad provision immediately raises the questions: Is this intended to override a judicial decision which precedes 18 July 1996, but where the repayment pursuant to that decision post-dates 18 July 1996? Is this intended to override a judicial decision which post-dates 18 July 1996, and where therefore any repayment pursuant to it necessarily also post-dates 18 July, but where the judicial decision pre-dates 4 December 1996?
98. I state these questions, because they are tied up with the ultimate question which is raised by Mr Cordara's submission, which is whether the Commissioners' new clawback assessment powers (under section 80(4A) and (4B)) operate to override a judicial decision which precedes the clawback assessment. Such a judicial decision could itself in theory either pre-date or post-date 4 December 1996. Again, section 80(4A) is in very broad terms, viz it applies where any amount has been repaid by the Commissioners under section 80 "at any time on or after 18th July 1996".
99. The first thing to note, in my judgment, is that the whole of section 80 (and of section 47) is expressed in terms of a claim for repayment. Thus section 80(2) says that the Commissioners shall only be liable to make any repayment "on a claim being made for the purpose"; unjust enrichment shall be a "defence" in relation to that claim (section 80(3)); the three year cap applies to a "claim made under this section" (section 80(4)); and a claim shall be made in a form prescribed by regulations (section 80(6)). Moreover, section 47(2), which expressly states that the three year cap introduced by section 47(1) shall be retrospective to 18 July 1996, nevertheless expresses that retrospective aspect as applying "to all claims under section 80...including claims made before that date". There is nothing so far which would suggest that the three year cap would apply to a claim which, prior to these amendments coming into force, had already resulted in a judicial decision which had determined the Commissioners' repayment liability in terms of the only law which had then existed. Such a judicial decision would not be a "claim to repayment" but a judgment as to the extent of the Commissioners' repayment liability.
100. The question then arises, secondly, whether there is any provision in section 47 or section 80 as amended to suggest that the three year cap and the Commissioners' clawback powers should be applied in the case of a judicial decision which has already determined the Commissioners' repayment liability on the pre 4 December 1996 basis.
101. Mr Lasok relied on section 47(3) and (4) as indicating that the word "claim" was being used in some all embracing form so as to include proceedings which had already resulted in a determination (see section 47(3)(b)). This argument had not been utilised before Moses J or in Mr Lasok's written skeleton, and was not much developed in Mr Lasok's oral submissions. In my judgment it is misconceived. Section 47(3) and (4) is a provision in favour of the taxpayer, not in favour of the Commissioners. It deals with the special situation where the "claim" in question raises the same issue as had previously been raised in other prior proceedings. In that case, the three year cap in (new) section 80(4) does not apply, but rather the different cap in section 47(4)(b) applies, viz a three year period which runs (not from the date of the "claim" as in section 80(4) but) from three years before the prior proceedings. Thus, if anything, this special case provision reinforces, rather than undermines, the rationale of section 80 and section 47 as a whole, which is that it is dealing with the making of claims, rather than the delivering of determinations or judgments.
102. Thirdly, however, Mr Lasok relies on the provisions of section 80(4A) and (4B), which deal specifically with the case where the Commissioners have made a repayment to a taxpayer "at any time on or after 18^th July 1996". These provisions, therefore, are designed on their face to catch a claim under section 80 which has already resulted in a repayment. They provide that the Commissioners may assess the excess by which the repayment to the taxpayer "exceeded the Commissioners' repayment liability to that person at that time". The "Commissioners' repayment liability" is then defined (in subsection (4B)) in such a way as to apply to it the retrospective enactment of the three year cap: not however eo nomine, but by reference to "any provision affecting the amount which they were liable to repay...subsequently deemed to be in force at that time" (subsection (4B)(a)). Thus a repayment in, say, September 1996 under the unamended section 80 can be revisited after 4 December 1996 under the amended section 80 by means of the raising against the taxpayer of an assessment of the difference between the Commissioners' liability under the three year cap and the greater liability under the previous regime. Mr Lasok submits that such clearly retrospective legislation is intended to bite, in the terms of the statute, on "any" amount paid at "any" time on or after 18 July 1996, irrespective of whether the payment is merely pursuant to a taxpayer's claim or is also pursuant to a tribunal's determination. The statute's retrospectivity in this respect is not only wide enough as a matter of language, but as a matter of reason too there is no cause to differentiate between a payment made by the Commissioners as a matter of their own determination and a payment made by them as a result of the determination of a tribunal.
103. That is a powerful submission, and it was accepted by Moses J, who also considered that unfairness did not come into the question, either because it was "artificial" to rely upon such unfairness, or because the proper construction of the statute was "not assisted by assertions of unfairness", and/or because BSOC was warned (in the Commissioners' letter of 2 December 1996) that they would attempt to recover the amounts repaid. Nevertheless, I find myself unable to agree with the Commissioners' submission or with the Judge's approach. Lord Mustill in The Bourcraa says that fairness does enter into the problem of construction. The fact, however, that the Commissioners happened to warn this taxpayer that they would attempt to recover the amount repaid in a letter in which they otherwise agreed to repay the taxpayer's claim, can neither affect the construction of the statute, nor can it affect the fairness of the underlying situation. In truth, the statute's intention to turn a six year cap (or no cap at all where payment of VAT had been made by mistake) into a three year cap, without any warning, is hardly fair. Whatever virtue it has for the public finances, is a virtue which is paid for by individual taxpayers whose previously valid claim for repayment, to the extent that it went back over more than three years, was simply removed from them, from one day to the next. That unfairness cannot be ameliorated by warning the hapless taxpayer, at a time when the Commissioners pay what the law requires them to repay, that they are looking forward to the time when Parliament will enable them to recover that payment (in truth, part of it) by a retrospective removal of a valid claim. In such circumstances, if Government, with the support of Parliament, wishes to execute a policy of retrospective removal of valid claims, then it must take care that it does so meticulously and clearly.
104. The question remains whether it has done so. I cannot agree that the revisiting of a payment by the Commissioners is the same thing as the administrative overthrowing of a prior judicial determination. Against the background of the announcement of 18 July 1996, it is one thing for the Commissioners to say to a taxpayer: "I agree that as the law now stands I must repay you six years' overpayment, but when the law has been changed so as to introduce the new cap retrospectively, I will exercise my rights to recoup the difference." But it seems to me that it is quite another thing for the Commissioners to litigate with the taxpayer as to the extent of their liability, to find that judgment goes against them or to concede that it must, and then seek to say by administrative fiat that their "repayment liability" was something else than it has been judicially determined to be. If Parliament wishes to legislate that prior judicial determinations can be overthrown in this way, especially in a statutory context which is all about the making of claims, then in my judgment it must say so expressly, as it could easily have done.
105. Suppose that, contrary to the facts of this case, there had been a real possibility of a defence of unjust enrichment being run. Could it be said that the statute contemplates that a tribunal decision might be given against the Commissioners prior to 4 December 1996 for a repayment liability of £x, and that the Commissioners could thereafter seek to say that under the terms of amended section 80(3A)/(3C) they were now in a position to prove that their repayment liability was some different and lesser sum? I think not.
106. Not only is the whole context of section 80 and section 47 that of claims made rather than judicial determinations delivered, but the retrospective aspects of section 80(4A) and (4B) are written in terms of the Commissioners' repayment liability at the time of the Commissioners' payment. That makes sense where the Commissioners are merely paying a claim without the intervention of a judicial determination. Where, therefore, the Commissioners have paid a claim after 18 July 1996, they are given the power to recoup that part of the payment which exceeds their liability under the three year cap. Where, however, the amount of the repayment liability has been determined judicially, it does not follow that the Commissioners should be able to recoup administratively what they have been adjudged liable to pay, nor is there any logic in focusing on the time of payment as distinct from the time of the judicial decision.
107. All of this suggests to my mind that the statute does not contemplate that, contrary to the Interpretation Act, the retrospectivity of the three year cap extends so far as to permit the Commissioners to use their new clawback powers so as to override a judicial decision which pre-dates 4 December 1996. Similarly, for reasons already given, I do not think that section 47(2) should be read as even purporting to apply the three year cap to a claim which has been conclusively determined by judicial decision prior to 18 July 1996, or even prior to 4 December 1996.
108. In principle, therefore, I am against the Commissioners' submission.
109. If, therefore, the tribunal's decision had been made prior to 4 December (viz on 2 December when its direction was made) the statute's retrospectivity would not bite, and the Commissioners would not be entitled to avail themselves of their clawback powers. What then is the position in the light of the fact that the decision did not become effective until after 4 December?
110. It remains an oddity of this particular case that the tribunal's decision only took effect after the three year cap had been enacted, let alone after the retrospective date to which the legislation reached back. At that time, therefore, on 16 December 1996, it might be said that the decision, in giving effect to BSOC's claim in the amount of £1,306,212.60, was overstating the true extent of the Commissioners' repayment liability. That, however, was a matter on which the Commissioners had to consult their own interests. They could have withdrawn their application. They might have been able to appeal the decision. Despite the terms of their letter of 2 December - which of course were not reflected in their application and the tribunal's decision - they might have decided that they were not after all minded to enforce the three year cap in this particular case. A limitation clause does not have to be pleaded. Whatever the outcome of issue three below, there is still much to debate as to the way in which the Commissioners might have exercised their discretion. The fact, therefore, that the decision derived from a time when section 80 was in its pre-amended form, is not necessarily inconsistent with the decision being supportable under the amended legislation.
111. Be that as it may, after 4 December 1996 the three year cap had at least been enacted. In such circumstances, retrospectivity in the sense just discussed is not strictly in issue, and the three year cap was on any view in force to assist the Commissioners in any litigation on the operation of their liability to repay, even in respect of "claims relating to payments made before [18 July 1996]" (section 47(2)). The question remains whether the clawback provisions in section 80(4A) and (4B) can override a judicial decision which pre-dates the exercise of that power. For the reasons already discussed, I do not think they can. Indeed, this is, in a sense, an a fortiori case, for after enactment on 4 December 1996 the Commissioners can vindicate their lesser liability in existing litigation without the need to relitigate. They merely have to point to a taxpayer's limited ability to claim repayment. Once, however, a judgment has been given against them the position changes. Despite the beguilingly wide language of section 80(4A), it is still premised on a three year cap which is written in terms of "claim" (section 47(2), which is brought into play by section 80(4B)(a)) and in terms of language ("amount...paid...repayment...repayment liability") which nowhere begins to suggest that it is contemplating the discharge of a judgment. Indeed, the word "judgement" is used in subsection (4A), but only in referring to "the best of the [Commissioners'] judgement". Is their judgment to override the judgment of a judicial determination? It is difficult to see how it can, or can have been intended to.
112. For these reasons I would answer issue one in favour of BSOC, and see no need to decide the Henderson v Henderson point definitively.
113. In any event, these considerations lead naturally on to issue two, which raises another point of construction on the terms of the amended section 80.
Issue two: do the retrospective provisions of section 80(4B)(a) apply to the present case?
114. To clarify this issue it would probably be helpful to set out again the provisions of section 80(4B). It will be recalled that subsection (4A) provides that where a repayment is made after 18 July 1996, then the Commissioners can assess the excess between what was paid and their "repayment liability" at the date of payment. Subsection (4B) goes on to define that "repayment liability" to be -
"(a) in a case where any provision affecting the amount which they were liable to repay to that person at that time is subsequently deemed to have been in force at that time, the amount which the Commissioners are to be treated, in accordance with that provision, as having been liable at that time to repay to that person; and
(b) in any other case, the amount which they were liable at that time to repay to that person."
115. Mr Cordara submits that on the date of payment, namely 23 January 1997, the three year cap was already in effect - it had of course been brought into effect by the PCTA resolution on 4 December 1996. Therefore, the three year cap was not a "provision...subsequently deemed to have been in force at that time", viz at the time of payment. Mr Lasok, in answer, says that he does not rely on the PCTA resolution, but on the Finance Act 1997, which came into effect on 19 March 1997. To that Mr Cordara ripostes that the Finance Act, by merely reenacting the PCTA resolution, is not a provision "affecting the amount which [the Commissioners] were liable to pay to that person at that time". Mr Lasok's response is to say that the Finance Act did affect the Commissioners' liability because it put the three year cap on a permanent basis, whereas the PCTA resolution was only a temporary solution which would fail if not reproduced in an Act of Parliament within the requisite period. Mr Cordara for his part points out that a PCTA resolution, although liable to fail unless confirmed by statute, in the meantime shall "have statutory effect as if contained in an Act of Parliament" (section 1(2) of the PCTA).
116. Moses J accepted the submissions made before him on behalf of the Commissioners. He put the matter thus:
"Section 47 of the Finance Act 1997 is a provision which affected the amount which the Commissioners were liable to repay BSOC at the time of repayment. It affected that amount because it imposed a three-year cap. It is nothing to the point that the amount had already been affected by the previous temporary resolution."
117. The issue is perhaps a matter of first impression, which cannot be much expanded. I have to confess, however, that my first, and last, impressions were and are that the Commissioners' reliance on section 47 of the Finance Act is mistaken. As at 23 January 1997 the three year cap was already in effect. It is wrong, in any meaningful sense, to say that section 47 imposed a three year cap. It did not introduce that cap, which had already been imposed. It merely made permanent what might otherwise have been temporary. If one asked, on 23 January 1997, what the limitation period was for the purpose of section 80(4) of VATA, and whether that section imposed a six year cap or a three year cap, the answer would have to be that a three year cap was in effect. If one asked the same question on 19 March 1997, the same answer would have to be given. I cannot see that the amount of the Commissioners' liability had been affected in the slightest degree between 23 January 1997 and 19 March 1997.
118. It follows that the basis, viz subsection (4B)(a), upon which the retrospective provisions of the amended section 80 were applied by Moses J so as to validate the Commissioners' assessment under subsection (4A) cannot in my judgment properly support that assessment.
119. Mr Lasok therefore had an alternative submission, not considered by Moses J, which was that the Commissioners' assessment was validated by subsection (4B)(b) - "in any other case, the amount which they were liable at that time to repay to that person". That provision raises the question: What was the amount which the Commissioners were liable to repay to BSOC as at the date of their payment, viz 23 January 1997? At that time there was a decision of the VAT tribunal giving effect to BSOC's claim for repayment of £1,306,212.60. How can it be said that that decision did not establish the amount of the Commissioners' liability at that time? For good measure that decision had come into effect after 4 December 1996 and therefore in the era of the new regime. What entitles the Commissioners, who permitted that decision to be made against them by consent, to say that it could just be disregarded? It had not been challenged by them, and they had lodged no appeal against it. I have rejected the submission (under issue one) that the new regime simply permitted the Commissioners to override prior judicial decisions by administrative assessment. If the disposition of the case which they had themselves proposed was unsatisfactory to the Commissioners, then they should have challenged it.
120. In coming to these conclusions under issues one and two, I have had in mind, but I have not felt the need to take into account, Mr Cordara's submission that these English law issues of construction should be decided with the assistance of principles to be derived from the ECHR: in particular article 1 of the First Protocol concerning the peaceful enjoyment of possessions, and article 6 concerning the right of access to the courts and in that context, it is submitted, the right to be free of legislative interference from retrospective legislation save on compelling grounds of public interest. Nevertheless, I have felt able, in adopting a purely English law pre-HRA approach to these issues, to reach conclusions which in my judgment reflect both the legislative intent of Parliament and the fairness of the situation. Had I not felt able on that basis to come to such conclusions, I would have felt regret that, at any rate on the submissions of BSOC, the sole assistance available to the taxpayer rested in principles to be derived from the ECHR and (on issue four below) from Community law.
121. In these circumstances issues three and four are not decisive.
Issue three: Did the Commissioners act fairly and rationally in deciding in their discretion to exercise a right to issue an assessment?
122. If I am right under issues one and two, the discretion upon which the Commissioners relied never arose. Nevertheless, I will consider the arguments raised under this issue, but more briefly than if it were potentially decisive.
123. Mr Cordara submitted that the Commissioners' discretion had to be exercised fairly and rationally; there should be no improper discrimination between BSOC and other taxpayers; and the considerations taken into account by the Commissioners should include all relevant and exclude all irrelevant factors. There was no dissension on the part of Mr Lasok from that approach, but he reminded the court that its function is only to review the Commissioners' exercise of their discretion, not to seek to substitute its own views for theirs.
BSOC as a body "governed by public law" within article 4.5 of the Sixth Directive
124. Mr Cordara put particular emphasis on this point, which is why I take it first. He submitted that under article 4.5 of the Sixth Directive "other bodies governed by public law" are grouped together with "States, regional and local government" as bodies which are not to be considered as taxable persons in respect of their activities and transactions as public authorities (see under para 30 above). He said that BSOC was a "body governed by public law" and that the analogy with local government should have ensured that BSOC was dealt with by the Commissioners in the same way as local authorities. As for such authorities, the DCL of 22 January 1997 which I have quoted above (in para 73) made clear that they were to continue to be repaid all tax mistakenly charged on non-business activities. Mr Cordara said that it was common ground that BSOC was such a body governed by public law.
125. Mr Lasok retorted that not only was that not common ground, but that Mr Cordara's point was an entirely new one in this court. Up to now the argument had been that BSOC was immune from VAT on the ground that it did not undertake any economic activity (see articles 4.1 and 4.2 of the Sixth Directive and section 4(1) of VATA), rather than on the basis of article 4.5. There was no evidence before the court as to BSOC's status. It was true that in ICAEW Tuckey J opined that article 4.5 had been implicitly incorporated into VATA and that ICAEW was such a body governed by public law. But he did not have to decide the point and expressed himself relieved to be in that position (at 807b): if he had had to decide the point, he would have had to refer the question to the European Court of Justice, since that court had defined bodies governed by public law as those which are "part of the public administration" which ICAEW was not (at 806j and 807c). In the circumstances, it was impossible, said Mr Lasok, to begin to deal with the point.
126. In these rather similar circumstances it seems to me that this court is no better placed, even though it could be said in BSOC's favour that in ICAEW the article 4.5 argument was raised by the Commissioners themselves, and therefore they ought to have considered the possibility that BSOC was analogous to ICAEW. As it is, if this issue had been decisive, then it seems to me that this court would, like Tuckey J, have had to refer the point.
BSOC is in any event to be classed with local authorities as a person not engaged in business activities
127. This was the point argued before Moses J. He rejected it on the ground that the position of local authorities is not comparable with other persons not engaged in business activities. He said -
"It is a matter for central government to decide whether to fund local authorities by way of sums announced in the annual budget or by way of a refund of output tax. That is not a question which assists BSOC...[L]ocal authorities...are not in a comparable position to a private trader such as BSOC."
128. Mr Cordara submitted that in that passage Moses J, who had been referred in this context by Mr Lasok to section 33(1)(a) of VATA, was confused between output tax (the subject matter of a section 80 claim for repayment) and input tax (the subject matter of section 33). I do not consider that Moses J was confused between the two. What he was saying, I think, is that just as section 33 for the purpose of input tax distinguished between local authorities (and other boards and authorities of a like nature) and "private traders" such as BSOC, even if such traders were only engaged in non-business activities, so it was open to the Commissioners to distinguish between local authorities and other non-business traders for the purpose of section 80 and output tax. It was for central government to consider how to finance local government. It seems to me that that is a legitimate point of view. I therefore reject Mr Cordara's submission that BSOC was dealt with unfairly, irrationally or in a discriminatory manner because it was not dealt with in the same way as a local authority.

BSOC as a non-business trader which should never have been registered
129. Mr Cordara's next point was that BSOC should have been treated in the same way as any other non-business trader who ought never to have been registered. In this connection he relied on a question and answer dealing with such traders which I have cited above (para 73) from the Commissioners' DCL of 22 January 1997, and in particular on the first sentence of the answer, that "VAT should only be repaid if we registered the trader in error or under protest". He submitted that BSOC had registered in error. In her evidence Mrs Campion did not deal specifically with this category of trader, but said more generally that BSOC's case "did not meet the criteria the Commissioners had publicised" for exercising their discretion not to apply the three year cap. Before Moses J, however, there was a submission on the part of the Commissioners, which has been repeated in this court, that the category of "registered...in error or under protest" did not include those who had voluntarily submitted to registration, only those in whose case the Commissioners had erroneously taken the initiative. Moses J accepted that submission. He said -
"The policy seeks to draw a distinction between a trader applying for registration and a case where the Commissioners took the initiative. I reject Mr Cordara's submission that it is merely referring to all those cases where there was registration in error."
130. Mr Lasok submitted therefore that BSOC fell outside the first sentence of the DCL answer and within its second sentence, viz -
"If because of later tribunal or court precedent, it transpires that the trader should never have been registered, any repayments will be capped."
131. I hesitate to differ from the Judge below in an area which has not been covered by evidence. Nevertheless, coming to the DCL afresh, I read it somewhat differently. I cannot find in it any basis for distinguishing, for the purpose of the first sentence of the DCL answer, between cases where there was a voluntary registration on an erroneous basis and a case where the Commissioners took the initiative. It may be true that the latter category would come within the words "registered...under protest": but that category is only part of what falls within the first sentence. I read the DCL answer as saying: (1) A question of repayment of VAT only arises where the trader was registered in error or under protest. (2) Where a question of repayment does arise, however, it will be capped, viz by the three year cap.
132. On that ground, rather than on the basis argued by Mr Lasok or decided below, I would for myself reject Mr Cordara's submission under this heading.
BSOC's claim was made and agreed to before 18 July 1996
133. Mr Cordara did not describe this as his strongest point. In my judgment he was right in that assessment. His submission was that BSOC had made its claim as far back as 18 April 1995, when BDO wrote to the Commissioners to ask for an appealable determination as to BSOC's tax status. On 5 June 1996 the Commissioners finally agreed, in the light of Tuckey J's judgment in ICAEW, that BSOC was not liable to VAT. That, Mr Cordara submitted, was an acceptance of BSOC's claim for repayment of VAT overpaid. The Commissioners must have been aware that BSOC wished to claim and was claiming the return of all VAT paid since its registration in 1987 and, since the Commissioners knew the figures involved as well as BSOC, they must also have been aware of the amount of that claim.
134. In this connection Mr Cordara was relying on the Commissioners' publicised DCL policy, also quoted above (at para 73), that (sc only) those "whose claims were not agreed by 18 July 1996" were "subject to the cap". By inference, those whose claims had been agreed by 18 July 1996 would not be subject to the cap, even if repayment had not also beaten that deadline. That much was common ground.
135. In my judgment, however, this was a bad point. Section 80(6) (which remained unchanged) had always made plain that a claim had to be made in writing in a form prescribed by regulations under the Act. Regulation 37 (see para 20 above) prescribed the necessary requirements. They included stating the amount of the claim and the method of its calculation, all by reference to documentary evidence in the possession of the claimant. None of this had been done until BDO's letter of 13 August 1996. As BDO's earlier letter of 2 August had said: "...I am instructed to serve notice of claim...Details of the claim will be sent in due course."
136. I accept that BDO's earlier correspondence, back to April 1995, had shown that there was an ongoing "claim" to have BSOC's tax status clarified, and it was I suppose always on the cards that that would lead to a claim for repayment. But the claim for repayment did not materialise until 13 August 1996. The Commissioners were entitled to identify settlement (agreement) of a claim for repayment as a brightline test for the application of the cap, and to keep to that test.
BSOC's claim would have been agreed in time but for the Commissioners' undue delay
137. Mr Cordara also submitted that BSOC's claim came within the "undue delay" extension to the Commissioners' policy of not applying the three year cap to claims agreed before 18 July 1996. Thus claims which would, but for the Commissioners' undue delay, have been agreed by that deadline were dealt with as claims agreed in time and therefore not subject to the cap. That policy was also spelled out in the DCL quoted earlier in this judgment (at para 73).
138. Mr Cordara relied in this connection on (i) a period of some 2 months between BDO's letter of 18 April 1995 and the Commissioners' reply of 26 June 1995; (ii) a period of nearly 3 months between BDO's next letter of 28 June 1995 and the Commissioners' reply of 18 September 1995; and (iii) a period of nearly 4 months between BDO's letter of 14 February 1996 and the Commissioners' reply of 5 June 1996: in all a period of some 8/9 months. Allowing even half of that period as a more than reasonable time for proper administration of the correspondence, Mr Cordara submits that the excess amounts to undue delay, in the absence of which BSOC's claim would have been made and agreed before 18 July 1996.
139. In my judgment this point fails as well. There simply was no claim by BSOC until 13 August 1996. In the absence of a claim, there can be no complaint that it was not dealt with efficiently. It may well be, but it is pure speculation, that if BDO's earlier correspondence concerning the status of BSOC had been dealt with promptly - by BSOC as well as by the Commissioners, because there was a four and a half month period between 18 September 1995 and 2 February 1996 when BSOC accepts that it was to blame for the sluggishness of the correspondence - then BSOC would have reached the stage where it would have submitted its claim for repayment in time for it to be agreed before 18 July 1996. That, however, to my mind, is beside the point. BSOC had always been in a position, as from 18 April 1995, to formulate a claim for repayment. It did not do so. Even after the delays of which it complains, culminating in the Commissioners acceptance on 5 June 1996 (subject to any appeal from Tuckey J in ICAEW) that BSOC was not liable to VAT, BSOC had time, if it had so chosen, to submit its detailed claim for repayment of VAT before 18 July 1996. I do not say that BSOC is to be blamed for not doing so, either then or at any earlier stage. It approached the matter in what seemed to it to be a logical manner. It considered that it was under no time pressure. Under the existing legislature it was not. The fault of the situation lies not in any maladministration by the Commissioners, but in the policy of a retrospective cap, introduced without warning, so that even parties who were looking to their rights, as BSOC undoubtedly was, had the rug pulled from under their feet.
BSOC should have been treated in the same way as "repayment" traders
140. "Repayment" traders are those who generally receive a refund of VAT on their returns, because their input tax is greater than their output tax. They are distinguished from "payment" traders, whose output tax is generally greater than their input tax and who therefore generally make payments with their quarterly returns. Of course, any trader in a particular quarter or quarters may be in a position to make a return which runs against the general trend. BSOC was overall in the position of making payment to the Commissioners, hence the build-up of its claim of over £1.3 million during ten years: but, because, as appears from its quarterly returns, its membership paid contributions to it only once a year, it by and large received (comparatively) small sums by way of repayment in three of its four returns in any year, whereas the fourth return showed a large output tax surplus payable to the Commissioners.
141. Repayment traders were treated differently from payment traders: see the relevant extracts from the Commissioners' DCL of 22 January 1997 quoted above (at para 73). By accounting for too much output tax, they failed to get the full refund of input tax to which they were entitled. Therefore, as the DCL explained, it was not so much a question of repayment of VAT as a failure to receive back the input tax which ought to have been refunded. Such refunds are specifically addressed in the Sixth Directive at article 17. Therefore, they were given a special regime, to be found in English law in regulation 29 of the VAT regulations. When the three year cap was introduced, that special regime needed also to be amended, but a period of notice was allowed, so that claims for refunds could be made before the new cap became effective.
142. Mr Cordara submitted that the distinction between input and output traders could not properly be made, and that if Community law required notice of the three year cap being given to input traders, then it should have been given to output traders as well. This was in part because, as he submitted, no logical distinction could properly be made between them, but also because, as was his general burden under issue four, Community law prohibited as a whole the retrospective introduction of the three year cap without notice, and that for these purposes no proper distinction could be made between the refund regime and the repayment regime. To a great extent, therefore, this point really depends on the much wider range of submission concerning Community law to be found under issue four, which cannot appropriately be dealt with here. What is left is the question whether, subject to such Community law matters, the Commissioners had fairly exercised their discretion, under the English law provisions with which they were dealing, so as to deal with BSOC as a repayment trader under the section 80 repayment regime, rather than as an input trader under the Regulation 27 refund regime.
143. As to that question, it seems to me that the Commissioners' exercise of their discretion cannot be faulted as unfair or irrational. The DCL records (para 73 above) the Commissioners' view that a repayment trader "is one who has submitted returns over a period of time which puts them generally into a repayment position". Despite the fact that the greater number of BSOC's returns showed them obtaining a refund, on balance in any year BSOC was firmly in the payment trader camp.
BSOC should not have been treated differently from other traders such as Kay
144. Finally, Mr Cordara had a sort of catch-all submission to the effect that BSOC had been unfairly discriminated against because other traders such as Kay and GUS, parties to the RCOG decision and then Keene J's Kay judgment, had not had assessments levelled against them following full repayment of their claim. There was no evidence before the court as to what had happened in those cases, but Mr Cordara asserted that at any rate those two named parties had not suffered a clawback assessment, and Mr Lasok did not assert that they had. However, the full situations in their cases are not known. Mrs Campion's evidence is that -
"I considered this claim in the same way that I have considered all claims for transitional relief to ensure consistent treatment of taxpayers. I have treated BSOC in the same way as I have treated other taxpayers in a similar position."
145. BSOC complains that in such circumstances it is almost impossible for it to investigate such a claim: but if BSOC purports to know that Kay and GUS are parties in pari materia who have been treated differently, then one might expect the appropriate evidence to be before the court for evaluation. The court would not, if it had mattered, have been in a position to act on the assertion and counter-assertion presently before it.
BSOC had been warned in the Commissioners' letter of 2 December 1996
146. In her evidence Mrs Campion said that one of the factors which the Commissioners had taken into account in deciding to issue a clawback assessment is that BSOC had been warned that, if Parliament approved the three year cap, then there would be a claim for repayment.
147. Moses J agreed with Mr Cordara that the warning was of no avail once the date of 18 July 1996 had passed, and that no warning was given before then.
148. In this court, Mr Cordara accepted that this factor would not have had a material influence on the outcome of the exercise of discretion. Nothing therefore turns on it.
The tribunal decision of 16 December 1996 as a factor in the exercise of the Commissioners' discretion
149. Last of all I mention something which has not been the subject matter of submission under this issue, as distinct from issues one and two, but which has nevertheless caused me some concern. In her evidence Mrs Campion described the circumstances which had led to the Commissioners' application of 29 November 1996, and to the tribunal's direction of 2 December and decision of 16 December (in paragraph 28 of her first affidavit). She there said -
"There was therefore no reason why BSOC should not be paid subject to the Commissioners' right to claw back any sums caught by the cap when the proposed legislation was enacted by Parliament. The Commissioners took the practical view that in order to avoid unnecessary costs, the best solution would be to agree a direction upholding BSOC's appeal to the Tribunal."
150. Later in her affidavit (at paragraph 41), in dealing with the matter of the exercise of the Commissioners' discretion, she went on to say this:
"For the reasons set out in paragraph 28 of this affidavit, I did not take into account the Tribunal decision made on 2 [sic] December 1996. It seemed to me to have been overtaken by events. The fact was that on 4 December 1996 Parliament had passed a PCTA resolution allowing a 3 year refund limit to apply to all refunds of overpaid VAT from 18 July 1996. This caught claims made but not paid before 18 July 1996 and those made after, such as BSOC's..."
151. In the light of my conclusions on issues one and two none of this ultimately matters. But even if I were to be wrong in my conclusions on those issues, I am concerned that it might not have been acceptable for the Commissioners simply to have ignored the effect of the prior tribunal decision. Many of the considerations which entered into the analysis of issues one and two may well have been relevant to the Commissioners' discretion. In the absence of any submission raised to this effect, however, I am reluctant to say anything more.
Issue four: Community law
152. I have had the advantage of reading in advance a draft of Lord Justice Mummery's judgment on this issue, and I agree with it.
Conclusion
153. In conclusion, BSOC has succeeded on issues one and two and its appeal is allowed. Irrespective of aspects of Community law (or of the ECHR), the three year cap did not apply retrospectively or at all so as to invalidate the Tribunal's decision of 16 December 1996.

Lord Justice Mummery:
154. I have read the judgment of Rix LJ in draft and I agree with him that, for the reasons given on Issues One and Two, this appeal should be allowed. I also agree with his comments on the arguments raised under Issue Three.
155. The appeal accordingly succeeds on the basis of the construction and application of domestic law. It is not necessary for BSOC to rely on the Community Law points raised under Issue Four. The Community Law points were, however, decided by Moses J, following his rejection of BSOC's submissions on domestic law, and they were the subject of very detailed written submissions (before, at and after the hearing), in addition to lengthy oral argument at the hearing. The longer BSOC's arguments went on the more ambitious and wide ranging they became. Many points were made. Many authorities were cited. Although it is unnecessary to do so for the disposition of this appeal I will state my provisional conclusions on the main submissions under Issue Four. It is not, however, appropriate to treat them in as much detail as would normally be the case if they had been determinative of the appeal. I recognise that it may well be necessary to revisit some of these questions in another case in which Community Law issues are decisive.
Submissions of BSOC
156. Mr Cordara submitted that the power to raise a claw back assessment under section 80 (4A) is unlawful as it is contrary to Community Law; that the assessment is an attempt to charge VAT contrary to Articles 2 , 4 and 33 of the Sixth Directive;that on general principles of Community Law BSOC has enforceable rights in relation to the sums repaid by the Commissioners; and that, if these primary submissions were not accepted, a reference should be made to the Court of Justice.
157. In my judgment Moses J correctly rejected BSOC's submissions.
1. The section 80 (4A) and Sixth Directive Points.
158. The essence of BSOC's argument is that the raising of an assessment pursuant to section 80 (4A) is an attempt to levy a charge by way of VAT outside the scope of the Sixth Directive and that this infringes BSOC's "right" not to be subjected to VAT.
159. Section 78A(3) is applied by section 80 (4C) to an assessment under section 80 (4A). It provides that
"Where an amount has been assessed and notified to any person...that amount shall be deemed ....to be an amount of VAT due from him and may be recovered accordingly."
160. It is argued that that amount of VAT deemed to be due from and recoverable from BSOC is contrary to EC Law for two main reasons:-
1. BSOC does not carry on any economic activity. It is not a taxable person and falls outside the scope of Articles 2 and 4 of the Sixth Directive. It accordingly has a "right" not to be subjected to VAT.The Commissioners are wrongfully attempting to levy a charge on BSOC for VAT contrary to those Articles. The claw back assessment is not a retention of overpaid funds.It has the same structural characteristics as a proper assessment to VAT. BSOC's directly effective " right" not to be subjected to VAT has been infringed;
2. Alternatively, the assessment on BSOC is an attempt by the Commissioners to levy a turnover tax outside the scope of Community Law. That is contrary to the implied prohibition in Article 33 against introducing any turnover tax other than that for which provision is made in the Sixth Directive. Article 33 has been held to be directly effective. It can therefore be invoked by BSOC in proceedings in national courts against the Commissioners: Dansk Denkavit v. Poulsen Trading [1992] ER 1-2217 at 2249 para 17.
161. I do not accept this analysis of the Sixth Directive and the domestic legislation.The true position is as stated by Moses J. BSOC paid to the Commissioners VAT which was not due from them under the domestic legislation; the Commissioners retained the sums paid; and BSOC claimed a refund under the domestic legislation. But the right to a refund is not absolute. In some circumstances there is no right to a refund and the Commissioners are entitled to retain what they had been paid.
162. The Commissioners repaid to BSOC sums which they contend they were entitled to retain. They now seek to recover those sums. In so doing they are not attempting to impose VAT contrary to the Articles in the Sixth Directive. They are attempting to recover what they were entitled to retain from the overpayments made by BSOC. The retention of overpaid VAT which was not due is not the same as the imposition of VAT or a turnover tax. It is not possible to distinguish between the case of the Commissioners' retention of overpayments of VAT by BSOC and the recovery by the Commissioners from BSOC of a refund of sums of VAT originally overpaid.
163. Further, the statutory deeming in section 78 (3A) does not confer on the sums sought to be recovered the essential characteristics of VAT, as identified in the Dansk Denkavit case and in SPAR [1998] ECR 1-785 at 818-9 paragraph 23.The deeming provisions provide machinery in domestic law for the recovery or collection of the sums repaid, which the Commissioners contend they were entitled to retain.
164. BSOC has not established that it has an express or implied right to a refund of overpaid VAT under directly effective provisions of the Sixth Directive. The position is that the Sixth Directive does not contain any right to a refund. The relevant provisions of the Directive have been properly implemented in English Law by the 1994 Act. The refund provisions are part of domestic law embodied in section 80. Claims to a refund are governed by those provisions and not by the Sixth Directive.
2. Enforceable Right to a Refund under General Principles.
165. It was contended that the initial charge to VAT was in breach of Community Law and unlawful. BSOC's "right" not to be subjected to VAT had been infringed. There was a right under general principles of Community Law to a refund of VAT which had been wrongly levied: Amministrazione delle Finanze dello Stato v. San Giorgio [1983] ECR 3595 at 3612 para.12. Where there is a right there is a remedy. The existence of the remedy is not dependent on express Community Law rules. It does not "disappear " from Community Law as a result of the transposition of the Sixth Directive by the member state into its domestic law. The general principles of Community Law remain as relevant after the transposition of the Directive as before. It is the obligation of every Member State to ensure full and effective protection for Community Law rights. The domestic rules and procedures governing the recovery of repayments must observe the general Community Law principles of equivalence and effectiveness. The right was recognised by section 80 in its unamended form. But, by retrospectively imposing the 3 year cap without transitional measures and by levying the claw back in order to take from BSOC the moneys which it had lawfully recovered, the Commissioners were rendering ineffective BSOC's Community Law right to repayment of wrongly levied VAT. This is contrary to general Community Law principles of non-retroactivity, legal certainty, proportionality, equivalence, effectiveness, non-discrimination and fundamental human rights.
166. In my judgment BSOC has not established that it has any directly effective enforceable Community Law right, either express or by implication, to repayment under general principles of Community Law. In Marks and Spencer plc v. Customs and Excise Commissioners [2000] STC 16 at 32j-33a the Court of Appeal rejected the contention that a taxpayer, who had wrongly paid VAT in circumstances where a provision of the Sixth Directive had been transposed into domestic law, could rely on general principles of Community Law to create an enforceable Community right, which did not exist prior to the infringement of the general principle upon which reliance is placed. That argument was unsuccessfully deployed to contest the lawfulness of the retrospective three year cap. The argument also fails on a Community Law challenge to the claw back provisions which, for reasons stated above, are not contrary to the Sixth Directive.
167. The recurrent theme of BSOC's arguments is that there has been an infringement of its Community Law "right " not to be subjected to VAT in one form or another. But, as was said in the Marks and Spencer case at p.32g this is not a right at all:
" It is simply an absence of an obligation to pay tax. That absence of obligation does not arise by virtue of our membership of the Union. It pre-existed it and Community Law does not interfere with it or compel interference by the United Kingdom."
168. As it has not been demonstrated that any relevant Community Law "right" not to pay VAT exists, either under the Directive or by virtue of a free standing general principle of Community Law, no breach of such a right has been established and no Community Law right to repayment arises.
3. Reference.
169. It is contended that Issue Four raises complex questions of Community Law and that in order to decide them it would be necessary to make a reference to the Court of Justice under Article 234.
170. For the reasons stated above there is no question of interpretation of Community Law which it is necessary to refer to the Court of Justice in order to decide this appeal.
Lord Justice Nourse:
171. I agree with both judgments.
ORDER: appeals allowed; counsel to lodge an agreed minute of order.

	THE QUEEN
	- and -
	THE COMMISSIONERS FOR CUSTOMS AND EXCISE Ex parte BUILDING SOCIETIES OMBUDSMAN COMPANY LIMITED	Respondent
		Applicant

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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Building Societies Ombudsman Company Ltd, R (on the application of) v Customs & Excise [2000] EWCA Civ 270 (26 October 2000) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/270.html Cite as: [2000] EWCA Civ 270

England and Wales Court of Appeal (Civil Division) Decisions