Investment Trust Companies v HM Revenue and Customs

It is common ground that, for taxpayers who have themselves accounted to HMRC for output tax that was not due (“undue VAT”), section 80 provides a code for the recovery of the undue VAT which is both exhaustive and excludes other remedies (such as a common law claim for restitution). I discussed this question, in the context of claims to recover compound interest at common law on undue VAT, in F J Chalke Ltd v Revenue & Customs Commissioners [2009] EWHC 952 (Ch), [2009] STC 2027, at [57] and following, concluding at [68]:

“The combined effect of all these provisions is in my judgment enough to make it crystal clear that the section 80 regime for the recovery of overpaid VAT was intended by Parliament to be both exclusive and exhaustive where the circumstances are such as to fall within the scope of the section.”

There was no appeal from this part of my decision, which was also followed by Vos J, dealing with a similar question, in Littlewoods Retail Ltd v Revenue & Customs Commissioners [2010] EWHC 1071 (Ch), [2010] STC 2072, (“Littlewoods (No.1)”): see his judgment at [45] to [62].

It is also common ground that the investment trusts could never have made a claim under section 80 in respect of the VAT which they paid to the Managers, because it was the Managers, and not the investment trusts, who paid or accounted for the tax to HMRC. Accordingly, it was only the Managers who could bring themselves within the terms of subsection (1). The critical question, therefore, is whether (as the claimants submit) the exclusion of other remedies in subsection (7) applies only to taxpayers who would in principle be able to claim a refund of undue VAT under subsection (1), or whether (as HMRC submit) the exclusion in subsection (7) is potentially wider in scope, and applies to the facts of the present case. It is agreed that the question is one of statutory construction, to be resolved in the usual way and without preconceptions about what the answer ought to be.

I will first approach the question without reference to the statutory history of section 80.

The claimants submit that the whole structure of section 80 shows that it is concerned, and concerned only, with the crediting or repayment of undue VAT to a taxpayer who has paid or accounted for the tax in the first place. The claimants place particular emphasis on the use of the verb “repay” in subsection (7), which they say must mean to pay back to the original payer, both as a matter of ordinary English usage and because the word is used throughout the section in contexts where it can only refer to the original payer: see subsections (1B), (2), (2A) and (4). I think it is also worthy of note, although Mr Rabinowitz did not mention it, that in subsection (2A) the draftsman used both of the verbs “pay” and “repay” in relation to HMRC, presumably intending the former to cover the position where the taxpayer was a repayment trader who had not made any actual payment to HMRC.

Mr Rabinowitz also sought support for his submissions in certain observations of Neuberger J in the University of Sussex case. The legal issues in that case were complex and difficult, but the basic facts were relatively simple. The University had registered for VAT in 1973. Its main supplies were of education, and were exempt, but it also made some taxable supplies. Between 1973 and 1996 the University chose not to deduct certain amounts of input tax in its VAT returns, and paid VAT accordingly. In November 1996 the University submitted a claim for repayment of the input tax which it had failed to claim over the period from April 1973 to July 1996, relying on regulation 29 of the Value Added Tax Regulations 1995, which as it then stood was not subject to any express time limit, and on the right to deduct input tax provided by Articles 17(1) and (2) and 18 of the Sixth Directive. HMRC argued that the University’s claim fell within section 80, and was therefore subject to the three year cap. This argument was rejected by the judge, for a number of reasons, and he concluded that the claim was validly made under regulation 29 and should have been accepted by HMRC. For present purposes, most of the details do not matter, and the important point is that the judge held that section 80, in its then form, did not apply to claims for the recovery of input tax. The passage on which Mr Rabinowitz particularly relied is in paragraph [57] of the judgment:

“It is argued on behalf of the university that it can choose to frame its claim, in effect, either under reg 29 or under section 80, and that the two are not mutually exclusive. As already indicated, it appears to me that, as a matter of ordinary language, if the claim (however framed) could fall within section 80(1), then the combined effect of subsections (4) and (7) mean that it is simply not open to the university to make a claim for payment or repayment outside section 80, or, therefore to avoid the limitation period laid down by section 80(4). In effect, section 80(7) provides that, if section 80(1) would provide a gateway for making the claim, then the fact that there may be another gateway, which might not otherwise face the difficulty of a time limit, will not assist the taxpayer.”

To similar effect, Neuberger J began his conclusions with this statement at [73]:

“In these circumstances, I am of the view that, on this basis, the university’s argument is correct. I do not accept that the effect of articles 17 and 18 is that the university is or was entirely free to claim input tax whenever it wanted, so that any domestic limitation period would be invalid. It also seems to me that the university’s primary right was to claim input tax in the returns for the periods in respect of which the supplies concerned were respectively actually made. However, I do not consider that its failure to do so results, on an analysis of the way in which the relevant legislation is worded, in money, whether one characterises it as VAT or anything else, having been overpaid by the university to the commissioners. Accordingly, I do not consider that the claim falls within section 80, and it therefore follows that the provisions of section 80(4) cannot be relied on by the commissioners. Further, if that is right, the provisions of reg 29 apply.”

The reasoning of Neuberger J in the University of Sussex case is authority for the proposition that, if a claim to recover undue VAT could be brought under section 80, the time limit in subsection (4), and the exclusion of other remedies in subsection (7), will apply to the claim, even if some alternative way of framing the claim might appear to be available. However, it is not authority for the converse proposition that section 80(7), on its true construction, cannot apply to claims which, for whatever reason, cannot be brought under subsection (1). In other words, it does not decide that the scope of subsection (7) is in all respects co-extensive with that of subsection (1). The fundamental problem for HMRC was that, even on a broad interpretation of subsection (7), it could not apply to the University’s claims to recover input tax, because as it then stood the subsection only relieved HMRC from liability “to repay an amount paid to them by way of VAT”. On the judge’s analysis of the statutory scheme, the simple point was that failure to claim a credit for input tax did not result in an overpayment of VAT, but merely left the input tax available to be claimed on a subsequent occasion against a later liability for output tax.

On behalf of HMRC, Mr Swift submitted that the purpose of subsection (7) is to exclude liability for claims of any kind that are, in substance, claims to recover undue VAT, unless the claim is brought under subsection (1). There is no reason, he argued, to assume that the exclusion in subsection (7) was directed only to persons who could bring section 80(1) claims, particularly bearing in mind that the prohibition in subsection (7) is a prohibition on liability. If one asks what it is in respect of which there is to be no liability, the answer is an amount of money accounted for or paid to HMRC by way of VAT. The exclusion therefore attaches to any claim that seeks to extract that sum of money from them.

As to the use of the word “repay”, Mr Swift submitted that from the point of view of HMRC there is a repayment of the VAT, even if it is made to somebody other than the original payer, because HMRC would be paying back money which they had received in the first place. Furthermore, since a restitutionary claim by the taxable person would admittedly be excluded, it would be very strange if the end consumer could be in a better position. This is particularly so, because one only reaches the present stage in the argument if it has been held in the claimants’ favour that HMRC were enriched at their expense, and that they were in economic substance the taxpayers. It would be inconsistent, said Mr Swift, for the claimants to take advantage of the economic substance of the matter in order to found their restitutionary claim, and then to disown it when seeking to escape from the clutches of subsection (7).

By way of authority, Mr Swift sought to draw support from the decision of the Court of Appeal, affirming the Chancellor of the High Court, in Monro v Revenue & Customs Commissioners [2008] EWCA Civ 306, [2009] Ch 69 (“Monro”). The issue in Monro was whether the taxpayer could maintain a restitutionary claim for capital gains tax overpaid in consequence of a mistake of law, in circumstances where it was not open to him to make an “error or mistake” claim under section 33 of the Taxes Management Act 1970 because the tax had been paid in accordance with the prevailing practice at the time (a defence expressly provided by subsection (2A) of section 33). Section 33 contains no provision equivalent to section 80(7), so the argument for HMRC had to be that the common law restitutionary remedy which the taxpayer wished to claim was, by necessary implication, excluded. This argument was accepted, both by the Chancellor and by the Court of Appeal, with the result that the claim failed.

The leading judgment in the Court of Appeal was given by Arden LJ. In paragraph 15 of her judgment, she recorded the argument for the taxpayer, Mr Monro, that subsection (2A) of section 33 applied only to exclude claims “under this section”, and that it did not deal comprehensively with all claims for recovery of tax paid under a mistake, but only those which were brought under section 33. This argument, submits Mr Swift, was similar to the argument advanced by the claimants in the present case, but it was rejected in Monro because, in essence, the statutory regime contained features (including the settled practice defence) which were inconsistent with the continued existence of any wider common law remedy. As Sir Andrew Morritt C pithily put it in paragraph [31] of his judgment at first instance:

“It would be inconsistent with section 33 to recognise a common law remedy in precisely the circumstances postulated by subsection (1) but free of the limitation contained in subsection (2A).”

To similar effect, Arden LJ said at [22], after reviewing the authorities:

“In my judgment, the authorities give clear guidance that if Parliament creates a right which is inconsistent with a right given by the common law, the latter is displaced. By “inconsistent” I mean that the statutory remedy has some restriction in it which reflects some policy rule of the statute which is a cardinal feature of the statute. In those circumstances the likely implication of the statute, in the absence of contrary provision, is that the statutory remedy is an exclusive one.”

More generally, Mr Swift relies on Monro for the purposive approach taken to the construction of a statutory scheme comparable with that in section 80 of VATA 1994, and for the diagnostic test of whether the right asserted would be inconsistent with the purpose of the statutory scheme.

I begin my discussion of these submissions with the obvious point that this is not a case, like Monro, where any exclusion of a concurrent common law remedy has to be found by a process of necessary implication. Instead, there is an express exclusion in subsection (7), and the only issue is how far it extends.

My next point is that there is nothing in the wording of subsection (7) which expressly makes its ambit co-extensive with that of subsection (1). On the contrary, subsection (7) provides in apparently unqualified terms that, except as provided by section 80, HMRC shall not be liable “to credit or repay any amount accounted for or paid to them by way of VAT that was not VAT due to them”. It is true that these words are most naturally and easily read as referring to the taxable person who paid or accounted for the overpaid VAT in the first place; and this impression is strengthened by the references to crediting and repayment of undue tax earlier in the section. Nevertheless, I consider it at least possible to read the words “repay any amount” as including repayments by HMRC to somebody other than the taxable person himself. The first meaning of “repay” in the Oxford English Dictionary, second edition, is: “To pay back (money or its equivalent); to refund, return (a sum or amount owed); to give money or goods in discharge of (a debt or loan).” In my judgment, a payment made by HMRC to the claimants, in response to a common law restitutionary claim, of an amount equal to the undue tax received from or accounted for by the Managers, could be described without any abuse of language as a “repayment” by HMRC of the undue tax by which they had been directly or indirectly enriched. I agree with the submission of Mr Swift that enough force can be given to the notion of payment back inherent in the prefix “re” by looking at the matter from HMRC’s point of view, without any need to insist that the recipient of the repayment should be the same person as the original payer. I also see no insuperable difficulty in treating the concept of repayment as extending to the full amount of the enrichment, even though the amount actually paid to HMRC was the £75, not the full £100. I therefore conclude that a construction of subsection (7) which would include within its ambit claims by end consumers such as the claimants in the present case is linguistically an available one, even if it is not the most natural way of reading the words.

At this point, purposive considerations appear to me to be decisive. The evident purpose of section 80, so far as taxable persons are concerned, is to provide exhaustive and exclusive machinery for the recovery of undue VAT, subject to a relatively strict time limit for the making of claims. It is thus common ground that the Managers could not make restitutionary claims against HMRC in respect of VAT overpaid by them during the dead period, although in the absence of section 80 there would be nothing to prevent them from advancing such claims, with the benefit of the usual six year limitation period and mistake-based extensions to it pursuant to section 32(1)(c) of the Limitation Act 1980. Given that Parliament has decided to enact this limited regime in relation to the taxable persons by whom the undue VAT was paid or accounted for to HMRC, it seems to me inconceivable that Parliament could have intended a more generous regime to be available to the end customers by whom the economic burden of the unlawful tax was actually borne. It would make no sense to limit recovery by the tax collector, but to expose the Exchequer at the same time to far more extensive claims by the “real” taxpayer. Furthermore, it could not plausibly be suggested that the position of end customers was somehow overlooked, because the section contains a defence of passing on, and (as I have already explained) regulations make elaborate provision for the benefit of repayments to suppliers to be passed on to their customers. It would be wholly inconsistent with this limited and carefully regulated scheme if claims by the end customers fell outside its scope.

In the light of these purposive considerations, I am firmly of the view that subsection (7) should be construed as extending to claims of the present type, with the consequence that, as a matter of English law, the claims must fail. Since I consider the position to be clear, and since an amended statute should be construed in the first instance without regard to its statutory antecedents, it is unnecessary, and arguably inappropriate, to investigate the statutory history of section 80 for any light that it may throw on the problem. However, since both sides made some submissions on the subject, I will briefly refer to it.

Section 80 was first enacted as section 24 of the Finance Act 1989. Omitting commencement and transitional provisions, it provided as follows:

“24.

(1) Where a person has paid an amount to the Commissioners by way of value added tax which was not tax due to them, they shall be liable to repay the amount to him.

(2)

The Commissioners shall only be liable to repay an amount under this section on a claim being made for the purpose.

(3)

It shall be a defence, in relation to a claim under this section, that repayment of an amount would unjustly enrich the claimant.

(4)

No amount may be claimed under this section after the expiry of 6 years from the date on which it was paid, except where subsection (5) below applies.

(5)

Where an amount has been paid to the Commissioners by reason of a mistake, a claim for the repayment of the amount under this section may be made at any time before the expiry of 6 years from the date on which the claimant discovered the mistake or could with reasonable diligence have discovered it.

(6)

A claim under this section shall be made in such form and manner and shall be supported by such documentary evidence as the Commissioners prescribe by regulations; and regulations under this subsection may make different provision for different cases.

(7)

Except as provided by this section, the Commissioners shall not be liable to repay an amount paid to them by way of value added tax by virtue of the fact that it was not tax due to them.”

It will be seen that the basic structure, and much of the wording, of the section have remained essentially unchanged since its introduction. The main changes have been twofold. First, following the decision in the University of Sussex case, which exposed the fact that the section did not apply to claims arising from unclaimed input tax, the section was restructured so that it reflected the way in which VAT has to be accounted for by traders, and made the primary remedy a credit for overstated VAT rather than a repayment of overpaid VAT. These changes were introduced by section 3 of the Finance (No.2) Act 2005, and had effect whenever the event occurred in respect of which the claim was made. Secondly, the original limitation provisions in subsections (4) and (5), which mirrored those in the Limitation Act 1980 and included an extension of time in cases of mistake, were replaced with the three year cap on claims, without any extension for mistake. I have already explained how the failure to provide for transitional claims was held to infringe EU law. None of these changes, in my view, has any bearing on the question which I now have to consider, and they throw no useful light on the meaning of “repay” in subsection (7).

In his opening submissions, Mr Swift pointed out that section 24 of the Finance Act 1989 provided for the recovery of overpaid VAT at a time before the English law of restitution had recognised a right to recover payments made under a mistake of law (which came only with the decision of the House of Lords in Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349), and also before the Woolwich cause of action to recover unlawfully demanded tax had first been recognised by the House of Lords in 1992. Mr Swift suggested that, by providing a remedy in circumstances where (as the law was then understood) none would otherwise have been available, Parliament could not have contemplated the possibility of claims for the recovery of overpaid VAT being made otherwise than through the medium of section 24, and that this should encourage the court to give a wide interpretation to the exclusion in subsection (7).

I am not sure that I follow the logic of this submission, bearing in mind the observation of Arden LJ in Monro at [3] that “the court cannot adopt a different approach to the interpretation of a statute simply because the common law has developed since the statute was enacted or because Parliament may not have fully appreciated recent developments in the common law”. But in any event, any force which the point might otherwise have had is in my judgment blunted by the fact that, as Mr Rabinowitz was able to establish by reference to the decision of the House of Lords in Customs and Excise Commissioners v Fine Art Plc [1989] AC 914, section 24 did not appear in a legislative vacuum. The House of Lords held in that case that paragraph 2(4)(c) of schedule 7 to the Value Added Tax Act 1983 gave the Commissioners specific power to make regulations for the correction of errors, whether of law or fact, and that the prescribed form of VAT return, read with the relevant requirements in the Value Added Tax Guide, gave a taxpayer a legal right to deduct from current liability to VAT past overdeclarations which had been made through an error of either law or fact. Fine Art Plc had taken advantage of this machinery in order to deduct VAT which it had overdeclared between 1981 and 1983, pursuant to a direction given by the Commissioners which a subsequent decision of the ECJ had shown to be void. It thus appears that section 24 was enacted in order to provide a formal framework for the exercise of this right in primary legislation, to impose a time limit for its exercise, and to introduce a defence of passing on.

To conclude, even if reference to the statutory history of section 80 were permissible, it would not in my view assist in the resolution of the present question. I therefore hold, as a matter of English domestic law, that the claims in the present case are all barred by section 80(7), and that subject to the issues of EU law to which I will now turn, they must be dismissed.

Introduction

I have already set out in paragraph 34 above the parties’ agreed formulation of the EU law issues. In the event, however, Mr Rabinowitz approached the matter in a rather different way in his oral submissions on behalf of the claimants, and began with what may aptly be termed a threshold issue, namely whether the claimants in their capacity as end customers could in principle have any enforceable EU law rights upon which they could rely against HMRC in the English court, whether pursuant to the direct effect of Article 13B of the Sixth Directive or on any other basis. Clearly, if that question is answered in the negative, the enquiry need proceed no further: the case would have no EU law dimension, and (subject to any appeal) the dismissal of the claimants’ domestic law claims would be conclusive.

The threshold issue: could the claimants have any enforceable rights under EU law upon which they could rely?

The claimants’ argument for an affirmative answer to this question depends essentially on the decisions of the ECJ in three cases: Claverhouse, Reemtsma and Danfoss. I have already explained (see paragraph 37 above) that the decision of the Court in Danfoss was still awaited at the time of the trial before me in May 2011, and that the ECJ did not give its judgment until 20 October. A good deal of the argument before me was therefore devoted to an examination of the opinion of Advocate General Kokott, which was available only in an unofficial English translation, and to speculation about what the Court might in due course decide. Since, however, the Court has now pronounced, and since it seems to me that its reasoning clearly establishes that there are limited circumstances in which the claimants could in principle be entitled to bring a claim against HMRC for reimbursement of the unlawfully levied VAT, I find it convenient to begin with that case, and then to look more briefly at Reemtsma and Claverhouse.

The facts in Danfoss were briefly as follows. The case did not concern VAT, but a Danish excise duty on lubricating oil which was levied from 1992 in purported compliance with an EU Directive (Council Directive 92/81/EEC of 19 October 1992) which required member states to impose a harmonised excise duty on mineral oils, but subject to an exemption for mineral oils used for purposes other than as motor or heating fuels. The Danish legislation which transposed this Directive into national law imposed duty on all lubricants and hydraulic oils, but failed to provide for the exception in purported reliance on Article 3(2) of the Directive which authorised the subjection of the relevant products “to other indirect taxes for specific purposes”. In due course, decisions of the ECJ made it clear that this attempt to circumvent the exemption was ineffective, and in 2002 the Danish tax authorities abolished the duty with effect from 1 December 2001.

Between January 1995 and November 2001, Danfoss purchased lubricating oil from various Danish suppliers. The price included the duty, all of which was passed on by the suppliers to their customers, and for which the suppliers accounted to the Danish exchequer. When it transpired that the duty was unlawful, the suppliers took no steps to claim reimbursement of it from the Danish tax authorities presumably because they had passed on the full burden of it to their customers, including Danfoss. Danfoss therefore claimed reimbursement of the duty which it had borne, and also claimed compensation from the Danish State for the loss it had suffered as a consequence of the duty being levied. These claims were rejected by the Danish authorities. The reimbursement claim was rejected on the ground that the only person entitled under EU law to recover unlawfully paid tax was the person who was directly taxable, and not a customer further down the marketing chain. The compensation claim was rejected on the ground that no sufficiently direct causal link could be established in a situation where an unlawful tax had been passed on down the chain. Danfoss appealed against these decisions, and the national court referred the following questions to the ECJ for a preliminary ruling:

“1.

Does Community law preclude a Member State from rejecting a claim for reimbursement brought by an undertaking to which excise duty imposed contrary to a directive has been passed on, where such rejection – in circumstances such as those of the present case – is on the ground that it is not the undertaking that paid the duty to the State?

2.

Does Community law preclude a Member State from rejecting a claim for damages brought by an undertaking to which excise duty imposed contrary to a directive has been passed on, where such rejection – in circumstances such as those of the present case – is on the grounds put forward by the Member State (specifically, that the undertaking is not the directly injured party and that there is no direct causal link between any loss and the conduct giving rise to liability)?”

The Court considered the first question in paragraphs 19 to 29 of its judgment. In paragraph 19 it identified the essence of the first question as being

“whether a Member State may oppose a claim for reimbursement brought by an operator to whom the amount of the duty unduly paid has been passed on, on the ground that he is not the person liable for payment of that duty and has therefore not paid out the corresponding amount to the tax authorities.”

The Court then referred to the well-established principle of EU law that a member state is in principle required to repay charges levied in breach of EU law (the “San Giorgio” principle), and to the exception from that principle whereby repayment can be refused where it would entail unjust enrichment of the taxable person because the burden of the tax has been passed on to the purchaser. The Court then continued:

“22.

In such circumstances, the burden of the charge levied but not due has been borne not by the taxable person, but by the purchaser to whom the cost has been passed on. Accordingly, to repay the taxable person the amount of the charge already collected from the purchaser would be tantamount to paying him twice over, which may be described as unjust enrichment, whilst in no way remedying the consequences for the purchaser of the illegality of the charge (Joined Cases C-192/95 to C-218/95 Comateb and Others [1997] ECR I-165, paragraph 22, and Lady & Kid and Others, paragraph 19).

23.

It appears from this that the right to the recovery of sums unduly paid helps to offset the consequences of the duty’s incompatibility with EU law by neutralising the economic burden which that duty has unduly imposed on the operator who, in the final analysis, has actually borne it.

24.

That said, it should also be noted that, in accordance with settled case-law, in the absence of EU rules governing claims for the repayment of taxes, it is for the domestic legal system of each Member State to lay down the conditions under which those claims may be made; subject, nevertheless, to observance of the principles of equivalence and effectiveness (see Case C-291/03 MyTravel [2005] ECR I-8477, paragraph 17, and Case C-35/05 Reemtsma Cigarettenfabriken [2007] ECR I-2425, paragraph 37).

25.

In that regard, given the purpose of the right to the recovery of sums unduly paid, as recalled in paragraph 23 above, observance of the principle of effectiveness requires that the conditions under which an action may be brought for recovery of sums unduly paid be fixed by the Member States, pursuant to the principle of procedural autonomy, in such a way that the economic burden of the duty unduly paid can be neutralised.

26.

From that perspective, it has been held that, if the final consumer is able, on the basis of national law, to obtain reimbursement through the taxable person of the amount of the charge passed on to him, that taxable person must in turn be able to obtain reimbursement from the national authorities (see Comateb and Others, paragraph 24). In the same way, a national legal system which allows the supplier who has paid VAT to the tax authorities in error to seek reimbursement, and which allows the recipient of the services to bring a civil law action against that supplier for recovery of the sums paid but not due observes the principle of effectiveness, as that system enables the recipient who bore the tax invoiced in error to obtain reimbursement of the sums unduly paid (see Reemtsma Cigarettenfabriken, paragraph 39).

27.

It follows that a Member State may, in principle, oppose a claim for the reimbursement of a duty unduly paid made by the final consumer to whom that duty has been passed on, on the ground that it is not that consumer who has paid the duty to the tax authorities, provided that the consumer – who, in the final analysis, bears the burden of that duty – is able, on the basis of national law, to bring a civil action against the taxable person for recovery of the sums unduly paid.

28.

However, if reimbursement by the taxable person were to prove impossible or excessively difficult – in particular, in the case of the insolvency of that person – the principle of effectiveness requires that the purchaser be able to bring his claim for reimbursement against the tax authorities directly and that, to that end, the Member State must provide the necessary instruments and detailed procedural rules (see Reemtsma Cigarettenfabriken, paragraph 41).

29.

Accordingly, the answer to Question 1 is that a Member State may oppose a claim for reimbursement of a duty unduly paid, brought by the purchaser to whom that duty has been passed on, on the ground that it is not the purchaser who has paid the duty to the tax authorities, provided that the purchaser is able, on the basis of national law, to bring a civil action against the taxable person for recovery of the sum unduly paid and provided that the reimbursement, by that taxable person, of the duty unduly paid is not virtually impossible or excessively difficult.”

The Court then dealt with the second question in paragraphs 30 to 39 of its judgment. The Court recited the well-established principles that the legal classification of actions brought before the national court is a matter for the national court to determine, and that an action for damages may coexist with a San Giorgio claim. It then referred to the three conditions which have to be satisfied if a breach of EU law is to give rise to liability for damages on the part of a member state, namely (paragraph 33) “the rule of EU law infringed must be intended to confer rights on those individuals [i.e. those harmed by the breach]; the breach of that rule must be sufficiently serious; and there must be a direct causal link between the breach and the loss or damage sustained by the individuals”.

The Court went on to observe that, while it is in principle for the national court to ascertain whether there is a sufficiently direct causal link, the ECJ may nevertheless give the national court guidance on the question, and continued:

“36.

To that end, it should be observed that a national legal system, such as that concerned in the main proceedings, under which a direct causal link can be established only as between the levying by the State of a duty which is not due, on the one hand, and the damage suffered by the taxable person, on the other, may not interpret that requirement in such a way as to make it virtually impossible or excessively difficult to obtain compensation for the damage suffered.

37.

It follows that such a national legal system is, in principle, consistent with the principle of effectiveness, provided that the purchaser to whom the burden of that duty has been passed on by the taxable person is able, on the basis of national law, to bring his action seeking compensation for the consequential damage against that taxable person.

38.

However, by analogy with the observation made in paragraph 28 above, if it were to prove impossible or excessively difficult for the taxable person to compensate the purchaser who bore the financial burden of the duty unduly paid and passed on to him for the damage suffered – in particular, in the case of the insolvency of the taxable person – the principle of effectiveness requires that the purchaser be able to bring his claim for reimbursement against the State directly, without that State being legitimately able to rely on the lack of a direct causal link between the levying of the duty which was not due and the damage suffered by the purchaser.

39.

Accordingly, the answer to Question 2 is that a Member State may reject a claim for damages brought by a purchaser to whom a duty unduly paid has been passed on by the taxable person, on the ground that there is no direct causal link between the levying of that duty and the damage suffered, provided that the purchaser is able, on the basis of national law, to bring that claim against the taxable person and provided that the compensation, by that taxable person, of the damage suffered by the purchaser is not virtually impossible or excessively difficult.”

A central point which emerges from Danfoss is the identification, in paragraphs 23 and 25 of the judgment of the Court, of the purpose of the San Giorgio principle as being to help to neutralise the economic burden (my emphasis) which the unlawful tax has imposed on the person who, in the final analysis, has actually borne it. In the light of this purpose, the EU law principle of effectiveness may in certain circumstances require the national law of a member state to afford a remedy to a final consumer who has borne the burden of an unlawful tax, whether in the form of reimbursement of the tax or damages, if and to the extent that the final consumer is unable to obtain a remedy from the taxable person himself. The example given in paragraph 28 of circumstances where reimbursement by the taxable person would prove impossible or excessively difficult (i.e. where the principle of effectiveness would be infringed, if that were the only remedy afforded by national law) is the insolvency of the taxable person; but it is clear, in my judgment, that this is only an illustration, albeit the one probably most likely to arise in practice, and was not intended to be exhaustive. The governing principle is that national rules of classification of actions and procedure must respect the principle of effectiveness, and must therefore afford a remedy against the member state itself to a final consumer who has borne the economic burden of an unlawful tax, in circumstances where recovery from the taxable person proves impossible or excessively difficult.

This reasoning is in my judgment sufficient to show that the threshold issue must be resolved in the claimants’ favour. The claimants are investment trusts which have borne the full economic burden of an unlawful tax. They have exhausted their remedies against the Managers, who were the taxable persons, but have not thereby been able to recover the full amount of the unlawful VAT which they paid, and by which (as I have held) HMRC were unjustly enriched. If, therefore, the principle of effectiveness requires that the claimants should have a remedy for the otherwise irrecoverable balance of the unlawful VAT, or for any part of it, national law must provide an appropriate procedure for that purpose. In so doing, national law would be recognising and giving effect to a right derived by the claimants from EU law, and from no other source. The proposition that in no circumstances could the claimants have any enforceable EU law rights to recover or seek damages from HMRC in respect of the unlawfully levied VAT is therefore untenable.

I emphasise that at this stage I am examining only the threshold question, and deciding no more than that the claimants could in principle have rights under EU law upon which they could rely against HMRC. I am expressing no view at this stage on the questions whether, and (if so) to what extent, the principle of effectiveness does in fact require English law to provide the claimants with a remedy.

It also needs to be borne in mind that Danfoss was not a case about VAT, although the Court in its reasoning drew on its earlier decision in Reemtsma, which was a VAT case. The Court therefore did not have to consider the possible complications caused by the right of the taxable person to deduct input tax, and the limit which this placed on the amount that the Managers were able to recover from HMRC (the £75 as opposed to the £100). Nor did the Court have to consider any question of limitation, such as the three year cap. These questions are, however, highly relevant to the next main stage in the enquiry, which is essentially what remedy (if any) EU law requires English law to make available to the claimants in the particular circumstances of the present case.

Before moving on to the next stage, however, I will first examine the decisions in Reemtsma and Claverhouse to see if they throw any further light on the threshold issue.

Reemtsma was a cross-border case, and therefore involved the provisions of the Eighth, as well as the Sixth, Directive. In very broad terms, VAT is not payable under the Sixth Directive on cross-border supplies of goods or services, but the recipient of the goods or services, if established in another member state, is liable to account in its home state for output tax on the supply to it pursuant to the “reverse charge” mechanism in Article 21(1)(b) of the Sixth Directive, and is also entitled to deduct that VAT as input tax from its domestic output tax liability. The Eighth Directive, which applies only to taxable persons, contains detailed provisions for the refund of foreign input tax paid in cross-border transactions, its general purpose being to replicate in the case of cross-border supplies the system of deduction of input tax from output tax which applies in a purely domestic context.

Reemtsma was a cigarette manufacturer resident in Germany. It had no permanent establishment in Italy. In 1994 an Italian company provided Reemtsma with advertising and marketing services on which it charged VAT, which Reemtsma duly paid, and for which the supplier duly accounted to the Italian tax authorities. Reemtsma then sought a partial refund of the tax from Italy, pursuant to the Eighth Directive. It transpired, however, that the VAT had been charged in error by the Italian supplier, because the proper place of supply of the services was Germany, with the result that Reemtsma should instead have accounted in Germany for VAT on the supply under the reverse charge mechanism. In these circumstances, Reemtsma sought reimbursement of the VAT which it had paid from Italy, but this was refused on the ground that the relevant services had never been subject to VAT in Italy. This refusal was upheld in the Italian courts at first instance and on appeal, but the Court of Cassation referred two questions to the ECJ. A further point which needs to be noted is that, under Italian domestic law, the supplier was entitled to a refund of VAT unduly paid from the authorities, but a recipient established in another member state (like Reemtsma) could seek reimbursement only from the supplier.

The first question referred to the ECJ asked, in essence, whether unlawfully charged VAT which had been paid and accounted for to the tax authorities was refundable pursuant to the Eighth Directive. The second question, which is the one that matters for present purposes, was in the following terms:

“In general, is it possible to infer from the uniform Community rules that the recipient of goods or services is the person liable for payment of tax to the revenue authorities? Is it compatible with those rules and in particular with the principles of neutrality of VAT, effectiveness and non-discrimination, not to grant under domestic law to a recipient of goods or services who is subject to VAT and who is treated under national law as being subject to the obligations of invoicing and payment of the tax, a right against the revenue authorities to claim reimbursement in cases where tax that is not due is charged and paid? Are national rules – as interpreted by the national courts – under which a recipient of goods or services may bring an action only against the supplier of the goods or services and not against the revenue authorities … contrary to the principles of effectiveness and non-discrimination in the matter of reimbursement of VAT collected in breach of Community law?”

The answer which the ECJ gave to the first question was that VAT invoiced by mistake was not refundable under the Eighth Directive: see paragraphs 17 to 28 of the judgment. This answer would have been sufficient to dispose of the case, but the Court nevertheless went on to consider the second question, which it broke down into three component parts. In paragraph 34 it identified the second of those components as being

“whether the common system of VAT and the principles of neutrality, effectiveness and non-discrimination preclude national legislation … which does not entitle the recipient of services to reimbursement of VAT by the tax authorities where that tax was not due, but was nevertheless paid by that recipient to the tax authorities of the Member State where the services were supplied.”

The Court’s answer to the question thus reformulated appears sufficiently clearly from paragraphs 39 to 42 of the judgment:

“39.

In the light of the case-law cited in the two preceding paragraphs, it must be conceded that, in principle, a system such as the one at issue in the main proceedings in which, first, the supplier who has paid the VAT to the tax authorities in error may seek to be reimbursed and, second, the recipient of the services may bring a civil law action against that supplier for recovery of the sums paid but not due observes the principles of neutrality and effectiveness. Such a system enables the recipient who bore the tax invoiced in error to obtain reimbursement of the sums unduly paid.

40.

[This paragraph restates the principle of national procedural autonomy in familiar terms].

41.

In that regard, as rightly submitted by the Commission, if reimbursement of the VAT becomes impossible or excessively difficult, in particular in the case of the insolvency of the supplier, those principles may require that the recipient of the services [to] be able to address his application for reimbursement to the tax authorities directly. Thus, the Member States must provide for the instruments and the detailed procedural rules necessary to enable the recipient of the services to recover the unduly invoiced tax in order to respect the principle of effectiveness.

42.

The answer to the second part of the second question must therefore be that the principles of neutrality, effectiveness and non-discrimination do not preclude national legislation, such as that at issue in the main proceedings, according to which only the supplier may seek reimbursement of the sums unduly paid as VAT to the tax authorities and the recipient of the services may bring a civil law action against that supplier for recovery of the sums paid but not due. However, where reimbursement of the VAT would become impossible or excessively difficult the Member States must provide for the instruments necessary to enable that recipient to recover the unduly invoiced tax in order to respect the principle of effectiveness.”

With the benefit of hindsight, it is in my judgment clear that in these paragraphs the Court was intending to lay down principles of general application in the fields of VAT and indirect taxation. Those principles have now been applied and restated by the Court in Danfoss, and linked to the San Giorgio principle. It is also worth noting that the Court’s recognition of the possible need for a direct right of recovery from the tax authorities by a recipient of services who is unable to obtain reimbursement from his supplier stemmed from the acceptance by the Court of submissions made by the Commission: see Reemtsma at paragraph 41, and the fuller discussion of the subject in paragraphs 82 to 92 of the opinion of Advocate General Sharpston, who said at paragraph 84 that she found the Commission’s analysis “persuasive in its entirety”. Mr Swift advanced a number of submissions to the general effect that the relevant part of the decision in Reemtsma was tentative, obiter (a concept which I would comment is unknown to EU law jurisprudence), distinguishable, or confined in its scope to taxable persons. I do not find it necessary to review these submissions, however, because in my view Danfoss shows them to be untenable.

I can deal with Claverhouse much more briefly, because the main point that Mr Rabinowitz sought to extract from it in the present context was that the claimants are entitled to rely on the direct effect of Article 13B of the Sixth Directive, even though they did not themselves pay or account for the VAT to HMRC. Mr Rabinowitz relied on the fact that the claimants in Claverhouse were (as in the present case) investment trusts, not managers, and it was at their instigation that the Tribunal referred the question to the ECJ asking whether Article 13B(d)(6) had direct effect. It is true that the Court’s answer to this question, in paragraph 62 of the judgment, was that Article 13B(d)(6) had direct effect “in that it can be relied on by a taxable person before a national court in order to challenge the application of national legislation alleged to be incompatible with that provision” (my emphasis). This language might be thought to indicate that only the Managers could take advantage of the provision’s direct effect. However, Mr Rabinowitz was able to point to other passages in the judgment (at paragraphs 56 and 61) which suggest that the Court may not have intended its answer to be so narrowly confined. He also submitted that the investment trusts were, in any event, “taxable persons” within the meaning of the definition of that term in Article 4.1 of the Sixth Directive, as applied by the ECJ in Case C-8/03 Banque Bruxelles Lambert SA v Belgium, [2004] ECR I-10157, [2004] STC 1643, (“BBL”), where it held that an open-ended investment company established in Luxembourg could be a taxable person. If that was true of an open-ended investment company, said Mr Rabinowitz, it must also be true of a closed-end investment trust, given the equation of the two types of investment trust by the ECJ in Claverhouse.

In my judgment these arguments have considerable force, both singly and collectively. On the other hand, there are counter-arguments which cannot be ignored. In particular, the ECJ in Claverhouse does not seem to have directed its mind to any possible distinctions between the positions of investment trusts and managers, because the real dispute in relation to direct effect was whether the discretion afforded to member states in Article 13B(d)(6) meant that the exemption therein provided could not satisfy the test of being sufficiently precise and unconditional to be relied upon by individuals (i.e. the test in Case 8/81 Becker [1982] ECR 53, and subsequent case law). Furthermore, the context in which the ECJ held in BBL that an open-ended investment company could be a taxable person was far removed from the present case, and did not involve the assertion of any right to recover tax paid by an end consumer.

If it were not for the decisions in Reemtsma and Danfoss, I would probably have taken the view that the answer to the question whether the claimants in the present case could rely on the direct effect of Article 13B(d)(6) was unclear, with the result that a reference to the ECJ would have been necessary. But in my judgment those two decisions make all the difference. The possible right of action recognised in those cases by an end consumer against the State only makes sense on the assumption that the claimant would be entitled to rely on the direct effect of the relevant exemption, whether because the claimant is properly to be regarded as a taxable person (as in BBL), or because it is not necessary for the claimant to be a taxable person. If it were otherwise, the claimant would have no right to recover the tax under EU law to which the principle of effectiveness could apply.

The nature of the remedy required by EU law

Having decided the threshold issue in the claimants’ favour, I next have to examine the question whether EU law does in fact require a remedy to be made available to the claimants in the circumstances of the present case, and (if so) what form that remedy should take. I will be fairly brief, because in my view the combined effect of the decisions of the ECJ in Reemtsma and Danfoss leaves little room for doubt about most of the answers. In short, I consider that EU law requires English law to provide a direct remedy for the claimants to recover the whole of any otherwise irrecoverable VAT from HMRC, but subject to limitation defences analogous to those which would apply to claims by the Managers against HMRC. I do not consider it to be a tenable proposition that the claimants should be confined to a claim for damages on Francovich principles, which it is common ground they would (for various reasons) be unable to pursue.

The starting point in the analysis is to ask whether the EU principle of effectiveness is engaged in the claimants’ favour. This depends on the answer to the question whether reimbursement of the claimants by the Managers has proved impossible or excessively difficult: see Danfoss at paragraph 28 and Reemtsma at paragraph 41.

As I have already indicated, I can see no good reason to confine the concept of impossibility or excessive difficulty to insolvency of the Managers, or to similar external causes which impact on their financial ability to meet otherwise valid claims against them. From the perspective of the claimants, the amount for which they are prima facie entitled to claim reimbursement is the full amount of the unlawful VAT which they paid to the Managers, i.e. the £100. The fact that the Managers may be able to recover only £75 from HMRC has no bearing on the fact that the amount actually paid by the claimants was the full £100. That is also the amount, as I have held, by which HMRC have been unjustly enriched at the claimants’ expense. Thus, to the extent that the claimants are unable to recover the £100 from the Managers, it seems to me to follow that reimbursement of the claimants by the Managers has, as a matter of fact, proved impossible. I conclude, therefore, that the principle of effectiveness is at least potentially engaged in the claimants’ favour.

The next question is whether, on the facts, the requirements for application of the principle of effectiveness are satisfied. In relation to the £75 element of the claims, there can in my judgment be no doubt about the answer. It is not in dispute that the claimants have exhausted their remedies against the Managers in relation to this part of their claims, and that the Managers would have a cast iron defence of change of position in relation to the sums of £75 which they paid to HMRC and which they have been unable to recover from HMRC because of the three year limitation period. To the extent of the £75 element of the claims, therefore, recovery by the claimants from the Managers has indeed proved impossible for the dead period.

In relation to the £25 element of the claims, however, the position is less straightforward. Until the service of Mr Richardson’s supplementary witness statement on 12 May 2011, less than a week before the start of the trial, it appeared likely that it would also be common ground that any attempt by the claimants to recover the £25 from the Managers would likewise be fruitless. Thus, in paragraph 81 of their opening written submissions (prepared before the receipt of Mr Richardson’s further evidence), counsel for the claimants pointed out that, in determining the section 80 claims made by the Managers, HMRC had accepted that the associated input tax of £25 was a retrospective cost to the Managers which they had not passed on to the investment trusts, on the assumption that it was deductible for VAT purposes, but which (it was to be inferred) they would have passed on to the investment trusts had the supplies of investment management services been treated as exempt from the beginning. In other words, the natural inference was that the Managers, faced with irrecoverable input tax, would have decided to make a corresponding increase in the price which they charged to the claimants. On this footing, the claimants could not have claimed the £25 from the Managers, “technically because [the Managers] had a change of position defence … and in reality because [the Managers] would have included that amount in the form of a higher ex-VAT charge to [the investment trusts]”. The change of position defence would have arisen, on this view of the facts, because the Managers would have irrevocably deprived themselves of the opportunity to increase the prices which they charged to the investment trusts by the otherwise irrecoverable £25.

I have already summarised the effect of Mr Richardson’s last minute evidence in paragraph 84 above, the crucial point being that, had the true VAT position been known, the relevant Managers would not have sought to increase the price of their services to the claimants, and they would have been content to absorb the irrecoverable input tax as a business expense. Moreover, this would have been the position both before and after the commencement of the Claverhouse litigation. In the light of this evidence, which was not challenged, Mr Swift QC made it clear at an early stage of the hearing that it was not common ground that the Managers would have a change of position defence in relation to the £25 element of the claims. Later on, Mr Swift developed the submission that the claimants could in principle have brought, and indeed could still bring, successful restitutionary claims to recover the £25 from the Managers, even though the Managers were unable to recover the £25 from HMRC. The Managers would be unable to establish a change of position defence, in view of Mr Richardson’s evidence about what they would actually have done had the true position under EU law been known. Accordingly, said Mr Swift, there is no room for the principle of effectiveness to operate in the claimants’ favour, because English law provides an adequate cause of action for recovery of the £25 by the claimants from the Managers, and it cannot be said that such recovery would in principle be either impossible or excessively difficult.

Mr Rabinowitz’s answer to this submission was briefly as follows. He accepted that the claimants had a prima facie restitution claim against the Managers on the basis of mistake. He also accepted that Mr Swift’s analysis might have force if the £25 had always stayed with the Managers, and if HMRC had never been enriched by the £25. But, he said, HMRC were in fact enriched by the full £100, for all of which the Managers had duly accounted to HMRC, even though the payments which they actually made were of the net amounts of £75. Accordingly, the Managers had a good change of position defence in relation to the full £100, and any attempt by the claimants to recover the £25 from the Managers would fail.

I accept the argument for the claimants on this point. It seems to me that the Managers changed their position in relation to the entirety of the £100 when they accounted for it as output tax in their quarterly VAT returns. The fact that they also received credit for the associated input tax does not in my judgment alter the position. The receipt of the credit was simply a consequence of the operation of the VAT rules which everybody was operating on the mistaken assumption that the investment management services were not exempt. Nor do I consider it relevant to enquire what the Managers would have done in the hypothetical situation where it was known to all concerned that the services were in fact exempt, not least because in that event there would have been no payment of £100 by the investment trusts in the first place, and the question of recovering it from the Managers would therefore not have arisen.

For these reasons, I consider that the requirements for the principle of effectiveness to operate in the claimants’ favour are satisfied. I would only add that, even if I am wrong in considering it to be irrelevant what the Managers would have done in a hypothetical world where it was known that the services were exempt, I do not think that it would be reasonable, from an objective standpoint, to require the claimants to pursue potentially difficult and uncertain claims against the Managers to recover the £25 before it could properly be said that such recovery had become practically impossible. Although I did not hear argument on the point, my provisional view is that this requirement should not be interpreted too severely, and that an analogy could helpfully be drawn with the position where a claimant in a case of breach of contract is not required to mitigate his loss by embarking upon litigation with an uncertain outcome.

Having reached this stage, the next question is what remedy the principle of effectiveness actually requires English law to provide in the circumstances of the present case, bearing in mind the well established principle of national procedural autonomy.

It is common ground that EU law permits even San Giorgio claims for the reimbursement of unlawfully levied tax to be subject to reasonable national limitation periods. It is also common ground that the three year cap was, in itself, a reasonable limitation period which was fully compatible with EU law. The only respect in which it infringed EU law lay in the failure to provide adequate transitional arrangements. In the context of the present case, this failure was fully addressed by the further refund claims which HMRC allowed to be made for accounting periods ending before 4 December 1996: see paragraphs 23 and 24 above. It seems to me, therefore, that the principle of effectiveness should not be interpreted as requiring the UK to afford the claimants any right to recover VAT from HMRC which would not be subject to the same limitation period (by analogy) as that which would apply to claims by the Managers to recover the same tax themselves. If this were not so, the claimants would be placed in a more favourable position for limitation purposes than the Managers, even though the Managers actually paid or accounted for the tax in its entirety to HMRC. Since HMRC have an EU law-compliant limitation defence against the taxable persons themselves, it would in my judgment be anomalous and unreasonable if, in the name of effectiveness, EU law were to require the national court to make available to a person who has borne the economic burden of the tax a claim which would not be subject to the same defence.

Another way of expressing the same conclusion might perhaps be to say that the inability of the claimants to recover the £100 in respect of the dead period cannot sensibly be characterised for the purposes of EU law as a situation where reimbursement of the VAT has proved impossible, because the impossibility has been caused, and caused only, by the effect of national limitation rules which are themselves fully compliant with EU law. In other words, in relation to the dead period claims, the principle of effectiveness would not be engaged at all.

The difficulty with analysing the matter in this way, however, is that it might suggest a distinction should be drawn for the purposes of the dead period between the £75 element of the claim, which is the most that the Managers could have recovered from HMRC and passed on to the claimants in the absence of the three year cap, and the £25 element, which the Managers would still have been unable to recover. Such a distinction would in my opinion be unwarranted, when what is really required is the application by analogy of the three year cap in section 80(4) to the entirety of the reimbursement claims brought by the claimants. In my view such a result can be achieved only by recognising that the principle of effectiveness is engaged, and then disapplying or moulding the provisions of section 80 to the extent necessary to accommodate the claimants’ EU law rights within an analogous limitation period.

On the other hand, there should be no limitation defence to a claim by the claimants to recover the £25 for accounting periods which are not caught by the three year cap, and I consider that in principle they should be entitled to recover this part of their claim from HMRC. Limitation apart, it is only in this way that the claimants could obtain full reimbursement of the tax which was wrongly invoiced to them, and which they have paid in full. Equally, it is only in this way that HMRC could be made to disgorge the full amount of the unlawful VAT by which they have been unjustly enriched at the claimants’ expense.

The mechanism by which this result could be achieved is in my view relatively simple. As matters stand, and on the assumption that the conclusions which I have reached in the earlier parts of this judgment are correct, the claimants have a valid common law cause of action in restitution against HMRC, and the only thing which defeats it is section 80(7) of VATA 1994. In order to give the claimants an effective remedy to recover the £25 for accounting periods which would not be time-barred under an extended version of section 80(4), all that would be needed would be to disapply section 80(7) in relation to such claims, but no further. In principle, therefore, and subject to the issues discussed in the remaining sections of this judgment, this would in my judgment be the appropriate way in which to give effect to the claimants’ directly effective EU rights in the present case.

The next issue under this head is whether the claims in the present case are properly to be classified for the purposes of EU law as San Giorgio claims. In my opinion the judgments of the ECJ in Reemtsma and Danfoss are clear on this point: they are. In each judgment, the Court consistently uses the language of reimbursement of sums unduly paid in order to describe the nature of the claim by an end consumer to recover a sum passed on to it in the mistaken guise of excise duty or VAT. This is the appropriate language for a San Giorgio claim (see for example Danfoss at paragraph 20, and Reemtsma at paragraph 41), and such a classification would in my view entirely accord with the purpose of the right of recovery under EU law as identified in Danfoss at paragraphs 23 and 25. Furthermore, any possible doubt on this score is in my judgment dispelled by the fact that in Danfoss the national court asked separate questions in relation to the reimbursement and damages claims brought by the claimants, and the Court then dealt with them separately, making it clear that it regarded the former claim as being a species of San Giorgio claim. It is true that Danfoss was an excise duty case; but in this respect I cannot see any rational distinction between excise duty and VAT.

Such a conclusion also has the merit, to my mind, of according with common sense. The sums which the present claimants seek to recover are the amounts of the wrongly invoiced VAT, the full burden of which has been borne by them and the full benefit of which has accrued to HMRC. In economic terms, it is a claim by an end consumer to recover the tax which he has had to pay; and it is a claim brought against the fiscal authority which levied the tax. As a matter of ordinary language, it is a claim for repayment or reimbursement of the tax which has been borne by the claimants, who under the scheme of VAT are the “real” taxpayers. Furthermore, the quantum of the claim is defined and limited by reference to the VAT invoiced to the claimants. By contrast, the claim would not naturally be described as a claim for consequential loss occasioned by the imposition of the unlawful tax. Mr Swift’s main argument for saying that the claims should be classified as damages claims was that the claimants are seeking to recover from HMRC more than the amounts actually paid by the Managers to HMRC; but this point falls away, in my judgment, once it is recognised that HMRC have had the benefit, directly or indirectly, of the full amount of the tax, and that in principle all that the claimants wish to do is to recover that amount (no more and no less) from HMRC to the extent that they are unable to recover it from the Managers.

Should the claimants be confined to a modified version of the Woolwich cause of action?

It might be thought that my analysis could safely end at this point, on the footing that the effective remedy which EU law requires English law to provide, so that the claimants can vindicate their San Giorgio claims, must entitle them to succeed on their mistake-based restitutionary claims for the uncapped periods. After all, I have already held that such claims are in principle valid claims under the English common law of restitution, and that the only obstacle to their successful prosecution lies in the statutory prohibition in section 80(7) of VATA 1994. Surely all that is needed, in order to satisfy the EU principle of effectiveness, is for the statutory prohibition to be overridden to the extent necessary to permit the otherwise valid claims to be brought? Such an approach would have the merit of simplicity, but HMRC submit that it is both wrong in principle and contrary to decided authority.

HMRC argue that the task which the English court has to perform is to identify the domestic cause of action which, on an objective appraisal, would provide the most appropriate remedy, or the “best fit”, for vindication of the claimants’ EU rights which have been infringed. The cause of action which fits best, they say, is the cause of action in the law of restitution to recover tax which has been unlawfully exacted. This cause of action was first recognised by the House of Lords in the Woolwich case (Woolwich Equitable Building Society v IRC [1993] AC 70). For many years it was widely thought that the existence of an unlawful demand for the tax was a necessary ingredient of the Woolwich cause of action, but the Court of Appeal has now held in clear terms that there is no such requirement: see Test Claimants in the FII Group Litigation v Revenue & Customs Commissioners [2010] EWCA Civ 103, [2010] STC 1251, (“FII (CA)”) at paragraphs [152] to [173] of the judgment of the Court. In my judgment at first instance in the same case, to which it is convenient to refer as “FII (Chancery)”, [2008] EWHC 2893 (Ch), [2009] STC 254, I had reached the opposite conclusion, taking the view that I was bound to do so by the judgment of the Court of Appeal in NEC Semi-Conductors Ltd v Revenue & Customs Commissioners [2006] EWCA Civ 25, [2006] STC 606. Had I been correct in this view, the Court of Appeal would of course have been bound likewise; but the Court of Appeal held in FII (CA) that the relevant passage in the judgment of Mummery LJ in NEC Semi-Conductors was obiter, with the result that the Court was not bound by it: see the judgment at paragraph [169].

For present purposes, it will suffice if I cite a brief extract from the judgment of the Court in FII (CA) on this point:

“157.

… We consider that authority does not require a demand, and that it is sufficient that the state has exacted tax, which was not lawfully due, by voluntary compliance by the taxpayer with the legislative imposition of the tax.

158.

As a matter of principle, we do not see why a demand should be a requirement of a Woolwich claim. The underlying principle is that the Revenue should repay tax that has been exacted without legal justification. We can see no reason why the cause of action should be confined to those taxes that are payable on demand as against those, such as Value Added Tax (“VAT”), that are payable without a demand. Moreover, it is impossible to see why the citizen who duly accounts for and pays, by way of example, VAT, without waiting for a demand, on the assumption that the applicable legislation is valid, should be disadvantaged as against the taxpayer who refuses to account or to pay until a peremptory demand is received.

159.

Woolwich itself concerned a tax that had been the subject of a demand. Counsel for Woolwich confined their submissions to the facts of their client’s case, and therefore formulated their proposed principle as a right of restitution on the part of a citizen who makes a payment in response to an unlawful demand for tax. It was therefore unnecessary for the House of Lords to consider whether the demand was an essential ingredient of the cause of action. Nevertheless, the reasoning of the majority of the Appellate Committee in Woolwich strongly supports the conclusion that a demand is not essential.”

After reviewing the reasoning of the majority in Woolwich, and referring to other relevant authorities including NEC Semi-Conductors, the Court then concluded:

“173.

Accordingly, on this Issue, we conclude that there is no authority binding on us which requires the Woolwich cause of action to be limited to circumstances in which there has been a formal demand. The language used by the majority of the House of Lords in Woolwich, and the principles and policy endorsed by them, point away from such a limitation and support the application of Woolwich to any case where tax has been unlawfully exacted from a person by virtue of a legislative requirement, including compulsory self-assessment. It follows that the Woolwich cause of action provides an effective remedy for all the claimants’ San Giorgio claims under Community law.”

It is also material to refer to what the Court of Appeal said at paragraph [225], dealing with the question whether the application of section 320 of the Finance Act 2004 and section 107 of the Finance Act 2007 (which excluded the extended limitation period under section 32(1)(c) of the Limitation Act 1980 in relation to mistakes of law relating to taxation matters under the care and management of HMRC) was precluded by reason of the EU law principles of effectiveness, equivalence, legal certainty and legitimate expectations:

“225.

We have held, in respect of Issues 11 and 12, that a demand is not an essential ingredient of the Woolwich cause of action, and that that cause of action provides an effective remedy for all the claimants’ San Giorgio claims. Thus the cause of action for repayment of monies paid under a mistake is not a cause of action required by Community law. The cause of action for repayment of monies paid under a mistake is a domestic remedy of wide application, which Community law does not require the member states to provide, attended by a limitation period (i.e. s32(1)(c) of the Limitation Act 1980) that goes beyond the requirements of Community law: see Marks & Spencer ([2002] STC 1036, [2003] QB 866, para 35 of the judgment), in which the ECJ considered a three-year limitation period to be reasonable. Community law restricts the effectiveness of domestic legislation curtailing a limitation period applicable to a domestic cause of action that protects a Community right. That domestic cause of action is the Woolwich claim, and it is unaffected by ss320 and 107.”

It follows that the Woolwich cause of action, as elucidated in FII (CA), would appear to provide a sufficient domestic remedy for an English taxable person who had accounted for and paid unlawfully levied VAT. Moreover, it is clear from the reasoning of the Court of Appeal in paragraph 225 that, in the view of the Court, the requirements of the principle of effectiveness are satisfied, in the context of San Giorgio claims to recover unlawfully levied tax, by the Woolwich cause of action alone, and that the reach of the principle therefore does not extend to any mistake-based causes of action within the purview of sections 320 and 107.

Pausing at this point, I observe that there is still a bridge that needs to be crossed before it could be said that the Woolwich cause of action would be available to the claimants in the present case. It is true that their claims are to be characterised, for the purposes of EU law, as San Giorgio claims; but, so far at any rate, it has never been held that a Woolwich remedy is available to anybody other than the actual taxpayer who has paid the unlawful tax to HMRC. In cases of the present type, this means that (in the absence of section 80 of VATA 1994) the Managers, as the taxable persons, would be entitled to bring a Woolwich claim against HMRC to recover the unlawful VAT which they paid, but the investment trust claimants would not, because the tax was never exacted from them by the State, and their obligation to pay it to the Managers was purely contractual.

Mr Swift submits, however, that I should not be deterred from taking this further step. He argues that if it is appropriate to recognise a San Giorgio right under EU law for an end consumer to recover unlawfully levied VAT from the State – and one only reaches this stage in the argument if such a right has been recognised – then EU law must likewise require the domestic remedy for San Giorgio claims to be moulded to accommodate such cases, on the assumption that it does not do so already. He goes on to submit that, if I need encouragement to take this step, I can find it (by analogy) in FII (CA), where the Court of Appeal held (at paragraph [174]) that if, contrary to what it had held, a wrongful demand is an essential ingredient of the Woolwich cause of action in a purely domestic case, “that requirement must be displaced in the context of Community law”. The reasoning of the Court on this point, necessarily obiter, was as follows (ibid):

“The San Giorgio principle requires our domestic law to provide an effective remedy for the repayment of unlawful tax. Neither the domestic Woolwich cause of action (if it is dependent on there having been an unlawful demand) nor the cause of action for monies paid under a mistake satisfy San Giorgio, the latter cause of action because it depends on the claimant having been mistaken when the payment was made. In these circumstances, the cause of action for the repayment of a tax unlawful under Community law must be held not to require an unlawful demand. In effect, that is Woolwich without the requirement of an unlawful demand.”

It may at first blush seem surprising to find HMRC arguing for an extension of the Woolwich cause of action, but the explanation for this lies in the crucial second stage of the approach adopted by the Court of Appeal in FII (CA). It is clear from the passages which I have cited that the Court of Appeal took a restrictive view of what is required by the principle of effectiveness. They held, in effect, that once a domestic cause of action had been identified which was in principle capable of satisfying the claimants’ San Giorgio claims, in the shape of the Woolwich remedy (shorn, if necessary, of the requirement for a demand), there was then no need to go any further, and in particular there was no need to allow the freedom which a claimant would enjoy in a purely domestic context to make a mistake-based restitutionary claim with the more generous limitation period afforded by section 32(1)(c) of the Limitation Act 1980. In Test Claimants in the Thin Cap Group Litigation v Revenue & Customs Commissioners [2009] EWHC 2098 (Ch), [2010] STC 301, (“Thin Cap (Chancery)”, in which I handed down judgment on 17 November 2009, I had ventured to suggest a more relaxed view of what the principle of effectiveness requires: see paragraph [223] of my judgment. It seems clear to me, however, that this view cannot stand with the approach and reasoning of the Court of Appeal in FII (CA), judgment in which was handed down a few months later on 23 February 2010.

The implications of this aspect of the judgment in FII (CA) came to the fore in Littlewoods (No.1), where Vos J had to deal with a number of issues arising from restitutionary claims for compound interest made by traders who had been repaid unlawfully levied VAT pursuant to section 80 of VATA 1994 together with the simple interest provided for by section 78. The claimants made both Woolwich and mistake-based restitutionary claims. Vos J held that all of these claims were excluded, as a matter of domestic English law, by the exhaustive statutory regime in sections 78 and 80. Having reached this conclusion, Vos J then had to consider whether the exclusion was contrary to EU law, and (if so) how and to what extent the provision for simple interest in section 78 fell to be disapplied. (There was a prior question whether the conflict with EU law, if there was one, could be resolved by adopting a conforming construction of section 78, but Vos J disposed of this possibility in paragraphs [74] to [76] of his judgment).

On the issue of the compatibility of section 78 with EU law, Vos J came to the preliminary conclusion that there was no conflict between section 78 and EU law, but recognised that the answer to the question was not clear. He therefore decided that three questions needed to be referred to the ECJ, in terms which he provisionally set out in paragraph [69] of his judgment.

On the issue of disapplication, which would of course arise only if the ECJ held in due course that section 78 did infringe EU law, Vos J heard and considered arguments which were similar in many respects to those addressed to me (by the same leading counsel) in the present case. The relevant passage in his judgment runs from paragraphs 77 to 96. After summarising the rival arguments, Vos J helpfully set out in paragraph [82] the basic assumptions upon which he was considering this issue. In paragraph [83], he referred to my observations about the principle of effectiveness in Thin Cap (Chancery) at paragraph [223], and to the express decision in FII (CA) at paragraph [225], cited above. He then continued:

“84.

Against this background, it seems to me that Mr Swift’s case is rather compelling. In FII CA, the Court of Appeal expressly favoured the Woolwich-based restitutionary claim, and held that it was sufficient to give effect to the claimants’ EU law San Giorgio rights. The Court of Appeal could have chosen to disapply s320 and s107, and allow the claimants a mistake-based restitutionary claim in addition to the Woolwich-based claim that they held was available, but they decided that it was unnecessary to do so. In the alternative, the Court of Appeal held, in effect, that they would, in preference to disapplying ss320 and 107, so as to allow a mistake-based claim, [have] disapplied the need for a demand to allow a Woolwich-based claim, even if they were wrong about a demand not being required.

85.

In summary, therefore, FII CA is clear authority for the proposition that the English court will not disapply an exclusionary rule so as to allow an alternative remedy to give effect to a San Giorgio right, if another remedy is already available without the need for such a disapplication. The Court of Appeal decided obiter that the English court could choose which of two remedies should be provided to give effect to the San Giorgio right, if both required the disapplication of some domestic law rule to allow them to comply with the principle of effectiveness.

86.

Applying these principles here, it seems to me that Littlewoods’ putative San Giorgio right can be given full effect, in accordance with the principle of effectiveness, by disapplying the provisions of ss78 and 80 so as to allow either a Woolwich claim or a mistake-based claim to be brought. Where FII CA does not help very much is in laying down the principles upon the basis of which the national court can choose between two otherwise available claims in these circumstances …

87.

Very little argument was addressed to the question of the principles upon which the national court should choose between the national law claims and remedies in these circumstances, but applying FII CA, it seems to me that choose I must.

88.

The principles that I apply should, in my judgment, be applicable in any case of this kind – even if cases with these dramatic consequences may not often occur in future. The starting point is that the national court is required by EU law to give effect to the San Giorgio right, and not to render it practically impossible or excessively difficult for Littlewoods to exercise that right. The San Giorgio right in question has yet to be defined, but on the assumptions that I am making at this stage, it will be the right to recover in respect of the use value of the overpayments of tax between payment and repayment. To allow such a right to the claimants, some rule of English law must be disapplied. In this case, the rule is the same for both restitution-based claims – namely that ss78 and 80 exclude both those claims. But it will not always be thus. For example, in FII CA itself, the domestic law rules that presented themselves as candidates for disapplication were different: the need for a demand in relation to the Woolwich claims, and the new limitation periods in s320 and s107 in relation to the mistake-based restitutionary claims. The principles applicable must balance the need to enforce the San Giorgio right on the one hand, against the need to disapply domestic law on the other hand. In addition, I think that the nature of the available causes of action is relevant – the cause of action most naturally and comprehensively giving effect to the San Giorgio right must be preferable to one that will only vindicate the right in limited circumstances.

89.

In this context, I bear in mind that, if there had been no mistake by the Commissioners, s78(1) would not have applied at all …

90.

Taking all these factors together, it seems to me that the cause of action that most naturally and comprehensively gives effect to Littlewoods’ San Giorgio right to the use value of the repayments is the Woolwich claim, which is applicable, as we now know it to be, to all cases where the government has exacted tax, which was not lawfully due, whether or not a demand has been made. The mistake-based restitutionary claims would only vindicate the San Giorgio right to the use value of money in some circumstances – namely where an appropriate mistake had been made. Such a claim would, therefore, be of less general application than the Woolwich claims. The rules to be disapplied are the same in this case, so that factor is neutral, but one would generally want to lean in favour of the minimum possible disapplication of domestic law.

91.

The Woolwich claims here will be subject to an (EU law compliant) six-year limitation period which will reduce Littlewoods’ claims for compound interest to a relatively small amount. On the other hand, if the mistake-based restitutionary claims were to be allowed, it is common ground that the limitation period must be extended under s32(1)(c) so as to allow the full extent of Littlewoods’ claims. It might be suggested, therefore, that the approach that I have adopted is driven by a desire to protect the Commissioners from the major part of the claims to compound interest in this case. I should make it clear that I have ignored that factor, which seems to me, as a matter of law, to be entirely irrelevant.”

In the light of this analysis, Vos J expressed his provisional conclusion in paragraph [92] as being that sections 78 and 80 of VATA 1994 “must be disapplied so as to allow only the Woolwich claims”. He then considered whether there was any need to refer the issue to the ECJ, and decided that it would be appropriate to do so, even though HMRC argued that the question was purely one of domestic law and procedure. Vos J’s reasons for taking this course appear from paragraph [94]:

“94.

It seems to me that, depending on how the ECJ answers the first three questions that I have posed, its guidance on this issue might be extremely valuable in reaching a final decision at this trial. The decision I have indicated above is obviously provisional, because it may change depending on the precise nature and extent of the San Giorgio right that the ECJ identifies. It would be particularly helpful to the domestic court to know whether the approach that I have outlined above is consistent with EU law. The real question, as it seems to me, is not the one that the claimants sought to formulate, but rather as to the detailed application of the EU law principle of effectiveness. It is one thing to say that the national court must not make the exercise of the EU law right practically impossible or excessively difficult. It is another thing to know whether the national court has been successful in that exercise in any particular case. It seems to me, at least, that the ECJ might want to say something about the principles upon which national courts should decide how to implement San Giorgio rights by application of the principle of effectiveness. The ECJ will plainly not descend to a consideration, for example, of the relative merits of compensation claims versus restitution-based claims in national law, or indeed as to the actual choice between two available remedies. But the ECJ may wish to comment on whether the principle of effectiveness requires national law to disapply restrictions on all available causes of action or simply the one that most effectively allows the San Giorgio right in question to be vindicated. The ECJ’s views on this point will, as I have said, be most useful to this court when it comes to take its final decision after the reference is decided.”

In paragraph [95] Vos J set out the question that he considered it appropriate to refer, but said he would hear further argument on the precise formulation. After hearing such argument in early November 2010, he settled Question 4 in the Order for Reference as follows (see Littlewoods Retail v Revenue & Customs Commissioners [2010] EWHC 2771 (Ch), [2011] STC 171, (“Littlewoods (No. 2)” at 177h):

“If the answer to question 1 is in the negative, does the EU law principle of effectiveness require a member state to disapply national law restrictions (such as ss78 and 80 of the Value Added Tax Act 1994) on any domestic claims or remedies that would otherwise be available to the taxable person to vindicate the EU law right established in the Court of Justice’s answer to the first three questions, or can the principle of effectiveness be satisfied if the national court disapplies such restrictions only in respect of one of these domestic claims or remedies?

What other principles should guide the national court in giving effect to this EU law right so as to accord with the EU law principle of effectiveness?”

The current position on the reference is that the oral hearing before the ECJ took place in November 2011, and the opinion of Advocate General Trstenjak was delivered on 12 January 2012. The decision of the Court is awaited.

It is also relevant to note at this point that the Supreme Court granted permission to appeal to the claimants in the FII litigation from the decision of the Court of Appeal on the Woolwich-related issues. The hearing before the Supreme Court started on 21 February 2012.

Against this background, the submissions of HMRC on this part of the case are in summary as follows. Relying on FII (CA) and Littlewoods (No. 1), they submit that:

For their part, the claimants attack this reasoning and conclusion on a number of separate grounds. In the first place, they submit that, whatever the position may have been in FII, in the present case there is only one domestic cause of action which fits the facts of the case without modification, namely the mistake-based restitutionary claim. Secondly, they submit that the court should in any event decline HMRC’s invitation to extend the Woolwich cause of action, the ambit of which should be confined to claims by actual taxpayers. Thirdly, they submit that the narrow approach to the principle of effectiveness adopted by the Court of Appeal in FII (CA), and provisionally applied by Vos J in Littlewoods (No. 1), cannot be right as a matter of English law, as is demonstrated by the decision of the House of Lords in DMG (see paragraphs 167 to 169 below). Finally, they submit that, even if it comes down to making a choice between different possible causes of action, in cases of the present type the “best fit” is provided by the mistake-based restitutionary cause of action. It would be paradoxical and absurd, say the claimants, if, in the name of effectiveness, they were to be deprived of the domestic cause of action which fits the facts of the present case like a glove, and which would provide them with a remedy, while being confined to an extended version of the Woolwich cause of action, the existence of which nobody could have foreseen before the Court of Appeal gave judgment in FII (CA), and which would now leave them without any remedy at all.

The general nature of the first, second and last of these submissions should be clear enough from what I have already said about HMRC’s case, but the third submission (based on DMG) needs some further explanation. A convenient starting point is the summary of DMG given by Vos J in Littlewoods (No.1) at paragraph [34]:

“34.

On 25 October 2006, the House of Lords decided DMG. The House of Lords resolved three issues, in the context of the overpayment of ACT on dividends in breach of EU law: first, that a taxpayer who wrongly paid tax under a mistake of law was entitled to a restitution remedy (contrary to the way in which the Commissioners had interpreted Kleinwort Benson); secondly, that s33 of the Taxes Management Act 1970 (“s33”) did not provide an exhaustive regime for the recovery of taxes paid by mistake, so as to exclude the common law restitution claim; and thirdly, that the fact that a taxpayer had a Woolwich claim (with a shorter limitation period) did not prevent it from bringing a mistake-based claim (with the benefit of an extended limitation period). It is important to understand that this last point was decided as a matter of English law, since s33 had been held not to constitute an exhaustive regime excluding common law remedies. The House was not considering what might happen if s33 had constituted an exclusive regime, and it had been necessary, so as to satisfy the EU principle of effectiveness, to disapply that exclusive regime so as to allow one or both of two common law remedies that would otherwise have been unavailable in English law. Both Lord Hoffmann (see [2007] STC 1 at [5], [2007] 1 AC 558 at [5]) and Lord Walker (at [135] – [136]) made this point clear, when they explained that all that the ECJ in Metallgesellschaft [i.e. Hoechst] had said was that the domestic court must provide a remedy despite the principle reaffirmed by the House of Lords in President of India [i.e. President of India v La Pintada Compania Navigacion SA [1985] AC 104] to the effect that interest is not due if the capital has been repaid. In Lord Walker’s words: “In other respects, DMG’s claim relies on ordinary domestic principles”.”

Mr Rabinowitz submits that, in one crucial respect, Vos J misunderstood the significance of DMG. He says that DMG, properly analysed, did involve the consequences of the disapplication of a rule of English law in order to secure compliance with EU law. The rule of English law which had to be disapplied was the principle in President of India, as it was then understood, to the effect that there was no power to award interest on debts paid before proceedings were begun. In Hoechst, the ECJ had expressly ruled that this principle had to be disregarded by the national court in providing a remedy for the premature levy of ACT: see the judgment of the Court at paragraphs [79] to [80] and [87] to [89]. It is clear, submits Mr Rabinowitz, that the claims in Hoechst could not have succeeded without the disapplication of the President of India principle, and it is irrelevant for this purpose that the principle was subsequently overruled by the House of Lords in Sempra Metals Ltd v IRC [2007] UKHL 34, [2008] 1 AC 561. Despite the fact that the claims depended on the disapplication of a rule of English law, however, the House held that the claimants were nevertheless entitled to rely on a common law mistake claim as well as on a Woolwich claim, thus reflecting the usual willingness of English law to allow a claimant to choose between concurrent remedies. Nobody appears to have suggested, and the House certainly did not hold, that the EU law principle of effectiveness somehow required this freedom to be circumscribed.

If DMG is viewed in this way, submits Mr Rabinowitz, the fact that the House also held that section 33 of the Taxes Management Act 1970 did not provide an exhaustive remedy for the recovery of taxes paid by mistake becomes irrelevant. It is true that, for this reason, section 33 did not have to be disapplied; but it remains the case that the President of India principle did have to be disapplied, and that without such disapplication neither the Woolwich nor the mistake-based causes of action would have been available to the claimants.

I will say at once that I see considerable force in this argument, which unfortunately does not seem to have been addressed to, or considered by, the Court of Appeal in FII (CA). I will also say, more generally, that the rival submissions on this part of the case appear to me to raise issues of great difficulty and potential importance, in an area where the law is evolving rapidly, and where there is good reason to expect that authoritative guidance on at least some key aspects of the problem may be provided in the near future by either or both of the ECJ (on the reference in Littlewoods) and the Supreme Court (on the appeal in FII). In those circumstances, I see much attraction in the suggestion made by Mr Swift, in the course of his oral submissions, that I should defer deciding this part of the case until after the ECJ and the Supreme Court have given their respective judgments. Although that time seemed fairly distant when I heard argument in May 2011, the preparation of this judgment has been delayed for reasons which I have already explained, and there must now be a good prospect that both judgments will be available by mid-2012. In my view a further adjournment of a few months would be a relatively small price to pay for the real likelihood that guidance at the highest level on the scope of the Woolwich principle, and the requirements of the EU law principle of effectiveness, will become available in the meantime. There must also be a possibility that the guidance will dispel the current fog of uncertainty in such a way that no further hearing on this part of the case proves necessary. Finally, even if a further hearing is needed, it is most unlikely that the adjournment will significantly delay the final resolution of the case, because if I were now to give judgment on these issues, an appeal by the losing party would be inevitable.

Mr Rabinowitz urged me to decline Mr Swift’s invitation to defer my decision on this part of the case. Apart from the question of delay, which has to a large extent been overtaken by events, he argued that the ruling of the ECJ in Littlewoods would be unlikely to take matters forward, because Vos J had already said he was provisionally minded to confine the claimants to Woolwich claims, and the ECJ would not interfere in a matter of domestic English law. He also argued that the Supreme Court in FII would not be dealing with precisely the same issue as that which arises in the present case. He accepted, however, that the ECJ might have something relevant to say about the requirements of the principle of effectiveness as a matter of EU law, and that the Supreme Court might decide some points which would affect my decision on this issue. In my view the likelihood that relevant, and possibly decisive, guidance will be given by either or both of the ECJ and the Supreme Court is considerably greater than Mr Rabinowitz was prepared to acknowledge, and although I have taken his reservations into account I consider that the balance comes down in favour of adjourning this part of the case until after the ECJ and the Supreme Court have delivered their respective judgments.

For the reasons which I have given, my conclusions are in summary as follows:

English law issues

EU law issues