England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM the High Court of Justice
Chancery Division
Evans-Lombe J

		Royal Courts of Justice Strand, London, WC2A 2LL
		15th February 2006

Lady Justice Arden:

1. This is an appeal against the order dated 25 February 2005 of Evans-Lombe J [2005] STC 707 dismissing Mr Fleming's appeal against the decision of the Value Added Tax and Duties Tribunal. This decision affirmed the refusal of the Commissioners of Customs & Excise ("Customs & Excise") to make a repayment of input tax to Mr Fleming which he sought to recover outside the statutory three year time limit for such claims. There was no time limit when the claim arose. The three year limit was imposed by a regulation without any transitional provision and as his claim was outside this period the provision on its face prevented him from making his claim thereafter. Had the claim been subject purely to domestic law, the regulation may not have barred his claim (see, for example, the advice of the Privy Council in Yew Bon Tew v Kenderaan Bas Mara [1983] AC 553, 561-563). But Mr Fleming's claim arises under Community law. As explained below, Community law resolves these problems in a different way. It requires there to be an adequate transitional period. But in what manner and by reference to what events is such a period to be fixed if it was not in the regulation? These are some of the important issues said to arise on this appeal.

The background

2. In 1989 and 1990 Mr Fleming, the sole proprietor of a business engaged in the purchase and servicing of quality cars, purchased thirteen Aston Martin motor cars for the purpose of his business. He duly reclaimed the input tax on ten of the thirteen cars, and Customs & Excise paid his claim. However, he did not receive VAT invoices at the time of purchasing the remaining three cars. He needed those invoices to make a claim to recover input tax on purchase of the three remaining three cars. In the event, it was not until 23 October 2000 that Mr Fleming made a claim for repayment of VAT paid on these three cars and his claim was refused.
3. Customs & Excise relied on a three year time limit for making repayment claims introduced by amendment to regulation 29 of the Value Added Tax Regulations 1995 (SI 1995/2518) ("the 1995 regulations") with effect from 1 May 1997. However, the tribunal held that Customs & Excise could not rely on this three year time limit because Mr Fleming had an accrued right to deduct input tax under Community law. This could not be taken away by legislation which had retrospective effect. The tribunal, nonetheless, dismissed Mr Fleming's appeal on the ground that if the matter had been sent back to the Commissioners of Customs & Excise they would inevitably have rejected the claim in exercise of their discretion under article 18(3) of the Sixth EC VAT Directive (77/388/EEC) ("the Sixth Directive"), which the tribunal was not prepared to find would have been unreasonable. Neither Mr Fleming nor Customs & Excise sought to uphold that part of the tribunal's decision before the judge. Accordingly, before the judge, Customs & Excise were the effective appellants seeking to overturn the tribunal's decision that they could not rely on the three year time limit in regulation 29 (as amended).

Legal and regulatory background

4. As I have said, Mr Fleming's right of deduction arises under Community law. Article 17 of the Sixth Directive provides as follows:

"(1) The right to deduct shall arise at the time when the deductible tax becomes chargeable.

(2) In so far as the goods and services are used for the purpose of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

(a) value added tax due or paid within the territory of the country in respect of goods or services supplied or to be supplied to him by another taxable person. . . ."

5. Art 18 deals with the exercise of the right of deduction:

"(1) To exercise his right of deduction a taxable person must:

(a) in respect of deductions pursuant to Article 17(2)(a), hold an invoice drawn up in accordance with Article 22(3) ...

(2) The taxable person shall effect the deduction by subtracting from the total amount of tax due for a given tax period the total amount of the tax in respect of which, during the same period, the right to deduct has arisen...

(3) Member States shall determine the conditions and procedures whereby a taxable person may be authorised to make a deduction which he has not made in accordance with the provisions of paragraphs (1) and (2)."

6. The Value Added Tax Act 1994 ("VATA 1994") was enacted in large part to implement the Sixth Directive. VATA 1994 gives powers to the Commissioners of Customs & Excise to make regulations for certain purposes, and, in pursuance of those powers, the Commissioners made the 1995 regulations. These regulations have been amended from time to time. The material regulation is regulation 29, which, as amended by the Value Added Tax (Amendment) Regulations 1997 (SI 1997/1086) ("the 1997 regulations"), provides for a time limit of three years for making claims hereunder:

"29(1) [Subject to paragraphs (1A) and (2) below], and save as the Commissioners may otherwise allow or direct either generally or specially, a person claiming deduction of input tax under section 25 (2) of the Act shall do so on a return made by him for the prescribed accounting period in which the VAT became chargeable.

[(1A) The Commissioners shall not allow or direct a person to make any claim for deduction of input tax in terms such that the deduction would fall to be claimed more than 3 years after the date by which the return for the prescribed accounting period in which the VAT became chargeable is required to be made.]

(2) At the time of claiming deduction of input tax in accordance with paragraph (1) above, a person shall, if the claim is in respect of –

(a) a supply from another taxable person, hold the document which is required to be provided under regulation 13. .. .

provided that where the Commissioners so direct, either generally or in relation to particular cases or classes of cases, a claimant shall hold or provide such other . . . evidence of the charge to VAT as the Commissioners may direct . . ."

7. The words in square brackets were inserted into regulation 29 by the 1997 regulations. It is common ground on this appeal that regulation 29(1A) governs all claims for the deduction or repayment of input tax. The document referred to in regulation 29(2) (a) is a VAT invoice. Prior, however, to the decision of this court in the conjoined appeals of Marks and Spencer plc v Commissioners of Customs & Excise and University of Sussex v Customs & Excise Commissioners [2004] STC 1, ("the University of Sussex case"), Customs & Excise took the view that claims (as in this case) for the repayment of input tax fell within section 80 of VATA 1994, rather than regulation 29: see business brief 4/02, issued on 22 February 2002. It is not, however, necessary to summarise or set out section 80 save to state that it provides for taxpayers to claim overpaid VAT subject to an express time limit of three years, previously six years (and in some cases six years from the date of the discovery of the mistake). This change was made on 4 December 1996 with effect from 18 July 1996 by a resolution of Parliament passed under the Provisional Collection of Taxes Act 1968. The date 4 December 1996 is significant when it comes to understanding the business briefs referred to in para 10 below.
8. In 1999, this court referred a question to the Court of Justice in Luxembourg for a preliminary ruling (Marks & Spencer plc v Customs & Excise [2000] STC 16 (Stuart-Smith, Ward and Schiemann LJJ), and this resulted in the landmark decision on 11 July 2002 of the Court of Justice in Marks and Spencer plc v Commissioners of Customs & Excise [2003] QB 866. Among other issues, the Court of Justice considered whether it was compatible with the Community law principles of effectiveness of rights and of the protection of legitimate expectations for rights conferred by a directive to be removed by national legislation having retrospective effect. The Court of Justice held that the right conferred by a directive to recover sums collected in breach of Community law could be barred by national legislation imposing a time limit. That would not be incompatible with the principle of effectiveness. However, the limitation period had to be reasonable, and, consistently with the principle of legal certainty, fixed in advance. It followed that, where a new shorter limitation period was introduced, there had to be an adequate transitional period. The relevant passage from the judgment of the Court of Justice is the following:

"The principle of effectiveness

34. It should be recalled at the outset that in the absence of Community rules on the repayment of national charges wrongly levied it is for the domestic legal system of each member state to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law, provided, first, that such rules are not less favourable than those governing similar domestic actions (the principle of equivalence) and, second, that they do not render virtually impossible or excessively difficult the exercise of rights conferred by Community law (the principle of effectiveness) (see, inter alia, Aprile Srl (in liquidation) v Amministrazione delle Finanze dello Stato (No 2) (Case C-228/96) [2000] 1 WLR 126, 148 para 18, and the judgments in Dilexport SrI v Amminisrrazione delle Finanze dello Stato [1999] ECRI-579, para 25, and Metallgesellschaft Ltd v IRC [2001] STC 452, [2001] Ch 620, para 85).

35. As regards the latter principle, the court has held that in the interests of legal certainty, which protects both the taxpayer and the administration, it is compatible with Community law to lay down reasonable time limits for bringing proceedings (see Aprile SrI (in liquidation) v Amministrazione delle Finanze dello Stato (No 2) [2000] 1 WLR 126, para 19, and the case law cited therein). Such time limits are not liable to render virtually impossible or excessively difficult the exercise of the rights conferred by Community law. In that context, a national limitation period of three years which runs from the date of the contested payment appears to be reasonable (see, in particular, Aprile, para 19, and Dilexport Srl v Amministrazione delle Finanze dello Stato [1999] ECR 1-579, para 26).

36. Moreover, it is clear from the judgments in Aprile Srl (in liquidation) v Amministrazione delle Finanze dello Stato (No 2) [2000] 1 WLR 126, para 28 and Dilexport Srl v Amministrazione delle Finanze dello Stato [1999] ECR 1-579, paras 41-42 that national legislation curtailing the period within which recovery may be sought of sums charged in breach of Community law is, subject to certain conditions, compatible with Community law. First, it must not be intended specifically to limit the consequences of a judgment of the court to the effect that national legislation concerning a specific tax is incompatible with Community law. Secondly, the time set for its application must be sufficient to ensure that the right to repayment is effective. In that connection, the court has held that legislation which is not in fact retrospective in scope complies with that condition.

37. It is plain, however, that that condition is not satisfied by national legislation such as that at issue in the main proceedings which reduces from six to three years the period within which repayment may be sought of VAT wrongly paid, by providing that the new time limit is to apply immediately to all claims made after the date of enactment of that legislation and to claims made between that date and an earlier date, being that of the entry into force of the legislation, as well as to claims for repayment made before the date of entry into force which are still pending on that date.

38. Whilst national legislation reducing the period within which repayment of sums collected in breach of Community law may be sought is not incompatible with the principle of effectiveness, it is subject to the condition not only that the new limitation period is reasonable but also that the new legislation includes transitional arrangements allowing an adequate period after the enactment of the legislation for lodging claims for repayment which persons were entitled to submit under the original legislation. Such transitional arrangements are necessary where the immediate application to those claims of a limitation period shorter than that which was previously in force would have the effect of retroactively depriving some individuals of their right to repayment, or of allowing them too short a period for asserting that right.

39. In that connection it should be noted that member states are required as a matter of principle to repay taxes collected in breach of Community law (see Société Comateb v Directeur Général des Douanes et Droits lndirects and related references (Joined cases C-192/95 to C-218/95) [1997] STC 1006) [1997] ECRI-165, para 20) and Dilexport SrI v Amministrazione delle Finanze dello Stato [1999] ECR 1-579, para 23), and whilst the court has acknowledged that, by way of exception to that principle, fixing a reasonable period for claiming repayment is compatible with Community law, that is in the interests of legal certainty, as was noted in para 35 hereof. However, in order to serve their purpose of ensuring legal certainty limitation periods must be fixed in advance (see ACF Chemiefarma NV v EC Commission (Case 41/69) [1970] ECR 661, para 19).

40. Accordingly, legislation such as that in the main proceedings, the retroactive effect of which deprives individuals of any possibility of exercising a right which they previously enjoyed with regard to repayment of VAT collected in breach of provisions of the Sixth Directive with direct effect must be held to be incompatible with the principle of effectiveness.

41. That applies notwithstanding the argument of the United Kingdom government to the effect that the enactment of the legislation at issue in the main proceedings was motivated by the legitimate purpose of striking a due balance between the individual and the collective interest and of enabling the state to plan income and expenditure without the disruption caused by major unforeseen liabilities.

42. Whilst such a purpose may serve to justify fixing reasonable limitation periods for bringing claims, as was noted in para 35, it cannot permit them to be so applied that rights conferred on individuals by Community law are no longer safeguarded.

The principle of the protection of legitimate expectations

43. The United Kingdom government maintains that the principle of protection of legitimate expectations is not relevant in a dispute such as that in the main proceedings. It submits that determination of the procedural rules governing claims for the recovery of overpayments of VAT is entirely a matter of domestic law, subject only to observance of the Community law principles of equivalence and effectiveness. If the principle of the protection of legitimate expectations were applicable in the dispute in the main proceedings, the only expectation would be that individuals are entitled to have their claims dealt with in accordance with the procedural rules of national laws, which happened in the present case.

44. In that connection, the court has consistently held that the principle of the protection of legitimate expectations forms part of the Community legal order and must be observed by the member states when they exercise the powers conferred on them by Community directives (see, to that effect, Hauptzollant Hamburg-Jonas v Krüken (Case 316/86) [1988] ECR 2213, para 22, Alois Lageder SpA v Administrazione delle Finanza dello Stato (Joined cases C-31/91 to C-444/91 [1993] ECR 1-1761, para 33, Belgocodes SA v Belgium (Case C-381/97 [2000] STC 351, [1998] ECR 1-8153, para 26, and Grundstückgemeinschaft Schoßstraße GbR v Finanzamt Paderborn (Case C-396/98) [2000] ECR 1-4279, para 44).

45. The court has held, in particular, that a legislative amendment retroactively depriving a taxable person of a right to deduction he has derived from the Sixth Directive is incompatible with the principle of the protection of legitimate expectations (see Grundstückgemeinschaft Schoßstraße GbR v Finanzamt Paderborn [2000] ECR 1-4279, para 47).

46. Likewise, in a situation such as that in the main proceedings, the principle of the protection of legitimate expectations applies so as to preclude a national legislative amendment which retroactively deprives a taxable person of the right enjoyed prior to that amendment to obtain repayment of taxes collected in breach of provisions of the Sixth Directive with direct effect."

9. On 24 September 2002, the Court of Justice handed down a further decision in Grundig Italiana SpA v Ministero delle Finanze (case C-255/00) [2002] ECR 1-8003. In this case the Court of Justice held that, where a period for making claims for the repayment of VAT was reduced by Italian law from five years to three years, a transitional period of at least six months must be allowed.
10. Customs & Excise took account of the decisions of the Court of Justice by issuing two business briefs, applying to claims under section 80 of VATA 1994. These business briefs are official announcements by Customs & Excise as to their practice. In business brief 22/02 of 5 August 2002, following the Marks & Spencer case, Customs & Excise stated in essence that, subject to various conditions, if over-payments of VAT had been made before 4 December 1996 and claims to recover such over-payments had been discovered or made prior to 31 March 1997, a claim for repayment could be submitted or resubmitted up to 31 March 2003. This gave a three month transitional period calculated from the date of the enactment of the amendment to section 80. This period was chosen on the basis of the opinion of Advocate General Colomer in the Grundig case, but his opinion was not accepted on this point by the Court of Justice. Accordingly, Customs & Excise issued the second business brief. This was business brief 27/02 of 7 October 2002. This modified the earlier business brief following the Grundig case by providing that, subject to various conditions, if over-payments of VAT (made before 4 September 1996) had been made or discovered before 30 June 1997, claims to recover such over-payments could be made up to 30 June 2003. Again, a transitional period was given, but only in retrospect. The business briefs state that the decisions of the Court of Justice only required the transitional period to run from the date of the amendment to section 80. For reasons which are not relevant to Mr Fleming's appeal, the business briefs also state that claims will be accepted which go beyond those required to be accepted as a result of the decision of the Court of Justice. Subject to these concessions, the labyrinthine complexity of these business briefs suggests an anxiety on the part of Customs & Excise not to give further opportunities for late claims than was required by the decisions of the Court of Justice.
11. As already explained, at the time of the issue of the business briefs, Customs & Excise were of the view that input tax recovery claims were governed by section 80 of VATA 1994, not regulation 29. Accordingly, the business briefs refer to section 80 and not to regulation 29. Customs & Excise were contending in the University of Sussex case that claims for the recovery of input tax were subject to section 80 and they maintained that position until this court's judgment in this case on 21 October 2003. (Marks & Spencer plc appealed from this decision to the House of Lords on a question as to the effect of article 28 of the Sixth Directive, which is not material for the purposes of this appeal, and on 28 July 2005 the House of Lords referred a further question for a preliminary ruling to the Court of Justice: [2005] STC 1254). Business briefs 22/02 and 27/02 were, however, issued after Mr Fleming's claim had been rejected and Mr Fleming had entered an appeal to the tribunal. If Mr Fleming had presented his claim in 2000 as a claim under section 80, it would have been liable to rejection as out of time under that section as enacted and amended.

The judgment of Evans-Lombe J below

12. The judge considered the decision of the Court of Justice in Marks & Spencer Plc v Commissioners of Customs & Excise and went on to hold that regulation 29(1A) was imposed without transitional provisions and thus, to the extent it might prevent individuals with accrued rights from recovering VAT because, for instance, at the moment the time limit took effect they had an accrued claim but the period of limitation had already expired, those individuals would be entitled to require Customs & Excise to repay the tax notwithstanding that their claims would otherwise be barred by the time limit. He further held, however, that the violation of the principle of effectiveness did not mean that the regulation 29(1A) was of no effect. The position of persons with accrued rights did not continue indefinitely. Accordingly, a time limit could be imposed. Mr Fleming had been capable of making a claim since 1990. He must be taken to have notice of regulation 29 (1A) and therefore the tribunal was wrong and the Commissioners were justified in refusing Mr Fleming's claim for repayment.
13. In the course of his judgment the judge held:

"23. In Grundig Italiana SpA v Minstero delle Finanze ((Case C-255/00) [2002] ECR 1-8003), the Court of Justice was considering a case referred to it by the Italian court seeking to ascertain whether the establishment of a transitional period of 90 days in which to bring actions for the recovery of tax paid, which, having been subject to a five-year limitation period, had, owing to a change in legislation introduced with retroactive effect, become subject to a three-year time limit, infringed the principle of effectiveness. In the result of the Court of Justice found that it did but that a transitional period of six months would have been sufficient. At para 41 of the judgment of the Court of Justice the following passage appears:

'41. However, the fact that the national court has found a transitional period fixed by its national legislature such as that in issue in the main proceedings is insufficient does not necessarily mean that the new period for initiating proceedings cannot be applied retroactively at all. The principle of effectiveness merely requires that such retroactive application should not go beyond what is necessary in order to ensure observance of that principle. It must, therefore, be permissible to apply the new period for initiating proceedings to actions brought after expiry of an adequate transitional period, assessed at six months in a case such as the present, even where those actions concern the recovery of sums paid before the entry into force of the legislation laying down the new period.'

24. The Court of Justice was considering a case where, what was in issue, was the sufficiency of transitional provisions. It seems to me, however, that the principles, highlighted in that passage from the judgment, are equally applicable where the relevant time limit imposed by the national legislature is not, as in the case of reg 29(1A), accompanied by any such transitional provisions. The effect of what the Court of Justice is saying in this case is that, even in the case of individuals whose claims have accrued before the time limits were imposed and who may therefore be in a position to require the national court to disapply the time limits to their claims, if brought within a reasonable time after the imposition of the limits, the imposition of the time limits does not continue indefinitely thereafter. If they allow too long a period to go by before making a claim the national court may properly conclude that the principle of finality or legal certainty requires it to refuse to disapply the limitation provisions.

25. In the present case the appellant's claim for repayment of input tax in relation to the three cars in question has been capable of being made by him since 1990 and he only put it forward three years and five months after the coming into force of reg 29 (1A) of which he must be taken to have had notice. For these reasons it seems to be that the tribunal's second conclusion was wrong and the commissioners were justified in refusing the appellant's claim for repayment. In the result, however, the appeal must be dismissed."

Condé Nast Publications Ltd v Customs & Excise [2005] STC 1327 ("the CNP case")

14. A similar point to that decided by Evans-Lombe J in this case came before Warren J in the later case of Condé Nast Publications Ltd v Customs & Excise. The decision of Warren J has also been appealed to this court. The appeals were not consolidated but Chadwick LJ directed that the appeal in the CNP case should be listed for directions at the hearing of this appeal. CNP was represented by Mr Jonathan Peacock QC at the hearing of this appeal and made submissions in support of it. This court has not, however, heard the CNP appeal, in which indeed other issues arise or may arise. In particular there is an issue in the CNP case which does not affect Mr Fleming's appeal, namely whether the taxpayer has to show that he would in fact have made a claim within the transitional period that should have been allowed: the tribunal made an adverse finding of fact against CNP on this point. It is not necessary to set out the facts of the CNP case save to say that CNP's claim, if any, is also for the recovery of input tax (i.e. it is also subject to regulation 29). CNP made its claim on 27 June 2003 in respect of so far as material the period from 1 April 1973 to 30 April 1997. The tribunal found that CNP discovered the error by at the latest 30 June 1997. I need only mention those parts of the judgment of Warren J which are relevant to Mr Fleming's appeal. Warren J held that, in the absence of transitional period for the imposition of a three year time limit on the making of claims for the repayment of VAT, the most a taxpayer could expect would be a reasonable time in which to make a claim. He held that the taxpayer's claim had been made outside a reasonable time. Although the business briefs applied only to claims under section 80, taxpayers should have realised that the amendment to regulation 29 failed to include a transitional period as required by Community law. As to the question of what should happen if a claim was made after the expiration of what would have been a reasonable transitional period if one had been properly introduced, Warren J held:

"38. The first possible approach is that the new national time limit can be relied on by the member state once a reasonable time has passed since its introduction; and this is so regardless of whether the taxpayer knew that he had, or believed that he might have, a Community law right which he could enforce notwithstanding the failure to provide for a proper transitional period. On that approach, it may be that a longer period should be allowed for enforcement of the directly enforceable right than the minimum period which could have been expressly provided. In the present case, and assuming that a six-month transitional period for the purposes of reg 29 would have been appropriate, the time limit for making a claim would have expired six months after either 26 March or 1 May 1997, long before the claim was in fact made by CNP on 27 June 2003. Even allowing a longer period for enforcing Community law rights, a reasonable period would have expired long before that date.

39. The second possible approach is that the principle of effectiveness requires that a taxpayer should be entitled to enforce his Community law right until the time has been reached when he could first have been expected to assert that right; and that he could not be expected to do so as long as that right had no been established and was subject to challenge in the ECJ by the member state concerned. He should, therefore, have a reasonable time in which to assert his Community law right once that right had been established or, at least, once the generality of taxpayers and advisers appreciated that such a right might subsist.

40. As I have already indicated, the reaction of the commissioners to [the decision of the Court of Justice in the Marks & Spencer case] was to introduce, by way of Business Brief 22/02 dated 5 August 2002, a retrospective transitional period, initially of 90 days but, following Grundig, extended to six months. The six-month period was not introduced until long after the six-month transitional period had expired. In order to be or real benefit to traders, they had to be given, as it is put in the Business Brief, time 'to allow taxpayers to make the claims that they ought to have been able to make at the time'. This seems to adopt something along the lines of the second approach.

41. In this context, it is to be remembered that the commissioners were, at that time, still contending that taxpayers had no directly enforceable Community law right in relation to the shortening of the s 80 period; it was not until [the decision of the Court of Justice in the Marks & Spencer case] at the earliest that the generality of taxpayers should have known that such a right subsisted and arguably not until [the decision of the Court of Appeal in the Marks & Spencer case and the University of Sussex case] when the issue was first explicitly dealt with by an English court. Accordingly, it would not have been open, on the second approach, to the commissioners to contend, in August 2002, that a reasonable period for asserting Community law rights had passed since the introduction of the new time limits by the Finance Act 1997 and to contend that it was therefore, by August 2002, already too late for claims to be made. The Business Brief seems to me to be a reflection of this second approach, although whether the commissioners were over-generous in allowing claims to be made as late as 31 March 2003 (extended after Grundig in 30 June) is perhaps debateable.

42. That is not to say, even on the second approach, that it was only once a transitional period had been adopted by UK law-either by statute or, as in the case of s 80, by a practice announced by the commissioners-that time could start to run against taxpayers. For instance, if nothing had been done by the commissioners to implement the judgments of the ECJ and the Court of Appeal in [the Marks & Spencer case and the University of Sussex case], taxpayers would nonetheless have known of their Community law rights (possibly after [the Marks and Spencer case] and certainly after [the University of Sussex case]) so that, after a reasonable period, the new time limit for making claims under s 80. would have applied: by failing to assert their directly enforceable Community law rights in good time, taxpayers would have lost the right to invoke the principle of effectiveness to defeat the clear provisions of the domestic statutory provisions. However, so long as the direct effect of Community law remained unclear and while the commissioners themselves were asserting that taxpayers were bound by the terms of s 80, it cannot be said under the second approach that the theoretical right to challenge the commissioners by asserting the right (ie the direct effect of Community law) which the commissioners denied existed is sufficient to satisfy the principle of effectiveness.

43. The position in relation to reg 29 is similar but not precisely identical. The position is similar in that it was a breach of Community law not to provide a transitional period for making claims when reg 29 (1A) was introduced. Accordingly, it was, again, not until the decision in [the Marks & Spencer case] at the earliest that taxpayers should have known that they might have a Community law right which they should enforce within a reasonable time. The position is different in that the commissioners were asserting, until the decision in [the University of Sussex case], that reg 29 did not apply at all and that claims should be made under s 80. CNP, in the present case, made its claim just within the period permitted for s 80 claims; if the commissioners had been correct in their contentions that s 80 applies, then CNP's claim would have been in time. The commissioners submit, albeit as a secondary submission, that the Business Briefs do not apply to late reg 29 claims; and that there would be no breach of Community law in refusing a claim made as late as CNP's actual claim in a reg 29 case, adding that any complaint about declining to apply the same approach as was adopted in relation to the s 80 transitional period is a matter of domestic law and that there is no jurisdiction for the tribunal to deal with such a complaint on a statutory appeal."

15. However, Warren J held that he should follow the decision of Evans-Lombe J unless he considered that that decision was clearly wrong, which he did not.

Submissions

16. Mr David Southern, for Mr Fleming, submits that Evans-Lombe J misinterpreted the effect of the decision of the Court of Justice in the Grundig case. On Mr Southern's submission, the critical words in paragraph 41 of the judgment of the Court of Justice are the words "adequate transitional period" because the taxpayer cannot know whether the transitional period is adequate until he first knows what that period is. Therefore, if national legislation does not contain any adequate arrangements, the restriction on accrued rights must be ineffective. There cannot be an implied limitation period with an unspecified commencement date and of unspecified duration. Moreover, to hold that Customs & Excise should accept some late claims as a matter of discretion is not specific enough to satisfy the principle of effectiveness: see the case note by Monica Chowdry in (2005) 121 LQR 546, 548-549.
17. Mr Southern submits that, where United Kingdom law is inconsistent with Community law, the UK rule is not invalid but disapplied to the extent necessary to give effect to the Community rule: see Local Authorities Mutual Investment Trust v Customs & Excise Commissioners [2004] STC 246 at [67] per Lawrence Collins J. Where national legislation is inconsistent with Community law, the member state cannot rely on its own failure to implement Community law correctly to deny claims: Metallgesellschaft Limited v IRC [2001] STC 452 at 479 per Advocate General Fenelly, and authorities there cited.
18. While Mr Southern's primary submission is that no transitional period has been duly fixed and so cannot be relied on against Mr Fleming, he adopts in the alternative the reasoning of Warren J in paragraph 39 of his judgment. Mr Southern submits that it follows from this approach that, during the period from 1 May 1997 to some date after 11 July 2002, Customs & Excise could not rely on their own defective legislation to bar claims relating to the recovery of input tax incurred before 1 May 1997 because that would be to allow Customs & Excise to benefit from their own failure to implement Community law. In addition he submits that it would follow that from a date after 11 July 2002 (and Warren J suggests 5 August 2002) taxpayers should have a reasonable prospective period in which to make claims to recover overpaid tax, the repayment of which was available under the old rules but not under the new rules.
19. Mr Southern also relies on Commission of the European Communities v United Kingdom [2005] STC 582 in which he submits that the Court of Justice observed that administrative practice "could not afford a wholly satisfactory means of bringing national legislation into conformity with Community law":

"As regards the United Kingdom government's argument that the practice adopted by the tax authorities guarantees the existence of an obligatory link that to deduct VAT in the use of the fuel by the employee for the employer's taxed operations, it must be borne in mind that it is settled law that the incompatibility of national legislation with community provisions can be finally remedied only by means of national provisions of a binding nature which have the same legal force as those which must be amended."

20. Mr Southern's case may be summarised as follows:

i) As at 1 May 1997, Mr Fleming had an accrued directly enforceable Community right to recover his input tax. Regulation 29 (1A) retrospectively removed accrued rights. Under the effectiveness principle it is unlawful to take away a directly effective Community right without adequate transitional arrangements during which to exercise it.

ii) The legislation introducing regulation 29 (1A) was defective in this regard. The decision of the Customs & Excise not to refund this input tax was unlawful.

iii) The business briefs acknowledged the difficulty which had arisen and Customs & Excise cannot rely on their own wrong to refuse Mr Fleming's claim.

iv) The decision of the tribunal was correct in holding that the decision of the Court of Justice in the Marks & Spencer case protected Mr Fleming's accrued right to recover his input tax. Adequate transitional arrangements cannot be implied where they do not exist, and the judge was in error in so far as he held otherwise.

v) The approach of Warren J in paragraph 39 of his judgment in the CNP case allows the construction of a claim period which is compatible with Community law on the basis of Customs & Excise's published administrative practice.

vi) Regulation 29 (1A) should be disapplied in relation to Mr Fleming's claim either on "general legal grounds" or on the basis of the second approach of Warren J in the CNP case.

21. Mr Peacock QC on behalf of CNP submits that in principle the period for any claim by it should (1) run for at least six months, (2) only run from the end of a period in which CNP could assimilate all factors bearing on its position and identify its right to claim and (3) run for administrative convenience to the end of a month, as in the business briefs.
22. Mr Peacock submits that a person with a directly effective right under Community law to claim repayment of input tax must have a real opportunity to make that claim. He observes that, if the claim had been made under section 80 of VATA 1994, CNP would have had the benefit of the transitional periods in the business briefs. The result should be the same for under-declared input tax as it is for overpaid output tax. He submits that six months is the minimum period that should be allowed for a transitional period under regulation 29 and he reserves his position as to the exact length of the transitional period.
23. Mr Peacock effectively adopts and develops the first of the approaches of Warren J in paragraph 39 of his judgment in the CNP case. He submits that in regulation 29 cases traders should be given a six months transitional period to November 1997 and also a reasonable period after the introduction of any retrospective transitional regime, being a period in which traders could notify Customs & Excise of their claims. Time should begin to run when the transitional period has been established.
24. Mr Peacock submits that Customs & Excise are in error in submitting that in the Grundig case the Court of Justice would have permitted a transitional period even if the taxpayer would not have known that failure to exercise his rights within that period would result in the loss of his rights.
25. Mr Peacock observes that Warren J saw great force in both these options in para 39 of his judgment (see his judgment at para 52). If this court takes the alternative approach in para 39, namely the transitional period starts when the generality of taxpayers advisers would have appreciated that a right to make a claim might subsist, there will be an outstanding argument in the CNP case, not resolved on this appeal, as to when that time began. He submits that the alternative approach in para 39 is too imprecise and would impose excessive burden on taxpayers.
26. Miss Alison Foster QC, for Customs & Excise, submits as follows:

i) Reliance by Customs & Excise upon the three year time limit imposed by regulation 29 (1A) is consistent with the principle of effectiveness on the facts of this case.

ii) In the absence of any express legislative transitional provisions, Customs & Excise may rely upon the three year time limit to bar claims for input tax based on rights which accrued prior to the introduction of regulation 29(1A) if the claim is made after the lapse of a reasonable period (in this case six months) from the introduction of the regulation. She submits that such period constitutes a fair opportunity to make any claims.

27. Miss Foster seeks to uphold the judgment of the judge for the reasons that he gives. She submits that the application of the three year time limit under regulation 29 (1A) is in principle authorised either under article 18(3) of the Sixth Directive or under the general power of member states to lay down procedural conditions for the application of Community law. A three year time limit is in the interests of legal certainty. It is not disproportionate and it is does not prevent the effective exercise of directly effective rights. Moreover, it does not breach the principle of equivalence and a failure to enact an express transitional period is not without more a breach of Community law. It is only the deprivation of vested rights by retroactive legislation which is incompatible with Community law. Therefore, the only question for decision is whether as a matter of fact and degree the manner of implementation of regulation 29 (1A) made is virtually impossible or excessively difficult for the appellant to exercise his rights to recover the input tax. Regulation 29 (1A) did not render Mr Fleming's exercise of his right to recover the input tax "virtually impossible or excessively difficult". In this case Mr Fleming made his claim well beyond any reasonable period necessary to satisfy the principle of effectiveness.
28. Miss Foster submits that the position in the light of the Grundig case is as follows:

i) National legislation reducing the period within which the repayment of input tax may be sought is not incompatible with the principles of effectiveness provided that the new limitation period is reasonable and the new legislation includes transitional arrangements allowing an adequate period for lodging claims for repayment which accrued under the earlier legislation.

ii) A transitional period is necessary where the immediate application to those claims of a new shorter limitation period would have the effect of retroactively depriving some individuals of their right to repayment or allowing them to a shorter period for asserting that right. Thus a transitional period must be sufficient to allow taxpayers who originally thought that the old period for bringing proceedings was available to them a reasonable period of time to assert their right of recovery.

iii) The fact that there has been an inadequate transitional period does not mean that the new, shorter limitation period cannot be applied retroactively to proceedings brought after the expiry of an adequate transitional period, even where the claim relates to sums paid before the new limitation period.

iv) The principle of effectiveness merely requires that such retroactive application should not go beyond what is necessary to ensure observance of that principle.

29. Miss Foster submits that the Grundig case is not distinguishable on the ground that the legislation in question contained an express transitional period. The Court of Justice did not require Italy to provide a fresh express claim period of six months. Indeed, in the University of Sussex case, this court held that, even where there were no express transitional arrangements in relation to the introduction of the statutory defence (to a claim for repayment of VAT) of unjust enrichment, Customs & Excise would nevertheless be entitled to rely on that defence retrospectively where the taxpayer's claim was made outside what might be regarded as an adequate transitional period.
30. As to the CNP case, Miss Foster submits that the second approach identified by Warren J in paragraph 39 of his judgment infringes the principle that the taxpayer must be taken to be responsible for his own affairs and to know the law. Nothing happened between 1 May 1997 and the decision by the appellant to make his claim in October 2000 to create those directly effective rights. At all times, taxpayers were entitled to assert that they had directly effective rights but as a result Customs & Excise were not entitled to rely on regulation 29 (1A) without permitting an adequate transitional period.
31. Miss Foster makes no submission about whether, if the expiration of any transitional period is fixed by reference to a date later than the expiration of six months from 1 May 1997, the taxpayer should have known about his claim before the expiration of that period of six months (cf. the business briefs summarised in para 10 above). That question does not arise on the facts of this case.

Conclusions

32. As Monica Chowdry points out in her note in (2005) 121 LQR 546, The Revenue's Response: a Time Bar on Claims, there are several instances in domestic and VAT law where time limits have been introduced without a transitional period for claims which thereby become statute-barred. While the decision in this case may have implications in other fields, no argument has been addressed other than to regulation 29 on this appeal and any problems that arise in those other fields will have to await consideration on another occasion.
33. The right to claim an overpayment of input tax gives rise to a directly enforceable right as a matter of Community law: this question was considered and decided by this court in the University of Sussex case at [173] to [178] per Auld LJ, with whom Chadwick LJ and Newman J agreed. It has not been in issue in this court that Mr Fleming's right to recover input tax is conferred on him by Community law. In other words, Mr Fleming can assert his right notwithstanding the absence of any procedure in national law for the recovery of that sum, and to the extent national law denies him his rights under Community law national law is disapplied or subject to the principle of conforming interpretation.
34. There is also no doubt that a member state may by its national law introduce a limitation period on the right to recover sums recoverable under Community law. Those limitation periods are subject to the principles of Community law, such as the principle of effectiveness explained by the Court of Justice in the Marks & Spencer case. In addition, it is open to the member state to reduce a limitation period for such claims provided that the same principles are observed. In particular, consistently with the principle of effectiveness, an adequate transitional period must be allowed: see the Grundig case, which I consider further below.
35. In the present case, Mr Fleming's claims were governed by regulation 29. With effect from 1 May 1997 there was a three year limitation period for such claims: see regulation 29(1A) set out in paragraph 6 above. Before the introduction of that provision, there was no express statutory time limit applicable to claims under regulation 29. There is no express transitional period in regulation 29 (as amended).
36. As I have explained above, Customs & Excise did not, prior to the decision of this court in University of Sussex case, accept that claims for the repayment of input tax could be made under regulation 29. Their position was not that such claims could not be made, but that they should be made under section 80. As also explained above, following the decisions of the Court of Justice in the Marks & Spencer case and the Grundig case, Customs & Excise issued business briefs setting out transitional periods for claims under section 80. These business briefs, however, are not themselves regulations and it is not suggested that Customs & Excise have power to fix a transitional period otherwise than by amendment to the regulations.
37. The questions may then be asked: is it the function of this court to fix an adequate transitional period? The opinion of the Edinburgh VAT tribunal [Mr T Gordon Coutts QC] in the recent case of Abercromby Motor Group Ltd v Linn Motor Group Ltd [2005] UK VAT V190 15 at [46] was that transitional periods should be clearly stated in legislation and it concluded, tentatively, that a court could not fix such a period:

"It appears to the tribunal that in the light of the instructions given by the Court of Justice in [the Marks and Spencer case and the Grundig case] that an adequate transitional period is an essential element in such legislation and it must be determined by the legislators and appear in the legislation. It is not for a tribunal, and perhaps not even for a court, to speculate about what an adequate transitional period would have been."

38. This is a question of Community law. For my own part, I consider that there is no inherent objection arising out of the judicial role to the determination of the question of what constitutes a reasonable transitional period for the purposes of compliance with the Community law principle of effectiveness. Such determination, however, could only be made within the limits of the judicial process: it could not be determined in the manner in which it would be determined by the legislature or the executive, and it would be determined for the purposes only of enabling those entitled to Community law rights to enforce them. However that may be, the exact length of any transitional period is directly not in issue in this case. Mr Southern does not challenge a period of six months if a transitional period can be given effect. Customs & Excise assert that that is the correct length of such a period, and Mr Peacock accepts six months for the purposes of his submissions on this appeal. The real issues in this case are whether Community law would recognise, or imply, or both, a notional transitional period, that is, one not specifically set out in legislation, and, if so, by reference to what event should that period be fixed. Accordingly, all I need to say is that it is clear from the Grundig case that any transitional period for the purposes of regulation 29 would have to remain in existence until the expiration of at least six months from the relevant event.
39. To answer this question, it is necessary to return to the judgment of the Court of Justice in the Marks & Spencer case and the Grundig case. I have already set out the key passage from the former judgment in paragraph 8 above. This judgment recognises that where a limitation period is reduced an adequate transitional period must be allowed for bringing claims which, while they could be brought under the former law, can no longer be brought under the new law (see in particular, paragraph 38). The Court does not state what period would be an adequate transitional period but the principle on which it bases its conclusion is the principle of effectiveness, namely that national law should "not render virtually impossible or excessively difficult the exercise of rights conferred by Community law". This principle is an indication that a transitional period need not be of great length. Indeed, the period which the taxpayer will have already had will be the same as, or exceed, the period allowed under the law, and the question of the adequacy of a transitional period would not arise unless the new law complied with principles of Community law. Certainly it has not been suggested by Mr Southern or Mr Peacock in this case that the new three year period does not comply with Community law.
40. The conclusion that a transitional period need not be of great length is confirmed by the decision of the Court of Justice in the Grundig case. Although the Court of Justice held that a period of 90 days was on the facts of that case inadequate, the period which they substituted was only six months. Moreover, the judgment contains no suggestion that the length of the transitional period would have depended on factors peculiar to an individual taxpayer. The material part of the judgment is as follows:

"36. Given that the detailed rules governing the recovery of national taxes levied though not due are a matter for the national legislature, the question whether such rules may apply retroactively is equally a question of national law, provided that any such retroactive application does not contravene the principle of effectiveness.

37. In that regard, whilst national legislation reducing the period within which repayment of sums collected in breach of Community law may be sought is not incompatible with the principle of effectiveness, this is subject to the condition not only that the new limitation period is reasonable but also that the new legislation includes transitional arrangements allowing an adequate period after the enactment of the legislation for lodging claims for repayment which persons were entitled to submit under the original legislation. Such transitional arrangements are necessary where the immediate application to those claims of a limitation period shorter than that which was previously in force would have the effect of retroactively depriving some individuals of their right to repayment, or of allowing them too short a period for asserting that right (Case C-62/00 Marks & Spencer [2002] ECR 1-6325, paragraph 38).

38. Thus, the transitional period must be sufficient to allow taxpayers who initially thought that the old period for bringing proceedings was available to them a reasonable period of time to assert their right of recovery in the event that, under the new rules, they would already be out of time. In any event, they must not be compelled to prepare their action with the haste imposed by an obligation to act in circumstances of urgency unrelated to the time-limit on which they could initially count.

39. A transitional period of 90 days prior to the retroactive application of a period of three years for initiating proceedings in place of a ten- or five-year period is clearly insufficient. If an initial period of five years is taken as a reference, 90 days leaves taxpayers whose rights accrued approximately three years earlier in a position of having to act within three months when they had thought that almost another two years were still available.

40. Where a period of ten or five years for initiating proceedings is reduced to three years, the minimum transitional period required to ensure that rights conferred by Community law can be effectively exercised and that normally diligent taxpayers can familiarise themselves with the new regime and prepare and commence proceedings in circumstances which do not compromise their chances of success can be reasonably assessed at six months.

41. However, the fact that the national court has found that a transitional period fixed by its national legislature such as that in issue in the main proceedings is insufficient does not necessarily mean that the new period for initiating proceedings cannot be applied retroactively at all. The principle of effectiveness merely requires that such retroactive application should not go beyond what is necessary in order to ensure observance of that principle. It must, therefore, be permissible to apply the new period for initiating proceedings to actions brought after expiry of an adequate transitional period, assessed at six months in a case such as the present, even where those actions concern the recovery of sums paid before the entry into force of the legislation laying down the new period.

42. The answer to the national court must therefore be that Community law precludes the retroactive application of a time-limit that is shorter and, as the case may be, more restrictive for the claimant than the period for initiating proceedings that was previously applicable to claims for the recovery of national taxes contrary to Community law where no adequate transitional period is provided during which claims relating to sums paid before the entry into force of the legislation introducing the new time-limit may still be brought within the old period. Where a limitation period of five years is replaced by a time-limit of three years, a transitional period of 90 days must be regarded as insufficient and six months must be regarded as the minimum period required to ensure that the exercise of rights of recovery is not rendered excessively difficult."

41. In the Grundig case, the transitional period was inadequate rather than as here non-existent. However that does not in my judgment necessarily result in a difference of principle between that case and this for the purposes of the effectiveness principle. Paragraph 42 does not state that an adequate transitional period must be set out in the legislation. The matter is put the other way: the new limitation period in the Grundig case was effective as regards persons not entitled to the benefit of the transitional period (para 41). However, the new legislation could not be applied to the persons entitled to the benefit of a transitional period (para 42). In other words, it was a question of disapplying the legislation as regards them.
42. The Court of Justice in the Grundig case does not suggest that in determining the adequacy of the transitional period for this purpose the individual circumstances of taxpayers in Grundig's situation should be taken into account, or that the particular knowledge which they might be expected to have of the legal situation is relevant. If the circumstances affecting a particular taxpayer are not relevant, it is difficult to see how the principles of Community law would prevent the implication of a transitional period where none has been provided for by the legislature as a matter of interpretation. It will be recalled that under article 10 of the Treaty on European Union:

"Member States shall take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of this Treaty or resulting from action taken by the institutions of the Community. They shall facilitate the achievement of the Community's tasks."

43. This obligation is owed by every organ of the Member State concerned within the sphere of its competence and the judiciary is an organ of the Member State for these purposes: Simmenthal 1978 [ECR] 629.
44. In other words, if a transitional period is required to give effect to Community rights, in my judgment it follows from the obligations imposed on national courts by the EU treaty that the national court must read such a period into its national legislation under the principle of conforming interpretation ( as to which, see, for example, Litster v Forth Dry Dock & Engineering Co Ltd [1990] 1 AC 546). The very basis of this principle is that the courts may be obliged to read legislation as containing a provision which the legislature ought to have made under Community law but failed so to do. The principle of conforming interpretation, or Marleasing principle, was considered recently by this court (Pill, Latham and Arden LJJ) in Customs & Excise v IDT Card Services Ireland Ltd ([2006] EWCA Civ 29). It was there held that to apply the principle the court might have to write in words. This court further held, relying on the principles applying under section 3 of the Human Rights Act 1998 and explained by the House of Lords in Ghaidan v Godin-Mendoza [2004] 2 AC 557, that the principle could not be applied if its application overrode some cardinal feature of the legislation, or raised policy issues that the court could not resolve. But that is not the situation in the present case. There is nothing in regulation 29 which states or implies that there is to be no transitional period if that is what is necessary for the United Kingdom to fulfil its obligations under the EU Treaty. Moreover, the Court of Justice itself determined the length of an adequate transitional period in the Grundig case, thus indicating that where the legislature has failed to provide such a period the exercise of determining such a period is intended to be done through the normal judicial process. The role of the legislature is not excluded. It can itself determine the length of the transitional period or indeed confer a longer transitional period than one which is merely adequate. However, alternatively (if this is different) regulation 29(1A) can be disapplied as regards persons entitled to the benefit of a transitional period. It follows that I would reject Mr Southern's primary submission that no transitional period can be implied (as he put it) into regulation 29(1A), or (as I would prefer to express it) read into regulation 29(1A). The effect of his submission is that taxpayers whose claims arose before 1 May 1997 can continue making claims under regulation 29 until that regulation is amended to include a transitional period, even though those claims are submitted outside such a period (as well as the new three year limit).
45. I turn to deal with another argument advanced by Mr Southern. As I have explained, in the Marks & Spencer case, the Court of Justice held that a limitation period must be fixed in advance (para 39). This principle is required by legal certainty. Mr Southern submits that the principle of legal certainty also requires a taxpayer to know the length of a transitional period in advance. (As I see it, non-compliance with this principle need not in this instance mean that no transitional period could arise, merely that Customs & Excise could not rely on its having come to an end).
46. The principle of legal certainty means that the person affected by a provision of the law must be able to foresee the manner in which it is to be applied, particularly where the law has financial consequences for him, and he has a legitimate expectation that this principle will be observed: see generally Gemeente Leusden v Staatsecretis van Financien C-487/01 and C07/02 [2005] STC 508. In my judgment, what the principle of legal certainty requires in this situation where there is no statutory transitional period is that the holder of a "capped" claim, like Mr Fleming, should be in a position to know or reasonably to foresee from the jurisprudence of the Court of Justice that he can lodge his claim within a transitional period which is adequate, even though none is included in the relevant national legislation. (I say the jurisprudence of the Court of Justice because the development of Community law in the judgment of Court of Justice in the Marks & Spencer case was not presaged by the domestic case law. This court before making the reference had in fact rejected Marks & Spencer's claim.) That knowledge or foresight would give the taxpayer the essential information he is entitled to expect to enable him to plan his affairs and it empowers him to make a claim. In my judgment, the principle of legal certainty does not require that the exact length of the transitional period should be pre-determined.
47. Moreover, there is a factor in this case which distinguishes this case from the Grundig case. In the Grundig case, Grundig could not say that it did not know about the possibility of a transitional period because the national law in question in its case provided for such a period (albeit that it was inadequate). The position is otherwise in this case. The absence of any transitional period in this case affects the question of legal certainty for the reason which I will now explain. Although the Court of Justice in the Marks & Spencer case refers to earlier authority, such as Aprile v Amministrazione dell Finanze (No 2) [2000] 1 WLR 126, it was, so far as the authorities shown to this court go, the first case in which the Court of Justice concluded that the absence of a transitional period was incompatible with Community law, and that the member state could not justify the absence of a transitional provision on the ground that the new limitation period was reasonable (and equivalent to other limitation periods imposed by domestic law) or on the principle that limitation periods for Community claims were in this respect a matter for national law. In my judgment, a normally diligent taxpayer could not be expected to foresee this development. He is entitled to start from the proposition that regulation 29(1A) takes effect according to its tenor. I accept that, in the Aprile case, Advocate General Colomer records that the Italian Constitutional Court would not have applied a reduction in a limitation period to an accrued claim ( [36] of his opinion), and also that, in the Marks & Spencer case, the Court of Justice regarded the fact that a provision was not applied retrospectively as one of the ways in which a right could remain effective (see para [36] of its judgment): this may well be a reference to the Aprile case. However, this is not a statutory transitional period, and, in any event, in my judgment, it is not clear that from the judgment in the Aprile case that that point was essential to its reasoning. (There is no direct reference to the point although para [28] may possibly contain an oblique reference.)
48. In all the circumstances, this court could not, in my judgment, conclude that taxpayers in the United Kingdom would be in any better position to know, or reasonably to foresee, that a transitional period was required as a matter of Community law than indeed Customs & Excise had been before that decision was handed down. It was after all only when that decision was handed down that Customs & Excise accepted that claims which were capped by section 80 could be brought after section 80 had come into effect and that an adequate transitional period was required by Community law.
49. The question of the availability of knowledge (or foresight) is relevant here primarily for the purpose of the principles of legal certainty and legitimate expectations. Those Community principles are in my judgment not satisfied in the circumstances of this case unless taxpayers, who are entitled to claims that would otherwise be capped, have a transitional period for making late claims whose expiry is fixed by reference to the date of the handing down of the judgment of the Court of Justice in the Marks & Spencer case. (I do not consider it is necessary to take the date of business brief 22/07, which is dated 5 August 2002, as the critical event was the delivery of the judgment of the Court of Justice.) That would mean that Mr Fleming's claim could not be rejected by reason only that it was made later than the expiration of an adequate transitional period commencing on 1 May 1997 and fixed on the basis that taxpayers could be expected to know about the need for a transitional period.
50. I need not decide if legal certainty and the effectiveness principle overlap, that is whether legal certainty is an ingredient of effectiveness. I would provisionally expect this to be the case. If there is an overlap, then the effectiveness principle is also infringed in the circumstances that I have identified.
51. On that basis I would in principle accept the first of the two options discussed by Warren J in para 39 of his judgment in the CNP case. I do not reach this conclusion with regret as it seems to me to be consistent with fairness that a taxpayer should not lose a claim without being in a position to take action to prevent that happening. I would also expect that the concept of fairness to have the same content in this respect in the legal traditions of other member states. It is not in my judgment sufficient that Customs & Excise drew the attention of taxpayers to the proposed amendment to regulation 29 in a business brief some two months before it took effect in 1997: such informal guidance, while no doubt consonant with the good administration and helpful, does not satisfy the needs of legal certainty.
52. I agree with Warren J's view that the transitional period should not be further postponed simply because Customs & Excise took the view that claims could not be made under regulation 29, only under section 80 of VATA 1994. I have already described the rather unusual nature of what I have termed the legal and regulatory background of this case and the CNP case. Both cases are complicated by the fact that Customs & Excise took the position, subsequently held to be erroneous, in the University of Sussex case that any claim for recovery of input tax should be made under section 80, rather than regulation 29. But I do not attach importance to this. The business briefs do not state that no regulation 29 claim could be made, and there is thus no reason why a taxpayer could not have made a protective claim to recover input tax under regulation 29, or alternatively a claim under regulation 80, even before Customs & Excise changed their stance following the judgment of this case in the University of Sussex case. The actions of Customs & Excise did not, therefore, in my judgment make it "virtually impossible or excessively difficult" for a normally diligent taxpayer to make his claim, notwithstanding the uncertainty about the precise statutory procedure for making his claim.
53. I can now deal the second of the two options there considered by Warren J, namely that (as I understand it) the transitional period should not start until the generality of taxpayers and advisers appreciated that a right to make an uncapped claim might exist. I consider that there is no requirement to give taxpayers time for a consensus to develop as to what his rights might be or that his rights should be restricted if such a consensus develops in advance of his rights being established . First, such a requirement introduces a considerable element of uncertainty. This may result in the transitional period itself not satisfying Community law principles. Secondly, it is anomalous: the validity of restrictions on rights does not usually depend on the received opinion of users of the law or practitioners. Received opinion that rights exist is not a prerequisite to those rights satisfying the test of legal certainty. Thirdly, such a requirement could lead to a transitional period being extended as well as restricted. If such a period is extended, it must be remembered that the right of the taxpayer to bring a late claim has to be balanced against the right of the member state to "cap" such claims (see paras.35 and 39 of the judgment of the Court of Justice set out in para 8 above, where the Court of Justices notes that legal certainty also protects the administration of the member state, and also para 41). There is no challenge to the lawfulness of the new three year period in this case, and as I have explained a taxpayer making a late claim will already have had at least that period. Subject to any requirements of legal certainty, he does not, therefore, need much longer than he has already had to guard against his rights being rendered ineffective by a new statutory limitation period. Fourthly, it is consistent with my conclusion that the circumstances affecting a particular taxpayer are not relevant to the length of the transitional period to conclude that the Community principle of effectiveness does not require a court to enquire when taxpayers could reasonably have appreciated that they had the right to make a claim under Community law.
54. I would therefore, accept in part the arguments put forward by Mr Southern and Mr Peacock on the basis of the first option in paragraph 39 of Warren J's judgment in the CNP case. Mr Peacock in fact did not rely on the second of the two options considered by Warren J.
55. In the present case, the judge concluded that Mr Fleming had not lodged his late claim within a reasonable time after the commencement date for the cap on claims under regulation 29(1A). As I have said, I consider that the judge was right to proceed on the basis that a transitional period should be read into regulation 29 (1A) or alternatively (which in this case comes to the same thing) that regulation 29(1A) was to be disapplied as to persons who should have had the benefit of a transitional period and who made claims in that period. However he considered that a transitional period would have expired by the time Mr Fleming lodged his claim. I have concluded that Mr Fleming's claim could not be rejected simply on that basis and accordingly I consider that this appeal must be allowed.
56. I express no view as to whether Customs & Excise should extend to claims under regulation 29 the concessions which it made in its business briefs in relation to claims under section 80 and which were beyond mere implementation of the decisions of the Court of Justice. There is no evidence on this appeal that it was the actions of Customs & Excise that deterred Mr Fleming from making his claim until 23 October 2000.
57. Since writing this judgment, I have had the advantage of reading the draft judgments of Ward and Hallett LJJ. The difference between my approach to this case and that of Ward and Hallett LJJ may have its origins in the way we respectively characterise the issue before the court on this appeal. Characterisation of a legal issue can determine whether the issue is one which is properly before the courts. Thus, for example, in R (Jackson) v Attorney General [2005] 3WLR 733, the question was at first sight a challenge to the validity of an Act of Parliament, which is a matter for Parliament and not the courts. However, on analysis, the House of Lords took the view that the issue was as to the true interpretation of the Parliament Act 1911 and thus one which was properly before the courts. Returning to this case, I consider that the question of law before this court also has constitutional implications, and thus its proper characterisation is crucial to my decision. Despite the clear wording of regulation 29(1A), this court is being asked to read in or give effect to a transitional period for claims which were rendered time-barred by the will of Parliament as expressed in regulation 29. The courts can constitutionally only do that if they are required to do so as a matter of Community law. Applying the foregoing, I analyse the issue in this case not as one of overriding an enactment or, as Ward LJ puts it construing something out of nothing, but of giving effect to Community rights. The protection of rights is quintessentially the role of the courts. However, in the light of the clear wording of regulation 29(1A), the courts can, in my judgment, go no further than protect those rights. In this case the right is only to an adequate transitional period (see the Marks & Spencer case). Thus, as I see it, Mr Southern's primary argument gives taxpayers more than that to which they are entitled and thus its acceptance would involve overriding the will of Parliament to an extent not justified by Community law and accordingly to an extent greater than that which the courts are entitled to do. Thus, difficult though it is, I prefer the solution which involves reading in, or giving effect to, a transitional period, and nothing more.

Disposition

58. For the reasons given above, I would allow this appeal.

Lady Justice Hallett :

59. I am indebted to Arden LJ for her analysis of the facts and the issues that arise on this appeal and the principles of law to be applied. I have also had the advantage of considering the judgment of Ward LJ in draft. Arden LJ and Ward LJ disagree on whether or not the court has the power to imply or read into regulation 2(1A) an adequate transitional period where none has been provided. In the circumstances, I shall restrict my observations to that one issue.
60. I was initially attracted to Miss Foster's argument that the failure to enact an express transitional period in regulation 2(1A) is not, without more, a breach of EC law and that what is unlawful is the deprivation of vested rights by retroactive legislation which is applied so as to deprive the taxpayer of a reasonable opportunity to exercise those rights. In other words, this court should focus on the question whether as a matter of fact and degree the manner of implementation of regulation 29 (1A) made it "virtually impossible or excessively difficult" for the appellant to exercise his vested right.
61. However, with a considerable degree of hesitation given the approaches adopted by Arden LJ, Evans-Lombe and Warren JJ, I have been forced to the same conclusion as Ward LJ that the decision of the Court of Justice in Marks &Spencer plc v The Customs and Excise 2002 STC 1036 presents an insuperable hurdle in Miss Foster's path. I agree with Ward LJ that regulation 29 (1A) does not include "transitional arrangements allowing an adequate period after the enactment of legislation for lodging claims for repayment" (as per para 38 of the Marks &Spencer judgment) and is therefore incompatible with the principle of effectiveness. It must be disapplied, just as section 47 of the Finance Act 1997 fell to be disapplied in Marks &Spencer.
62. Arden LJ refers to the decision in Litster in support of the proposition that this court has the power to read into regulation 29 (1A) the necessary transitional period. In Litster the House of Lords considered the effect of regulations expressly enacted for the purpose of complying with an ECC Directive safeguarding the rights of employees on the transfer of undertakings. On a strict reading of the regulations those responsible for the management of a business would have been able to defeat the purpose of the Directive by unfairly dismissing its employees before the transfer took place leaving the employees without redress. Their Lordships held that it was the duty of the court to give a purposive construction to the regulations in a manner which would accord with the decisions of the European Court on the Directive. Accordingly, their Lordships implied into the relevant regulation words which would ensure the protection of employees whom the Directive was designed to protect. The purpose was clear and their Lordships were able, with little difficulty, to achieve that purpose.
63. Litster was itself considered by the House of Lords in Gaidan v Godin Mendoza 2004 2AC 573. In Gaidan, the House of Lords provided considerable guidance to the courts on their duty under section 3 (1) of the Human Rights Act 1998 to read and give effect to legislation in a way which is compatible with rights guaranteed under the European Convention of Human Rights "so far as it is possible to do". In his speech, Lord Steyn described the provisions of section 3(1) as analogous to the obligation on national courts under the EEC Treaty to construe national legislation where possible (my emphasis) in a way consistent with the wording and purpose of European directives. The relevant passage is as follows:

"44. It is necessary to state what section 3(1), and in particular the word "possible", does not mean. First, section 3(1) applies even if there is no ambiguity in the language in the sense of it being capable of bearing two possible meanings. The word "possible" in section 3(1) is used in a different and much stronger sense. Secondly, section 3(1) imposes a stronger and more radical obligation than to adopt a purposive interpretation in the light of the ECHR. Thirdly, the draftsman of the Act had before him the model of the New Zealand Bill of Rights Act which imposes a requirement that the interpretation to be adopted must be reasonable. Parliament specifically rejected the legislative model of requiring a reasonable interpretation.

45. Instead the draftsman had resort to the analogy of the obligation under the EEC Treaty on national courts, as far as possible, to interpret national legislation in the light of the wording and purpose of directives." In Marleasing SA v La Comercial Internacional de Alimentación SA (Case C-106/89) [1990] ECR I-4135, 4159 the European Court of Justice defined this obligation as follows:

"It follows that, in applying national law, whether the provisions in questions were adopted before or after the directive, the national court called upon to interpret it is required to do so, as far as possible, in light of the wording and the purpose of the directive in order to achieve the result pursued by the latter and thereby comply with the third paragraph of Article 189 of the Treaty"

Given the undoubted strength of this interpretative obligation under EEC law, this is a significant signpost to the meaning of section 3(1) in the 1998 Act.".

64. At para 48 having reviewed a number of authorities Lord Steyn commented on Litster to this effect:

"48. The second and third decisions of the House are Pickstone v Freemans plc [1989] AC 66 and Litster v Forth Dry Dock & Engineering Co Ltd [1990] 1 AC 546 which involve the interpretative obligation under EEC law. …….Litster concerned regulations intended to implement an EC Directive, the purpose of which was to protect the workers in an undertaking when its ownership was transferred. However, the regulations only protected those who were employed "immediately before" the transfer. Having enquired into the purpose of the Directive, the House of Lords interpreted the Regulations by reading in additional words to protect workers not only if they were employed "immediately before" the time of transfer, but also when they would have been so employed if they had not been unfairly dismissed by reason of the transfer: see Lord Keith of Kinkel, at 554. In both cases the House eschewed linguistic arguments in favour of a broad approach. Picksone and Litster involved national legislation which implemented EC Directives. Marleasing extended the scope of the interpretative obligation to unimplemented Directives. Pickstone and Litster reinforce the approach to section 3(1) which prevailed in the House in the rape shield case.

49. A study of the case law listed in the Appendix to this judgment reveals that there has sometimes been a tendency to approach the interpretative task under section 3(1) in too literal and technical a way. In practice there has been too much emphasis on linguistic features. If the core remedial purpose of section 3(1) is not to be undermined a broader approach is required. That is, of course, not to gainsay the obvious proposition that inherent in the use of the word "possible" in section 3(1) is the idea that there is a Rubicon which courts may not cross. If it is not possible, within the meaning of section 3, to read or give effect to legislation in a way which is compatible with Convention rights, the only alternative is to exercise, where appropriate, the power to make a declaration of incompatibility. Usually, such cases should not be too difficult to identify. ….

50. Having had the opportunity to reconsider the matter in some depth, I am not disposed to try to formulate precise rules about where section 3 may not be used. Like the proverbial elephant such a case ought generally to be easily identifiable."

65. I derive from Gaidan the principle that however strong and radical the obligation on a court to interpret legislation, there is a line the courts may not cross. (I do not recall Gaidan, concerned as it was with the Human Rights Act 1998, being cited to us in argument, but I am sure Miss Foster would not wish to argue against that proposition.)
66. The duty is to read legislation in such a way that it gives proper effect to Community rights "so far as is possible". I emphasise "so far as is possible" or as Lord Oliver put it at page 559 E of Litster the duty to construe legislation in this way arises "if the legislation can be reasonably construed so as to conform". For my part, I cannot accept that this is a Litster type situation. I cannot accept that the legislation here can be reasonably construed as incorporating a transitional period where none was provided or contemplated. In my judgment it is simply not possible to do so however broad or robust an approach the court is obliged to adopt.
67. I agree with Ward LJ that the decision in Grundig can and should be distinguished on the basis that there the Italian authorities had provided for a transitional period whereas here there was none. Ward LJ has expressed his concern as to the meaning of para 41 of the judgment in Grundig upon which reliance has been placed. It may be, as he has suggested, that this paragraph does nothing more than suggest that the court may adopt a "benign purposive construction" of an unsuccessful attempt to comply with Community law. However, in my judgment that is very different from what is proposed here. To fill the lacuna in regulation 29 (1A) entails importing into it an entire transitional regime where none exists. Here the legislature did not intend to provide a transitional period. There is nothing to extend, if that is what the Court of Justice itself did in Grundig. There is no provision to be given a purposive construction, even if there is little if any disagreement between the parties on what would have been an appropriate transitional period. In my view this court cannot legislate judicially to the extent required here.
68. If we are not entitled to read the regulation in such a way that a transitional period is to be implied or read into it, then as I have indicated I agree with Ward LJ, for the reasons that he gives, that the regulation falls foul of the decision in Marks and Spencer and the regulation must be disapplied.
69. In the circumstances it is not necessary for me to go further and consider if a transitional period can be implied, when does the term begin and end.
70. I too agree, therefore, that the appeal should be allowed.

Lord Justice Ward:

71. These propositions seem to me to be incontrovertible:

i) The appellant had a directly effective right to make a claim for repayment of input tax.

ii) There was no time limit for the making of that claim.

iii) Thus he had an accrued vested right to recover when Regulation 29(1A) became effective on 1^st May 1997.

iv) Regulation 29(1A) imposed a time limit of 3 years and 1 month after the end of the accounting period in which VAT had been incurred.

v) The imposition of such a 3 year time limit does not as such offend Community law.

vi) Regulation 29(1A) provides no transitional period to bring a claim for repayment before the new time limit becomes effective.

72. Against that background these questions seem to me to arise:-

i) Can a proper transitional period be implied or read into regulation 29(1A) where no transitional period whatsoever is provided by the legislation?

ii) If so, (a) when does this transitional period begin to run, (b) for how long is it appropriate to allow further time to make the claim and (c) when does the transitional period end?

Can a transitional period be implied?

73. It seems to me that Marks & Spencer plc v The Customs and Excise Commissioners [2002] STC 1036 supplies the clear answer. There Marks & Spencer's claim for overpaid VAT was rejected pursuant to section 47(2) of the Finance Act 1997 which amended section 80 of the Value Added Tax Act 1994 retrospectively inasmuch as it imposed a time limit on the making of the claim for repayment of any amount paid to the Commissioner's of more than 3 years before the making of the claim. In answering the question put to them, the ruling of the Court of Justice was this:-

"National legislation retroactively curtailing the period within which the payment may be sought of sums paid by way of VAT collected in breach of provisions with direct effect of the Sixth Directive, such as those in art 11A(1), is incompatible with the principles of effectiveness and of the protection of legitimate expectation."

74. The material part of the judgment have been cited by Arden L.J. I repeat, with emphasis added the following passages:-

"38. Whilst national legislation reducing the period within which repayment of sums collected in breach of Community law may be sought is not incompatible with the principle of effectiveness, it is subject the condition not only that the new limitation period is reasonable but also that the new legislation includes transitional arrangements allowing an adequate period after the enactment of the legislation for lodging the claims for repayment which persons were entitled to submit under the original legislation. Such transitional arrangements are necessary where the immediate application to those claims of a limitation period shorter than that which was previously enforced would have the effect of retroactively depriving some individuals of their right to repayment, or of allowing them too shorter period for asserting that right.

Accordingly legislation such as that at issue in the main proceedings, the retroactive effect of which deprives individuals of any possibility of exercising a right which they previously enjoyed with regard to repayment of VAT . . . must be held to be incompatible with the principle of effectiveness".

75. If section 47 was incompatible with Community law in Marks & Spencer then regulation 29(1A) must be equally incompatible because the two cases are indistinguishable. In both cases the legislation failed to provide an adequate period after enactment for lodging the claims for repayment. If section 47 had to be disapplied, then regulation 29(1A) must also be disapplied. The logic of Mr Southern's primary submission seems to be unassailable.
76. For my part I do not see how the case of Grundig Italiana SpA v Ministero Delle Finanze [2002] ECR 1-8003 can alter this conclusion. It is important, in my view, to note that in Grundig, the Italian legislation did provide a transitional period of 3 months before the change came into effect. To that extent the case is different from Marks & Spencer and from the case before us where no transitional provision was provided. The question referred to the Court of Justice by the Italian court asked whether the "national provision", where it lays down a period of grace of 90 days within which the party must bring his action, was compatible with Community law and in particular with the often stated principle of effectiveness. The answer, and in my judgment it is important to note the answer, was that Community law did preclude the retroactive application of a time limit that is shorter and, as the case may be, more restrictive for the claimant, for the period for initiating proceedings that was previously applicable to claims for the recovery of national taxes contrary to Community law when no adequate transitional period is provided during which claims relating to sums paid before the entry into force of the legislation introducing the new time-limit may still be brought with the old period. Where a limitation period of 5 years was replaced with a time-limit of 3 years, a transitional period of 90 days must be regarded as insufficient and 6 months must be regarded as the minimum period required to ensure that the exercise of rights of recovery is not rendered excessively difficult.
77. The steps in the reasoning of the Court of Justice's case seem to me to be the following. First the court repeated paragraph 38 of the Marks & Spencer case which I have cited above. That remains good law. Secondly, in paragraph 38 of its judgment, the court explained what made a transitional period sufficient, namely giving a reasonable period of time to assert the tax payer's right of recovery that under the new rules would already be out of time. Thus, thirdly, the court concluded that 90 days was "clearly insufficient" and the minimum transitional period reducing a period of 10 or 5 years for initiating proceedings to 3 years was to be assessed at 6 months in order that rights conferred by Community law could be effectively exercised and that normally diligent tax payers could familiarise themselves with the new regime and prepare and commence proceedings in circumstances which did not compromise their chances of success: see paragraphs 39 and 40. To summarise this, it is still necessary for the legislature to provide an adequate transitional period and 90 days was a considered to be adequate in the circumstances of the Grundig case.
78. Paragraph 41 of the judgment seems to me to add what is no more than a rider. It provides, again with emphasis added by me:-

"However, the fact that the national court has found that a transitional period fixed by its national legislature such as that in issue in the main proceedings is insufficient does not necessarily mean the new period for initiating proceedings cannot be applied retroactively at all. The principle of effectiveness merely requires that such retroactive application should not go beyond what is necessary in order to ensure observance of that principle. It must, therefore, be permissible to apply the new period for initiating proceedings to actions bought after expiry of an adequate transitional period, assessed as 6 months in a case such the present, even where those actions concern the recovery of sums paid before the entry into force of the legislation laying down the new period".

79. I can see (though I confess with difficulty) that it is possible to read this judgment as laying down a rule that if there is a transitional period provided by the national legislation and if it happens to be inadequate, it will nonetheless still be permissible to apply the new time bar after the expiration of what the court decides is in fact an adequate transitional period. Assuming that favourable interpretation of the case in the Commissioners' favour, it still gives no assistance to the Commissioners where the legislation fails to allow any transitional time at all.
80. Indeed it would come as a surprise to me to imply a reasonable transitional period in legislation which provides none. Whilst a benign purposive construction of an inadequate transitional time may possibly lead to the implication of a period of grace which is judged to be reasonable, I simply cannot see how one can construe something out of nothing. If it were possible, Marks & Spencer would surely have been decided differently.
81. In my judgment the failure of the Commissioners to include any transitional time limit in regulation 29(1A) is fatal to their case. The regulation as it is without any transitional period fails the Marks & Spencer test. Consequently, in my judgment, it must be disapplied. The appeal must be allowed accordingly.

If a transitional period can be implied, when does it begin and when does it end?

82. On the assumption that it is permissible to imply an adequate transitional period into regulation 29(1A), I turn to the approach taken by Evans-Lombe J. I see the logic in his holding that if a term is to be implied into the regulation then it should be read into the regulation from the moment the regulation is promulgated. The difficulty with that view is that such an approach would surely offend those cardinal principles of European law, the principles of certainty and effectiveness. The tax payer could hardly be certain that he has this further time to make his claim when on the express words of the regulation his right to repayment had been taken away. On the strict letter of the law any claim he made in the teeth of the express language of the legislative provision would only be accepted, not as of right but by a concession on the part of the Commissioners. It was altogether too uncertain to expect that concession to be made by the Commissioners especially in circumstances where, as it happened, they were fighting their battle before the Court of Justice in Marks & Spencer seeking to uphold the validity of their legislation. The Commissioners ought not to be allowed to blow hot and cold. While they choose to ride two horses at the same time, it is virtually impossible for the tax-payer effectively to exercise his right. For those reasons I would reject Evans-Lombe J's approach.
83. It seems to me, consistently with Warren J's second approach in Conde Nast Publications Ltd v Customs & Excise Commissioners [2005] EWHC 1167(Ch) [2005] STC 1327, that the tax payer would not be certain that a binding concession was being made by the Commissioners until the date of their first business brief on 5^th August 2002. By then it could be said that the taxpayer must be presumed to know that the judgment of the Court of Justice in Marks & Spencer on 11^th July 2002 had affirmed his directly effective right to make a repayment notwithstanding the apparent exclusion of that claim by operation of the plain words regulation 29(1A). But it would not be before Grundig had been decided on 29 September 2002 that the taxpayer would have known that a six month transitional period might be adequate as was acknowledged in the second business brief. The question would then be, applying Grundig, what time would be sufficient for them to assimilate the changes that had taken place leading to their previously barred claims being resurrected thereby allowing them to be re-asserted. It was common ground before us that six months would be an effective time limit.
84. Because I have difficulty in seeing how a transitional period can be implied or read into a regulation which eschews any limit at all, I would prefer not to decide the "Warren II" solution at all. The Conde-Nast approach does not help the Commissioners in any event. Whether the time begins to run when the Marks & Spencer judgment was delivered in July, or when the first business brief was issued in August, or when Grundig was decided on 29^th September 2002 or when the second business brief was issued on 8^th October 2002, all of these events take place after the appellant had sought to make his claim on 23^rd October 2000. At that time the Commissioners were wrong to reject it as they did and his appeal would also be allowed on that alternative basis.