(iii) Determining the Ambit of the Ground of Ultra Vires Receipt

There are a number of consequential questions and issues about the ambit and effect of this new ground of restitution.

(1) Is a Demand for Payment Necessary?

It was recognized by the Supreme Court in Test Claimants in the FII Group Litigation v HMRC⁷⁵ that the Woolwich ground is not limited to where the public authority has demanded payment, it being sufficient that the payment has been ‘unlawfully exacted’.^[1] Indeed, there had been no demand for payment of the tax in Woolwich itself and restitution was awarded. The fact that a demand is not required was justified by the Supreme Court in FII on the basis that the Woolwich ground is founded on the constitutional principle that there should be no taxation without Parliamentary authority, and so it should be available whatever procedure is used for levying and paying a particular tax.

It follows that the ground will be available where taxpayers have self-assessed their tax liability or where tax has been deducted from an employee’s salary by an employer who has accounted for it to the Revenue.

In concluding that the Woolwich ground applies even if the tax has not been demanded, Lord Walker in FII reformulated the ground in the following way: ‘We should restate the Woolwich principle so as to cover all sums paid to a public authority in response to (and sufficiently causally connected with) an apparent statutory requirement to pay tax which (in fact and in law) is not lawfully due.’

(2) Is the Woolwich Ground Limited to Payments Which Are Ultra Vires by Virtue of an Invalid Statute?

The House of Lords in Woolwich⁷⁸ left open whether this new ground of restitution is confined to cases where payments were ultra vires only because they have been paid pursuant to an invalid statute, as occurred on the facts of Woolwich itself. The ambit of the Woolwich principle was subsequently clarified by the Supreme Court in Test Claimants in the FII Group Litigation v HMRC,⁷⁹ which held that it applied to ultra vires payments which arose either from unlawful legislation or lawful legislation which had been mistakenly interpreted by the Revenue.

It remains unclear, however, whether the Woolwich ground also applies where a tax overpayment is caused by the claimant’s spontaneous mistake. Although a claimant in such a case would have a claim for restitution grounded on mistake, this would be subject to the defence of change of position, whereas a claim based on the Woolwich ground would not be subject to such a defence.^{[2] [3] [4] [5]} It might therefore be significant whether the Woolwich ground is available where the claimant had made a mistake. Lord Sumption in the FII case^[6] considered that the Woolwich ground would not be available where the claimant had made a spontaneous mistake, such as miscalculating the tax due or forgetting that the tax had already been paid. He considered this to follow from the decision that the Woolwich ground depended on there being some unlawful exaction by the Revenue,^[7] which he assumed required the Revenue to have taken some positive steps to mislead the taxpayer into believing that the tax was due. But this comes close to treating the ground of restitution as requiring proof of some form of wrongdoing, which is artificial and inconsistent with its public law foundations that the receipt of the money is ultra vires simply because it is unauthorized.^[8] Consequently, the better view is that of Lord Walker who said that the Woolwich ground requires a ‘perceived obligation to pay’,⁸⁴ which could encompass a spontaneous mistake on the part of the claimant that he or she was liable to pay money to the public authority which was not due to it.

(3) Is the Woolwich Ground Confined to the Recovery of Overpaid Taxes?

Although Woolwich, Deutsche Morgan Grenfell, and FII were all concerned with the recovery of overpaid taxes, the Woolwich ground of restitution should be applicable to the recovery of any overpaid levy from a public authority, as was recognized by Test

Claimants in the FII Group Litigation v HMRC.^[9] Although Lord Walker defined the claim with reference to restitution of taxes, he accepted that ‘tax’ should be generously construed, so that it might cover a charge such as the congestion charge payable to drive into Central London. In Waikato Regional Airport Ltd v A-G^[10] the Privy Council recognized that the Woolwich principle extended to the recovery of governmental levies and in Hemming v Westminster CC^[11] it was applied to that part of the licence fees paid to run sex shops which was unlawfully demanded. A major limitation on the application of the Woolwich principle is that, as characterized in FII,^[12] it presumably does not apply to commercial receipts which lack the attributes of a tax, such as the payments received from a bank pursuant to a void interest rate swap transaction.^[13] It is consequently important to distinguish between those payments which are received by a public authority in a public and in a private capacity. This is a difficult distinction to draw, although presumably payments made to a public authority in return for services supplied by it as a public authority will be covered by the Woolwich principle if the charges for the services are ultra vires.

• (4) Must the Claimant Have Protested About the Lawfulness of the Demand? Although in Woolwich the claimant had protested to the Revenue when it made its payment that the money was not lawfully due, the success of the restitutionary claim should not be conditional on the claimant protesting against the validity of the demand, for in many cases the claimant will be unaware that the demand was unlawful. Also, a requirement of a protest accompanying the payment would largely confine recovery to those claimants who have the resources to examine the validity of the demand. But the fact that the claimant did protest about the validity of the payment is of evidential importance, since it suggests that the payment was not made voluntarily.
• (5) Is the Woolwich Ground Exclusive?

It is a part of Williams’s thesis that, having concluded that a restitutionary claim founded on the Woolwich ground is a hybrid claim of public and private law components, a claimant who seeks restitution from a public authority in circumstances where a number of grounds of restitution are available should be confined to the Woolwich ground, which should prevail over all others.^[14] It follows that there is a hierarchy of reasons why a public authority should make restitution and the Woolwich ground should prevail because of its public law component that the public authority’s receipt was unlawful. But, just because the Woolwich claim is justified by public law, there is no reason of logic why a claimant should rely on that ground rather than any other. Certainly, it may well be easier to establish the Woolwich ground, because it is only necessary to show that the receipt of the money was beyond the powers of the public authority, but there will be some circumstances where it is more advantageous to the claimant to rely on another ground, particularly mistake. This is primarily^[15] because of the effect of limitation periods. If a claimant brings a claim grounded on the Woolwich principle, the usual limitation period of six years applies.^[16] Where, however, the claim is grounded on mistake, time does not begin to run until the claimant discovered the mistake or could reasonably have done so.^{[17] [18]} This might enable the claimant to bring a claim for restitution from a public authority many years after the payment was made.

Whether the claimant can choose to found a claim for restitution from a public authority on the ground of mistake in order to gain the benefit of the extended limitation period was considered by the House of Lords in Deutsche Morgan Grenfell v IRC.⁹⁴ It was held that the claimant is free to formulate the claim in mistake even though a claim grounded on ultra vires receipt is available. It follows that there is no hierarchy of grounds of restitution.

In Deutsche Morgan Grenfell the claimant sought a restitutionary remedy in respect of taxes which it had paid prematurely^[19] because it had not been able to elect to delay payment in breach of EU law, because the election to delay payment was available where a subsidiary company had paid dividends to a parent company resident in the UK, but not if the parent company was resident in another Member State of the EU. The ECJ held that this was discriminatory and unlawful,^[20] with the consequence that the UK was required to provide a remedy. The claimant had made three payments of tax without the benefit of electing to delay payment, the first of which was made over six years before the claim was brought and so was time barred, save if the claimant could establish a claim grounded on mistake of law, in which case time would not start to run until the decision of the ECJ that the discrimination was unlawful. The House of Lords affirmed that a claimant who wishes to recover overpaid taxes, in circumstances where statutory provisions for recovery do not apply, can do so either by reference to the Woolwich principle or by virtue of a mistake of law. It was emphasized that concurrent claims are recognized in contract and tort and should also be recognized within the law of unjust enrichment. It is simply a matter for the claimant to choose which ground of restitution is better; a decision which may legitimately be influenced by different rules as to the limitation period. It was further held that the claimant had made a mistake in paying the tax prematurely, since the ruling of the ECJ was considered to have operated retrospectively to enable the claimant to assert that its payment of tax was mistaken.^[21] There was disagreement as to whether the mistake related to the failure to elect to delay payment of the tax^[22] or to the liability to pay the tax,^[23] but ultimately nothing turned on this difference of opinion, although the former view is preferable and consistent with the view that the existence of the tax liability did not constitute a lawful basis for the Revenue’s receipt which would bar the claim.^{[24] [25]}

The approach of the House of Lords in Deutsche Morgan Grenfell was confirmed by the Supreme Court in Test Claimants in the FII Group Litigation v HMRC.¹⁰¹ In that case a number of taxpayers had paid excessive taxation of over ?5 billion on dividends, in breach of EU law,¹⁰² for which English law was required to provide a remedy. Since a claim grounded on Woolwich was time barred, the taxpayers sought to found their claim on mistake. The Supreme Court held that, to gain the benefit of the extended limitation period, the mistake had to constitute an essential element of the cause of action and not simply form the context of the claim. It follows that the extended limitation period is only available where mistake is pleaded as the ground of restitution in the unjust enrichment claim and not where the Woolwich ground is pleaded. In addition, the Supreme Court confirmed that, where the Woolwich ground and mistake ground are both available where a public authority has received an ultra vires payment, they should also be available by virtue of the principles of effectiveness and equivalence, to enforce analogous rights under EU law.^[26]

It is clear from these cases that a significant reason for bringing a restitutionary claim against a public authority grounded on mistake is to benefit from extended limitation periods. Another possible advantage, as recognized by Henderson J in Investment Trust Companies v HMRC (No 2),^[27] is that the Woolwich claim is only available where the public authority is directly enriched at the expense of the claimant, whereas a mistake claim is available even where the public authority is indirectly enriched, such as where a third party has paid tax to the Revenue but the burden of that tax is actually borne by the claimant.^[28] This is because it is only taxpayers who are directly liable for the payment of overpaid tax who are subject to the coercive powers of the State and so fall within the Woolwich principle. The claimants in Investment Trust Companies v HMRC, who were contractually liable to third parties for the amount of tax which the third parties had been liable to pay the Revenue, could bring a claim grounded on mistake instead. Henderson J considered that allowing the person who had borne the economic burden of the tax, when they were not under a statutory obligation to pay the tax, to rely on the Woolwich ground would undermine the constitutional significance of that ground.^[29] Whilst a logical conclusion, it does confuse the different aspects of the unjust enrichment formula. Whether the Revenue is enriched directly or indirectly at the expense of the claimant is surely a question of construction of the private law component of the unjust enrichment claim, which has nothing to do with the public law component of the ground of restitution. It should follow that the developments in the law concerning the interpretation of the at the expense of the claimant requirement,^[30] should apply regardless of the ground of restitution which is engaged.

(6) Procedure for Seeking Restitution

In the light of the fact that an unjust enrichment claim founded on the Woolwich ground is properly characterized as hybrid claim, involving public law and private law components, it is important to consider whether the public law component affects the procedure for establishing that the receipt of the payment was ultra vires. Originally restitution of an ultra vires payment required a dual stage procedure, as occurred in the Woolwich litigation itself.¹⁰⁸ The first public law stage involved an application by judicial review for a declaration that the demand was unlawful. The limitation period for making such an application was three months from the date when the ground of challenge arose.^{[31] [32]} Once the receipt was declared ultra vires, it was then necessary to commence private law proceedings to recover the money. The reason for this convoluted procedure was because it was not possible to award restitutionary remedies in judicial review proceedings. It is now possible to make such an award,^{1 0} which means that a claimant can challenge the validity of the public authority’s receipt and recover payment in the same proceedings. But this would still be subject to the strict three- month limitation period.

In fact the courts have recognized that, where the claimant wishes to obtain restitution on the ground of ultra vires receipt, it is not necessary first to bring judicial review proceedings.^[33] The claimant can bring a restitutionary claim at common law to show that the money was not due and, once this has been established, recover the payment from the public authority in the same proceedings. This is a perfectly acceptable approach,^[34] since the dominant issue for the claimant relates to the existence of a private law right,^[35] namely the right to restitution because the defendant was unjustly enriched at the claimant’s expense, even though the existence of this right is dependent on the consideration of a public law issue, concerning whether the public authority is authorized to receive the particular payment. This avoids the cumbersome procedure involving both judicial review and a separate claim for restitution, and avoids the very short limitation period which is inherent in an application for judicial review.^[36]

(7) Restricting the Right to Restitution

Where the claimant seeks to obtain restitution from the defendant on the ground of ultra vires receipt, the right to restitution at common law may be restricted in two ways. First, it may be removed by statute so that the claimant will have to rely on the statutory mechanism for restitution.^[37] It follows that the common law defences to restitution will not apply and the defendant will be confined to the defences under the statute. Secondly, the parties may have made express provision for restitution of overpayments by contract, or such an agreement can be implied.^[38] Again, the consequence of this will be that the common law restitutionary mechanism, including the general defences to restitutionary claims, will be excluded since claims in unjust enrichment cannot subvert contractual mechanisms for recovery.^[39]

(8) Interest

It was recognized in Prudential Assurance Co Ltd v HMRC^[40] that, regardless of whether the receipt of the tax is ultra vires by virtue of national law or EU law,^[41] the claimant has a right to compound interest.^[42] Such interest is available regardless of whether the tax is not due at all or is due but has been paid prematurely,^[43] and is to be assessed until the date when the Revenue repays the tax since it remains enriched until that point. This is consistent with the treatment of interest generally in the law of restitution.^[44]

• [1] Sumption). See also Lord Walker, ibid, [79].
• [2] Ibid.
• [3] Woolwich Equitable Building Society v IRC [1993] AC 70, 177 (Lord Goff), 205 (Lord Slynn).
• [4] [2012] UKSC 19, [2012] AC 337. 80 See p 409, below.
• [5] 81 Test Claimants in the FII Group Litigation v HMRC [2012] UKSC 19, [2012] AC 337, [186].
• [6] 82 See further p 400, above.
• [7] 83 See now Test Claimants in the FII Group Litigation v HMRC [2014] EWHC 4302 (Ch), p 410, below.
• [8] 84 Test Claimants in the FII Group Litigation v HMRC [2012] UKSC 19, [2012] AC 337, [79].
• [9] Ibid, [80] (Lord Walker). 86 [2003] UKPC 50, [2004] 3 NZLR 1.
• [10] 87 [2013] EWCA Civ 591. The Supreme Court subsequently held that the fee had not been unlawfully
• [11] demanded: [2015] UKSC 25, [2015] 2 WLR 1271.
• [12] Test Claimants in the FII Group Litigation vHMRC [2012] UKSC 19, [2012] AC 337, [80] (Lord Walker).
• [13] See p 372, above.
• [14] R Williams, ‘Overpaid Taxes: A Hybrid Public and Private Approach’ in S Elliott, B Hacker, and CMitchell (eds), Restitution of Overpaid Tax (Oxford: Hart Publishing, 2013), 30.
• [15] The choice of the ground of restitution may also affect the operation of defences such as change ofposition, but that defence will be available to a mistake claim and not to one grounded on the Woolwichprinciple. See p 409, below.
• [16] See p 735, below. 93 Limitation Act 1980, s 32(1)(c). See further p 737, below.
• [17] 94 [2006] UKHL 49, [2007] 1 AC 558. See GJ Virgo, ‘Deutsche Morgan Grenfell: The Right to Restitution of
• [18] Tax: Back to Basics’ [2007] BTR 27.
• [19] See M Chowdry and C Mitchell, ‘Tax Legislation as a Justifying Factor’ [2005] 13 RLR 1, 17, who arguethat the restitutionary claim should have failed simply because the obligation to pay tax was valid. But the claimwas not for restitution of the tax paid, but was instead for the defendant’s benefit in unlawfully receiving thepayment earlier than it would otherwise have done. See further p 146, above.
• [20] Cases C-397/98 and C-410/98 Metallgesellschaft Ltd v IRC [2001] Ch 620. 97 See p 186, above.
• [21] 98 Deutsche Morgan Grenfell v IRC [2006] UKHL 49, [2007] 1 AC 558, [62] (Lord Hope) and [88] (Lord Scott).
• [22] 99 Ibid, [32] (Lord Hoffmann). 100 See Chapter 7.
• [23] 101 [2012] UKSC 19, [2012] AC 337. See also See Investment Trust Companies (in liquidation) v HMRC
• [24] (No 2) [2013] EWHC 665 (Ch), [51] (Henderson J).
• [25] 102 Case C-446/04 Test Claimants in the FII Group Litigation v IRC (Note) [2012] 2 AC 436.
• [26] Test Claimants in the FII Group Litigation v HMRC [2012] UKSC 19, [2012] AC 337, [21] (Lord Hope),[130] (Lord Clarke), [235] (Lord Reed). Lords Hope and Clarke referred to different remedies, whereas thepreferable analysis is that of Lord Reed who referred to different causes of action involving the Woolwich claimand a mistake claim. See also Prudential Assurance Co Ltd vHMRC [2013] EWHC 3249 (Ch), [2014] 2 CMLR10,[182] (Henderson J).
• [27] [2013] EWHC 665 (Ch), [2013] STC 1129, [44]. 105 See p 108, above.
• [28] 106 This point was not considered by the Court of Appeal: Investment Trust Companies v HMRC [2015]
• [29] EWCA Civ 82.
• [30] See p 107, above. 108 R v IRC, Ex p Woolwich Equitable Building Society [1990] 1 WLR 1400.
• [31] Civil Procedure Rules, r 54.5(3). 110 Ibid, r 54(3)(2).
• [32] 111 British Steel v Commissioners of Customs and Excise [1997] 2 All ER 366. See also Autologic Holdings plc
• [33] v IRC [2005] UKHL 54, [2006] 1 AC 118.
• [34] Although it was criticized as an abuse of process by Sedley LJ in NEC Semi-Conductors v IRC [2006]EWCA Civ 25, [2006] STC 606, [97]. See also Jones v Powys Local Health Board [2008] EWHC 2562 (Admin)where a claim for restitution of care fees had to be pursued as a claim for judicial review rather than as a privatelaw claim, because it required determination as to whether it was reasonable for a public authority to concludethat the person receiving care was liable to pay for it. Restitution of overpaid taxes was distinguished on thebasis that there was never a liability to pay the unlawful tax. The issue for decision in Jones was eminentlysuitable to be dealt with in judicial review proceedings.
• [35] See Roy v Kensington and Chelsea and Westminster Family Practitioner Committee [1992] 1 AC 624where the House of Lords recognized the importance of the private law right being dominant whendetermining whether the claim should be characterized as a public law or private law claim.
• [36] Hemming v Westminster CC [2013] EWCA Civ 591, [138] (Beatson LJ).
• [37] Autologic Holdings plc v IRC [2005] UKHL 54, [2006] 1 AC 118. [20] (Lord Nicholls), [62] (LordMillett). See p 406, below, for the statutory mechanisms for restitution.
• [38] Sebel Products Ltd v Commissioners of Customs and Excise [1949] 1 Ch 409.
• [39] See p 141, above.
• [40] [2013] EWHC 3249 (Ch), [2014] 2 CMLR 10. 2 Ibid, [206] (Henderson J).
• [41] 120 Ibid, [210] (Henderson J). 4 Ibid, [207] (Henderson J). 5 See p 29, above.
• [42] 123 These provisions include s 241 of the Inheritance Tax Act 1984 (which provides for the repayment of
• [43] overpaid inheritance tax) and s 29 of the Finance Act 1989 (which provides for the repayment of overpaid
• [44] excise duty and car tax).