(ii) The Woolwich Ground

A new ground of restitution, available against public authorities for the recovery of payments made pursuant to an ultra vires demand, was recognized by the House of Lords in Woolwich Equitable Building Society v IRC.⁶² The Inland Revenue had assessed the tax liability of the Woolwich Building Society by reference to regulations made under the Finance Act 1985; regulations which were subsequently held by the House of Lords to be ultra vires and so rendered the tax demand invalid.^[1] The effect of this was that the claimant paid nearly ?57 million more tax to the Revenue than was actually due. The Revenue repaid this money to the claimant with interest, but it refused to pay interest in respect of the period when it first received the payment until the decision of the trial judge that the regulations were void. Consequently, the claimant sought to recover this interest, amounting to ?6.73 million. The success of this claim depended on whether the Revenue was liable to repay the claimant from the moment it had received the money or later, when the regulations were held to be void. If the Revenue’s liability arose by virtue of its unjust enrichment, it would have existed from the moment it received the money. Clearly the Revenue had been enriched at the claimant’s expense. The key question, therefore, was whether the claim fell within one of the recognized grounds of restitution.

In determining which grounds of restitution were applicable, a number of features concerning the payment by the claimant to the Revenue need to be emphasized. The claimant paid the sums demanded by the Revenue, even though it disputed the legality of the demand, because it felt that it had no choice but to pay. This was because on its face the demand was lawful. If the claimant had refused to pay the money it would have been the only financial institution to do so. Consequently, any proceedings brought by the Revenue to recover the tax would have been gravely embarrassing to the claimant and would have resulted in adverse publicity. If the claimant had failed to pay but the Revenue’s demand was eventually vindicated, the claimant had feared that it would incur heavy penalties, and the interest owing to the Revenue would have far outweighed any return that could have been obtained by investment of the disputed sum. Finally, at the time when the payments were made, it was not possible to identify the amount which was in dispute. Therefore, the claimant decided to pay but lodged a protest with the Revenue when it did so.

The judges in the House of Lords considered whether various grounds of restitution were applicable.

(1) Mistake

The claimant had not paid the tax as the result of a mistake because the claimant had disputed its liability to pay the tax from the start. Further, if there had been a mistake it would have been one of law, which was not a ground of restitution at the time.

(2) Duress

Although the Revenue possessed statutory powers to distrain against a taxpayer’s goods, without needing a court order, if a taxpayer did not pay the tax, the Revenue had not actually threatened the claimant with distraint. Nevertheless, Lords Browne-Wilkinson and Slynn, whilst accepting that the traditional definition of duress was not satisfied on the facts, considered that the claimant was under such pressure to pay the tax that it was compelled to do so with the result that the payment was not voluntary and so was recoverable.^[2] Lord Goff recognized the existence of such pressure but, because the possibility of distraint by the Revenue was very remote, concluded that compulsion could not be established on the facts.^[3]

(3) Absence of basis

Lord Browne-Wilkinson also referred to the fact that the claimant had paid the money for no basis,⁶⁶ in that there was no tax liability to discharge, as a further reason why the restitutionary claim should succeed.

(4) Receipt of an ultra vires payment

The references to duress and absence of basis were merely supplementary arguments in favour of the claimant’s right to obtain restitution. The true ground of restitution in the case was that ‘money paid by a citizen to a public authority in the form of taxes or other levies paid pursuant to an ultra vires demand by the authority is prima facie recoverable by the citizen as of right’.^[4]

The essential feature of this ground of restitution, which was identified by Lord Goff and endorsed by Lords Slynn and Browne-Wilkinson,^[5] is that restitution should be awarded simply because the tax was unlawfully demanded under an ultra vires statute. This exists as a ground of restitution not because the claimant’s intention that the defendant should receive the payment can be regarded as vitiated, though this is possible, but because of fundamental constitutional principles arising from the Bill of Rights, that no public authority can retain money which it had no authority to receive.^[6] This is therefore a policy-oriented ground of restitution.^[7] Although the validity of the tax was solely a matter for national law, a key factor in the recognition of this new ground of restitution was that EU law recognizes an equivalent right in respect of charges levied by Member States contrary to Community law.^[8] As Lord Goff recognized, ‘at a time when Community law is becoming increasingly important, it would be strange if the right of the citizen to recover overpaid charges were to be more restricted under domestic law than it is under European law’.^[9]

Since this is a ground of restitution which exists for reasons of policy rather than as a means for establishing that the claimant’s intention to benefit the defendant has been vitiated, Williams has convincingly argued that a claim for restitution founded on this ground of restitution is properly analysed as a hybrid claim, consisting of both public and private law components.^[10] Public law provides the reason for restitution by establishing the ground of restitution and the private law creates the entitlement for the return of the money. This analysis is significant, both theoretically in justifying restitutionary claims against public authorities, but also practically in determining the limits of the claim, especially when formulating defences.^{[11] [12]}

• [1] Rv IRC, ex p Woolwich Equitable Building Society [1990] 1 WLR 1400.
• [2] Woolwich Equitable Building Society v IRC [1993] AC 70, 198 (Lord Browne-Wilkinson) and 204(Lord Slynn).
• [3] Ibid, 172-3 . 66 Ibid, 198.
• [4] Ibid, 177 (Lord Goff). 68 Ibid, 196 (Lord Browne-Wilkinson) and 201 (Lord Slynn).
• [5] 69 Ibid, 172 (Lord Goff). 70 See p 124, above.
• [6] 71 Amministrazione delle Finanze dello Stato v SpA San Giorgio [1983] ECR 3595. See p 391, above.
• [7] 72 Woolwich Equitable Building Society v IRC [1993] AC 70, 177.
• [8] 73 Williams, Unjust Enrichment and Public Law: A Comparative Study of England, France and the EU.
• [9] 74 See further p 408, below.
• [10] 75 [2012] UKSC 19, [2012] AC 337. See also Investment Trust Companies (in liquidation) v HMRC (No 2)
• [11] [2013] EWHC 665 (Ch), [51] (Henderson J).
• [12] 76 Test Claimants in the FII Group Litigation v HMRC [2012] UKSC 19, [2012] AC 337, [186] (Lord