STATUTORY AUTHORITY
Where the claimant has transferred a benefit to the defendant pursuant to a valid statutory obligation, restitution will not lie because the discharge of the obligation means that there is a legally effective basis for the defendant’s receipt.[1] So, for example, payment of tax pursuant to a valid tax demand cannot be recovered, because the payment is legally effective by discharging the tax liability.[2]
The identification of a valid statutory base for the receipt of tax payments by the Revenue proved to be a matter of particular controversy in Deutsche Morgan Grenfell v IRC,[3] where the majority allowed a restitutionary claim for the use value of tax paid prematurely, where the claimant had not been able to claim tax relief which would have delayed its liability to pay the tax which was due to the Revenue. Lord Scott dissented on the ground that, since the tax relief had not been claimed, the claimant was actually liable to pay tax to the Revenue so that the payment was lawfully due.[4] In determining whether Lord Scott was correct it is vital to remember the essential feature of this type of restitutionary claim. This was not a claim for recovery of the amount of tax which had been paid because, as was subsequently recognized in Sempra Metals Ltd v IRC,[5] this sum was eventually set off against the corporation tax which was lawfully due, so at that point there was a legally effective basis for the Revenue’s receipt of that money. Rather, the claim for restitution related simply to the premature payment of tax in circumstances where the claimant would have wished to delay payment by means of electing to benefit from the tax relief, had it been able to do so.[6] If the focus is placed on the entitlement of the Revenue to receive the money when it did, rather than on whether the tax was actually due to the Revenue, it is much easier to understand why the Revenue was required to make restitution: because the Revenue obtained an unlawful timing advantage as the result of premature payment of the tax. During the period when the Revenue had the unlawful use of this money there was no valid legal basis for its receipt. Once, however, the tax which had been paid was set off against the taxpayer’s mainstream corporation tax liability, the Revenue’s receipt became lawful and so, at that point, there was a basis for this payment and so the amount of money which had been paid could not be recovered.
- [1] Deutsche Morgan Grenfell v IRC [2006] UKHL 49, [2007] 1 AC 558, [89] (Lord Scott). See M Chowdryand C Mitchell, ‘Tax Legislation as a Justifying Factor’ [2005] RLR 1.
- [2] In Kingstreet Investments Ltd v New Brunswick [2007] SCR 3, the Supreme Court of Canada recognizedthat it was open to the State to suspend the declaration that a tax was invalid and also to enact valid taxlegislation and apply them retrospectively. In either case, receipt of the tax would become authorized.
- [3] [2006] UKHL 49, [2007] 1 AC 558.
- [4] See R Stevens, ‘Justified Enrichment’ (2005) 5 OUCLJ 141.
- [5] [2007] UKHL 34, [2008] 1 AC 561.
- [6] Deutsche Morgan Grenfell v IRC [2006] UKHL 49, [2007] 1 AC 558, [5] (Lord Hoffmann).
