England and Wales Court of Appeal (Civil Division) Decisions

COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM UPPER TRIBUNAL TAX AND CHANCERY CHAMBER
MR JUSTICE WARREN AND JUDGE COLIN BISHOPP
A3/2009/2483 AND A3/2009/2438

		Royal Courts of Justice Strand, London, WC2A 2LL
		14/04/2011

Lord Justice Etherton :

Introduction

1. The first four appellants ("the Wilkins appellants") and the fifth appellant ("Lookers") have appealed to this court from a decision of the Tax and Chancery Chamber of the Upper Tribunal ("the UT") that they are not entitled under section 78 of the Value Added Tax Act 1994 ("the 1994 Act") to recover compound interest on overpayments of Value Added Tax ("VAT"). Although the Wilkins appellants, on the one hand, and Lookers, on the other hand, carry on unrelated businesses and appealed separately to the UT from the refusal of the Respondents ("HMRC") to pay compound interest on the overpayments and have at all times had separate legal representation, their appeals were joined and a single judgment was given by the UT (Mr Justice Warren, President, and Judge Colin Bishopp) dated 15 September 2009: John Wilkins (Motor Engineers) Ltd v HMRC [2009] STC 2485 ("Wilkins UT"). Their appeals have been similarly joined in this court.
2. HMRC have applied to this Court for a stay of the appeals until 56 days after the Court of Justice of the European Union ("the CJEU", which expression includes the former Court of Justice of the European Communities) has delivered its judgment on a reference to the CJEU made by Vos J on 4 November 2010 in Littlewoods Retail Ltd v HMRC [2010] EWHC 2771 (Ch), [2011] STC 171 ("Littlewoods (2)"), following his substantive judgment on 19 May 2010 reported at [2010] EWHC 1071 (Ch), [2010] STC 2027 ("Littlewoods (1)") . The Wilkins appellants and Lookers oppose that application, and have countered with their own applications for a reference to the CJEU for a preliminary ruling pursuant to Article 267 of the EU Treaty.

Background

3. These appeals form part of a body of cases which have come before the UK courts in which taxpayers have claimed compound interest on overpayments of VAT to HMRC in breach of their directly effective rights under EU law. In addition to Wilkins UT, Littlewoods (1) and Littlewoods (2), other cases are F J Chalke Ltd v HMRC [2009] EWHC 952 (Ch), [2009] STC 2027 (Henderson J) ("Chalke Ch"), and on appeal [2010] EWCA Civ 313, STC 1640 ('Chalke CA'), and Grattan plc v HMRC [2011] UK FTT 31 TC (First-tier Tribunal, Judge Berner and Mr Julian Stafford) ('Grattan').
4. Chalke, like the present appeals, concerned overpayments of VAT by motor vehicle dealers on so-called manufacturers' bonuses paid to them and on sales by them of demonstrator vehicles. Littlewoods concerned overpayments of VAT on commissions paid by catalogue-based home shopping businesses to agents on sales made by or through those agents. Grattan, similarly, concerned overpayment of VAT on commissions paid by mail order goods retailers to agents on third party purchases. As I have said, the issue, or one of the issues, in all these cases was whether, as a matter of EU and domestic law, the claimants were entitled to recover compound interest on the overpayments.
5. It is not necessary, for the purpose of resolving the respective applications of the Wilkins appellants, Lookers and HMRC to set out here all the EU and domestic legal background. In relation to VAT overpayments on the commissions which were the subject of Littlewoods and Grattan, that background is set out with care and clarity by Vos J in Littlewoods (1). In relation to the overpayments of VAT by motor dealers which are the subject matter of the present appeals, the background was set out in some detail in Chalke CA. It is sufficient to give the following very brief summary.
6. The Wilkins appellants and Lookers are motor traders who made overpayments of VAT throughout the period 1973 to 1996 in respect of bonus payments made to them by motor manufacturers on the purchase of vehicles and in respect of the margin attained on the sale of demonstrator vehicles. Lookers is the representative member of a VAT group which includes many subsidiaries trading at locations throughout the United Kingdom.
7. Judgments of the CJEU in Case C-317/94 Elida Gibbs Limited –v- Customs and Excise Commissioners [1997] QB 499, [1996] STC 1387 (in respect of 'manufacturers' bonuses) ("Elida Gibbs") and Case C-45/95 European Commission –v- Italian Republic [1997] STC 1062 (in respect of the sale of demonstrator vehicles) ("Italian Republic") established that VAT had been overpaid as a result of the failure properly to transpose Community law into domestic law. The excess tax has all been repaid. HMRC have also paid simple interest on the capital sums repaid. In claiming that they are entitled not merely to simple interest, but to compound interest, the Wilkins appellants and Lookers, like the claimants in Littlewoods, rely on the well established San Giorgio principle (as stated by the CJEU in Case C-199/82 Amministrazione delle Finanze dello Stato v San Giorgio Spa [1983] ECR 3595) that individuals are entitled to a refund of taxes and duties levied in breach of EU law, and also particularly on the decisions of the CJEU (and the opinion of the Advocate General) in joined Cases C-397/98 and 410/98 Metallgesellschaft Limited v IRC, Hoechst AG v IRC, [2001] ECR I-1727, [2001] Ch 620 and in Case C-446/04 Test Claimants in the FII Group Litigation –v- IRC [2006] ECR I-11753, [2007] STC 326 and also the speeches in the House of Lords in Sempra Metals Ltd –v- Revenue and Customs Commissioners [2007] UKHL 34, [2008] 1 AC 561.
8. In Littlewoods and in Chalke the taxpayers asserted a right to compound interest by way of a restitutionary claim at common law for the time value to HMRC of the VAT overpayments, from the time of receipt until repayment. By contrast, the present appeals are for compound interest under section 78 of the 1994 Act. That section provides for interest on overpaid VAT, but HMRC contend, and the UT has held, that it provides only for simple interest. The contention of the Wilkins appellants and Lookers is that, in accordance with the Marleasing principle (C-106/89 Marleasing SA v La Comercial Internacional de Alimentation SA [1990] ECR I-4135), the EU principle of effectiveness and also (according to the skeleton argument of the Wilkins appellants) the EU law principle of equivalence, that section must be interpreted, or the statutory scheme in any event applied, so as to provide for compound interest on overpayments of VAT so as to conform with EU law.

The reference in Littlewoods (2)

9. The questions referred to the CJEU by Vos J were as follows:

"Question 1:

Where a taxable person has overpaid VAT which was collected by the Member State contrary to the requirements of EU VAT legislation, does the remedy provided by a Member State accord with EU law if that remedy provides only for (a) reimbursement of the principal sums overpaid, and (b) simple interest on those sums in accordance with national legislation, such as section 78 of the Value Added Tax Act 1994?

Question 2:

If not, does EU law require that the remedy provided by a Member State should provide for (a) reimbursement of the principal sums overpaid, and (b) payment of compound interest as the measure of the use value of the sums overpaid in the hands of the Member State and/or the loss of the use value of the money in the hands of the taxpayer?

Question 3:

If the answer to both questions 1 and 2 is in the negative, what must the remedy that EU law requires the Member State to provide include, in addition to reimbursement of the principal sums overpaid, in respect of the use value of the overpayment and/or interest?

Question 4:

If the answer to question 1 is in the negative, does the EU law principle of effectiveness require a Member State to disapply national law restrictions (such as sections 78 and 80 of the Value Added Tax Act 1994) on any domestic claims or remedies that would otherwise be available to the taxable person to vindicate the EU law right established in the Court of Justice's answer to the first 3 questions, or can the principle of effectiveness be satisfied if the national court disapplies such restrictions only in respect of one of these domestic claims or remedies? What other principles should guide the national court in giving effect to this EU law right so as to accord with the EU law principle of effectiveness?"

10. The background to those questions, the rival contentions of the parties in Littlewoods on the questions, and the court's provisional views on them are set out in the schedule to Vos J's order in Littlewoods (2).

The applications of the Wilkins appellants and Lookers

11. The Wilkins appellants and Lookers say that the questions referred to the CJEU by Vos J ("the Littlewoods questions") are inadequate to enable their appeals to be properly determined, and that, in any event, they are entitled to have their own reference because they have their own claims to compound interest. They apply for the following questions ("the proposed Questions") to be referred by this court to the CJEU for a preliminary ruling:

"1. Where a taxable person has overpaid VAT levied by the Member State in breach of EU law, does EU law entitle the taxable person not only to repayment of the principal sum but also to compound interest thereon as the measure either of the loss of the use value of the money in the hands of the taxable person or of the use value of the money in the hands of the Member State?

2. If the taxable person is entitled to compound interest, then in circumstances where the statutory regime established by the Member State for the charging, collection and administration of VAT provides that disputes between the Member State and taxable persons concerning VAT, including claims for the repayment of overpaid VAT together with interest, must be brought before a specialist tribunal within a prescribed limitation period and in accordance with other detailed procedural rules, must effect be given to the taxable person's entitlement to compound interest:

(a) by the national court interpreting the provisions for payment of interest so that they apply to compound interest, if this is possible in accordance with the principles established by the Court in Case C-106/89 Marleasing SA v. La Comercial Internacional de Alimentacion SA?; and

(b) even if this is not possible, by declaring that the specialist tribunal has jurisdiction to award compound interest, so that the taxable person is not required to enforce his entitlement by bringing a claim before a different court within a different prescribed limitation period and in accordance with different detailed procedural rules?

3. If the taxable person is entitled to compound interest, does that entitlement continue after the principal is repaid, until the interest is paid in full?

4. Does the reasoning of the CJEU in Case C-317/94 Elida Gibbs v CCE and Case C-45/95 EC Commission v. Italian Republic which applies for the purposes of the Sixth VAT Directive apply equally for the purposes of the First and Second Directives, so that EU law requires VAT levied contrary to that reasoning in respect of the period between 1^st April 1973 and 1^st January 1978 to be repaid?"

12. The Wilkins appellants and Lookers intend, if that reference is ordered, to apply to the CJEU for it to be heard at the same time as the Littlewoods reference.

The Court's discretion

13. It is common ground that this Court has a discretion whether or not to order that the proposed Questions be referred to the CJEU pursuant to Article 267 of the EU Treaty for a preliminary ruling. Guidance on the exercise of that discretion can be found in the following two cases. In R v International Stock Exchange of the United Kingdom and the Republic of Ireland Ltd ex p Else (1982) Ltd [1993] QB 534 Sir Thomas Bingham MR said at page 545:

"I understand the correct approach in principle of a national court (other than a final court of appeal) to be quite clear: if the facts have been found and the Community law issue is critical to the court's final decision, the appropriate course is ordinarily to refer the issue to the Court of Justice unless the national court can with complete confidence resolve the issue itself. In considering whether it can with complete confidence resolve the issue itself the national court must be fully mindful of the differences between national and Community legislation, of the pitfalls which face a national court venturing into what may be an unfamiliar field, of the need for uniform interpretation throughout the Community and of the great advantages enjoyed by the Court of Justice in construing Community instruments. If the national court has any real doubt, it should ordinarily refer. "

14. That case concerned the proper meaning and effect of article 15 of Council Directive 79/279/EEC. The Court of Appeal, differing from the first instance judge, who had directed a reference, considered that there was no reasonable doubt as to the effect of article 15 and so a reference was unnecessary. There are two consequential points to note. First, the context of that case was the disputed interpretation of EU legislation. It was not a case in which the dispute was only about the application of accepted principles of EU law to the facts or as to their possible impact on the proper interpretation of national legislation. Secondly, as is obvious, a reference is not necessary or appropriate merely because an appellate court differs from, or forms a provisional view differing from, a lower court in its interpretation or application of EU law, if the appellate court entertains no doubt on the point.
15. The other case is Customs and Excise Commissioners v Littlewoods Organisation plc [2001] EWCA Civ 1542, [2001] STC 1568 in which Chadwick LJ, giving the judgment of the court, having cited that passage in International Stock Exchange, said:

"117…But it is, we think, important to have in mind, also, the observations of the Advocate General (Jacobs) in Wiener SI GmbH v Hauptzollamt Emmerich (Case C-338/95) [1997] ECR I-6495. A measure of self-restraint is required on the part the national courts, if the Court of Justice is not to become overwhelmed. A passage of his opinion is of particular relevance in the present context (see [1997] ECR I-6495 at 6515–6516, para 61)—

"... another development which is unquestionably significant is the emergence in recent years of a body of case-law developed by this Court to which national courts and tribunals can resort in resolving new questions of Community law. Experience has shown that, in particular in many technical fields, such as customs and value added tax, national courts and tribunals are able to extrapolate from the principles developed in this Court's case-law. Experience has shown that that case-law now provides sufficient guidance to enable national courts and tribunals—and in particular specialized courts and tribunals—to decide many cases for themselves without the need for a reference."

118. In our view this is not an appropriate case for a reference by this court. For the reasons which we have set out we are satisfied that there is ample guidance on the question of principle in the existing decisions of the Court of Justice. We feel confident that we can apply the principle to the particular facts of the appeals which we have to decide."

16. I shall now proceed to consider the proposed Questions against the backdrop of those observations.

Proposed Questions 1 and 3

17. Proposed Question 1 addresses the issue whether, as a matter of EU law, a taxable person, who has overpaid VAT, is entitled to compound interest. The Wilkins appellants and Lookers acknowledge that the same issue is addressed in Littlewoods Questions 1 to 3, but they say that their proposed Question 1 has the advantage that it condenses and reformulates the Littlewoods Questions in a way relevant to the present appeals and so as to raise a further point on the calculation of the compound interest. As to that further point, they say that domestic law, as expounded in the speeches of the majority of the appellate committee of the House of Lords in Sempra Metals, appears to be that, if the taxable person is entitled to compound interest on the overpayment of tax, it is to be computed by reference to the government's borrowing rate. The Wilkins appellants and Lookers submit that is wrong in principle and that the jurisprudence of the CJEU shows, or arguably shows, that the appropriate measure is the loss to the taxpayer and not the gain to HMRC.
18. Proposed Question 3 addresses the issue as to the period in respect of which, if the taxable person is entitled to compound interest, that interest is to be paid, and, in particular, whether such interest continues to be payable, even after repayment of the principal, until the interest is paid in full. The Wilkins appellants and Lookers submit that compound interest under EU law is intended to reimburse fully all directly related benefits arising in consequence of the unlawful levy of tax. It follows, they submit, that the period in respect to which compound interest must be paid is the entire period from the date of overpayment of the principal to the date of payment of all interest due. They further submit that section 78 of the 1994 Act precludes their recovery of such interest for such period because section 78(4) provides for interest only in respect of the period up to the date of repayment of the overpaid VAT and section 78(1A)(b) appears to preclude any entitlement to interest in respect of any period after repayment of the principal.
19. It is clear, in my judgment, that Littlewoods Questions 1 to 3 are sufficiently wide and comprehensive to embrace everything that the Wilkins appellants and Lookers wish to raise in their proposed Questions 1 and 3. Littlewoods Question 3 is, in effect, a sweep-up question enabling the CJEU to state the full extent of any entitlement to interest.
20. I do not consider it would be appropriate to order a reference in respect of proposed Questions 1 and 3 merely because the Wilkins appellants and Lookers have their own claims for payment of compound interest, quite separate from the Littlewoods claimants, and wish to advance arguments in support of their claims with their own legal team and in their own way. That could be said by any of the large number of taxpayers who have, or claim to have, overpaid VAT contrary to their directly effective rights under EU law and have made some 1000 claims for compound interest and launched some 2000 tribunal appeals in respect of such interest. In the absence of any likelihood that a reference on proposed Questions 1 and 3 will materially improve the prospect of a proper resolution of these appeals, bearing in mind the reference already made by Vos J in Littlewoods (2), I can see no proper basis for a reference. In the light of the litigation history in this area, both in the domestic courts and the CJEU, it would be unrealistic to assume anything other than that the Littlewoods claimants will advance every possible argument for the greatest amount of interest over the longest period.

Proposed Question 2

21. Proposed Question 2 addresses issues which are not raised by the Littlewoods reference. They do not arise in Littlewoods for two reasons. First, the claims for compound interest in that case are restitutionary claims at common law. Secondly, it was stated in the Littlewoods reference that it was common ground that section 78 of the 1994 Act cannot be construed as providing for compound interest. That was the background to Littlewoods Question 4 which seeks the guidance of the CJEU on the extent to which it is necessary to disapply the restrictions in sections 78 and 80 of the 1994 Act in order to enable the taxable person to pursue one or more other domestic causes of action for interest, in particular restitutionary claims. By contrast, the Wilkins appellants and Lookers do not advance a common law restitutionary claim for interest, which would be timed barred, but they claim pursuant to the statutory scheme in the 1994 Act recovery of overpaid of VAT and interest on those overpayments. They contend that, by virtue of the Marleasing principle of interpreting national legislation to conform with EU law and the EU law principle of effectiveness (that the national law must not make it virtually impossible or excessively difficult for a person to exercise rights conferred by EU law) the statutory scheme in VATA 1994 should be (1) interpreted, or (2) in any event applied, in such a way as to enable a taxable person to recover compound interest, such interest to be awarded, in the event of dispute, by way of appeal to the statutory tribunals set up by Parliament specifically for the purpose of resolving tax disputes, among other things, as to the overpayment of VAT and interest on such overpayment. The Wilkins appellants apparently also rely on the EU law principle of equivalence (namely, that the detailed procedural rules governing actions for safeguarding an individual's rights under EU law must be no less favourable than those governing domestic actions).
22. The UT found against the Wilkins appellants and Lookers on those issues. The UT held that the Marleasing principle did not apply because the right to compound interest was not derived from an EU directive, in particular Council Directive 77/388/EEC ("the Sixth Directive"); and, in any event, a conforming interpretation went "against the grain" of the legislation. In short, the UT was of the view that section 78 of the 1994 Act is not capable of any interpretation other than as conferring a right to simple interest only. The UT further held that, even if there is a right to compound interest under EU law, the restriction of interest under section 78 of the 1994 Act to simple interest, and the inability of the specialist tribunal to award compound interest on appeal, would not infringe the EU law principles of effectiveness and equivalence. The UT reasoned that, by disapplication of the exclusivity provisions in the statutory scheme in order to give effect to the EU law rights of the taxable person, there would still be available a common law cause of action in restitution for compound interest (enforceable in the ordinary courts).
23. The Wilkins appellants and Lookers submit that the UT was wrong on both those issues (the interpretation and, in any event, application of the statutory scheme, to enable compound interest to be recovered through the specialist statutory tribunals in the event of dispute). Their reasons are set out in their skeleton arguments and were amplified in the able oral submissions of Mr Michael Conlon QC, for the Wilkins appellants, and Mr Kevin Prosser QC, for Lookers. They say that it is therefore necessary, or at all events desirable, to seek the guidance of the CJEU on those issues. That is the purpose of proposed Question 2.
24. It is not necessary, for determining the present applications, to set out here or evaluate the merits of the arguments of the Wilkins appellants and Lookers on the application of the Marleasing principle and the EU law principles of effectiveness and equivalence to the statutory scheme for recovering overpaid VAT and interest. Whether those arguments are strong or merely arguable, it is not appropriate to refer proposed Question 2 to the CJEU for a preliminary ruling. The Marleasing principle and the EU law principles of effectiveness and equivalence are well established and well defined in case law. Their application to the facts of any particular case may be difficult, but that difficulty cannot, in the absence of some special feature, warrant a reference to the CJEU for a preliminary ruling. The interpretation of national legislation is a matter for the national court to decide. Moreover, it is obvious that the national court will usually be better placed than the CJEU to decide whether, and the extent to which, the Marleasing principle and the principles of effectiveness and equivalence require national legislation to be interpreted or, in any event, applied in a particular way, bearing in mind the language of the legislation and the policy and principles underlying it.
25. I do not consider that the application of the Marleasing principle and the EU law principles of effectiveness and equivalence in the present appeals raises any special feature which warrants a reference. The mere fact that the Wilkins appellants and Lookers consider that the UT was mistaken is plainly not sufficient. Indeed, as Mr Jonathan Swift QC, for HMRC, observed it would be strange to order a reference on proposed Question 2 relating to the proper interpretation and application of the national statutory scheme before the merits have even been considered in a first appeal from the decision of the UT or by any other appellate court in any case dealing with the same issues.
26. It is true that Littlewoods Question 4 already raises an issue about the application of the EU law principle of effectiveness. That issue, however, concerns a distinct general principle of EU law, which has never been the subject of decision by the CJEU. It is of a quite different character to the issues in proposed Question 2 which concern the application of undisputed principles to particular facts. The Wilkins appellants and Lookers further point out that proposed Question 2 is logically anterior to Littlewoods Question 4, and so, they submit, the CJEU may approach the latter on a false premise; and they say, moreover, that it may prove to be necessary in due course for this court to make a further reference to ask the CJEU to re-consider the scope of the principle of effectiveness to resolve that logically prior issue. That would not, they say, be a sensible use of resources of either the CJEU or this court.
27. I do not accept those arguments as a sufficient justification for a reference of proposed Question 2. Depending on the outcome of the Littlewoods reference, Question 2 may never arise. Even if it does arise, that Question does not raise any novel distinct and difficult point of principle. If and insofar as there are difficulties in applying the well established Marleasing principle and the EU law principles of effectiveness and equivalence to the statutory scheme, that is best addressed in the first place by this appellate court. The CJEU would be in a better position to resolve any future reference of Question 2, if that was thought to be necessary, once it has been considered by this court. I cannot see any reason to believe that the CJEU would be hampered in any way or led into any error in adjudicating on Littlewoods Question 4 merely because that Question proceeds on the assumption that the statutory scheme cannot be interpreted or applied in the way for which the Wilkins appellants and Lookers contend. If the Wilkins appellants and Lookers are right, Littlewoods Question 4 simply does not arise. If, however, they are wrong, Littlewoods Question 4 addresses a distinct self-contained issue.

Proposed Question 4

28. It is common ground, following the CJEU decisions in Elida Gibbs and Italian Republic, that the Wilkins appellants and Lookers overpaid VAT in breach of EU law on manufacturers' bonuses received by them and on the sale of demonstrator vehicles by them between 1 January 1978 and 21 July 1997. The Wilkins appellants and Lookers also claim that VAT paid by them on manufacturers' bonuses and the sale of demonstrator vehicles between 1 April 1973 and 31 December 1977 was levied in breach of their directly effective EU law rights. HMRC dispute that claim on the ground that the reasoning of the CJEU in Elida Gibbs and Italian Republic applies only to the Sixth Directive (which came into force on 1 January 1978) and not to earlier VAT Directives. That is the issue addressed in proposed Question 4.
29. The same issue arose in the Chalke Ch, in which it was considered by Henderson J. He said that he did not find the answer at all clear, and that, if it had been necessary to his decision, he would have referred it to the CJEU. It was not, however, necessary for any decision to be reached on it because he held that the taxpayers' claims were time-barred. The Wilkins appellants and Lookers submit that, in the light of Henderson J's analysis and view of the issue, it is plainly a point that should be referred to the CJEU for a preliminary ruling.
30. They submit that such a course is reinforced by the decision of the tribunal in Grattan to direct a reference to the CJEU for a preliminary ruling on whether the levy of VAT on commission in respect of third party purchases before 1 January 1978 was in breach of EU law by virtue of directly effective rights under the Second VAT Directive. They submit that it would be convenient for the CJEU to determine at the same time the legal consequences in EU law of the VAT payments in respect of the pre-1978 commissions in Grattan and also (since they would not be fully covered by the Grattan reference) the VAT payments in respect of the pre-1978 manufacturers' bonuses received by the Wilkins appellants and Lookers and the sale of demonstrator vehicles by them.
31. I do not accept that proposed Question 4 ought to be referred to the CJEU for a preliminary ruling. The issue addressed by that Question was not argued before the UT. The UT gave no judgment and made no order in respect of it. It was deliberately held over pending the resolution of other issues. It is not, therefore, before this court. It is a self-contained issue, quite separate from the Littlewoods Questions.
32. Although, for those reasons, it is not appropriate for this court to direct in these appeals a reference of Question 4, there would seem (without in any sense deciding the point) to be force in the submission that, in the light of the analysis of Henderson J in Chalke Ch and the reference directed by the tribunal in Grattan, it would be appropriate for there to be a reference to the CJEU of the issues in proposed Question 4. If that is to be achieved, the proper course is for the Wilkins appellants and Lookers to return to the UT and to request the UT to make a reference.

Stay

33. The Wilkins appellants and Lookers accept that, if the application for a reference fails, the court should order the stay sought by HMRC.

Conclusion

34. For the reasons I have given, I would grant HMRC's application for a stay and I would dismiss the applications of the Wilkins appellants and Lookers for a reference to the CJEU for a preliminary ruling.

Lord Justice Longmore

35. I agree.

Lord Neuberger MR

36. I also agree.