(i) Constitutional Considerations

(1) Domestic Considerations

There is a constitutional dimension to restitutionary claims brought against public authorities which derives from the principle that, where a public authority is not entitled to the money which it has received, that money should be repaid to the citizen from whom it was unlawfully taken. The justification for this principle is that, since the power of the public authority to demand payment from the citizen can only exist under the law, if the demand was made unlawfully the public authority has no right to retain what it received and must make restitution. That public authorities can only demand payment where they are lawfully authorized to do so is a fundamental principle of English law which is enshrined in Article 4 of the Bill of Rights 1689. This states that ‘levying money for or to the use of the Crown, by pretence of prerogative, without grant of Parliament, for longer time, or in other manner than the same is or shall be granted is illegal’.

This principle continues to be of profound importance today. The effect of it is that public authorities can only demand payment where they have statutory authority to do so. This was recognized in Attorney-General v Wilts United Dairies Ltd, where it was held to be illegal for the Food Controller, a public authority, to require payment of a sum of money as a condition for the grant of a licence to purchase milk. This was because there was no express authority from Parliament to demand the money, which was consequently held to be contrary to the Bill of Rights. As Atkin LJ said:^[1] ‘If an officer of the Executive seeks to justify a charge upon the subject made for the use of the Crown (which includes all the purposes of the public revenue), he must show, in clear terms, that Parliament has authorised the particular charge.’

The logical consequence of this constitutional principle is that, where the public authority receives payment as a result of an unlawful demand, it should make restitution to the payer.^[2] That the payer should be entitled to restitution as of right seems even more obvious in the light of the fact that, where the Crown pays money out of the consolidated fund without statutory authority, it is able to recover it by virtue of its incapacity to make the payment in the first place.^[3]

(2) EU Considerations

Many of the recent cases concerning restitutionary claims from public authorities involve claims against the Revenue for overpaid taxes, where the payments of the taxes had been held by the Court of Justice of the European Union (CJEU; previously ECJ) to be unlawfully received. As a consequence, the CJEU requires the national courts to ensure that an appropriate remedy is awarded. Crucially, EU law recognizes the fundamental principle that a public authority which has received tax unlawfully is liable to the taxpayer, whose rights against the public authority crystallize once payment has been made and the charge has been declared illegal.

Whilst the existence of this fundamental principle of EU law is clear, the way the claim and remedy is formulated is a matter for the national court to determine. But this formulation must be compatible with principles of EU law as well. Two principles are particularly significant.^[4] The first is the principle of effectiveness, which means that the national law’s claims and remedies are effective to reverse the economic consequences of breaching EU law. The other is the principle of equivalence, which means that the rights of the taxpayer to recover taxes which are unlawfully received by virtue of EU law must be equivalent to the rights of a taxpayer to recover payments from public authorities which are unlawful by national law. These dual principles have proved to be highly significant in the judicial assessment of claims for restitution of overpaid tax.

The CJEU is only concerned that the claims and remedies relating to taxes overpaid in breach of EU law are effective and equivalent. It is not concerned with how the claims and remedies are characterized. It follows that the remedy awarded need not be restitutionary. It could be a compensatory remedy, for the loss suffered by the taxpayer in paying tax which is not due, with the claim grounded on the tort of breach of statutory duty.^[5] Such claims have not been pursued, however, as regards recovery of overpaid tax, presumably because, in order to establish such a claim, it is necessary to show that the breach of EU law involves a ‘grave and manifest’ disregard of the limits of the State’s discretion,^[6] and this will be difficult to establish in respect of claims for restitution of overpaid tax.^[7]

Consequently, the focus in the English courts has been on establishing a claim for a restitutionary remedy founded on the public authority’s unjust enrichment. This is typically called a San Giorgio claim,^[8] regardless of what the relevant ground of restitution is, although it is not called this in European jurisprudence. How such a claim and consequent remedies should be formulated compatibly with the principles of effectiveness and equivalence has proved to be a matter of particular controversy. Crucially, if the unjust enrichment principle as interpreted in national law does not provide an effective or equivalent remedy the claim and the remedy need to be changed to ensure that they are effective and equivalent.

In an important decision in Test Claimants in the FII Group Litigation v HMRC (No 2),^[9] Henderson J characterized the San Giorgio claim as being hybrid, as he considered it to embrace restitutionary and compensatory responses such that he wished to call it ‘restitutionary compensation’. He acknowledged that it was primarily restitutionary in effect,^[10] but that it might have compensatory implications since relief might be measured with respect to the loss occasioned by the claimant as a result of paying tax which was not due, most notably when awarding interest which should indemnify the claimant for his or her loss of use of the money paid to the Revenue. Whilst the language of ‘restitutionary compensation’ appears inappropriate to the English lawyer’s sense of elegant classification, it is at least accurate in its description of the functions of the relief required by EU law.^[11]

[1] Ibid, 886. 6 Woolwich Equitable Building Society v IRC [1993] AC 70, 172 (Lord Goff).
[2] 7 Auckland Harbour Board v R [1924] AC 318. See p 387, above.
[3] 8 See M Schlote, ‘The Principle of Effectiveness and Restitution of Overpaid Tax’ in S Elliott, B Hacker, and
[4] C Mitchell (eds), Restitution of Overpaid Tax (Oxford: Hart Publishing, 2013), ch 10. The principles of legalcertainty and legitimate expectation have proved significant as well. See p 409, below.
[5] As recognized in Rv Secretary of State for Transport, ex parte Factortame [2000] 1 AC 524.
[6] Joined Cases C-46/93 and C-48/93 Brasserie du Pecheur SA v Federal Republic of Germany [1996] QB 404.
[7] This condition was held not to be satisfied by the trial judge and the Court of Appeal in the FII litigation. SeeTest claimants in the FII Group Litigation vHMRC [2012] UKSC 19, [2012] AC 337, [206] (Lord Sumption).
[8] Following Amministrazione delle Finanze dello Stato v SpA San Giorgio [1983] ECR 3595.
[9] [2014] EWHC 4302 (Ch). 14 Ibid, [261].
[10] 15 The hybrid nature of the relief is analogous to that awarded by reference to the hypothetical bargain
[11] measure as a response to wrongdoing. See Chapter 16.