Neutral Citation Number: [2013] EWHC 665 (Ch)
Case No: HC09C03091
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Rolls Building, Fetter Lane
London EC4A 1NL

Date: 26/03/2013

Before:

MR JUSTICE HENDERSON
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Between:

	INVESTMENT TRUST COMPANIES	Claimants	
	(in liquidation)		
	- and -		
	THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS	Defendants	
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Mr Laurence Rabinowitz QC and Mr Steven Elliott (instructed by PricewaterhouseCoopers Legal LLP) for the Claimants
Mr Jonathan Swift QC and Mr Andrew Macnab (instructed by Solicitor for HMRC) for the Defendants

Hearing date: 22 January 2013
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FURTHER JUDGMENT

Mr Justice Henderson: 
Introduction

1.	On 2 March 2012 I handed down judgment in the case of Investment Trust Companies (in liquidation) v HMRC [2012] EWHC 458 (Ch), [2012] STC 1150 (“ITC No. 1”). 
2.	In the final main section of that judgment (paragraphs [149] to [171]) I considered the question whether the claimants should be confined to a modified version of the Woolwich cause of action in order to satisfy their directly effective EU rights (as I had held) to recover from HMRC that part of the consideration paid by them to the Managers for investment management services which represented VAT mistakenly thought to be due outside the “dead period”, and which the Managers themselves had been unable to recover from HMRC and pass on to the claimants. This was the part of the consideration (referred to in the judgment, for ease of exposition, as “the £25”) which was equal to the relevant input tax which had been brought into account and deducted by the Manager of M & G Trust during VAT accounting periods between 1992 and March 2002, with the exception of those periods (“the dead period”) for which a direct claim by the Manager of M & G Trust to recover overpaid VAT from HMRC would have been validly barred by the three year limitation period in section 80(4) of the Value Added Tax Act 1984 (“VATA 1984”) which was introduced (originally without any transitional provisions) with effect from 4 December 1996.  
3.	The very compressed summary which I have just given will probably make sense only to those who have already read ITC No. 1, and I would stress at the outset that the present judgment should be read as a continuation of my earlier judgment, to which reference should be made for the background to the case, for my decision on all of the issues in dispute apart from the final one, and for my description of the final issue and the arguments on it which were addressed to me. 
4.	As I explained in paragraphs [170] and [171] of ITC No. 1, I decided to adjourn determination of the final issue until after the Supreme Court had given its judgment on those issues for which it had given permission to appeal in the FII litigation, and after the Court of Justice of the European Union (“the ECJ”) had given its judgment on the reference for a preliminary ruling made by Vos J in the Littlewoods case. As I said in paragraph [170]:
“… 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).”
5.	The Supreme Court, sitting in a constitution of seven justices headed by Lord Hope of Craighead DPSC, delivered its judgment in FII on 23 May 2012: see Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2012] UKSC 19, [2012] 2 AC 337 (“FII (SC)”). The Grand Chamber of the ECJ then delivered its judgment in Littlewoods on 19 July 2012: see Littlewood Retail Limited v Revenue and Customs Commissioners, Case C-591/10, [2012] STC 1714 (“Littlewoods (ECJ)”). 
6.	In the light of these judgments, the claimants and HMRC made written submissions to me on their effect in letters dated 6 August and 14 September 2012 respectively, and a further letter in reply from the claimants dated 18 September 2012.  As the views expressed in these letters were widely divergent, and each side seemed to think that its position had been strengthened by the further judgments, I decided that an oral hearing would be necessary, preceded by an exchange of skeleton arguments.  The further hearing took place on 22 January 2013 and occupied the whole day, with Mr Laurence Rabinowitz QC and Mr Steven Elliott again appearing for the claimants, and Mr Jonathan Swift QC and Mr Andrew Macnab for HMRC.  As before, I express my gratitude to counsel and those instructing them for the clarity and high quality of the arguments addressed to me.  
The decision of the Supreme Court in FII (SC)
7.	It is convenient to begin by explaining how the claimants say they find support for their case on the final issue in the decision of the Supreme Court in FII (SC).  Apart from a substantial and, if I may respectfully say so, very helpful introductory judgment by Lord Hope, the three main judgments were delivered by Lord Walker of Gestingthorpe, Lord Sumption and Lord Reed JJSC. Shorter (but by no means insubstantial) judgments were also delivered by Lord Brown of Eaton-under-Heywood and Lord Clarke of Stone-cum-Ebony, while Lord Dyson expressed his agreement with other justices on various issues without adding any further reasoning of his own.  Due to the intrinsic complexity of the subject matter, and the differences of opinion between members of the Court on several of the issues, the decision is not an easy one to summarise or find one’s way around.  Nor, in the present context, would a comprehensive summary serve any useful purpose, because the claimants rely on only certain parts of the decision, while HMRC submit that any assistance to be gained from it is, at best, very limited. 
8.	The part of the FII litigation which matters most, for present purposes, is the broad question whether EU law (in the shape of any or all of the principles of effectiveness, equivalence, legal certainty and protection of legitimate expectations) had any, and if so what, impact on the remedies available to the test claimants under English domestic law to vindicate their San Giorgio claims to restitution of unlawfully levied tax.  Allied to this question is the issue whether the Woolwich cause of action, correctly understood, would by itself be sufficient to provide an effective domestic remedy for such claims; and, if so, whether EU law also required English law to make available to the test claimants the mistake-based restitutionary remedy recognised by the House of Lords in DMG, and thus to allow them to choose between the Woolwich and DMG causes of action with the usual freedom accorded to claimants in a purely domestic context. 
9.	The focus of these issues was concentrated in particular on the action taken by Parliament to curtail the limitation period for mistake-based claims for the recovery of direct tax, first by the enactment of section 320 of the Finance Act 2004 (which purported to impose a six year limitation period for claims made on or after 8 September 2003, when the proposed legislation had first been announced) and then by the enactment of section 107 of the Finance Act 2007 (which purported to apply the same period retrospectively, to all such claims whenever made). In neither case did Parliament see fit to enact any transitional provisions. 
10.	At first instance, I had held in FII (Chancery) that HMRC were unable to rely on either section 320 or section 107 as a defence to the test claimants’ San Giorgio claims, because of the absence of any transitional provisions as required by well-established principles of EU law: see FII (Chancery) at paragraphs [414] to [427]. This conclusion was, however, dependent on my view that the mistake-based DMG remedy was needed as well as the Woolwich remedy in order to satisfy the test claimants’ San Giorgio rights, with the result that the two sections impinged on those rights and EU law was relevantly engaged. 
11.	The Court of Appeal disagreed, holding, in essence, that the Woolwich cause of action did not require a demand; that it therefore provided the test claimants with an adequate domestic remedy for their San Giorgio claims; that the EU principles of effectiveness and equivalence did not require the mistake-based DMG remedy also to be made available to them; and that the limitation period for the mistake-based claims could therefore lawfully be curtailed by Parliament without any transitional provisions, because the claimants’ rights under EU law were unaffected: see the extracts from the judgment in FII (CA) quoted in ITC No.1 at paragraphs [151] to [153]. 
12.	The Supreme Court agreed with the Court of Appeal that the Woolwich principle does not require an unlawful demand for the tax to have been made. After discussing the authorities and academic opinion on the point, Lord Walker reformulated the principle in paragraph [79] as follows:
“In these circumstances it is in my view open to this court (whether or not it was strictly open to the Court of Appeal) to state clearly that where tax is purportedly charged without lawful Parliamentary authority, a claim for repayment arises regardless of any official demand (unless the payment was, on the facts, made in order to close the transaction).  The same effect would be produced by saying that the statutory text is itself a sufficient demand, but the simpler and more direct course is to put the matter in terms of a perceived obligation to pay, rather than an implicit demand. That is how it was put by Wilson J in her well known dissent in Air Canada v British Columbia [1989] 1 SCR 1161, 1214-1215 … In my view English law should follow the same course. We should restate the Woolwich principle so as to cover all sums paid to a public authority in response to (and sufficiently causally connected with) an apparent statutory requirement to pay tax which (in fact and in law) is not lawfully due.”
All the members of the court agreed with this reformulation, apart from Lord Sumption who dealt with the question independently in paragraphs [171] to [174] and reached a similar conclusion.
13.	On behalf of the claimants Mr Rabinowitz accepts, as he obviously has to, that the Supreme Court has now pronounced definitively on the “demand” issue, and that it is no longer open to him to argue that the absence of a demand would have precluded the claimants from bringing a Woolwich claim against HMRC.  He submits, however, that there is nothing in the reformulation of the principle by Lord Walker, or in the discussion of the question in the judgments of Lord Walker and Lord Sumption, which suggests that such a claim can be brought by anyone other than a taxpayer, that is to say a person who is on the face of it liable to pay the sum in question to the taxing authority in response to an apparent statutory requirement.  The Managers would have answered that description, and would have had a good Woolwich claim against HMRC to recover the unlawful tax in the absence of a statutory scheme for that purpose.  But the only obligation on the claimants was their contractual obligation to pay the tax to the Managers.  They were under no liability to pay or account for the tax to HMRC.  Mr Rabinowitz therefore maintains the submission which is reflected in paragraph [155] of ITC No. 1, where I described this point as “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”.  
14.	Mr Rabinowitz’s primary submission is that it is clear, as a matter of principle and logic, that a Woolwich claim is available only to a taxpayer properly so-called, and in this context it is irrelevant that the claimants are persons who have borne the economic burden of the tax.  The Woolwich principle is in large part a constitutional one, and it can only be invoked by a person against whom the State can bring its coercive power to bear.  His fallback submission is that it is at best highly questionable whether the Woolwich principle should be extended in favour of persons who have borne the economic burden of a tax, and that it would be wrong to confine the claimants to such an uncertain remedy, in the name of effectiveness, when the DMG cause of action is on any view available to them. 
15.	Thus far, the assistance sought to be gained by the claimants from FII (SC) is largely negative in nature. Their next argument, however, is a positive one. It is clear from all of the judgments, say the claimants, that the court considered one or more principles of EU law to be engaged in the test claimants’ favour, with the consequence that they decided (unanimously) that section 107 of the 2007 Act had to be disapplied, because it defeated the claimants’ legitimate expectations, and (by a majority of five to two, Lords Sumption and Brown dissenting) that the principles of effectiveness and/or legal certainty protected the claimants’ mistake-based claims, as well as their Woolwich claims, with the result that section 320 of the 2004 Act should also be disapplied. In view of the dissent on the latter question, it could not be regarded as acte clair, and the court therefore decided to make a further preliminary reference to the ECJ.  The important point, say the claimants, is that on any view the court regarded their mistake-based claims as entitled to at least some protection under EU law, and no support is to be found anywhere in the judgments of the majority for the restrictive approach favoured by the Court of Appeal which sought to keep such claims wholly insulated from EU law. 
16.	The key passages relied on by the claimants in this context are the following. First, Lord Hope said this in paragraphs [20] and [21]:
“20. The crucial question, however, is whether the retrospective application of that limitation period [i.e. section 320 of the 2004 Act] to claims based on mistake was in conformity with the principles of equivalence and effectiveness, as explained by the Grand Chamber in its judgment in these proceedings … I accept, of course, that the Woolwich remedy on its own was an effective way of vindicating the San Giorgio right. But what about the principle of equivalence which, as Lord Reed points out in para 218, is a complementary requirement? The Woolwich remedy was not the only remedy in domestic law, as it was held in DMG that a taxpayer who wrongly paid tax under a mistake of law is entitled to a restitutionary remedy against the Revenue. The theory is that judicial decisions must be taken to declare the law that applies to the case with retrospective effect, whenever the events that gave rise to the claim occurred.  So, in the events that have happened, the DMG remedy must be taken to have been always available.  It is not just a mirror image of the remedy that is afforded under Woolwich. Both remedies lead to the same result.  But they are different remedies founded upon different principles and they are subject to different limitation periods. There may be other differences, depending on the facts and circumstances of each case.
21. There is no obvious way of deciding which of these two remedies must be adopted if only one can be allowed. Is it to be held the claimant is under an obligation, if both are available, to select the remedy which best suits his opponent?  This would be an odd result, as I said in DMG [2007] 1 AC 558, para 51.  For the reasons which I gave in that paragraph, I think that domestic law must reject this idea because it has no basis in principle. In fairness, the claimant ought to be free to choose the remedy that best suits his case. The principle of equivalence requires that the rules regulating the right to recover taxes levied in breach of EU law must be no less favourable than those governing similar domestic actions. So it seems to me that it must follow, if the means of recovery of taxes levied contrary to EU law are to match those in domestic law, that both remedies should be available.”
17.	The key passage in Lord Walker’s judgment is at paragraphs [111] to [115], where he discusses what he calls “the statutory cut-off provisions”, i.e. sections 320 and 107. The passage needs to be read as a whole, but the following extracts give the flavour of it:
“111. These provisions were challenged in the lower courts primarily on the ground that they infringed the principle of effectiveness.  There was little discussion of legitimate expectations.  Lord Sumption holds, at para 199, that reasonable persons in the position of the test claimants would not, until Park J’s judgment in DMG on 18 July 2003, have counted on being able to recover tax on the ground of mistake of law; and that even after that decision the existence of such a claim was being challenged on serious grounds. He concludes from that proposition that no one in the position of the test claimants could have had a reasonable and realistic expectation of recovering tax on the ground of mistake.  
112. I cannot disagree with that conclusion … But in any case I do have great difficulty in applying the same reasoning to upholding the validity of section 320 against attack under the principle of effectiveness, in the light of M & S. The judgment of the Court of Justice in that case lays down a clear requirement for transitional provisions, and that requirement is derived at least as much from the principle of effectiveness and the principle of legality as from the more limited principle of protection of legitimate expectations …
113. If one asks what the test claimants were entitled to, and what they could expect to continue to be entitled to, in the way of national remedies to recover tax levied and paid contrary to EU law, the answer is plainly not that they were entitled to the indefinite continuation of a range of alternative remedies …
114. Nor were the test claimants entitled to a remedy arrived at by some precise formula furnished by EU law. That would be contrary to the basic principles laid down in Rewe I (Case 33/76) [1976] ECR 1989, and repeated in countless cases since then. What they were entitled to was that national law should provide an effective remedy which met the requirements of EU principles of effectiveness and equivalence; and that any curtailment of any relevant limitation period should comply with those principles, as well as with the principle of legitimate expectations.  The fact that they could not have complained, in another parallel universe in which section 32(1)(c) [of the Limitation Act 1980] had never existed, is not decisive on the issue of effectiveness.
115. I would therefore hold that section 320 was contrary to EU law as infringing the principle of effectiveness as explained in M & S, and that section 107 was contrary to EU law both on that ground and (in agreement with Lord Sumption) under the principle of protecting legitimate expectations …”
18.	Lord Reed began his discussion of sections 320 and 107 in paragraph [211], where he said that the principal issue for determination was “whether the application of the legislation to the claims is compatible with EU law”. He continued:
“212. In considering that issue, there appear to me to be three central questions, which can at this stage be broadly stated as follows. The first is whether the ground of action enabling taxes levied in breach of EU law to be recovered on the basis of mistake falls within the ambit of the EU principle of effectiveness.  It is argued that it does not, since the ground of action based on an unlawful demand in itself fully satisfies the requirement of EU law that there should be an effective remedy. Since no additional remedy is required by the principle of effectiveness, it follows, so the argument runs, that the additional ground of action which English law provides, based on mistake, falls outside the scope of that principle.  I disagree. As I shall explain, it appears to me that the EU principle of equivalence, which is the complement of the principle of effectiveness, applies to the grounds of action available for the recovery of taxes in domestic law.  Where an action for the recovery of taxes under domestic law can be based either on the ground of mistake or on the ground of unlawful demand (or, as in the present case, on both grounds), it follows from the principle of equivalence that both grounds of action should also be available in similar circumstances to enforce an analogous right under EU law.  So long as they must both be available, they must also both be effective. The principle of effectiveness therefore applies to both grounds of action.”
19.	Returning to the same theme, Lord Reed said at paragraph [220]:
“Where both these grounds of action are available for the recovery of taxes which have been levied in breach of domestic law, and a person seeking to recover such taxes can choose to base his claim on whichever ground of action best suits his interests, it follows from the principle of equivalence that the same grounds of action, and the same freedom of choice, must equally be available in analogous circumstances to a person seeking to recover taxes which have been levied in breach of EU law: otherwise, claims based on EU law would be less favourably treated than similar claims based on domestic law. As the Court of Justice stated in Rewe-Handelsgesellschaft Nord mbH v Hauptzollamt Kiel (Case 158/80) [1981] ECR 1805, para 44, the system of legal protection established by the Treaties implies that “it must be possible for every type of action provided for by national law to be available for the purpose of ensuring observance of Community provisions having direct effect” (emphasis added).”
20.	After holding that both grounds of action were available to the test claimants at all material times, Lord Reed dealt with the argument that the mistake ground was “neither necessary nor sufficient to meet the requirements of EU law”, as laid down in cases such as San Giorgio.  The argument was that the mistake ground was unnecessary, since the Woolwich cause of action was in itself adequate; and it was not sufficient, because it required “the presence of an additional element beside the levying of the taxes in breach of EU law, namely that they must have been paid under a mistake as to the lawfulness of the domestic legislation” (paragraph [223]).  Lord Reed’s answer was as follows:
“224. The first of these contentions appears to me to be off the point. The fact that the ground of action based on an unlawful demand satisfies the San Giorgio principle does not exclude the possibility that the ground of action based on mistake also satisfies that principle.  Indeed, the ground of action based on mistake is of considerable practical importance as a means of enforcing rights to repayment derived from EU law, as the present case demonstrates, since it enables claims relating to taxes levied in breach of EU law to be brought outside the six-year limitation period, reckoned from the date of the payment, which applies to claims based upon the Woolwich principle: a period which may have expired before the mistake as to the validity of the tax legislation is discovered. Admittedly, if English law had evolved differently, and the ground of action based on mistake had not been available, then the ground of action based on an unlawful demand might well have met the requirements of EU law. The fact of the matter, however, is that English law provides two grounds of action which are capable of satisfying the San Giorgio principle, and the principle of equivalence therefore requires that both grounds of action should be available for the enforcement of rights derived from EU law. 
225. The second contention also appears to me to be mistaken. The two grounds of action are not identical: in particular, subject to the legislation at issue in the present case, they are subject to different limitation periods. The mistake ground of action admittedly includes an additional element, namely that the taxes were paid under a mistake; but it is the presence of that additional element which enables the claimant to benefit from an extended limitation period which begins when the mistake is discovered or could with reasonable diligence have been discovered, rather than beginning with when the payment was made. The mistake ground of action is therefore a valuable remedy for the recovery of taxes levied contrary to EU law. If it were not available for that purpose, then the person who had paid taxes levied contrary to EU law would be in a less favourable position than the person who had a similar claim under domestic law.”
21.	The contrary view, pungently argued by Lord Sumption, may perhaps be encapsulated in this short extract from paragraph [196] of his judgment:
“Third, the test claimants’ argument is contrary to principle. The starting point for any analysis of the law in this area is that, subject to the principles of effectiveness and equivalence, it is for national law to determine what remedies are available to enforce a directly effective EU right and on what procedural or other conditions. I have made this point already: see para 145 above.  The right of the claimants to choose from the range of causes of action recognised by English law is a right derived solely from English procedural law and it exists only to the extent that English law so provides. So long as the principles of effectiveness and equivalence are respected, a choice between concurrent national law remedies need not exist, and in some member states does not exist, at any rate to the same extent.”
22.	The final point which the claimants seek to derive from FII (SC) concerns the court’s treatment of section 33 of the Taxes Management Act 1970.  The point was a relatively narrow one in the context of the FII litigation, because it applied only in relation to the San Giorgio claims for tax unlawfully levied under Case V of Schedule D. Where the section (or, more accurately, its corporate equivalent) did prima facie apply, HMRC argued that it was intended by Parliament to provide an exclusive remedy for the repayment of tax, and that it satisfied the EU principles of equivalence and effectiveness. They further argued that the Court of Appeal had been correct to apply the Marleasing principle of conforming construction in such a way as to preserve the section’s exclusivity, and therefore to rule out any enforcement of the test claimants’ San Giorgio rights by separate action in the High Court: see the report of HMRC’s argument at [2012] 2 AC 337, 349D-350A.  
23.	This argument was rejected by both Lord Walker and Lord Sumption, with the agreement of the remaining members of the court.  Lord Walker’s reasoning is to be found at paragraphs [116] to [119].  In short, he considered that the Court of Appeal’s conforming construction was illegitimate because it went against the grain of the legislation, and that the Marleasing principle could be 
“… applied in a simpler and more natural way by not construing section 33 as impliedly setting itself up as an exclusive provision (which it did not do expressly, unlike section 80 of the Value Added Tax Act 1994). The test claimants submit that the application of Marleasing cannot rework section 33 in a way that serves any relevant purpose.  But to read it as non-exclusive does not go against its grain. It would merely exclude an implication which is itself no more than a process of statutory construction.”
24.	To similar effect, Lord Sumption said at paragraph [205]:
“The Court of Appeal held that section 33 did impliedly exclude a right of action at common law, even in relation to claims for tax overcharged contrary to EU law.  They then dealt with the resulting inconsistency with EU law by reinterpreting the section so as [to] remove the offending restrictions and the element of discretion.  I think that this was wrong in principle. I very much doubt whether such radical surgery can be justified even under the extended principles of construction authorised in Marleasing.  Its effect would be fundamentally to alter the scheme of the provision.  But, however that may be, it seems, with respect, eccentric to imply an ambit for section 33 which is inconsistent with EU law and then to torture the express provisions so as to deal with anomalies that but for the implication would never have arisen.”
25.	The critical point, submits Mr Rabinowitz, is that having given short shrift to the Court of Appeal’s attempt to confine the test claimants to a remedy under section 33 for their relevant San Giorgio claims, the majority of the court then clearly contemplated that the test claimants would enjoy the normal freedom afforded by English law to choose between the possible causes of action available to them.  There was no suggestion that any different principles applied merely because EU law had required the remoulding or disapplication of a pre-existing statutory provision which would otherwise have confined the test claimants to a single statutory remedy.  Upon analysis, therefore, says Mr Rabinowitz, the situation is similar to that which obtained in DMG, where the claimants’ San Giorgio claims required disapplication of the rule of English law in President of India, but they were nevertheless permitted to choose between concurrent remedies in the usual way: see ITC No.1 at paragraphs [166] to [169].  Moreover, he submits, there can be no substance in the distinction which he says Mr Swift sought to draw, when dealing with the DMG argument at the earlier hearing, between the disapplication of a rule of common law on the one hand, and the disapplication of a statutory bar on the other. Section 33 is a statutory provision of long standing, and in a purely domestic context Parliament intended its ambit to be exclusive, as the Court of Appeal held in Monro v Revenue and Customs Commissioners [2008] EWCA Civ 306, [2009] Ch 69. Despite that exclusive ambit, however, the Supreme Court construed the section in such a way as to permit the test claimants to bring their common law claims, and did not then confine them to Woolwich claims alone.  
The decision of the ECJ in Littlewoods
26.	The background to the reference in Littlewoods (ECJ) is explained in ITC No.1 at paragraphs [158] to [162], which I will not repeat. Before I come to the judgment of the Court, it is instructive to see how the Advocate General (Trstenjak) dealt with the fourth question in her Opinion at paragraphs 50 to 61. She began by expressing the view that the fourth question “essentially concerns the effect of the principle of equivalence”. As she explained in paragraph 56, she had already concluded that the award of simple interest on the VAT collected in breach of EU law pursuant to section 78 of VATA 1994 complied with the principle of effectiveness. In going on to consider whether section 78 also complied with the principle of equivalence, she then said:
“57. … In the context of the fourth question, [the national] court is required, in particular, to determine the question whether a taxable person who is claiming back similar taxes or charges levied in breach of national law, together with interest, may select the basis for the interest claims at will under common law or, as the case may be, in accordance with statutory provision, and may therefore, if all the necessary conditions are met, decide in favour of the Woolwich claim, the mistake-based claim or another claim, thereby also determining himself the detailed rules governing payment of interest.
58. If the referring court should conclude in that regard that the detailed rules governing payment of interest on VAT collected in breach of EU law are less favourable than the detailed rules governing similar domestic interest claims, because the taxable person can determine the limitation period and the other characteristics of the similar domestic interest claims through the choice of claim, whereas that is not the case for interest on VAT collected in breach of EU law, it would be required to apply the more favourable rules, governing similar domestic interest claims, also to payment of interest on VAT collected in breach of EU law, thereby allowing the taxable person a free choice of claim.
59. In order to ensure the full effectiveness of European Union law, the referring court would be obliged, in that case, to refrain from applying, if need be, the national rules preventing payment of interest on VAT collected in breach of EU law in accordance with the more favourable rules which apply to similar domestic interest claims, and to apply the national provisions laying down more favourable rules for similar domestic claims to the interest claims stemming from European Union law. That obligation follows directly from the direct effect and the primacy of the European Union legislation from which the interest claim of the person liable for VAT who is entitled to reimbursement stems.”
27.	The Advocate General then went on in paragraph 60 to repeat the well-established principle that equivalence should not be interpreted as requiring member states to extend their “most favourable” domestic rules to similar claims for the payment of interest on unlawful VAT. 
28.	I would comment at this point that the Advocate General clearly envisaged that there might be circumstances in which the principle of equivalence would require national law to allow a free choice of claim, despite the existence of a specific provision such as section 78 of VATA 1994.  That would be the case if section 78 produced a less favourable result than “the detailed rules governing similar domestic interest claims”.  Everything would therefore seem to turn on the identification of the appropriate domestic comparator.  Is the comparison to be made with purely domestic claims for the recovery of overpaid VAT, where there has been no breach of EU law? Or should the comparison be made with other types of domestic claim, where in certain circumstances compound interest can be recovered? There is some authority that the former approach would be the correct one: see the decision of Moses J (as he then was) in Marks & Spencer Plc v Customs and Excise Commissioners [1999] STC 205 at 232, and compare F J Chalke Ltd v Revenue and Customs Commissioners [2009] EWHC 952 (Ch), [2009] STC 20207, at paragraphs [92] and [169], where the point did not arise directly for decision but I referred without dissent to what Moses J had held in the Marks & Spencer case. 
29.	In its judgment delivered on 19 July 2012 the ECJ dealt with all the questions referred by Vos J together. In paragraph 27, the Court said that, in the absence of EU legislation, it was for the internal legal order of each member state to lay down the conditions on which interest should be paid on San Giorgio claims to recover tax levied in breach of EU law, including the question whether such interest should be simple or compound. The conditions would, however, have to comply with the principles of equivalence and effectiveness. 
30.	In paragraph 29, the Court said that the principle of effectiveness:
“… requires that the national rules referring in particular to the calculation of interest which may be due should not lead to depriving the taxpayer of an adequate indemnity for the loss occasioned through the undue payment of VAT.”
As to what the nature of “an adequate indemnity” might be, the Court said only that it would be for the national court to determine the question “having regard to all the circumstances of the case”: see paragraph 30.  The Court noted in this connection that, pursuant to section 78, Littlewoods had already received simple interest in an amount of over £268 million.  The relevance, if any, of that observation to the question whether Littlewoods had received an adequate indemnity is no doubt one of the many points which will have to be determined when the trial of the case resumes later this year. 
31.	In relation to the principle of equivalence, the Court repeated its standard learning on the absence of any requirement for a member state to make available its most favourable rules, and said that it would be for the national court “to consider both the purpose and the essential characteristics of allegedly similar domestic actions”.  For that purpose, the national court would have to consider “whether the actions concerned are similar as regards their purpose, cause of action and essential characteristics”: see paragraph 31 and the authority there cited.
32.	The Court then continued:
“32. According to the referring court, application of s78 of the 1994 Act has the effect of excluding two actions provided for by common law, namely the Woolwich claim and the restitution action based on an error of law. In essence, the referring court asks whether, if it is found that s78 and s80 of the 1994 Act are contrary to EU law, a failure to apply the restriction contained therein in relation to the Woolwich claim in the main proceedings could lead to payment of interest which is compatible with EU law or whether the restriction contained in s78 and s 80 of the 1994 Act should be disapplied in respect of all the claims or remedies under common law.
33. As is apparent from consistent case law, when faced with a rule of law that is incompatible with directly applicable EU law, the national court is required to disapply that national rule, it being understood that that obligation does not restrict the power of the competent national courts to apply, amongst the various procedures of the internal legal order, those which are appropriate to safeguard the individual rights conferred by EU law …
34. In the light of the foregoing, the answer to the questions referred is that EU law must be interpreted as requiring that a taxable person who has overpaid VAT which was collected by the member state contrary to the requirements of EU VAT legislation has a right to reimbursement of the tax collected in breach of EU law and to the payment of interest on the amount of the latter. It is for national law to determine, in compliance with the principles of effectiveness and equivalence, whether the principal sum must bear “simple interest”, “compound interest” or another type of interest.”
33.	Again, the interpretation of this somewhat Delphic guidance is unlikely to be a simple matter, but one test which does appear to emerge with tolerable clarity is that the national court must apply such of its procedures as “are appropriate to safeguard the individual rights conferred by EU law”.  There is certainly no suggestion that it is the task of the national court, if it disapplies a statutory provision as being contrary to EU law, to then search for the minimum remedy to satisfy the claimant’s San Giorgio rights. The search is, rather, for the remedy or remedies which are “appropriate”.  Building on this point, Mr Rabinowitz submits that in the present case section 80(7) of VATA 1994 has to be disapplied, and that the appropriate course for the national court to adopt is then to give the claimants the same choice of remedies as a claimant seeking to recover unlawfully levied national tax would have had on the assumption that section 80 did not exist. 
The submissions of HMRC
34.	HMRC maintain all their submissions at the earlier hearing, which I set out in paragraphs [150] to [165] of ITC (No.1).  
35.	In relation to the Woolwich cause of action, Mr Swift submitted that its reformulation by the Supreme Court lent support to the argument that it is broad enough to include a claim by end users to recover unlawfully levied VAT, or (if that is wrong) that only a small and logical extension of the principle would be needed to encompass such claims. Mr Swift relied in this context on my finding that HMRC had been enriched at the expense of the claimants, and my characterisation of the claims as San Giorgio claims for the purposes of  EU law. It would be inconsistent with my acceptance of those propositions, said Mr Swift, and with my reliance on the fact that the claimants were in economic terms the taxpayers, if I were to define the Woolwich principle in such narrow terms as to exclude their claims from its ambit.  Cases of the present type were of course not before the Supreme Court in FII (SC), but Lord Walker’s reformulation of the principle was consistent with the inclusion of such claims. In substance, the unlawful VAT was paid by the claimants to HMRC, via the Managers; it was paid in response to an apparent statutory requirement to pay the tax; and there was a sufficient causal connection between the payment and the statutory requirement.  
36.	In urging me to have regard to the economic reality of the position, Mr Swift drew a contrast with the requirement of a causative mistake in the claimants’ pleaded DMG claims.  He described the mistake about the legality of the legislation as a largely fictional construct, and argued that if there had been any true mistake, it was made by HMRC when they formulated the relevant legislation.  He suggested that the Woolwich cause of action was a much better representation of what happened in practice, and that it therefore provided a much better “fit” for vindication of the claimants’ EU rights.
37.	Mr Swift accepted, however, that if he were wrong about this, and if the Woolwich principle were either not available to the claimants, or not alone sufficient to satisfy their San Giorgio claims, the relevant mistake-based claims would have to succeed (on the assumption, of course, that my prior conclusions on liability were correct). 
38.	The Woolwich principle apart, Mr Swift submitted that, properly understood, FII (SC) provided no support for the claimants’ case, and that the passages in the judgments which appeared to favour the availability of concurrent causes of action were for present purposes irrelevant, because the starting point was fundamentally different.  In the FII litigation, the starting point (at any rate for the claims that did not prima facie fall within section 33 of the Taxes Management Act 1970) was that the test claimants in principle had two alternative causes of action available to them at common law, and the critical question was whether Parliament could lawfully curtail one of those causes of action by the enactment of section 320 of the 2004 Act and section 107 of the 2007 Act. Once it was held that either or both of those enactments was invalid in relation to directly effective EU rights, it naturally followed that both causes of action remained available to the test claimants; and since EU law leaves questions of procedure to the national court, there was nothing to prevent the normal domestic principle of freedom of choice from applying. In the present case, by contrast, the starting point is the long-standing statutory scheme for the recovery of overpaid VAT now contained in section 80 of VATA 1994, which expressly excludes all other remedies. Thus the only relevant right which the claimants have ever had in national law to recover overpaid VAT is the statutory right conferred by section 80.  Unlike the FII test claimants, they have never had the option of bringing either a Woolwich or a mistake-based DMG claim. In those circumstances, submits Mr Swift, the exercise which the court has to perform in order to give effect to the claimants’ directly effective EU rights is of a very different nature.  What has to be done is to over-ride the statutory prohibition on other remedies in section 80(7) to the minimum extent necessary to accommodate those rights.  Anything which goes further than that would represent an unwarranted interference with national sovereignty and the will of Parliament as expressed in section 80. 
39.	When I asked Mr Swift where in EU law I could find this minimalist approach articulated, he said that the principles upon which he relied were the familiar ones of effectiveness and equivalence.  He submitted that they are both regarded as minimum standards, and reflect the underlying constitutional principle that domestic law should give way to EU law only to the extent necessary to secure compliance with it.
40.	Turning to section 33 of the Taxes Management Act 1970, Mr Swift submitted that the Supreme Court’s treatment of it again provides no real support to the claimants. What the Supreme Court held, by application of the Marleasing principle, was that the section should not be interpreted as implying an exclusion of rights of action at common law, when such an implication would itself be contrary to EU law.  There was no question of disapplying the section, and it was possible to deal with the apparent conflict with EU law by a process of conforming construction precisely because there was no express exclusion of other claims, as (by contrast) there is in section 80(7) of VATA 1994 (a point to which Lord Walker drew attention in paragraph [119]). 
41.	As to the claimants’ reliance on DMG, Mr Swift submitted that the only question argued in that case was whether as a matter of English law a mistake-based claim was available to the claimant.  The point in issue in the present case was simply not considered by the House of Lords, and it would be wrong to treat the court as having implicitly expressed a view on it.  The arguments of HMRC were rejected because they were held to be incorrect as a matter of English law, not because it was held that EU law required a mistake-based cause of action to be made available. 
42.	In relation to Littlewoods (ECJ), Mr Swift emphasised that the ECJ had mainly discussed the fourth question from the point of view of the principle of equivalence, to this extent reflecting the approach of the Advocate General.  The most significant point, said Mr Swift, was a negative one, namely that the Court did not answer the fourth question by saying that both causes of action had to be made available to the claimants.  Had that been a requirement of EU law, one would expect the Court to have said so expressly, given the way in which the fourth question had been framed.  The guidance given by the Court is therefore entirely consistent with the proposition that, in the present case, disapplication of section 80(7) to the extent of the Woolwich cause of action alone would satisfy the principles of effectiveness and equivalence. As to the reference to “appropriate” procedures of national law in paragraph 33 of the judgment of the Court, Mr Swift submitted that it did no more than repeat the long-standing principle laid down in the case law cited in the paragraph.  There is nothing to suggest that the Court was intending to lay down a new principle, or to extend any existing one. The question of what procedures it would be appropriate for the national court to apply would depend on the circumstances of the individual case, which brings one back to Mr Swift’s key submission about the all-important difference between the starting point in the FII litigation and the starting point in the present case. 
Discussion and conclusions
43.	In considering these submissions, I begin with the question whether the Woolwich cause of action, as now elucidated by the Supreme Court, would in principle have been available to the claimants in the present case.   In my judgment, it would not.  I consider that, properly understood, the principle is confined to claimants who were themselves liable for the overpaid tax, on the assumption that it was validly levied, and who were in principle subject to the coercive power of the state in relation to the exaction and recovery of such tax. The critical distinction in the present case is that the only obligation of the claimants to pay the VAT was a purely contractual one as between them and the Managers.  
44.	For some purposes, the fact that the claimants bore the economic burden of the tax makes it appropriate to align their position with that of taxpayers properly so called. But I can see no logical reason why the same approach must be followed in relation to the question of remedies. The direct claim which I have held to be available to the claimants against HMRC is, on any view, a last resort which should be invoked only if and to the extent that recovery from the Managers themselves proves impossible. If such a claim were to be characterised as a Woolwich claim, it would seem to follow that any end user of goods or services who had borne the burden of unlawfully levied VAT would, as a first rather than a last resort, be able to maintain a direct action against HMRC to recover it.  In my view that would be inappropriate, and would tend to undermine the constitutional significance of the Woolwich principle.  I would therefore hold, as a matter of English law, that the scope of the Woolwich remedy should be confined to those who have themselves paid the sums which it is sought to recover to a public authority in response to an apparent statutory requirement to do so.
45.	If this conclusion is right, it follows (as HMRC concede) that the final issue must be decided in the claimants’ favour and that the action by M & G Trust succeeds to the extent of its claim outside the dead period. Subject to any points about the form of the order which may be made when this judgment is handed down, I propose to make a declaration in those terms.  I will, however, go on to consider the position on the assumption that I am wrong in the conclusion which I have just stated, and that the Woolwich cause of action is in principle available to end users in the position of the claimants.
46.	On that basis, the next main question is whether Mr Swift is right in his submissions about the appropriate starting point, and the distinction which he draws between the position in the present case and the position in the FII litigation. In my judgment he is plainly right to draw attention to the fact that section 80 of VATA 1994 is a statutory provision of long standing, which as a matter of national law provides an exclusive remedy for the recovery of overpaid VAT, and rules out any common law cause of action which might otherwise co-exist with it.  In that respect, the position is clearly different from that which faced the FII test claimants. But does the distinction remain important once the exclusionary effect of section 80 has been disapplied by EU law?  My answer to that question is no.  In my judgment, once the exclusionary rule in section 80(7) has been over-ridden, the position is the same as it would be if common law causes of action had always been permitted to co-exist with section 80, and in those circumstances no warrant can be found, in either English or EU law, for confining a claimant to only one such common law remedy, or for trying to identify the remedy which objectively provides the best fit for the claim.  That was, in essence, what the Court of Appeal held should be done in FII (CA), but that approach has now been shown to be wrong by the majority in the Supreme Court. In short, once the exclusionary rule has been removed by force of EU law, I see no answer to the simple point that the normal principle of freedom of choice under English domestic law should be allowed to prevail. 
47.	In my view substantial support for this approach may be found in the judgments of the majority in FII (SC), including in particular the passages from the judgments of Lord Hope, Lord Walker and Lord Reed to which I have referred earlier in this judgment. 
48.	The correctness of this conclusion is in my judgment also supported by two further considerations.
49.	First, as I said in ITC No.1 at paragraph [170], I see considerable force in the claimants’ argument founded on DMG. It is true that the present issue was not before the House, but the fact remains that the principle in President of India apparently had to be disapplied in order to provide the claimant with any remedy at all, and this was clearly recognised by both Lord Hoffmann and Lord Walker: see [2007] 1 AC 558 at paragraphs [5] and [135] to [136], although it is fair to say that Lord Walker recorded that the House had heard no argument on whether and how the principle applied to the law of unjust enrichment, and left open “the question whether DMG has to rely on any special principle of EU law in order to obtain a remedy in respect of an exaction which is unlawful only in being premature”.  The important point to my mind is that, although the possible need to disapply the principle in President of India was clearly contemplated by at least two members of the court, and had been expressly adverted to by the ECJ in its judgment in Hoechst, it never seems to have occurred to anybody that this might have an impact on the choice of domestic remedies available to the test claimants if it were once held that English law recognised a restitutionary claim for tax paid under a mistake of law.  
50.	I also agree with Mr Rabinowitz that a similar point may be made about the way in which the Supreme Court has now dealt with section 33 of the Taxes Management Act 1970. It is true that both Lord Walker and Lord Sumption held that the preferable way to achieve harmony between the section and EU law, in the context of the test claimants’ San Giorgio claims, was by a process of conforming construction rather than (as I had held at first instance) disapplication, but as Lord Walker noted in paragraph [119] the effect was in practical terms the same as that which I had reached. Whether by a process of disapplication or conforming construction, section 33 could no longer be regarded as providing an exclusive remedy for the relevant claims, and again it does not seem to have occurred to anybody that the need to construe the section in this way might have any bearing on the freedom of choice of remedies which domestic law afforded to the test claimants.  Indeed, it would in my view be very strange if the precise way in which section 33 is made compliant with EU law were to make any difference, given the strong emphasis in the judgments of the majority on the freedom of choice principle.
51.	Secondly, I agree with the claimants that some assistance can be gained from the way in which the ECJ has now dealt with the principle of equivalence in Littlewoods (ECJ). The recognition in paragraph 33 of the judgment of the Court that it is for the national court to apply such of its internal procedures as are “appropriate to safeguard the individual rights conferred by EU law” gives no encouragement at all to the notion that the national court should search for the minimum remedy needed to safeguard those rights, but instead appears to me to envisage a much more broadly-based enquiry into what is appropriate, while recognising that there is no obligation to extend the national court’s “most favourable rules” for that purpose.  The claimants in the present case are not asking for anything more than the freedom of choice between concurrent remedies which English law normally affords.  There is no question of their seeking any exceptional treatment, and in my view it is entirely appropriate that the normal freedom of choice accorded to domestic litigants should apply.
52.	My final conclusion, therefore, is that, for all the reasons which I have given, the claim of M & G Trust succeeds, to the extent of the “£25” element of its claim outside the dead period, but the claims of Kleinwort Trust and F & C Trust will be dismissed, because they relate only to payments of VAT during the dead period.