THE HIGH COURT

2000 No 7923p

BETWEEN

BANK OF IRELAND TRUST SERVICES LIMITED
(FORMERLY ERIN EXECUTOR AND TRUSTEE COMPANY LIMITED)
(AS TRUSTEE OF IRISH PENSION FUND PROPERTY UNIT TRUST)

Plaintiff

and

THE REVENUE COMMISSIONERS

Defendants

JUDGMENT of Mr Justice Kelly delivered the 29th day of November, 2002.

The Issue

The sole issue which I am called upon to decide at this stage of these proceedings is whether repayments of Value Added Tax (VAT) totalling £IR1,750,000 made by the defendants to the plaintiff should carry interest. That is an issue of principle. The parties have agreed that if it is decided in favour of the plaintiff the question of the rate of interest which ought to apply and the quantification of the amount payable should stand over for determination on another day.

Background

The plaintiff was for many years engaged in acquiring, developing, leasing and managing a portfolio of properties. It was registered for VAT. It duly made bi-monthly returns in respect of its VAT liability. It is agreed between the parties that no assessment was raised by the defendants in relation to the VAT the subject of these proceedings.

The VAT was paid by or refunded to the plaintiff pursuant to the bi-monthly returns filed by it between 1981 and 1997. These returns were made in accordance with Revenue guidelines.

On the 22nd March, 1991 the first written notice of a claim on the part of the plaintiff was made. This claim was in respect of the period from the 1st November, 1986 to 30th April, 1989.

The claim was made on behalf of the plaintiff for repayment of tax. The defendants refused to make the repayment and made a determination against the plaintiff in that regard.

From that determination the plaintiff appealed to the Appeal Commissioners pursuant to the provisions of s.25(l) of the VAT Act, 1972. The claim for refund was ultimately made retrospective to 1981 being the maximum period permissible having regard to the limitation period for such claims.

The actual case which was brought on appeal was in respect of a single two month period of March/April, 1989. This was brought as a test case the result of which was to govern liability for all of the relevant periods in respect of which a claim was made.

The Appeal Commissioners determined the matter against the plaintiff.

No sum was paid pursuant to the determination of the Appeal Commissioners and VAT continued to be paid or refunded without the input credits in dispute.

From the determination of the Appeal Commissioners a case was stated to the High Court. On the 11th October, 1994 Geoghegan J. (then a High Court judge) answered the questions posed in the case stated in a manner adverse to the plaintiff.

The plaintiffs appealed the decision of the High Court to the Supreme Court. On the 16th December, 1997 that court (O'Flaherty, Lynch, Barron JJ.) allowed the appeal thereby finding in favour of the plaintiffs whose arguments had before then been rejected by the defendants, the Appeal Commissioners and the High Court.

The order of the Supreme Court of the 16th December, 1997 follows the usual form of such an order when dealing with a case stated. The order recites that that court was of opinion that the answers to the various questions posed in the case stated as given by the judgment and order of the High Court were erroneous and then proceeds to answer the four questions in accordance with its judgment. The order goes on to allow the appeal and set aside the judgment of the High Court. The Supreme Court order does not direct the payment or repayment of any sums of money.

It is common case however that on foot of the Supreme Court determination on the question of principle, VAT totalling £IR750,000 was in fact repaid to the plaintiff by the defendants.

It is clear from correspondence between the parties that when the original assertion of its entitlements was made by the plaintiff on the 22nd March, 1991 it confirmed that it would not change its basis for recovering VAT until such time as the position in relation to the claim for March/April 1989 was resolved. Furthermore, it was made clear that following a resolution of the issue the plaintiff, if it were successful, would reclaim all the recoverable VAT which was not already claimed (see letter of 22nd March, 1991).

By letter of 17th February, 1998 which post-dated the Supreme Court decision it is recorded that the repayment claim which was the subject of the appeal to the Supreme Court "was a test case and that all other VAT periods from the 1st March, 1981 should be treated as under appeal and dependant upon the outcome of the test case. This position was agreed with the Revenue on commencement of this appeal in 1991". That position has not been put in issue by the defendants.

The Basis for the Claim

As I have already pointed out the sole issue for determination by me at this stage is whether or not the plaintiffs are entitled to interest on the sum refunded to them following the judgment and order of the Supreme Court.

The plaintiff contends that it is entitled to interest on two separate bases. First, it alleges that having regard to the relevant statutory provisions it is entitled to interest pursuant to the legislation.

The second limb of its case (and this arises only if it is unsuccessful on the first) is that pursuant to the principles of the law of restitution it is entitled to be restored the benefit which the defendants have, it is said, unjustly gained at the expense of the plaintiff.

The Statutory Provisions

Section 25 of the VAT Act, 1972 provides that any person aggrieved by a determination of the Revenue Commissioners in relation to inter alia a claim for repayment of tax against which an appeal to the Appeal Commissioners is not otherwise provided for under the Act may appeal to the Appeal Commissioners.

Subsection 2 of section 25 provides that the provisions of the Income Tax Acts relating to a series of issues listed at subparagraphs (a) to (k) are to apply with any necessary modifications to an appeal under that section as if the appeal were an appeal against an assessment to income tax. Amongst the matters which are referred to in subsection 2 of section 25 is the statement of a case for the opinion of the High Court on a point of law (see subsection (h)).

It is clear that s. 25(2) makes no attempt to describe in any detail the particular provisions of the Income Tax Acts which are applied by it. Rather it sets forth a series of topics and imports by reference the provisions of the Income Tax Acts relating to those topics into the VAT code.

One of the topics which is covered in s. 25(2) is an appeal by way of case stated to the High Court.

The effect of s. 25(2) therefore is in my view that all of the provisions of the Income Tax Acts "relating to" appeals by way of case stated to the High Court are imported into the VAT legislation.

The present statutory mechanism for the stating of a case to the High Court in an income tax matter is s. 941 of the Taxes Consolidation Act, 1997. Subsection 6 of that section provides that the High Court shall hear and determine the question of law arising on such a case stated and shall reverse, affirm or amend the determination made by the Appeal Commissioners or may remit the matter to the Appeal Commissioners with the opinion of the court or make such other order in relation to the matter as to the High Court may seem fit. Subsection 8 of s. 941 provides that an appeal shall lie from the decision of the High Court to the Supreme Court.

Subsection 9 of s. 941 provides as follows:

Notwithstanding that a case has been required to be stated or is pending, income tax or, as the case may be, corporation tax shall be paid in accordance with the determination of the Appeal Commissioners; but if the amount of the assessment is altered by the order or judgment of the Supreme Court or the High Court then-

(a) if too much tax has been paid, the amount overpaid shall be refunded with such interest, if any, as the court may allow, or

(b) if too little tax has been paid, the amount unpaid shall be deemed to be arrears of tax (except insofar as any penalty is incurred on account of arrears) and shall be paid and recovered accordingly.

Section 25(2)(i) of the 1972 Act provides that the provisions of the Income Tax Acts relating to the payment of tax in accordance with the determination of the Appeal Commissioners notwithstanding that a case for the opinion of the High Court on a point of law has been required to be stated or is pending shall with all necessary modifications apply to a claim or appeal under s. 25 as if the claim or appeal were an appeal against an assessment to income tax.

I am of opinion that the correct construction to be given to these statutory provisions is that all of the provisions of the Income Tax Acts relating to the payment of tax in accordance with the determination of the Appeal Commissioners where that decision is under appeal by way of case stated are necessarily imported into the VAT legislation. If that be correct then if a claim for repayment of VAT is determined by the High Court or on appeal the Supreme Court in favour of the tax payer, the position in relation to a VAT appeal is the same as that which applies for an income tax appeal. It follows that the amount of VAT overpaid falls to be treated as if it were income tax overpaid and to be refunded with such interest, if any, as the court may allow.

In coming to this conclusion I am of necessity rejecting the submissions which have been made by the defendants. I will deal with each of them in turn.

First, the defendants contend that s. 941(9) of the Taxes Consolidation Act, 1997 as applied to VAT by s. 25(2) does not incorporate any entitlement to interest because of the different way income tax and VAT operate. True it is that the taxes do operate under different statutory regimes, but it appears to me that having regard to the statutory provisions from which I have quoted it is a unified structure insofar as cases stated are concerned and the provisions of the 1997 Act are applicable in that regard with any necessary modifications. I do not believe that the exclusion of the interest entitlement under the 1997 Act is a necessary modification which would deny a VAT payer of an entitlement to interest in respect of a case stated determined in such tax payer's favour.

Secondly, the respondents argue that all of the matters which are expressly incorporated by s. 25(2) are very specific. They say that the incorporation of a provision for payment of interest is not expressly made. Such an argument does not appear to me to hold water. Section 25(2) does not attempt to describe exhaustively or indeed at all the particular income tax provisions which it seeks to incorporate into the VAT code. It lists a series of topics one of which is the statement of a case to the High Court and it provides that the provisions of the Income Tax Acts relating to that shall apply. The fact that the incorporation of the provision for the payment of interest is not expressly made does not appear to me to be fatal to the plaintiff's claim having regard to the general way in which s. 25(2) is framed. Indeed, in this regard it is interesting to note that by s. 85 of the Finance Act, 1983, s. 25(2)(2)(iii) of the Act now provides that one of the specific modifications to the income tax appeal provisions which are to be imported by reference for the purpose of VAT appeals is that one which refers to interest payable under s. 21. That seems to me to strengthen the contention of the plaintiff that the payment of interest is a matter which is incorporated into the VAT code by s. 25(2).

It seems to me that s. 25(2)(i) must incorporate the provisions of s. 941 of the 1997 Act in their entirety otherwise an appeal would not automatically lie to the Supreme Court in VAT appeals since such an appeal is not expressly mentioned in subsection 25(2)(i). If s. 941(8) must by necessary implication be incorporated so then must subsection (9).

Finally, I do not think that anything turns on the fact that the payments in suit were not made on foot of an assessment on foot of the Appeal Commissioners determination. Payments were made in accordance with Revenue guidelines and insofar as it may be contended that this places the matter outside the scope of the statutory provisions (which I do not accept) it is covered by the 'necessary modification' provision.

In my view therefore, on its proper construction the plaintiff is entitled to interest in accordance with the provisions of s. 941(9).

Lest however, that I am wrong in this approach, I will now proceed to deal with the second argument which is made by the plaintiff.

Unjust Enrichment

The plaintiff alleges that the overpayment of VAT made by it arose as a result of the misconstruction by the defendants of certain provisions of the legislation. It says that the defendants have been unjustly enriched as a result of the payment over to and retention by them of the plaintiff's monies. The defendants were therefore, it says, unjustly enriched and the measure of the plaintiff's loss on foot of that unjust enrichment is the interest lost to the plaintiffs. Therefore, it contends it is entitled to interest on the principal sum which was overpaid and subsequently refunded by the defendant.

In Murphy v. The Attorney General [1982] IR 241 at 316 Henchy J. in considering the plaintiff's claim for repayment of tax said

The implied contention that the State is a constructive trustee of the money collected as income tax under the condemned sections is the counterpart in equity of a claim at common law for money had and received. In Moses v. MacFerlan at p.1012 of the report, Lord Mansfield held that 'the gist of this kind of action is, that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money'. Thus, he put the claim on the footing of equity, or unjust enrichment, rather than under the fiction of an implied promise to repay money had and received.

Whether the action be framed at common law for money had and received or, (as here) in equity for an account of money held as a constructive trustee for the plaintiffs, I would hold that, in the absence of countervailing circumstances (to which I shall presently refer), such money may be recovered: see Mason v. New South Wales and also Bell Brothers Ply Limited v. Shire of Seryentine-Jarrahdale. In Mason v. New South Wales Windeyer J. quoting O'Connor JJ in Sargood's case summed up the relevant legal rule thus: -

'where an officer of Government in the exercise of his office obtains payment of monies as and for a charge which the law enables him to demand and enforce, such monies may be recovered back from him if it should afterwards turn out that they were not legally payable even though no protest was made or question raised at the time of payment. Payments thus demanded colore officii are regarded by the law as being made under duress'.

That dictum appears to recognise in this jurisdiction that a claim for restitution based on principles of unjust enrichment is maintainable.

That view of the law is fortified by the decision of the Supreme Court as pronounced by Keane J. (as he then was) in Corporation of Dublin v. Building and Allied Trades Union [1996] 1 JR 468 where at 483 he said

It is clear that, under our law, a person can in certain circumstances be obliged to effect restitution of money or other property to another where it would be unjust for him to retain the money. Moreover, as Henchy J. noted in East Cork Foods Limited v. O'Dwyer Steel Company [1978] IR 103, this principle no longer rests on the fiction of an implied promise to return the property which, in the days when the forms of action still ruled English law, led to its tortuous rationalisation as being "quasi contractual" in nature.

The modern authorities in this and other common law jurisdictions, of which Murphy v. The Attorney General [1982] IR 241 is a leading Irish example have demonstrated that unjust enrichment exists as a distinctive legal concept, separate from both contract and tort, which in the words of Deane J. in the High Court of Australia in Pavey and Matthews Proprietary Limited v. Paul [1987] 162 CLR 221: -

'Explains why the law recognises, in a variety of distinct categories of cases, an obligation on the part of the defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary process of legal reasoning, of the question of whether the law should, injustice recognise the obligation in a new and developing category of case.'

These two cases seem to me to establish the existence of a doctrine of unjust enrichment as part of the law of this State and, in appropriate circumstances, its applicability in the context of taxes paid where they ought not to have been and refunds not made when they should have been.

Any doubt which might exist concerning the conclusion which I have just come to seems to me to be put to flight by the decision of the House of Lords in England in Woolwich Equitable Building Society v. Inland Revenue Commissioners [1993] AC 70 as applied in this jurisdiction by the decision of Keane J. (then a High Court judge) in O'Rourke v. Revenue Commissioners [1996] ITR 321.

In the Woolwich case the House of Lords decided by a majority (with the two Scottish Law Lords dissenting) that although the common law had previously only admitted recovery of money exacted under an unlawful demand by a public authority where the payment had been made under a mistake of fact or under limited categories of compulsion, which did not apply to the payments by the Woolwich, the nature of a demand for tax or similar impost on the citizen by the State, with the perceived economic and social consequences of non-payment stemming from the inequality of the parties respective positions, and the unjust enrichment falling on the State where the citizen paid an unlawful demand to avoid those consequences, warranted a reformation of the law of restitution so as to recognise a prima facie right of recovery based solely on payment of money pursuant to an ultra vires demand by a public authority. Accordingly, the House of Lords took the view that since the building society's claim fell outside the statutory framework governing repayment of overpaid tax, it was entitled at common law to repayment of the sums from the dates of payments and to interest in respect thereof calculated pursuant to the provisions of the Supreme Court Act of 1981. In the course of his speech Lord Goff said at p.171:

I now turn to the submission of Woolwich that Your Lordship's House should, despite the authorities to which I have referred, reformulate the law so as to establish that the subject who makes a payment in response to an unlawful demand of tax acquires forthwith a prima facie right in restitution to the repayment of the money. This is the real point which lies at the heart of the present appeal; in a sense, everything which I have said so far has done no more than set the stage for its consideration.

The justice underlying Woolwich 's submission is, I consider, plain to see. Take the present case. The Revenue has made an unlawful demand for tax. The taxpayer is convinced that the demand is unlawful, and has to decide what to do. It is faced with the Revenue, armed with the coercive power of the State, including what is in practice a power to charge interest which is penal in its effect. In addition, being a reputable society which alone among building societies is challenging the lawfulness of the demand, it understandably fears damage to its reputation if it does not pay. So it decides to pay first, asserting that it will challenge the lawfulness of the demand in litigation. Now, Woolwich having won that litigation the Revenue asserts that it was never under any obligation to repay the money, and that it in fact repaid it only as a matter of grace. There being no applicable statute to regulate the position, the Revenue has to maintain this position at common law.

Stated in this stark form, the Revenue's position appears to me, as a matter of common justice, to be unsustainable; and the injustice is rendered worse by the fact that it involves, as Nolan J. pointed out, the Revenue having the benefit of a massive interest free loan as the fruit of its unlawful action. I turn then from the particular to the general. Take any tax or duty paid by the- citizen pursuant to an unlawful demand. Common justice seems to require that tax to be repaid, unless special circumstances or some principle of public policy require otherwise; prima facie, a taxpayer should be entitled to repayment as of right.

His Lordship then went on to consider a number of possible objections to this proposition. Having considered them he concluded

Logic appears to demand that the right of recovery should require neither mistake nor compulsion, and that the simple fact that the tax was exacted unlawfully should prima facie be enough to require its repayment.

Later in the speech he said

I would therefore hold that money paid by a citizen to a public authority in the form of taxes or other levies paid pursuant to an ultra vires demand by the authority is prima facie recoverable by the citizen as of right. As at present advised, I am inclined to the opinion that this principle should extend to embrace cases in which the tax or other levy has been wrongly exacted by the public authority not because the demand was ultra vires but for other reasons, for example because the authority has misconstrued a relevant statute or regulation. It is not however necessary to decide the point in the present case and in any event cases of this kind are generally the subject of statutory regimes which legislate for the circumstances in which money so paid either must or may be repaid. Nor do I think it necessary to consider for the purposes of the present case to what extent the common law may provide the public authority with a defence to a claim for the repayment of money so paid; though for the reasons I have already given, I do not consider that the principle of recovery should be inapplicable simply because the citizen has paid the money under a mistake of law.

In O'Rourke's case Keane J. had to consider the entitlement of a tax payer who had tax deducted under the PAYE system to a repayment together with interest of amounts overpaid. The matter was fully contested by the Revenue Commissioners. In the course of his judgment that judge considered in some detail the House of Lords decision in the Woolwich case. He quoted from the speeches of Lord Goff, Lord Brown-Wilkinson and Lord Slynn who constituted the majority of the Law Lords in the Woolwich case. Keane J. then went on as follows

It seems to me that, if the law as laid down in those passages is also the law applicable in Ireland, the tax overpaid by the plaint if was recoverable as a matter of right. It would follow automatically from that conclusion that the plaintiff was entitled to interest so as to compensate him for the unjust enrichment effected at his expense by the defendants. I do not consider that any meaningful distinction can be drawn in this context between tax paid under a regulation subsequently found ultra vires as in the Woolwich case, and excessive amounts paid by a taxpayer because the taxing authority has misconstrued a relevant statute or regulation, which is the position here. Lord Goff in the Woolwich case, while not deciding the point, indicated his view that it was not a significant distinction and Lord Jauncey, in the course of his dissenting opinion, dismissed it as a distinction without a difference. I would respectfully agree with those views. Similarly while the fact that the plaint if permitted the sums to be deducted from his payments without protest is clearly of significance in another context, dealt with at a later part in this judgment, it is clear from the passage which I have already cited that the majority decision in the Woolwich case was also founded on a wider principle i.e. that the money was paid for no consideration.

Later in his judgment Keane J. said

In my view, the opinions of the majority in that case (the Woolwich case) are to be preferred and meet the criteria which our courts have identified as appropriate in developing the doctrine of unjust enrichment. As in other common law jurisdictions, the doctrine has been developed incrementally on a case by case basis, so as to ensure that a vague and uncharted area of the law in which 'palm tree justice' flourishes is not judicially encouraged (see East Cork Foods v. O'Dwyer Steel [1978] IR 103; In Re: PMPA Garages Limited [1992] 1 JR 322; Dublin Corporation v. Building and Allied Trades Union and Ors) I am satisfied that where a person has deducted sums from monies paid to another person purportedly under the PAYE system and transmitted them to the Revenue in circumstances where the Revenue are in the result overpaid, the person affected is entitled as of right to the repayment of those monies, even where the deductions have been acquiesced in by him without protest. It follows that, in the circumstances of this case, the defendants were unjustly enriched as a result of the retention by them of these monies and that the measure of the plaintiff's loss is the amount of interest which the money might have earned, had they not been withheld.

In my view the same approach is applicable to the present case. It follows therefore that the plaintiff is entitled to recover interest on the £1,750,000 under the general law of restitution and unjust enrichment if the payment of interest is not specifically provided for pursuant to the statutory provisions.