Jazztel Plc v The Commissioners for HMRC

This appeal raises issues about the period of limitation applicable to a claim brought in the High Court by Jazztel plc (“Jazztel”) in December 2013, seeking restitution of unlawfully levied stamp duty reserve tax (“SDRT”) and allied relief against the Commissioners for Her Majesty’s Revenue and Customs (“HMRC” or “the Revenue”).

Jazztel is a UK public limited company with its registered office in London. It is the holding company of a group which has at all material times carried on business as a telecommunications service provider in Spain and a number of other countries worldwide. Jazztel was later renamed Orange Spain plc.

The unlawfulness under EU law of much of the SDRT which Jazztel sought to recover was finally established by the decision of the Court of Justice of the European Union (“the CJEU”) on 1 October 2009 in Case C-569/07 HSBC Holdings plc and Vidacos Nominees Ltd v HMRC [2009] ECR I-9047, [2010] STC 58 (“HSBC Holdings”). In short, the CJEU held in that case, on a reference for a preliminary ruling by one of the Special Commissioners of Income Tax in the UK, that the charge to SDRT at the enhanced rate of 1.5% levied under section 96(1) of the Finance Act 1986, on the issue of shares into a clearance service by a person whose business is or includes the provisions of such services, was prohibited by article 11(a) of EC Council Directive 69/335 of 17 July 1969 concerning indirect taxes on the raising of capital (as amended) (“the Capital Duties Directive”).

Article 11 of the Capital Duties Directive provided, at all material times, that:

In a subsequent decision of the Tax Chamber of the First-tier Tribunal, promulgated on 28 February 2012, it was held to be acte clair that the same principles rendered unlawful the similar charge to SDRT, at the same enhanced rate of 1.5%, imposed by section 93(1) of the 1986 Act in connection with the issue of depositary receipts for chargeable securities (for example, American Depositary Receipts or “ADRs”) by a person whose business is or includes the issue of such receipts: see HSBC Holdings plc and The Bank of New York Mellon Corporation v HMRC [2012] UKFTT 163 (TC), [2012] SFTD 913 (Judge Mosedale sitting with Ms Anne Redston). This decision was not further appealed by HMRC, and it covers the remainder of the unlawfully levied SDRT which Jazztel sought to recover.

The 23 payments of SDRT claimed by Jazztel in its High Court claim are helpfully set out in a table at [23] of the reserved judgment of Marcus Smith J (“the Judge”), which he handed down on 3 April 2017 after the trial of the action over four days in late January 2017 (“the Judgment”): see [2017] EWHC 677 (Ch), [2017] 1 WLR 3869. The Judge referred to these payments as Payments 1 to 23, and we will do likewise. They run in date from early 2000 to 7 May 2008. All of the payments apart from the last (Payment 23) were made more than six years before the issue of the claim form on 19 December 2013. The first payment of any significance was Payment 2, made on 7 January 2000, in the sum of £1,819,060.

Jazztel’s case at trial, which the Judge accepted, was that all of the payments were made by it under an operative mistake of law, in the sense that Jazztel would not have made them but for its mistaken belief that they were due and owing under the relevant provisions of the SDRT legislation. HMRC do not challenge the Judge’s findings of fact on this, or any other of the issues of fact which he had to consider.

At this point, we need to explain the various ways in which it was in principle open to Jazztel to recover its mistaken overpayments of SDRT, and the periods of limitation which were applicable to the relevant claims both before and after the enactment of section 320 of the Finance Act 2004.

The first, and most obvious, way to recover overpaid SDRT was by making a statutory repayment claim under regulation 14 of the Stamp Duty Reserve Tax Regulations 1986, S.I. 1986/1711 (“the SDRT Regulations”). At all material times, regulation 14 provided as follows:

It is also common ground, although we were not taken to the relevant legislation, that a repayment of overpaid SDRT under regulation 14 carries simple (but not compound) interest at a specified rate.

Apart from the statutory remedy, it has long been an established principle of EU law that a Member State is required to repay tax levied in breach of EU law. In the UK, such claims are often referred to as San Giorgio claims, named after the seminal decision of the European Court of Justice (as the CJEU then was) in Case C-199/82 Amministrazione delle Finanze dello Stato v San Giorgio SpA EU:C:1983:318, [1983] ECR 3595. According to the settled jurisprudence of the CJEU, in the absence of EU rules on the recovery of unlawfully levied tax, it is for the domestic legal system of each Member State to lay down the detailed procedural rules governing such actions, provided, first, that such rules are no less favourable than those governing similar domestic actions (the principle of equivalence) and, second, that they do not render practically impossible or excessively difficult the exercise of rights conferred by EU law (the principle of effectiveness): see, for example, Case C-362/12 Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners EU:C:2013:538 and 834, [2014] AC 1161 (“FII (CJEU) 3”) at paragraphs 30 to 32 of the judgment of the Court.

Under English law, there are two alternative causes of action which a taxpayer may invoke in order to bring a San Giorgio claim. The first is a common law cause of action in unjust enrichment for the recovery of unlawful tax, under the principle first established by the House of Lords in Woolwich Equitable Building Society v IRC [1993] AC 70 (“Woolwich”). We will refer to such claims as “Woolwich” claims. The second is a cause of action in unjust enrichment based on a mistake of law, under the principles established by the House of Lords in Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349 (“Kleinwort Benson”) and Deutsche Morgan Grenfell Group plc v Inland Revenue Commissioners [2006] UKHL 49, [2007] 1 AC 558 (“Deutsche Morgan Grenfell”).

For limitation purposes, there was a crucial distinction between the two causes of action. Woolwich claims are subject to the normal limitation period for claims in unjust enrichment, which is the period of six years running from the date of payment, on the basis that they are founded on simple contract within the meaning of section 5 of the Limitation Act 1980: see Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2020] UKSC 47, [2022] AC 1, at [7] per Lord Reed PSC and Lord Hodge DPSC giving the judgment of the majority with which Lord Lloyd-Jones and Lord Hamblen JJSC agreed. We will refer to this decision as FII (SC) 2, as this was the second occasion on which the Supreme Court had considered issues arising in the FII Group Litigation.

By contrast, however, Kleinwort Benson claims can normally benefit from the extension to the usual six year limitation period which applies to an “action for relief from the consequences of a mistake” within the meaning of section 32(1)(c) of the 1980 Act, with the consequence that the limitation period does not begin to run “until the plaintiff has discovered the … mistake … or could with reasonable diligence have discovered it”: see FII (SC) 2, at [8]. The same reasoning could not be applied to Woolwich claims, because one of the points determined in the first case in the FII Group Litigation to reach the Supreme Court was that “in order for a claim to fall within the ambit of section 32(1)(c) of the 1980 Act, a mistake must constitute an essential element of the cause of action, and not merely form part of the context”: ibid, at [14], referring to Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2012] UKSC 19, [2012] 2 AC 337 (“FII (SC) 1”).

The Deutsche Morgan Grenfell litigation soon made it apparent, if it had not been before, that mistake-based San Giorgio claims brought in reliance on the extended limitation period in section 32(1)(c) of the 1980 Act had the potential to expose the public purse to huge liabilities, since in such cases, where the mistake of law upon which they were based had only recently come to light in the case law of the CJEU, the claim could in principle go back as far as 1973 when the UK’s membership of the EU (at that time the European Economic Community) began. Furthermore, it was then generally thought, in reliance (inter alia) on the decision of the House of Lords in the Sempra Metals case, that a claimant would be entitled to recover compound interest on such a claim from the original date of payment to the date of ultimate recovery: see Sempra Metals Ltd v IRC [2007] UKHL 34, [2008] 1 AC 561 and the judgment of Henderson J in Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2008] EWHC 2893 (Ch), [2009] STC 254, at [405] to [406].

It was against that background, while the Deutsche Morgan Grenfell litigation was still making its way through the English courts, that on 8 September 2003 the Paymaster General (Ms Dawn Primarolo MP) announced in Parliament that legislation would be included in the Finance Bill 2004 to limit the period for claiming repayments of overpaid tax to six years from the date of the original payment. In a written Ministerial Statement released on the following day, she explained:

Section 320 provided:

Section 32(1)(c) of the Limitation Act 1980 … (extended period for bringing an action in case of mistake) does not apply in relation to a mistake of law relating to a taxation matter under the care and management of the Commissioners of Inland Revenue. This subsection has effect in relation to actions brought on or after 8^th September 2003.

It can be seen, therefore, that section 320, as enacted, was expressly made retrospective in its effect in relation to any actions brought on or after the date of the Paymaster General’s announcement to Parliament on 8 September 2003.

In view of the retrospectivity of section 320, and the complete absence from it of any transitional provisions to protect the position of taxpayers with accrued San Giorgio claims which depended on section 32(1)(c) of the 1980 Act for their vindication, and of which they had apparently been deprived overnight on 8 September 2003 by the enactment of section 320, it is unsurprising that the compatibility of section 320 with EU law was itself soon challenged in the context of the FII Group Litigation. The absence of transitional provisions was particularly striking, because the need to include an adequate transitional period in domestic legislation of a Member State curtailing a limitation period for the recovery of unlawfully levied tax had already been clearly stated by the CJEU in the Marks & Spencer case (to which we will need to return) in July 2002: see Case C-62/00 Marks & Spencer plc v Customs and Excise Commissioners EU:C:2002:435, [2003] QB 866 (“Marks & Spencer”). The Revenue sought to justify this omission, however, by deploying arguments that the unheralded curtailment of the limitation period for mistake-based San Giorgio claims involved no breach of the EU law principles of effectiveness, legal certainty and the protection of legitimate expectations, because of the continuing availability from 8 September 2003 of the alternative Woolwich cause of action, with its six year limitation period which in itself was clearly compatible with EU law.

The Revenue’s arguments on this point were rejected by Henderson J at first instance, but found favour with the Court of Appeal. When the case reached the Supreme Court in 2012 in FII (SC) 1, it decided to refer the question to the CJEU for a preliminary ruling since there was a division of opinion between the members of the Court and the answer could not be regarded as acte clair. The first question referred was framed as follows:

The CJEU answered this question in the negative, holding that legislation such as section 320 not only infringed the principle of effectiveness, but was also contrary to the principles of legal certainty and legitimate expectations. We will need to return to some aspects of the Court’s reasoning later in this judgment, but for now it is enough to record that it dealt with the principle of effectiveness at paragraphs 30 to 43 of its judgment, and the principles of legal certainty and the protection of legitimate expectations at paragraphs 44 to 49. In particular, with regard to the absence of transitional arrangements, the Court followed its earlier reasoning in Marks & Spencer, and said at paragraph 39:

The CJEU delivered its judgment in FII (CJEU) 3 on 12 December 2013, a week before Jazztel issued its claim form in the present case on 19 December 2013. The particulars of claim, which were subsequently amended in immaterial respects in January 2017, pleaded the unlawfulness under EU law of the relevant charges to SDRT, the making of the Payments, and Jazztel’s alleged mistaken belief that (a) the statutory provisions were lawful, (b) they imposed a liability on the relevant clearance services and depositary to pay the disputed SDRT, and (c) by reason of (a) and (b), and Jazztel’s contract with the clearance services and the depositary, Jazztel was obliged to make the payments. Repayment of the unlawfully levied tax was claimed on the basis of the Woolwich and Deutsche Morgan Grenfell causes of action, together with compound interest. In addition, there was a claim for damages for breach of duty in accordance with the principles of EU law recognised in the Francovich litigation (Case C-479/93 Francovich v Italian Republic [1995] ECR I-3843, given effect in English law in R v Secretary of State for Transport, Ex p Factortame Ltd (No 5) [2000] 1 AC 524).

In their defence, HMRC admitted some of the payments, but joined issue with Jazztel on a number of factual points upon which nothing now turns. HMRC also pleaded that a number of substantial repayments of unlawfully levied tax and simple interest had already been made to Jazztel in response to statutory claims under regulation 14 of the SDRT Regulations; the main reason why these claims were still included in the action was Jazztel’s desire to recover compound interest, and perhaps damages as well.

In relation to the mistake-based restitution claims, HMRC denied that Jazztel “was mistaken in any respect”. Further, even if a claim for mistake could be made out on the facts, HMRC pleaded in paragraph 26.2 that:

The apparent admission at the end of paragraph 26.2, quoted above, was the subject of a request for further information asking to what extent it was admitted that section 320 “operated unlawfully to curtail the Claimant’s rights under EU law”. This elicited the response on 9 April 2015 that:

In response to a further question asking to what extent it was denied that section 320 so operated, and on what basis, HMRC replied on the same date:

Returning now to the table of Payments in the Judgment at [23], it is important to note that Payments 1 to 9 inclusive were made before 8 September 2003; but since the earliest of those Payments was made in 2000, including in particular the substantial Payment 2 made on 7 January 2000, it cannot be said that the retrospective curtailment of the limitation period for mistake-based claims on 8 September 2003 self-evidently deprived Jazztel of its right to bring such a claim in respect of any of those Payments within a reasonable period after that date. Thus, for example, a mistake-based claim for restitution of Payment 2 could in principle have been brought, in accordance with the curtailed limitation period, at any time between 8 September 2003 and 6 January 2006, a period of approximately 2 years and 4 months. This was the basis, as we understand it, of HMRC’s contention in their response to the requests for further information that, on the basis of its pleaded case, Jazztel had “not identified any payment where they were prevented from making a claim for overpaid SDRT by virtue of section 320”.

Payments 10 to 23 in the table were all made after 8 September 2003, but (as we have already pointed out) only the last of them, Payment 23 made on 7 May 2008, was made less than six years before the issue of the claim form. Accordingly, Payments 10 to 22 inclusive, ranging in date from 17 December 2003 to 3 August 2007, were all prima facie time-barred by the curtailed limitation period. Whether the claim for their recovery was based on the Woolwich cause of action or on mistake, the six year period of limitation had already expired when the claim form was issued. Furthermore, all of the payments made after 8 September 2003, with the possible exception of the first, which is trivial in amount, were made less than six years, and in most cases much less than 6 years, before the CJEU delivered its judgment in HSBC Holdings on 1 October 2009. Accordingly, on the assumption that the curtailed six year limitation period began to run when each such payment was made, there was still in most cases ample time for the claim to be brought after the CJEU had given its judgment establishing the unlawfulness of the charge to SDRT under section 96 of the Finance Act 1986.

There is one further aspect of the procedural background which it is convenient to mention at this stage. As one would expect, Jazztel was by no means the only taxpayer which wished to bring claims against HMRC in the High Court for restitution and/or for damages arising from payments of unlawfully levied SDRT under sections 93 or 96 of the Finance Act 1986. Accordingly, by a group litigation order (“GLO”) made by Chief Master Winegarten in the Chancery Division of the High Court on 21 October 2010, the Stamp Taxes Group Litigation was established on the terms set out in the GLO, which has subsequently been amended on a number of occasions. Pursuant to CPR 19.11, a group register was established and GLO issues were identified, to be determined in test claims. Jazztel was added to the group litigation in December 2014 by an amending order made by Proudman J, which also identified two new GLO issues, numbered 9A and 9B. Those issues, which were described as “the pre 8 September 2003 limitation issue” and “the post 8 September 2003 limitation issue” respectively, raised the question whether HMRC could rely on section 320 of the 2004 Act in cases where the relevant SDRT at the rate of 1.5% was paid before, or after, that date.

In due course, Jazztel’s case was designated as the test claim for determination of those two issues. Indeed, as the Judge noted at [11], the hearing before him “was concerned only with Jazztel’s mistake claim”. Jazztel’s Factortame claim for damages had been stayed, as had the issue about the availability of compound interest pending the outcome of two appeals to the Supreme Court which eventually established that the claims for compound interest were misconceived: see FII (SC) 2 at [15], Littlewoods Ltd v Revenue and Customs Commissioners [2017] UKSC 70, [2018] AC 869 and Prudential Assurance Co Ltd v Revenue and Customs Commissioners [2018] UKSC 39, [2019] AC 929.

At the trial of Jazztel’s claim in January 2017, Mr Sam Grodzinski QC and Mr Michael Jones (also now QC) appeared for Jazztel, as they have in this Court. HMRC were represented by Mr Rupert Baldry QC, leading Mr David Yates (also now QC); in this Court Mr Baldry has again appeared for HMRC, leading Ms Barbara Belgrano and Mr Frederick Wilmot-Smith. For the reasons set out in the Judgment, and reflected in paragraph 7 of his Order dated 25 April 2017, the Judge determined GLO Issue 9A in favour of the GLO claimants, but GLO Issue 9B in favour of HMRC. In other words, he held that HMRC could not rely on section 320 of the 2004 Act to deny Jazztel recovery of Payments 1 to 9, but that Jazztel was time-barred, by reason of section 320, from recovering Payments 10 to 22 (paragraphs 4 and 6 of the Order). In addition, as we have already noted, the Judge found that Jazztel made each of the Payments identified in the Judgment at [23] under a mistake (paragraph 2 of the Order).

In formal terms, the position now is that HMRC appeal to this Court against the parts of the Judge’s Order relating to GLO Issue 9A and Payments 1 to 9, while Jazztel cross-appeals against the parts of the Order relating to GLO Issue 9B and Payments 10 to 22, in each case with permission granted by the Judge on 18 March 2019. The reason for the delay in granting permission to appeal is that by paragraph 10 of the Order the Judge had deferred consideration of any application for permission pending the outcome of HMRC’s application for permission to appeal to the Supreme Court in relation to their defence of change of position in the FII Group Litigation. HMRC had pleaded such a defence to Jazztel’s claim, and the Judge had heard evidence and made detailed findings of fact in relation to that defence on the assumption that it was open to HMRC in law to rely upon it. In the event, however, this part of the case ceased to be a live issue when HMRC wrote to the Court on 6 November 2018 to confirm that they were abandoning their change of position defence in the FII Group Litigation, and were therefore also abandoning it in the present case.

Pursuant to the permission granted by the Judge, HMRC filed their appellant’s notice and grounds of appeal on 12 April 2019. The substance of the grounds is contained in paragraphs 3 and 4:

in holding that Jazztel needed to know that it had a cause of action in order for any transitional period to be effective;

by finding that disapplication of section 320 in respect of Payments 1-9 was the only remedy sufficient to protect EU rights that had already accrued prior to 8 September 2003;

in failing to hold that section 320 applied in respect of Payments 1-9 with the effect that Jazztel’s claim for Payments 1-9 was time-barred.

HMRC’s case is that the introduction of section 320 and its application to Jazztel complies with the principle of effectiveness. The inherent transitional period (well over 2 years) afforded to Jazztel following the introduction of section 320 was sufficient to comply with the principle. Accordingly, there was no need to consider whether, on Jazztel’s facts, section 320 needed to be subjected to a conforming interpretation/disapplication. Further and alternatively, there was no proper basis for adopting a conforming construction or disapplying section 320 in the present case.”

Jazztel’s appellant’s notice and grounds of appeal were also dated 12 April 2019. The sole ground was that the Judge’s reasons for dismissing Jazztel’s claim in relation to Payments 10 to 22 were not consistent with the principles of EU law established in Marks & Spencer, as subsequently applied by the House of Lords in Fleming v Revenue and Customs Commissioners [2008] UKHL 2, [2008] 1 WLR 195 (“Fleming”).

The appeal was originally listed to be heard in early April 2020, but in March 2020 it was adjourned (on the application of HMRC, which Jazztel did not oppose) to await the pending judgment of the panel of seven Supreme Court Justices who had heard argument over three days in February 2020 on important issues of law concerning the scope and interpretation of section 32(1)(c) of the Limitation Act 1980, including the question whether the Court should depart from the previous decision of the House of Lords in Deutsche Morgan Grenfell on the correct approach to “discovery” of a mistake of law. The Supreme Court delivered its judgment in FII (SC) 2 on 20 November 2020, holding by a majority (Lord Briggs and Lord Sales JJSC dissenting) that the ambit of section 32(1)(c) did extend to mistakes of law, as well as mistakes of fact, but that the test of “discovery” for the purposes of the section had been wrongly stated in Deutsche Morgan Grenfell as (in short) the date on which “the truth” as to whether the claimant had a well-founded cause of action was established by a court of final jurisdiction. Instead, the majority held (again in outline) that the correct test was that time began to run at a point when the claimant discovered, or could with reasonable diligence have discovered, his mistake in the sense of recognising that a worthwhile claim had arisen.

In the light of that ground-breaking decision, HMRC applied on 8 March 2021 for permission to amend their grounds of appeal by addition of the following paragraph:

Accordingly, there are two main issues on which we have heard argument over the course of three days and which we need to determine. The first issue is the subject matter of HMRC’s appeal on GLO Issue 9A and Payments 1 to 9. The second issue is whether HMRC should have permission to amend their grounds of appeal so as to include paragraph 5 set out above, and (if so) whether that ground is made out on the basis of material that we can properly take into account when considering it for the first time on appeal.

As to Jazztel’s appeal on GLO Issue 9B and Payments 10 to 22, the position is that Jazztel accepts before us, as it did before the Judge, that the issue has been resolved in HMRC’s favour at all levels below the Supreme Court by the decision of the Court of Appeal in Leeds City Council v Revenue and Customs Commissioners [2015] EWCA Civ 1293, [2016] STC 2256 (“Leeds City Council”). Jazztel’s skeleton argument in support of its appeal is therefore confined to preserving its position on the issue pending any further appeal to the Supreme Court, together with a brief indication of the reasons why Jazztel wishes to submit that Leeds City Council was wrongly decided.

With this rather lengthy introduction, we will now consider in turn the two main issues which we have identified.

Before we come to the Judge’s reasoning on this issue, it is helpful to begin with a brief review of the established jurisprudence of the CJEU on limitation periods for the recovery of unlawful tax, and the circumstances in which such periods may be legitimately curtailed by a Member State. We will then examine the important decision of the House of Lords in Fleming. To avoid unnecessary repetition, we make it clear that, when we refer to “unlawful tax”, we mean tax levied contrary to directly effective provisions of EU law.

For present purposes, there is no need to refer to any case earlier than the decision of the CJEU in Marks & Spencer on 11 July 2002. The case had a structural similarity to the present case, in that it concerned the retrospective curtailment of a limitation period in domestic UK tax legislation, with effect from the date when the proposal to reduce the limitation period was announced (with no prior notice) in Parliament. As the headnote at [2003] QB 866 records:

We note, in passing, that the actual decision of the Court of Appeal, and the question referred to the CJEU in its original formulation, had drawn a distinction between the period before, and after, the date in August 1992 when the relevant article of the Sixth Directive had been correctly implemented into English law, on the footing that it was no longer possible for individuals to rely on the direct effect of the directive after that date. The CJEU held that this distinction was misconceived in principle, with the consequence that (as the Court stated in paragraph 27):

The CJEU discussed the principle of effectiveness at paragraphs 34 to 42. The Court began by repeating what was already its standard learning, and has been repeated many times since, to the effect that in the absence of EU rules on the repayment of unlawfully levied national charges “it is for the domestic legal system of each member state to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law”, provided always that those rules comply with the EU law principles of equivalence and effectiveness.

With regard to the principle of effectiveness, the Court then said (at paragraph 35) that “in the interests of legal certainty, which protect both the taxpayer and the administration, it is compatible with Community law to lay down reasonable time limits for bringing proceedings”, and that such time limits do not infringe the principle of effectiveness. The Court added:

The Court then continued:

The Court went on to note, at paragraph 39, that Member States are required as a matter of principle to repay taxes collected in breach of EU law. Although, by way of exception to that principle, a reasonable limitation period for making repayment claims may be fixed in the interests of legal certainty, “in order to serve their purpose of ensuring legal certainty limitation periods must be fixed in advance: ACF Chemiesarma NV v Commission of the European Communities (Case 41/69) [1970] ECR 661, 683, para 19.”

The Court then stated its conclusion, at paragraph 40:

The Court then applied similar reasoning to conclude that the UK legislation also infringed the principle of the protection of legitimate expectations, noting (in paragraph 44) that the principle “forms part of the Community legal order and must be observed by the member states when they exercise the powers conferred on them by Community directives”, citing copious authority to that effect.

The next important case in the CJEU is Case C-255/00 Grundig Italiana SpA v Ministero delle Finanze [2002] ECR I-8003, [2003] All ER (EC) 176 (“Grundig Italiana”). That case concerned Italian legislation which originally provided a ten, and then five, year limitation period for the recovery of unlawfully levied tax, but subsequently reduced that period to three years, subject to a 90 day transitional period which ran from the date of entry into force of the legislation. The question referred to the CJEU by the Italian court concerned the validity of the 90 day transitional period (or “period of grace” as it was sometimes termed) in relation to claims to recover sums paid before the entry into force of the amending legislation which reduced the relevant limitation period from five years to three. The Court held, in short, that the curtailed time limit of three years was, in itself, compatible with the principle of effectiveness, but that the transitional period of 90 days was “clearly insufficient”, although a period of six months would have sufficed.

In its discussion of the question at paragraphs 33 to 42 of the judgment, the Court followed and repeated much of its reasoning in Marks & Spencer. For present purposes, the significance of the case lies mainly in what the Court said about the transitional arrangements which had to satisfy the condition (see paragraph 37) of “allowing an adequate period after the enactment of the legislation for lodging claims for repayment which persons were entitled to submit under the original legislation”. After referring to Marks & Spencer in paragraph 38, the Court continued:

Unlike Marks & Spencer, Grundig Italiana was not a case where there was a complete absence of any transitional provision when an existing limitation period was curtailed. The problem was, instead, that the transitional period provided by the legislature was too short. In that context, it seems to us that the Court was willing to adopt a relatively pragmatic approach. It recognised that an acceptable transitional period would be one which enabled normally diligent taxpayers to familiarise themselves with the new regime, and that six months should be enough for this purpose when a five year period is reduced to three. The Court also went out of its way to emphasise, in paragraph 41, that where a fixed transitional period is too short, this “does not necessarily mean that the new period for initiating proceedings cannot be applied retroactively at all”. Nevertheless, it appears to us from the remainder of paragraph 41 that the type of case which the CJEU here had in mind was one where an action is brought after the expiry of what would have been an adequate transitional period in order to recover sums paid before the entry into force of the curtailing legislation. That reasoning therefore has no direct application to a case such as the present, where there was never a fixed transitional period of any duration.

In FII (CJEU) 3, the CJEU had to consider the very statutory provision with which we are now concerned, namely section 320 of the 2004 Act. As we have explained, the reference for a preliminary ruling was made by the Supreme Court in view of the differences of opinion between the members of the court in FII (SC) 2. The test claimants for the purposes of the reference were companies in the Aegis group, which had made their claims on 8 September 2003, the date from which section 320 had retrospective effect. To the extent that their claims went back for more than six years, the effect of the section (if valid) was therefore to deprive them of any remedy in respect of all payments of unlawful tax made by them before 8 September 1997, dating back in many instances to 1973. As Lewison LJ put it in Leeds City Council at [25]:

In its discussion of the principle of effectiveness, the Court repeated the basic principles established in Marks & Spencer and in paragraphs 35 and 36 of Grundig Italiana. With regard to transitional arrangements, the Court said in paragraph 37:

The Court then said:

The natural implication of paragraphs 37 and 38, in our view, is that express transitional arrangements must be provided if immediate application of the new limitation period would deprive at least some taxpayers of their right to repayment, or would allow them too little time within which to assert that right. We do not find any support in this passage for the notion that, in the absence of any express transitional arrangements, it is only those individuals who have in fact been deprived of their right to repayment, or who have been left too short a period for asserting it, who are entitled to claim that the legislation breaches the principle of effectiveness. In other words, the passage suggests that the fact that there are some claimants who would be so affected is enough to render the legislation structurally defective because it fails to satisfy the condition of including adequate transitional arrangements.

This view is reinforced, as it appears to us, by what the Court went on to say about the principles of legal certainty and the protection of legitimate expectations: see paragraphs 44 to 49. In particular, the Court stated in paragraph 44 that:

The decision of the House of Lords in Fleming is of central importance to the present case, because it involved a detailed analysis of the consequences in domestic English law of the retrospective curtailment of a limitation period for the recovery of unlawfully levied VAT without any transitional arrangements. The House had before it appeals in two different cases. The taxpayer in one case was a sole trader in the motor industry, Mr Fleming, trading as Bodycraft. He claimed repayment of input VAT paid on the purchase of three cars in 1989 and 1990. The taxpayer in the other case was Condé Nast Publications Ltd (“Condé Nast”), which made a claim in June 2003 for repayment of input VAT in respect of expenditure on staff entertainment expenses between April 1973 and April 1997. The most recent of those claims were similar to Jazztel’s claims in respect of Payments 1 to 9 in that they accrued, but had not yet been made, in the period before the curtailed limitation period came into effect.

The legislative background was helpfully summarised by Lord Hope at [2] to [3]:

Lord Hope went on to explain, in [4], that following the decisions of the CJEU in Marks & Spencer and Grundig Italiana steps were taken by the Revenue, by means of announcements contained in business briefs, to introduce a transitional period for the making of claims for the recovery of overpaid output tax under section 80. However, no similar transitional provisions were ever introduced or announced with regard to claims for repayment of input tax. Such claims had never been subject to any time limit under regulation 29 of the 1995 Regulations, and that remained the position until the new regulation 29(1A) was inserted, without any transitional period, with effect from 1 May 1997. Accordingly, since Condé Nast did not make its claim until June 2003, all of the input tax which it sought to recover was prima facie time-barred.

It was common ground in Fleming, as Lord Hope noted at [5], that the unmodified time limit in regulation 29(1A) was incompatible with EU law because it was retrospective and made no provision for any transitional arrangements: see Marks & Spencer at paragraph 38, and Grundig Italiana at paragraph 37. Lord Hope then identified the question which the House had to resolve as being “how to apply the guidance that was given in [Marks & Spencer and Grundig Italiana] in order to make good the lack of a transitional period for the application of regulation 29 to accrued claims resulting from a failure to deduct input tax”: see [6]. Legislation that is incompatible with EU law had to be disapplied, but could the court “go further and make good the defect which has led to its disapplication?” Acknowledging that the problem was “far from easy”, and referring to a number of possible choices identified by leading counsel for the Revenue, Lord Hope continued (ibid):

Lord Hope then referred to the two different situations (although he saw no difference in principle between them) where (a) transitional arrangements have been included, but they are found to be too short, and (b) cases where no transitional arrangements have been included at all. He then said, at [7]:

After referring to Grundig Italiana as an example of the first situation, and commenting that it is open to the court, as the CJEU did in that case, to make its own assessment of what in accordance with EU law is an adequate transitional period during which the new time limit is not to be applied retrospectively, Lord Hope turned to the second type of case:

Lord Hope’s reasoning was expressly agreed with by both Lord Carswell and Lord Neuberger: see [77] and [109]. It follows, in our view, that the following propositions had the support of a majority of their Lordships:

the omission of any transitional arrangements left an unfilled gap in the legislation;

to be compatible with EU law, taxpayers were entitled to be told in advance of any transitional arrangements that would enable them to submit late accrued claims for the deduction of input tax, despite the introduction of the three year limitation period;

the gap in the legislation cannot be made good on a case by case basis, and a single solution is needed that can reasonably be applied to all taxpayers; and

unless and until Parliament or the Revenue introduce prospectively an adequate transitional period, the three year time limit “must be disapplied in the case of all claims for the deduction of input tax that had accrued before the introduction of the time limit” (our emphasis).

To similar effect, Lord Carswell said at [77]:

Lord Neuberger’s opinion contains a helpful summary, at [79], of the propositions of EU law which can be derived from Marks & Spencer and Grundig Italiana, and then covers, in valuable detail, much of the same ground that Lord Hope summarised in his shorter opinion. In the interests of brevity, we will confine ourselves to what Lord Neuberger said about the last sentence of paragraph 41 of the CJEU’s judgment in Grundig Italiana, which reinforces some of the points we have already made in our review of the European case law. After recalling that a valid limitation period must be “fixed in advance” in order to satisfy EU law, Lord Neuberger said at [88]:

Returning to the same theme, Lord Neuberger said in [90]:

The Judge began his analysis at [87] by setting out the key dates in reverse chronological order, beginning with the issue of the claim form on 19 December 2013 and going back to the announcement in Parliament on 8 September 2003. He then referred to a definition of “retrospective legislation” in the 4^th (2015) edition of Jowitt’s Dictionary of English Law, which we were told had not been cited to him, and proceeded to draw a distinction between two types of retrospectivity which he labelled “express” and “hidden” retrospectivity. In his view, section 320 was retrospective in both senses. It was expressly retrospective, in the sense that it was enacted on 22 July 2004 but had effect in relation to actions brought on or after 8 September 2003. It was also an example of hidden retrospectivity, in the sense that an accrued right might be rendered unenforceable by the operation of the section, in circumstances where the claimant had no prior knowledge of the accrued right and could not with reasonable diligence have discovered it within the meaning of section 32(1)(c) of the Limitation Act 1980.

The Judge developed this train of thought at [88] and [89], noting that this “hidden” detrimental effect occurred without the fault of Jazztel and in circumstances where it could not have been remedied by the provision of a reasonable express transitional period “during which taxpayers are aware that the regime is going to change and have the opportunity to bring such claims vindicating accrued rights as they wish”. The Judge said at [89(ii)]:

The Judge correctly recognised, at [90], that neither Marks & Spencer nor Grundig Italiana had drawn the distinction between express and hidden retrospectivity which he had identified. He nevertheless considered that the reasoning in those cases was intended to extend to both types of retrospectivity, and that it sought to control and regulate the effect of changes in the time limit on the taxpayer, irrespective of how the hidden retrospectivity had arisen: see [91] to [93]. Applying the principles which he had identified to the facts, he concluded at [96] that section 320 infringed EU law “both in its express retrospectivity and in its hidden retrospectivity”. He exemplified the hidden retrospectivity, in [96(ii)], by positing two taxpayers with an accrued mistake claim in respect of a payment made in 1985, one of whom discovered the mistake on 7 September 2003 and could take advantage of section 32(1)(c), and the other of whom discovered his mistake on 9 September 2003, and could not. (Incidentally, the Judge appears at times to have been under the misapprehension that section 320 applied only to actions brought after 8 September 2003, with the result that section 32(1)(c) was still available for an action started on 8 September 2003. That is not correct, as the final words of section 320(1) make clear. The subsection “has effect in relation to actions brought on or after 8 September 2003.”)

Having reached this conclusion, the Judge held that, in order to avoid an infringement of EU law, no remedy short of the partial disapplication of section 320 would suffice with regard to Payments 1 to 9. Following Leeds City Council, which was binding on him as it is on us, he rightly recognised that no disapplication was required in relation to Payments 10 to 22.

In relation to Payments 1 to 9, the Judge’s reasoning on disapplication was heavily influenced by his concept of hidden retrospectivity. For example, he said at [100(vi)]:

The Judge’s reasoning on this part of the case, and in particular his reliance on the concept of hidden retrospectivity, was considered, but not followed, by Sir Geoffrey Vos C (as he then was) in Claimants in Class 8 of the CFC and Dividend Group Litigation v Revenue and Customs Commissioners [2019] EWHC 338 (Ch), [2019] 1 WLR 5097 (“Class 8”). The background to the case is helpfully summarised in the headnote to the Weekly Law Reports report:

On the first preliminary issue, Sir Geoffrey Vos C held that the claims were indeed ousted by paragraph 51(6) of Schedule 18 to the 1998 Act, which had come into force on 1 April 2010. As the Chancellor explained at [10], the paragraph 51(6) issue “took most of the available time in argument … because the bulk of the Class 8 claims were issued in 2012 and 2014”. This meant that the Class 8 claims were at first sight ousted by the express terms of paragraph 51(6), unless it was held to be incompatible with (primarily) the EU law principle of effectiveness (ibid). The Chancellor’s ultimate conclusion, at [119], was that “paragraph 51(6) does indeed operate to oust the claimants’ common law claims”, and that this outcome did not contravene the principle of effectiveness.

In the course of coming to this conclusion, one of the sub-issues which the Chancellor had to consider was whether the double taxation relief allowed by section 790 of ICTA 1988 was “prevented from being an effective remedy because in some cases the claimants can show that they did not actually know that they had such a remedy before the abbreviated limitation periods meant that their remedy had become statute-barred”: see [75(iv)]. The Chancellor discussed this sub-issue at [85] to [97], holding at [97] that “section 790 can provide an effective remedy in such circumstances”. In so holding, he rejected the submission of leading counsel for the taxpayers (Mr Graham Aaronson QC) that he should follow the decision of the Judge in the present case “so as to decide that a claimant who does not know that a remedy is available to him cannot have an effective remedy for the purposes of EU law”: see [85].

The Chancellor said he was unable to agree with the reasoning of the Judge on the question of “hidden retrospectivity”, saying at [88]:

After referring to Lord Neuberger’s summary of the relevant principles in Fleming at [79], the Chancellor continued:

In the light of the Chancellor’s decision on the ouster issue, it may not have been strictly necessary for him to express a view on the section 320 issue, but he dealt with it relatively briefly at [122] to [124]. That was entirely understandable, because in group litigation it is usually desirable for the judge at first instance to deal with all the common issues which have been identified. The agreed formulation of the section 320 issue asked whether section 320 had effect in relation to claims for restitution of tax “paid before and/or after its introduction”, and (if so) whether the relevant date of introduction was the date from which it took effect (8 September 2003) or the date of Royal Assent (22 July 2004): see [9(iii)].

We need to set out the Chancellor’s reasoning on this part of the case in full:

To similar effect, the Chancellor said in the summary of his conclusions at [147]:

We observe that the Chancellor appears to have proceeded on the footing that his rejection of the concept of hidden retrospectivity entailed the further conclusion that section 320 was effective to remove common law claims to restitution in respect of tax paid before the section took effect. The critical point, in his view, appears to have been that there was no breach of the principle of effectiveness in relation to accrued claims provided that there remained an unexpired part of the limitation period of at least six months after the introduction of section 320. That reasoning is supported in the present case by HMRC, but challenged by Jazztel. As will appear, our own conclusion is that Sir Geoffrey Vos C was entirely right to reject the espousal by the Judge of the concept of hidden retrospectivity, but (with great respect) he was wrong to conclude that section 320 could apply to accrued claims in the absence of any express transitional arrangements, even if there remained an unexpired part of the limitation period of at least six months when the section took effect.

For completeness, we should also mention that there is a pending appeal to this court in Class 8, but it has been stayed.

Relying on the CJEU case law on the principle of effectiveness, HMRC submit that the UK was in principle entitled to introduce and apply a shortened time limit to claims to recover unlawful tax which had not yet been commenced at the time the new period came into force. That is the case even if the claim relates to payments of tax which were made while the previous limitation period (under section 32(1)(c)) was still applicable: see, in particular, Grundig Italiana at paragraph 35. The only requirements which need to be satisfied are that the new limitation period is reasonable, and it must allow an “adequate period” for taxpayers to bring their claims after the enactment of the legislation: FII (CJEU) 3 at paragraph 37.

HMRC go on to submit that those requirements are satisfied in the present case. The six year time limit introduced by section 320 is, in itself, reasonable. In relation to the earliest substantial payment in dispute, namely Payment 2 made on 7 January 2000, Jazztel therefore had until 6 January 2006 to bring its claim. Or in other words, on 8 September 2003 Jazztel still had well over two years to bring a mistake-based Kleinwort Benson claim, as well as a Woolwich claim, to recover the full amount of SDRT paid. It cannot be said that this was too short a period, such that it was either practically impossible or excessively difficult for Jazztel to bring its claim. Furthermore, contrary to the Judge’s reasoning, the fact that Jazztel may not have known of its right to make a claim when section 320 came into force is irrelevant, for the reasons given by the Chancellor in Class 8.

In those circumstances, submit HMRC, the question whether section 320 must be disapplied for a transitional period does not arise. On the facts of Jazztel’s case, where no EU rights would be infringed, section 320 is to be construed and applied in the ordinary way. It does not matter that, in different factual situations, section 320 may need to be disapplied, or subjected to a conforming interpretation, in order to secure compliance with EU law: see R (Hurst) v London Northern District Coroner [2007] UKHL 13, [2007] 2 AC 189, at [52] and Imperial Chemical Industries plc v Colmer (No 2) [1999] 1 WLR 2035 (HL). Furthermore, say HMRC, this reasoning is consistent with the actual conclusion reached by the Chancellor on the section 320 issue in Class 8: see [123] and [124].

For its part, Jazztel submits that we are bound by Fleming to hold that, in the absence of express and adequate transitional arrangements, section 320 must be disapplied in relation to claims based on rights accrued before 8 September 2003. That remains the position until the expiry of an adequate, prospective transitional period, which even today has still not been provided: compare Fleming at [104].

Jazztel submits that the force of these points was correctly recognised by the Judge in [101] and [102] of the Judgment, and the correctness of his ultimate conclusion is not vitiated by his emphasis on “hidden retrospectivity”. In so far as the Judge thought that section 320 created a further injustice for taxpayers in the position of Jazztel, by depriving them of accrued rights before they even knew that they existed, he went further than was necessary to satisfy the principle of effectiveness; but that does not detract from the basic point that the facts of the present case fall squarely within the reasoning and result in Fleming. Furthermore, the facts of the Condé Nast claim show that the House of Lords must have had well in mind claims which had accrued at all stages up to the change in the limitation period: see, in particular, the opinion of Lord Scott at [15] and [22], where he referred expressly to recently accrued claims brought in the period of three years before regulation 29(1A) came into force on 1 May 1997.

So far as concerns Class 8, Jazztel submits that the Chancellor was wrong to draw no distinction between claims brought before and after 8 September 2003, although he was right to hold that knowledge was not an essential requirement for the principle of effectiveness to be satisfied.

For the reasons which follow, we consider that the Judge came to the right ultimate conclusion in relation to Payments 1 to 9, although his analysis of the issue was unfortunately vitiated by his reliance on the concept of “hidden retrospectivity”, which in our view has no part to play in the resolution of cases of the present type.

The European authorities clearly establish that, in the interests of legal certainty, it is open to a Member State to lay down reasonable time limits for the recovery of unlawfully levied tax, and that a period of three years would normally be enough to satisfy that requirement. As Sir Geoffrey Vos C correctly held in Class 8, it is not a requirement of EU law that the claimant taxpayer should have actual or constructive knowledge of its right to make a claim before the limitation period has expired. That does not mean, of course, that it is not open to a Member State to provide for a knowledge-based extension to a primary limitation period, such as section 32(1)(c) of the Limitation Act 1980. But the EU law principle of legal certainty does not, in itself, impose any such requirement.

The Judge was understandably sympathetic with taxpayers who may find themselves deprived, by a fixed limitation period of reasonable length, of an otherwise valid claim to recover unlawful tax before they know, or even can know, of the claim’s existence. He erred, however, in our respectful opinion, by importing the concept of hidden retrospectivity into his analysis of the relevant EU law principles. It was confirmed to us in oral argument that neither side had sought to rely on this concept in its submissions to the Judge. It was, in truth, a concept of his own devising which had not been tested in argument.

The real question in the present case is about the extent to which the EU law principles of effectiveness, protection of legitimate expectations and legal certainty require section 320 to be disapplied, given the now admitted failure of the section to comply fully with EU law in retrospectively curtailing the time limit for mistake-based restitution claims without the provision of any transitional provisions. HMRC concede that the section has to be disapplied in relation to mistake-based claims for repayment of SDRT paid before 8 September 1997, which depend on section 32(1)(c) for their vindication and are brought more than six years after the date of payment: see [25] above. That is the category of claims which vanished in a puff of smoke on 8 September 2003 as a result of the retrospective effect of section 320 and the absence of any express transitional provisions. It is also common ground, at least in this Court, that section 320 did not breach EU law in relation to Payments 10 to 22, because those claims had not accrued before 8 September 2003 and Jazztel was left with more than enough time to make them before the new six year limitation period (without any mistake-based extension) had expired. That is the category of claims covered by Leeds City Council.

The claims with which we are directly concerned occupy an intermediate position, in that they accrued (in the sense that the payments of unlawful SDRT were made) before 8 September 2003, but Jazztel was in practice left with a residue of at least two years and four months of the new unextended six year limitation period within which to bring them. If a transitional period of such duration had been expressly provided for, it seems to us that Jazztel could have had no complaint. HMRC fasten on this point in order to argue that there has been no breach of the principle of effectiveness in relation to Payments 1 to 9, because it was always possible for Jazztel to bring claims to recover them within an objectively reasonable period.

In our judgment, however, that argument ignores the force of the principles established by the decision of the House of Lords in Fleming. As we see it, the four propositions which we have identified at [63] above bind us as part of the ratio decidendi of Fleming. The propositions formed part of the process of reasoning which led the House to decide that legislation introducing a new limitation period without notice and without express transitional provisions formulated in advance had to be disapplied until compliant transitional provisions were promulgated, and that the gap in the legislation could not be filled by a process of judicial implication of a reasonable transitional period.

In our view, those propositions are decisive of this part of the case. The basic fallacy in the submissions attractively advanced to us by Mr Baldry for the Revenue is that they treat the continuing ability of Jazztel to make the relevant claims after 8 September 2003 as conclusive, when the real problem is a structural fault in the legislation which cannot be cured unless and until adequate transitional arrangements are put in place. Until that is done, section 320 must in our judgment be disapplied in relation to all mistake-based claims to recover unlawful SDRT which accrued, in the sense that the relevant payments were made, before 8 September 2003.

Finally, it follows from our conclusions on this point that Sir Geoffrey Vos C was, in our respectful opinion, wrong in Class 8 to conclude that section 320 could apply to accrued claims relating to tax paid before 8 September 2003. That conclusion does not follow from his rejection of the Judge’s reasoning in the present case on the relevance of knowledge, and it cannot stand with the principles which we have sought to extract from Fleming. We also observe that the Chancellor’s decision on this point was briefly expressed, in response to arguments raised only when he circulated the draft of his judgment, and that it was in any event not strictly necessary for him to decide it following his conclusion on the ouster issue.

We would therefore dismiss HMRC’s appeal against paragraph 3 of the Judge’s Order, although our reasons for doing so differ significantly from those of the Judge.

So far as relevant, section 32(1) of the Limitation Act 1980 provides:

In Deutsche Morgan Grenfell, the claimant sought restitution on the basis that it had made payments by way of advanced corporation tax (“ACT”) under a mistake of law. At least one of the relevant payments had been made more than six years before the proceedings were issued, but the claimant contended, and the House of Lords accepted by a majority, that it could not have discovered its mistake until the European Court of Justice had given judgment in Joined Cases C-397 & 410/98 Metallgesellschaft Ltd and Hoechst AG v Inland Revenue Commissioners EU:C:2001:134, [2001] Ch 620 (“Hoechst”). It was held in Hoechst that the UK’s ACT regime infringed the Treaty establishing the European Community (“the TEC”). In Deutsche Morgan Grenfell, Lord Hoffmann concluded at [31] that, until then, the claimant “could not have discovered the truth because the truth did not yet exist” and, “therefore, the mistake was not reasonably discoverable until after the judgment had been delivered”. “Until the determination was made”, Lord Hope said at [71], “the mistake could not have been ‘discovered’ in the sense referred to in section 32(1) of the 1980 Act”. “[T]he judgment of the European Court of Justice on 8 March 2001 was the decisive moment”, Lord Walker said at [144].

Lord Brown dissented on the issue. As he stated at [165], he took the view that:

In FII (SC) 2, the Supreme Court concluded by a majority that Deutsche Morgan Grenfell had been wrongly decided, that it should depart from it and that the views on section 32(1) of the 1980 Act which Lord Brown had expressed in his dissenting judgment were to be preferred. Lord Reed PSC and Lord Hodge DPSC, with whom Lords Lloyd-Jones and Hamblen JJSC agreed, pointed out at [173] that the approach adopted in Deutsche Morgan Grenfell resulted in the paradox that “a claimant can be unable to discover the existence of his cause of action even after he has brought his claim: he cannot discover it until his claim succeeds”. Deutsche Morgan Grenfell further gives rise, Lords Reed and Hodge noted at [174], to the “equally paradoxical result” that “a limitation period applicable to the commencement of proceedings cannot begin to run until the proceedings have been completed”. “[T]he concept of discoverability”, Lords Reed and Hodge said, “is designed to protect claimants who could not reasonably be expected to know of the existence of the circumstances giving rise to their cause of action until sometime after it accrued”, but “there is … a lack of realism in treating the date of a judicial decision authoritatively establishing the true state of the law as the earliest date when the claimant discovers, or could with reasonable diligence discover, the mistake in question”: see [176] and [178]. Lords Reed and Hodge concluded at [193], in a passage echoed at [209(1)] and [213(13)]:

The phrase “with sufficient confidence to justify embarking on the preliminaries to the issue of a writ, such as submitting a claim to the proposed defendant, taking advice and collecting evidence” was taken from the judgment of Lord Nicholls in Haward v Fawcetts [2006] UKHL 9, [2006] 1 WLR 682. That case concerned section 14A of the Limitation Act 1980. Section 14A provides for an extended limitation period running from the earliest date on which the claimant “first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action”. With regard to the degree of certainty required before such knowledge can be said to exist, Lord Nicholls said at [9]:

In FII (SC) 2, Lords Reed and Hodge said this about the implications of the approach they favoured:

Addressing the application of their approach to the case before them, Lords Reed and Hodge said at [255]:

As explained above, following the decision of the Supreme Court in FII (SC) 2 HMRC applied for permission to amend their grounds of appeal in the present case to include an argument to the effect that Jazztel’s claim is time-barred “because Jazztel discovered or could with reasonable diligence have discovered its mistake in making [Payments 1 to 22] more than six years before it issued its claim for the purposes of section 32 of the Limitation Act 1980”. This was not a contention which HMRC advanced before the Judge.

There is no general rule that a case needs to be “exceptional” before a new point will be allowed to be taken on appeal: see Notting Hill Finance Ltd v Sheikh [2019] EWCA Civ 1337, [2019] 4 WLR 146, at [26]. As, however, was explained by Haddon-Cave LJ, with whom McCombe and Moylan LJJ agreed, in Singh v Dass [2019] EWCA Civ 360 at [15]-[17], an appellate court “will be cautious about allowing a new point to be raised on appeal that was not raised before the first instance court” and “will not, generally, permit a new point to be raised on appeal if that point is such that either (a) it would necessitate new evidence or (b), had it been run below, it would have resulted in the trial being conducted differently with regards to the evidence at the trial”.

In FII (SC) 2, the Supreme Court allowed HMRC to advance new arguments in that Court even though their success would “require the parties to amend their pleadings and conduct a further trial on the quantification of the test claimants’ claim” (see FII (SC) 2 at [91] and also [255]-[256]). In that connection, Lords Reed and Hodge said at [99]:

In the present case, HMRC stress that, until the Supreme Court overruled Deutsche Morgan Grenfell in FII (SC) 2, lower Courts were bound by that decision and so the case which HMRC now wish to advance could not have succeeded. On the other hand, the key questions of law relating to section 32 of the 1980 Act have been determined in FII (SC) 2. Further, while the sums which Jazztel might hope to recover from success in its claim are significant (up to, perhaps, a couple of million pounds, we gather), they are not comparable to those which Lords Reed and Hodge had in mind when they spoke of the “size of the claims and their impact on the public purse” as relevant considerations. Moreover, although these proceedings have been designated as a test claim in the Stamp Taxes Group Litigation, HMRC will be able to invoke section 32 of the 1980 Act, as interpreted in FII (SC) 2, against other claimants in the Stamp Taxes Group Litigation regardless of whether we accede to their application to amend their grounds of appeal in this case. On top of that, Jazztel, unlike the claimants in the FII litigation, will not have “claims of substantial value” if HMRC win on their new ground of appeal.

In the circumstances, it would not, in our view, be appropriate to grant HMRC permission to amend their grounds of appeal if the question raised by the new ground cannot be resolved in their favour without a further hearing. Supposing, say, that Jazztel might be assisted in defeating the section 32 defence by “expert evidence concerning the state of understanding of the law within the relevant categories of professional advisers during the relevant period” (such as Lords Reed and Hodge had in mind in FII (SC) 2 at [211]), it would not, as it seems to us, be just to accede to the application to amend. On the other hand, should it be the case that, as HMRC suggest, it can already be seen, from the existing findings and documentary evidence, that Jazztel discovered, or could with reasonable diligence have discovered, their mistake more than six years before the claim form was issued, there would, as we see it, be no injustice in allowing HMRC to introduce the additional ground of appeal. In fact, Mr Grodzinski realistically did not dispute that HMRC should be allowed to amend if (which he very much disputed) HMRC could definitively establish now, without a remittal, that the postponement of the limitation period for which section 32 of the 1980 Act provides could not avail Jazztel.

HMRC’s case on their new ground of appeal is founded on correspondence between, on the one hand, Linklaters, and, on the other hand, Jazztel and HMRC. Given their importance to the parties’ contentions, it is appropriate to set out some of the communications at length.

As already mentioned, the earliest Payment of any significance was one of £1,819,060 on 7 January 2000. Linklaters, who were acting for Jazztel, had emailed Jazztel about that payment in these terms on 22 December 1999:

The memorandum attached to the email identified the SDRT and stamp duty charges that stood to arise on, among other things, the issue of new shares by Jazztel. It continued as follows:

On 7 January 2000, Linklaters sent HMRC on Jazztel’s behalf a cheque for the £1,819,060 in respect of the SDRT which would be payable on the company’s issue of 11,500 shares “but for the European Law points noted below” (to quote the covering letter). In that connection, the letter explained that it had occurred to Linklaters that the UK’s SDRT provisions were “very probably inapplicable under European law” and that the purpose of the payment was “merely to avoid any interest or penalties if, notwithstanding our view on the European law issues, these SDRT charges were ultimately found to be applicable”. Linklaters added that they were writing to Mr David Halsey, a Deputy Director, Policy, Technical and Legislation, in the Stamp Office, about these issues.

The letter to Mr Halsey was sent on 11 January 2000. Linklaters explained that they considered that there were “very good grounds for the view that the provisions of Sections 96, 93, 70 and 67 FA 1986 (under which the SDRT and stamp duty liabilities arise) are inapplicable under European law” by reason of the Capital Duties Directive and articles 56 and 49 of the TEC. Linklaters set out a summary of their reasoning, commenting as regards article 11 of the Capital Duties Directive:

Mr Halsey replied to Linklaters on 6 March 2000. He explained that HMRC did not accept that the SDRT and stamp duty liabilities arising on the issue and transfer of Jazztel shares were contrary to EU law. With regard to the Capital Duties Directive, he said:

By this stage, therefore, Linklaters had put forward the argument which the CJEU was later to accept in HSBC Holdings, namely, that article 11 of the Capital Duties Directive prohibited the levying of a duty such as SDRT on the issue of shares into a clearance service. Echoing Mr Halsey, the UK had relied before the CJEU on article 12 of the Capital Duties Directive, but the Court said this about that article in its judgment at [34]:

Linklaters responded to Mr Halsey on 16 March 2000 that they were “not convinced” by his arguments but, when HMRC asked for an update in May, Linklaters said that Jazztel was “not, at present, proceeding with this matter any further”. Jazztel did not ask HMRC to make a formal determination in respect of its claim for repayment against which it could have appealed pursuant to regulation 8 of the SDRT Regulations.

In the next half dozen years, Jazztel made some 14 more payments, totalling more than £1.2 million, in respect of SDRT without voicing any further challenge to the validity of the UK’s SDRT regime. However, in an email to Jazztel of 27 February 2006 Linklaters said:

In September 2014, HMRC repaid to Jazztel the £1,819,060 which the company had paid on 7 January 2000. By the time the money was returned, HSBC Holdings and, subsequently, the First-tier Tribunal’s decision in HSBC Holdings plc and The Bank of New York Mellon Corporation v HMRC, had made it clear that the UK’s SDRT regime had not been compatible with the Capital Duties Directive and, hence, that Jazztel had not been liable for the £1,819,060. HMRC therefore considered regulation 14 of the SDRT Regulations (quoted in [9] above) to apply. Linklaters having requested the return of the £1,819,060 on Jazztel’s behalf within days of its payment in January 2000, HMRC accepted that the company had made a claim that it had paid too much tax within the period specified in regulation 14(2).

HMRC also refunded pursuant to the SDRT Regulations the payments which Jazztel had made from 17 December 2003 onwards. In contrast, the sums paid between 7 January 2000 and 17 December 2003 have not been returned.

The Judge did not have to consider whether the correspondence described in [110] to [117] above shows that Jazztel discovered its mistakes, or could with reasonable diligence have done so, more than six years before it issued proceedings: at the stage the matter was before the Judge, HMRC were not alleging that that was the case. The Judge did, however, address the correspondence when determining whether the relevant payments had been made under a mistake. As he explained at [30(ii)], the Judge approached that issue on the footing that a claimant’s “conscious appreciation that the facts or law may not be as he or she believes them to be” is “not inconsistent with mistake, provided the doubt does not overwhelm the mistake”. In the light of, among other things, the decision of Flaux J in Marine Trade SA v. Pioneer Freight Futures Co Ltd BVI [2009] EWHC 2656 (Comm), [2010] 1 Lloyd’s Rep 631, the Judge took it that, “provided the level of subjective doubt remains below the 50% threshold, a mistake can still exist”. The Judge concluded that all the payments in respect of which Jazztel was claiming had been made under a mistake.

The Judge observed at [51] that “[i]t is to be inferred that there was some communication between Linklaters and Jazztel regarding Linklaters’ 22 December 1999 SDRT Advice” and that Jazztel had authorised the “reservation of rights approach” adopted in Linklaters’ letter to HMRC of 7 January 2000. He none the less found at [67] that “Jazztel’s predominant state of mind after the 22 December 1999 SDRT Advice remained that the liability to pay SDRT was a lawful one and that, although Jazztel was not the person in law liable to pay SDRT, this was an obligation Jazztel (as the issuer of the shares) had to assume”. The Judge accepted at [68] that the advice which Linklaters gave on 22 December 1999 “must have injected an element of doubt into what was Jazztel’s state of mind prior to this communication”, but, although “the monolithic state of Jazztel’s belief came to be qualified”, it “did not otherwise change or crumble”. “Had Jazztel harboured serious doubts about the liability to pay SDRT” in the period following Linklaters’ 22 December 1999 advice, the Judge commented at [68(v)], “it would … have taken further advice”. The Judge said at [68(iv)]:

It is perhaps worth adding that the Judge reached these conclusions exclusively from the documentary evidence. The witnesses who gave evidence before the Judge were not in a position to add anything useful to that material. As Mr Antonio Garcia, the only witness of fact called by Jazztel, explained in his witness statement, the company was unable to locate any employee or officer who had been involved in the relevant decisions when they were made.

Mr Baldry submitted that the correspondence between Linklaters, Jazztel and HMRC in December 1999 and January 2000 establishes that Jazztel “discovered” its mistake within the meaning of section 32(1) of the 1980 Act or, failing that, that it could have done so with reasonable diligence. Emphasising Lords Reed and Hodge’s reference to having “sufficient confidence to embark on the preliminaries to the issue of a writ”, Mr Baldry argued that Jazztel reached that point when it was advised by Linklaters that there were grounds for considering that the SDRT regime was not valid under European law. True it may be that Linklaters said that any attack on the charge “would be very strongly resisted by the UK Inland Revenue” and that “[t]here must be doubts about whether this is worth pursuing in the case of Project Saxo”, but such matters do not bear on whether Jazztel was in a position to “embark on the preliminaries” or even whether a “worthwhile claim” had arisen. Time begins to run under section 32, Mr Baldry said, as soon as you have a belief which justifies you investigating whether you have made a mistake or would with reasonable diligence have reached that stage. Here, by 11 January 2000, Jazztel had not just been advised that the SDRT regime was vulnerable to challenge under European law but actually submitted a claim for repayment. While mere suspicion that SDRT might not be payable would not of itself suffice to start time running, if you have been advised of a potential argument and made a claim on that basis, you have inevitably reached the relatively low threshold for “discovery”.

In contrast, Mr Grodzinski argued that time does not begin to run under section 32 of the 1980 Act until a claimant recognises, or could with reasonable diligence have recognised, that he has a “worthwhile” claim. Rightly in our view, Mr Grodzinski did not suggest that matters such as the prospect of “strenuous opposition” or “lengthy and expensive litigation” could affect whether a claim is “worthwhile” in this context, but he submitted that it is not enough for a claimant simply to know that an argument exists that a mistake of law has been made nor, always, for a claimant to have reached the stage of taking advice. For a mistake of law to have been “discovered”, Mr Grodzinski said, the claimant must believe in the truth of an assertion that a mistake has been made. In the present case, far from Jazztel so believing, the Judge has made unchallenged findings to the effect that, until the Advocate General’s opinion was delivered in HSBC Holdings in 2009, Jazztel had no more than a “marginal” doubt as to whether SDRT was due, not “serious” doubts, and, that being so, Linklaters’ letter to Mr Halsey of 11 January 2000 cannot matter. Further, it is impossible for this Court to arrive at a conclusion as to whether Jazztel could with reasonable diligence have discovered its mistake. The question not having been raised, there was no need for Jazztel to consider adducing evidence on it for the hearing before the Judge, and he made no findings as to it.

The decision of the Supreme Court in AB v Ministry of Defence [2012] UKSC 9, [2013] 1 AC 78 (“AB”) is relevant to the significance to be attached to Linklaters’ letter to Mr Halsey of 11 January 2000. In AB, claims had been brought from 2004 by former servicemen or their personal representatives alleging breach of duty in exposing the servicemen to radiation when testing thermonuclear devices in the 1950s in consequence of which injury had been suffered. Under section 11 of the 1980 Act, the relevant limitation period was three years from the date on which the cause of action accrued or, if later, the “date of knowledge” and, by section 14, a person’s “date of knowledge” was:

In that connection:

Lord Wilson said at [3]:

Lord Wilson said at [6]:

Lord Walker said at [67]:

Lord Brown, after expressing agreement with Lords Walker, Mance and Wilson, observed at [70] that “[p]erhaps the most critical proposition to which each of the above three judgments commits is (in Lord Wilson JSC’s words at para 3): ‘it is a legal impossibility for a claimant to lack knowledge of attributability for the purpose of section 14(1) at a time after the date of issue of his claim’”, going on to say at [71]:

Lord Mance said at [84]:

As the submissions we heard demonstrate, there is scope for argument as to some of the implications of the approach to section 32(1) of the 1980 Act which the Supreme Court adopted in FII (SC) 2. How good, for example, must a claim’s prospects of success seem before it is “worthwhile” or before they “justify embarking on the preliminaries to the issue of a writ”? What scope is there for mistake and discovery to co-exist: in other words, for a claimant at one and the same time to be mistaken and to have discovered his mistake?

But for Linklaters’ letter to Mr Halsey of 11 January 2000, however, we would have accepted that Jazztel had not discovered its mistake at that stage. Although Linklaters had alerted Jazztel on 22 December 1999 to the fact that there might be grounds for questioning the SDRT charges on the basis of EU law, the Judge found that Jazztel’s state of mind remained predominantly that the tax was due and that such doubt as it had was “marginal”. Moreover, as Mr Grodzinski stressed, there is no challenge to that finding. In the circumstances, we do not think the advice which Linklaters gave on 22 December can of itself be said to have led Jazztel to know of its mistake “with sufficient confidence to justify embarking on the preliminaries to the issue of a writ” or to “recognis[e] that a worthwhile claim arises”.

On 11 January 2000, however, Linklaters sent HMRC on Jazztel’s behalf a letter formally requesting the return of the £1,819,060 which it had paid. That letter constituted a “claim” for the purposes of the SDRT Regulations and so affected Jazztel’s legal position. In time, it resulted in HMRC repaying the £1,819,060, the 11 January letter having meant that Jazztel had made a “claim” within the period prescribed by regulation 14(2). Further, the 11 January letter correctly identified the basis on which the SDRT regime could be impugned, as was later held in HSBC Holdings.

The present case is not, of course, on all fours with AB. In AB, the claimants had issued legal proceedings and, as Lords Wilson and Mance pointed out at [3] and [84] respectively, they will have needed to sign statements of truth confirming their belief in the facts stated in their claim forms. Jazztel, in contrast, neither issued a claim form nor took steps to appeal HMRC’s failure to refund the £1,819,060.

Even so, it seems to us that Jazztel must be taken to have “discovered” its mistake for the purposes of section 32(1) of the 1980 Act by the time Linklaters sent the 11 January 2000 letter on its behalf. The letter shows that, by then, Jazztel was alive to the grounds on which SDRT would prove not to have been payable and was in a position to claim repayment. While the company did not follow up the letter with any legal proceedings, it did not have to: the SDRT Regulations allowed it to make a legally effective “claim” by letter. It appears to us that, just as a person who has issued a claim form cannot be heard to suggest that he lacked the requisite knowledge for the purposes of the 1980 Act, Jazztel cannot be heard to suggest that it had not discovered its mistake when it had already succeeded in making a “claim” for repayment under regulation 14 of the SDRT Regulations. To echo Smith LJ’s remark in AB in the Court of Appeal, there would be something “a bit Alice in Wonderland” in a conclusion that time had not even started to run against Jazztel even though it had earlier shown itself able to make a claim and had in fact done so. In the same way that “it is no longer open to [a claimant who has issued a personal injury claim] to say that he still lacks the knowledge necessary ... to set time running” (to quote Lord Brown in AB), it is not open to someone who has made a claim under the SDRT Regulations to recover an overpayment to say that he has not yet discovered that he could make one.

In the circumstances, it is in our view possible to determine from the existing materials, without the need for any further hearing, that the present proceedings are statute-barred as regards Payments 1 to 22. Jazztel must be considered to have sufficiently “discovered” by 11 January 2000 that it had a claim to recover its SDRT payments. On that footing, regardless of whether there is scope for challenging Leeds City Council, the six-year limitation period will have expired in respect of all but the last of the relevant payments (Payment 23) before the claim form was issued on 19 December 2013. Accordingly, we would both grant HMRC permission to amend their grounds of appeal and allow the appeal against paragraph 4 of the Judge’s Order.

In our view, HMRC’s appeal against paragraph 3 of the Judge’s Order should be dismissed, but their appeal against paragraph 4 of the Order should be allowed. It seems to us that Jazztel “discovered” its mistake for the purposes of section 32(1) of the Limitation Act 1980 more than six years before it issued its claim form and, accordingly, that the proceedings are statute-barred as regards Payments 1 to 22.

Finally, we would add that we have read and agree with the judgment of Singh LJ.

I agree with the judgment of Newey LJ and Sir Launcelot Henderson and add a few words of my own only out of deference to an argument which was advanced before us by Mr Baldry QC on behalf of the Revenue. He submitted that the decision of the House of Lords in Fleming is not binding on this Court because the way in which he has argued the case before us is materially different from the way in which the case was argued on behalf of HMRC in Fleming. In particular, he submits that the argument for HMRC in Fleming was that the new retrospective time limit introduced by Parliament could be applied to all cases, including those where accrued rights had gone up in a puff of smoke on the day when the new limitation period came into force. He submits that the Revenue in Fleming made no distinction between different types of cases, as he now does. In contrast, Mr Baldry accepts in the present context that there will have been some taxpayers to whom the new limitation period introduced by section 320 of the 2004 Act could not lawfully be applied but, he submits, those are not the facts of this case, because Jazztel did have more than two years to make a claim even under the new limitation period that was introduced. In my view, there are two difficulties with this line of argument.

First, although the facts of the Fleming case itself may not have been similar to those in the present case, the facts of Condé Nast were materially similar. This is because there were some payments which had been made in a period (the three years before the new limitation period came into effect on 1 May 1997) when there would still have been time on the facts to bring a claim for restitution of wrongly paid tax even under the new limitation period. That did not prevent the House of Lords reaching the decision which it did, of disapplying the new time limit in respect of all of the claims before it. The ratio of a case is the legal principle which is necessary to explain the outcome of that case on its facts. I cannot see how Mr Baldry’s argument can account for the actual outcome on the facts of Condé Nast.

Secondly, the fact that different arguments might have been deployed in an earlier case does not prevent the relevant legal principle from forming part of its ratio. In a slightly different context, because it concerned an earlier decision of this Court rather than an earlier decision of the House of Lords or Supreme Court, Sir John Donaldson MR said of the doctrine of per incuriam:

The position appears to be different if a point of law was simply assumed to be correct in an earlier decision (even that of a superior court) without any argument on it: see e.g. FSHC Group Holdings Ltd v GLAS Trust Corpn Ltd [2019] EWCA Civ 1361, [2020] Ch 365, at [136] (Leggatt LJ, giving the judgment of the Court). But Fleming was not such a case: there was argument on the material issue of law. What Mr Baldry’s submission really amounts to is that there was a better argument available to HMRC, which it did not advance at that time and which it now does.

In my view, there is an important distinction in principle between a case in which an argument was not advanced on the earlier occasion and a case in which the legal issue was entirely different: see, by way of example, R (Elias) v Secretary of State for Defence [2006] EWCA Civ 1293, [2006] 1 WLR 3213. In that case, there had been an earlier decision of the Court of Appeal in which a challenge to the very same scheme now under challenge had been rejected: see R (Association of British Civilian Internees: Far East Region) v Secretary of State for Defence [2003] EWCA Civ 473, [2003] QB 1397. That did not prevent the Court of Appeal from reconsidering the matter (and indeed deciding it in favour of the claimant) because there was an entirely new legal issue and a different ground of challenge advanced in Elias, which had not been raised in the earlier case. In the earlier case, the grounds of challenge were the conventional public law grounds of irrationality and breach of legitimate expectations; whereas, in Elias, the grounds arose under the Race Relations Act 1976. This was not therefore simply a case where different arguments were advanced which had not been made in the earlier case; the legal issues were themselves different.

In the present case, in contrast, the legal issue is on proper analysis the same as that which arose in Fleming (on the facts of Condé Nast) and the decision in that case is binding on this Court.