TEST CLAIMANTS IN THE VIC GROUP LITIGATION
Strand, London, WC2A 2LL
B e f o r e :
| (1) F J CHALKE LIMITED
|(2) A C BARNES (WOKINGHAM) LIMITED
|- and -
|THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS
Mr Jonathan Swift, Mr Peter Mantle and Mr Philip Woolfe (instructed by the Solicitor for HMRC) for the Defendants
Hearing dates: 9, 10, 11, 12, 13 and 16 February 2009
Crown Copyright ©
|I. Introduction||1- 10|
|II. The VAT background||11- 26|
|III. The facts||27- 36|
|IV. The statements of case||37- 56|
|V. Core question 1: is the statutory scheme in VATA 1994 for repayment of overpaid VAT and simple interest thereon exhaustive?||57- 75|
|VI. Core question 2: does Community law override sections 80 and 78 of VATA 1994 and require an award of compound interest to be made?||76-125|
|(1) Introduction||76- 77|
|(2) The position down to the judgment of the ECJ in Hoechst||78- 93|
|(3) Developments in the law since Hoechst||94-108|
|(4) Domestic authority||109-123|
|VII. The Restitutionary Claims||126-178|
|(2) The mistakes made by the claimants and section 32(1)(c) of the Limitation Act 1980||134-145|
|(3) The acknowledgment argument and section 29(5) of the Limitation Act 1980||146-158|
|(4) Does Community law have any effect on the limitation defence?||159-170|
|(5) Change of position||171-178|
|VIII. The Damages Claims||179-239|
|(2) The breaches of Articles 11 and 13 of the Sixth Directive||187-198|
|(3) The three year cap||199-235|
|(4) The repayment of the principal sums with simple interest only||236|
|(5) The enactment and maintenance in force of section 78(3) of VATA 1994||237|
|IX. The period before 1 January 1978||240-254|
|X. Summary of conclusions||255-256|
Mr Justice Henderson:
II. The VAT background
(a) so-called manufacturers' bonuses, typically paid by a car manufacturer to a dealer who purchased a demonstrator vehicle, or paid to a dealer in the form of a rebate when certain volumes of sales were achieved; and
(b) onward sales of demonstrator vehicles, typically after their use by the dealer for demonstration purposes and the provision of test drives to customers for a period of between six months and one year.
"If the business is blocked from recovering input tax on its purchase of the car, the car will effectively be subject to VAT in the hands of the business, as if it were a final consumer. The private use of that car, whilst it is in the possession of the business will then be subject to tax, without the need for a complicated or burdensome system of accounting for the private use of the vehicle by employees."
"Certain goods and services may be excluded from the deduction system [i.e. the system of deduction of input tax], in particular those capable of being exclusively or partially used for the private needs of the taxable person or of his staff."
"Before a period of four years at the latest has elapsed from the date of entry into force of this Directive, the Council, acting unanimously on a proposal from the Commission, shall decide what expenditure shall not be eligible for a deduction of Value Added Tax. Value Added Tax shall in no circumstances be deductible on expenditure which is not strictly business expenditure, such as that on luxuries, amusements or entertainment.
Until the above rules come into force, Member States may retain all the exclusions provided for under their national laws when this Directive comes into force."
The four year transitional period envisaged by Article 17(6) elapsed without any rules having been introduced by the Council, and the question therefore arose whether it was open to the UK to maintain the prohibition on the recovery of input tax on the purchase of motor cars which had been provided for in a succession of statutory instruments. If so, further questions arose whether the prohibition could be maintained if the cars were in fact used exclusively for business purposes, or in various circumstances of mixed business and private use. On a reference for a preliminary ruling from the Court of Appeal, the ECJ answered these questions in favour of the Commissioners, holding that the expiry of the transitional period did not preclude member states from maintaining an input tax block on the purchase of motor cars, and that they could do so even where the cars "were essential tools in the business of the taxable person concerned": see Case C-305/97 Royscot Leasing Limited and others v Customs and Excise Commissioners  1 WLR 1151,  STC 998, especially at paragraphs 26 and 28 to 32 of the judgment of the court.
"However, in the case of a car dealer, selling a demonstrator, the car will normally be sold on relatively quickly in the course of business to a customer at (usually) a higher price than the dealer bought it for. Since the dealer has already borne VAT on the amount of the purchase price he had to pay, the Commissioners took the view that it would not be appropriate for the sale by the dealer to carry VAT on the full amount of the sale price. Rather, United Kingdom law required the dealer only to account for VAT on the "margin" between his purchase price and the sale price."
Before the decision of the ECJ in the Italian Republic case (see below), the block on input tax recovery on cars and the operation of the margin scheme were both contained in the Value Added Tax (Input Tax) Order 1992, SI 1992/3222.
"Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemption and of preventing any possible evasion, avoidance or abuse:
(c) supplies … of goods on the acquisition or production of which, by virtue of Article 17(6), value added tax did not become deductible;"
"28. In circumstances such as those in the main proceedings, the manufacturer, who has refunded the value of the money-off coupon to the retailer or the value of the cash-back coupon to the final consumer, receives, on completion of the transaction, a sum corresponding to the sale price paid by the wholesalers or retailers for his goods, less the value of those coupons. It would not therefore be in conformity with the [Sixth Directive] for the taxable amount used to calculate the VAT chargeable to the manufacturer, as a taxable person, to exceed the sum finally received by him. Were that the case, the principle of neutrality of VAT vis-à-vis taxable persons, of whom the manufacturer is one, would not be complied with.
29. Consequently, the taxable amount attributable to the manufacturer as a taxable person must be the amount corresponding to the price at which he sold the goods to the wholesalers or retailers, less the value of those coupons.
30. That interpretation is borne out by article 11C(1) of the Sixth Directive which, in order to ensure the neutrality of the taxable person's position, provides that, in the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount is to be reduced accordingly under conditions to be determined by the member states."
III. The facts
IV. The statements of case
(a) Effectiveness. Community law requires that member states afford persons an effective remedy for breach of their directly effective Community law rights ("the principle of effectiveness"). The principal sums were exacted by the Commissioners in breach of Chalke's directly effective Community law right not to pay monies to which the Commissioners are not entitled. In such circumstances, Chalke has been denied the use of monies to which it is entitled. The principle of effectiveness requires that Chalke be compensated fully for the loss of the use of money. Full compensation requires that interest at a commercial rate be paid and that the interest be compounded.
(b) Equivalence. Domestic law requires that persons in the position of Chalke who seek recovery of money wrongly exacted and overpaid be given a remedy for loss of use of that money. Further, following the decision of the House of Lords in Sempra, such a remedy requires the payment of interest at a commercial rate and that the interest be compounded. Community law requires that an equivalent remedy be available for the breach of Chalke's directly effective Community law right not to pay monies to which the Commissioners are not entitled ("the principle of equivalence"). If and in so far as section 78 of VATA 1994 precludes the award of compound interest by way of such a remedy, it breaches the principle of equivalence and must be disapplied.
(a) the belief that it was liable to account for the principal sums as output tax, which continued until the judgments of the ECJ in Elida Gibbs and Italian Republic;
(b) the mistaken belief, which continued until Chalke made the uncapped claim, that its claim for the principal sums was limited by the retrospective three-year limitation period; and
(c) the mistaken belief, which continued until the making of the current claim, that its claim for a remedy was limited to the return of the principal sums with simple interest only.
It will be convenient to refer to these three alleged mistakes, although they are not definitions employed by Chalke in the particulars of claim, as "the liability mistake", "the time limit mistake" and "the simple interest mistake" respectively.
(a) the enactment and maintenance in force of the offending VAT legislation relating to manufacturers' bonus payments and the sale of demonstrator cars;
(b) the enactment and maintenance in force of the three year cap, with no transitional period in respect of rights which had accrued prior to 18 July 1996;
(c) the failure to pay compound interest on the overpaid VAT, in breach of the principles of effectiveness and/or equivalence; and
(d) the enactment and maintenance in force of the statutory bar to the payment of compound interest in section 78(3) of VATA 1994.
"61A. Further and/or alternatively, if and to the extent that the Commissioners were initially unjustly enriched, the Commissioners have in good faith, and assuming the Principal Sums to have been due by way of VAT, changed their position as a consequence of the payment by Chalke of the Principal Sums and the payment by the claimants in the VIC Group Litigation and/or by other persons of sums by way of VAT on the basis of the same, or equivalent alleged mistakes. In the premises it would now be inequitable and/or unconscionable to require the Commissioners to make restitution of the sums claimed in this claim.
61B.The sums in question formed part of the United Kingdom's tax revenue for the relevant year in which they were paid, and were treated and dealt with accordingly. The receipt of all of the payments of the Principal Sums pre-dated the making of this claim by at least 10 years. Those sums have been irretrievably spent, in some cases decades ago."
V. Core question 1: is the statutory scheme in VATA 1994 for repayment of overpaid VAT and simple interest thereon exhaustive?
"80. Recovery of overpaid VAT
(1) Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not VAT due to them, they shall be liable to repay the amount to him.
(2) The Commissioners shall only be liable to repay an amount under this section on a claim being made for the purpose.
(3) It shall be a defence, in relation to a claim under this section, that repayment of an amount would unjustly enrich the claimant.
(4) No amount may be claimed under this section after the expiry of 6 years from the date on which it was paid, except where subsection (5) below applies.
(5) Where an amount has been paid to the Commissioners by reason of a mistake, a claim for the repayment of the amount under this section may be made at any time before the expiry of 6 years from the date on which the claimant discovered the mistake or could with reasonable diligence have discovered it.
(6) A claim under this section shall be made in such form and manner and shall be supported by such documentary evidence as the Commissioners prescribe by regulations; and regulations under this subsection may make different provision for different cases.
(7) Except as provided by this section, the Commissioners shall not be liable to repay an amount paid to them by way of VAT by virtue of the fact that it was not VAT due to them."
"78. Interest in certain cases of official error
(1) Where, due to an error on the part of the Commissioners, a person has –
(a) accounted to them for an amount by way of output tax which was not output tax due from him and which they are in consequence liable to repay to him, or
(b) failed to claim credit under section 25 for an amount for which he was entitled so to claim credit and which they are in consequence liable to pay to him, or
(c) (otherwise than in a case falling within paragraph (a) or (b) above) paid to them by way of VAT an amount that was not VAT due and which they are in consequence liable to repay to him, or
(d) suffered delay in receiving payment of an amount due to him from them in connection with VAT,
then, if and to the extent that they would not be liable to do so apart from this section, they shall pay interest to him on that amount for the applicable period, but subject to the following provisions of this section.
(2) Nothing in subsection (1) above requires the Commissioners to pay interest –
(a) on any amount which falls to be increased by a supplement under section 79; or
(3) Interest under this section shall be payable at such rates as may from time to time be prescribed by order made by the Treasury; and any such order –
(a) may prescribe different rates for different purposes; and
(b) shall apply to interest for periods beginning on or after the date in which the order is expressed to come into force, whether or not interest runs from before that date;
and the first such order may prescribe, for cases where interest runs from before the date on which that order is expressed to come into force, rates for periods ending before that date.
[Subsections (4) to (9) then set out detailed rules for determining the "applicable period" for cases falling within the different categories identified in subsection (1)]
(10) The Commissioners shall only be liable to pay interest under this section on a claim made in writing for that purpose.
(11) No claim shall be made under this section after the expiry of 6 years from the date on which the claimant discovered the error or could with reasonable diligence have discovered it.
(12) … "
"(4) The Commissioners shall not be liable, on a claim made under this section, to repay any amount paid to them more than three years before the making of the claim."
In section 78, subsection (11) was replaced with the following:
"(11) A claim under this section shall not be made more than three years after the end of the applicable period to which it relates."
(a) the provision in section 80(3) of a special statutory defence of unjust enrichment of the claimant, which has no common law equivalent and may therefore be regarded as a limitation on the statutory right to recover VAT analogous to the settled practice limitation in section 33 of TMA 1970 which led the Court of Appeal to conclude that the section 33 regime was intended by Parliament to be an exclusive one;
(b) the enactment of special time limits for section 80 claims, which before the introduction of the three year cap reflected general provisions to be found in the Limitation Act 1980 and adapted them to the special statutory regime;
(c) the provision made in subsections (2) and (6) of section 80 for the form and manner of claims under the section;
(d) the provision in section 78 of a right to simple interest on the recovery of VAT overpaid (and in other specified circumstances) where the overpayment (or other specified circumstance) was due to an error on the part of the Commissioners, together with detailed rules about the rates at which, and the precise periods for which, such interest is payable, and specific time limits analogous to those under section 80; and
(e) the creation in sections 82 to 85 of a special statutory regime for appeals to the VAT and Duties Tribunal, including appeals relating to repayment claims under section 80, and appeals relating to any liability of the Commissioners to pay interest under section 78 or the amount of interest so payable: see section 83(s) and (t).
VI. Core question 2: does Community law override sections 80 and 78 of VATA 1994 and require an award of compound interest to be made?
(2) The position down to the decision of the ECJ in Hoechst
"In that connection it must be pointed out in the first place that entitlement to the repayment of charges levied by a Member State contrary to the rules of Community law is a consequence of, and adjunct to, the rights conferred on individuals by the Community provisions prohibiting charges having an effect equivalent to customs duties or, as the case may be, the discriminatory application of internal taxes. Whilst it is true that repayment may be sought only within the framework of the conditions as to both substance and form, laid down by the various national laws applicable thereto, the fact nevertheless remains, as the Court has consistently held, that those conditions may not be less favourable than those relating to similar claims regarding national charges and they may not be so framed as to render virtually impossible the exercise of rights conferred by Community law."
The conditions referred to at the end of that statement are, of course, the Community law principles of equivalence and effectiveness respectively.
"… a taxable person may claim, with retroactive effect from the date on which the arrangements at issue came into force, a refund of VAT paid without being due, by following the procedural rules laid down by the domestic legal system of the member state concerned, provided that those rules are not less favourable than those relating to similar, domestic actions nor framed in a way such as to render virtually impossible the exercise of rights conferred by Community law."
"83. It is important to bear in mind in this regard that what is contrary to Community law, in the disputes in the main proceedings, is not the levying of a tax in the United Kingdom on the payment of dividends by a subsidiary to its parent company but the fact that subsidiaries, resident in the United Kingdom, of parent companies having their seat in another Member State were required to pay that tax in advance whereas resident subsidiaries of resident parent companies were able to avoid that requirement."
The Court then referred to the San Giorgio principle, and continued:
"85. In the absence of Community rules on the restitution of national charges that have been improperly 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 (principle of equivalence) and, secondly, that they do not render practically impossible or excessively difficult the exercise of rights conferred by Community law (principle of effectiveness): [authority was then cited].
86. It is likewise for national law to settle all ancillary questions relating to the reimbursement of charges improperly levied, such as the payment of interest, including the rate of interest and the date from which it must be calculated: [reference was made to Roquette Frères, paras 11 and 12 and to Express Dairy Foods, paras 16 and 17].
87. In the main proceedings, however, the claim for payment of interest covering the cost of loss of the use of the sums paid by way of advance corporation tax is not ancillary, but is the very objective sought by the claimants' actions in the main proceedings. In such circumstances, where the breach of Community law arises, not from the payment of the tax itself but from its being levied prematurely, the award of interest represents the "reimbursement" of that which was improperly paid and would appear to be essential in restoring the equal treatment guaranteed by Article 52 of the Treaty.
88. The national court has said that it is in dispute whether English law provides for restitution in respect of damages arising from loss of the use of sums of money where no principal sum is due. It must be stressed that in an action for restitution the principal sum due is none other than the amount of interest which would have been generated by the sum, use of which was lost as a result of the premature levy of the tax.
89. Consequently, Article 52 of the Treaty enables a subsidiary resident in the United Kingdom and/or its parent company having its seat in another Member State to obtain interest accrued on the advance corporation tax paid by the subsidiary during the period between the payment of advance corporation tax and the date on which mainstream corporation tax became payable, and that sum may be claimed by way of restitution."
"However, in the present cases, it is precisely the interest itself which represents what would have been available to the claimants, had it not been for the inequality of treatment, and which constitutes the essential component of the right conferred on them."
"In the latter case, which concerned the award of interest on amounts payable by way of reparation for loss and damage sustained as a result of discriminatory dismissal, the Court ruled that full compensation for the loss and damage sustained cannot leave out of account factors, such as the effluxion of time, which may in fact reduce its value, and that the award of interest is an essential component of compensation for the purposes of restoring real equality of treatment … The award of interest was held in that case to be an essential component of the compensation which Community law required to be paid in the event of discriminatory dismissal."
(3) Developments in the law since Hoechst
(i) the charge to corporation tax under Case V of Schedule D in section 18 of the Income and Corporation Taxes Act 1988 on dividends received by UK parent companies from subsidiaries resident in other member states ("the Case V charge");
(ii) the charge to ACT on the onward distribution by UK-resident companies of dividend income which they had received from subsidiaries resident in other member states; and
(iii) the statutory regime introduced in 1994 which enabled a UK company to elect to treat dividends which it paid out of distributable foreign profits as foreign income dividends ("FIDs"), with relatively favourable ACT consequences.
The questions arose against a factual background where the claimants typically had very large amounts of unrelieved ACT which there was little, if any, realistic prospect of their setting against MCT before ACT was finally abolished in 1999. For an outline of how this problem of surplus ACT arose, see FII Chancery at paragraphs 32 to 35.
(a) a claim for repayment of sums unduly levied, as a consequence of, and adjunct to, the relevant breach of Community law; or
(b) a claim for compensation or damages such that the conditions in Brasserie du Pêcheur and Factortame (joined cases C-46/93 and C-48/93) must be satisfied; or
(c) a claim for payment of an amount representing a benefit unduly denied.
Three further questions in the order for reference, Questions 7, 8 and 9, raised further issues in relation to remedies depending on the answers given to Question 6.
"130. On this basis, the Court went on to consider issues arising on both of the hypotheses put forward by the national court: first, the hypothesis that the actions were to be treated as claims in restitution, and second, the hypothesis that they were to be treated as claims in damages. It concluded that, in any event, Article 43 EC required that the plaintiffs should have an effective legal remedy in order to obtain reimbursement or reparation of the financial loss which they had sustained and from which the authorities of the member state concerned had benefited as a result of the advance payment of tax. The mere fact that the sole object of such an action would be the payment of interest did not constitute a ground for dismissing such an action.
132. In the present case, it seems to me that, with one exception, the claims described in the national court's sixth question should be considered equivalent to claims for recovery of sums unduly paid, that is to say, claims for recovery of charges unlawfully levied within the meaning of the Court's case law, which the UK is in principle obliged to repay. The underlying principle should be that the UK should not profit and companies (or groups of companies) which have been required to pay the unlawful charge must not suffer loss as a result of the imposition of the charge. As such, in order that the remedy provided to the test claimants should be effective in obtaining reimbursement for reparation of the financial loss which they had sustained and from which the authorities of the member state concerned had benefited, this relief should in my view extend to all direct consequences of the unlawful levying of tax. This includes to my mind: (1) repayment of unlawfully levied corporation tax …; (2) the restoration of any relief applied against such unlawfully levied corporation tax …; (3) the restoration of reliefs foregone in order to set off unlawfully levied corporation tax …; (4) loss of use of money in so far as corporation tax was, due to the breach of Community law, paid earlier than it would otherwise have been … . In each case, it would be for the national court to satisfy itself that the relief claimed was a direct consequence of the unlawful levy charged."
The Advocate General went on to say, in paragraph 133, that he was not convinced that the claim relating to the enhancement of the FIDs "should qualify as equivalent to a claim for repayment of charges unlawfully levied". In his view the direct consequence of the UK's unlawful failure to grant a tax credit to shareholders in receipt of FIDs was simply the extra tax levied on those shareholders, which was a loss suffered by the shareholders and not by the distributing companies. The enhancement of the FIDs did not follow inevitably from the denial of the tax credit, nor was it possible to conclude without more "that the distribution of an increased dividend necessarily qualifies as a loss incurred for the distributing companies".
"article 52 of the Treaty requires that resident subsidiaries and their non-resident parent companies should have an effective legal remedy in order to obtain reimbursement or reparation of the financial loss which they have sustained and from which the authorities of the member state concerned have benefited as a result of the advance payment of tax by the subsidiaries."
Having thus identified the underlying general principle, the Advocate General went on to link it with the requirement of effectiveness by saying that in order to provide an effective remedy to the test claimants the relief should extend "to all direct consequences of the unlawful levying of tax". In this way, the remedy which the ECJ had held to be necessary in Hoechst was brought under the umbrella of the general principle: it was the means of reversing a direct consequence of the unlawful levying of tax.
"204. In addition, the Court held in para 96 of its judgment in [Hoechst], that, where a resident company or its parent have suffered a financial loss from which the authorities of a member state have benefited as the result of a payment of advance corporation tax, levied on the resident company in respect of dividends paid to its non-resident parent but which would not have been levied on a resident company which had paid dividends to a parent company which was also resident in that member state, the Treaty provisions on freedom of movement require that resident subsidiaries and their non-resident parent companies should have an effective legal remedy in order to obtain reimbursement or reparation of the loss which they have sustained.
205. It follows from that case law that, where a member state has levied charges in breach of the rules of Community law, individuals are entitled to reimbursement not only of the tax unduly levied but also of the amounts paid to that state or retained by it which relate directly to that tax. As the Court held in paras 87 and 88 of [Hoechst], that also includes losses constituted by the unavailability of sums of money as a result of a tax being levied prematurely.
206. In so far as the rules of national law governing the availability of tax relief have prevented a tax, such as ACT, levied in breach of Community law, from being recovered by a taxpayer who has accounted for it, the latter is entitled to repayment of that tax."
"Such waivers of relief or increases in the amount of dividends are the result of decisions taken by those companies and do not constitute, on their part, an inevitable consequence of the refusal by the United Kingdom to grant those shareholders the same treatment as that afforded to shareholders receiving a distribution which has its origin in nationally-sourced dividends." (Paragraph 207)
"The answer to Questions 6 to 9 should therefore be that, in the absence of Community legislation, 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, including the classification of claims brought by injured parties before the national courts and tribunals. Those courts and tribunals are, however, obliged to ensure that individuals should have an effective legal remedy enabling them to obtain reimbursement of the tax unlawfully levied on them and the amounts paid to that member state or withheld by it directly against that tax. As regards other loss or damage which a person may have sustained by reason of a breach of Community law for which a member state is liable, the latter is obligated to make reparation for the loss or damage caused to individuals [in accordance with the conditions laid down in Brasserie du Pêcheur and Factortame], but that does not preclude the state from being liable under less restrictive conditions, where national law so provides."
(4) Domestic authority
"38. Suppose that section 35A had never been enacted, and suppose also that the [ECJ] had dealt, not just with the two cases before it, but also with a third case in which the subsidiary had paid ACT, some or all of which it had not utilised. What would the [ECJ] have decided as respects that third case? I am sure that it would have decided that the unutilised ACT should be repaid, and I am equally confident that it would have directed that the Revenue must also pay interest (or an amount equal to interest) for the period between the payment of the ACT and the repayment of it. If interest (or an amount equal to it) had to be paid where the ACT had already been utilised, it follows as the night follows the day that interest (or an amount equal to it) also had to be paid where the ACT had not yet been utilised. The [ECJ] would have required that result regardless of whether United Kingdom law did or did not include a provision like section 35A of the 1981 Act."
He said that he therefore had his doubts "even about the starting point for this argument which Mr Glick advanced" (paragraph 40).
"158. … The basis of Sempra is that the real vice of the tax regime was the discrimination in the effect on cash-flow, and full compensation for the effect of that discrimination could only be satisfied by an award of compound interest. The claim for payment of interest covering the cost of loss of the use of money paid pursuant to the unlawful domestic measure was not ancillary to some other claim but was the very essence of the claim itself.
159. But Sempra is not authority for the proposition that every withholding of money due under Community law or loss caused by a breach of Community law requires the award of compound interest.
160. It has long been established that the manner of protection of directly effective Community rights depends on national law, subject to the principles of equivalence and effectiveness. The principle of equivalence is that the same procedural treatment must be given to claims based on Community law as is given to claims based on national law. The principle of effectiveness is that national law should provide effective and adequate redress for violations of Community law, and national law may not render the exercise of rights conferred by Community law virtually impossible or excessively difficult.
161. I accept the Commissioners' argument that Sempra was a case where the breach of Community law arose not from the payment of the tax itself but from its being levied prematurely, and where the award of interest represented reimbursement of what had been improperly paid and what was essential in restoring the equal treatment guaranteed by Article 43 EC.
162. Here the appeals concerned the determination of the existence and quantum of the taxpayers' right to input tax deduction in accordance with [VATA 1994] and the Sixth Directive (matters which the Tribunal does have jurisdiction to determine). Payment of interest on the principal amounts was an "ancillary matter" to be determined under national law under the principle of national procedural autonomy, subject to the principles of equivalence and effectiveness.
163. I am satisfied that Community law does not require the award of compound interest in these circumstances."
VII. The Restitutionary Claims
(2) The mistakes made by the claimants and section 32(1)(c) of the Limitation Act 1980
"it is sufficient to ground recovery that the plaintiff's mistake should have caused him to pay the money to the payee."
(3) The acknowledgment argument and section 29(5) of the Limitation Act 1980
"29. Fresh accrual of action on acknowledgment or part payment
(5) Subject to subsection (6) below, where any right of action has accrued to recover –
(a) any debt or other liquidated pecuniary claim; or
and the person liable or accountable for the claim acknowledges the claim or makes any payment in respect of it the right shall be treated as having accrued on and not before the date of the acknowledgment or payment.
(6) A payment of a part of the rent or interest due at any time shall not extend the period for claiming the remainder then due, but any payment of interest shall be treated as a payment in respect of the principal debt.
(7) Subject to subsection (6) above, a current period of limitation may be repeatedly extended under this section by further acknowledgments or payments, but a right of action, once barred by this Act, shall not be revived by any subsequent acknowledgement or payment.
30. Formal provisions as to acknowledgments and part payments
(1) To be effective for the purposes of section 29 of this Act, an acknowledgment must be in writing and signed by the person making it.
(2) For the purposes of section 29, any acknowledgment or payment –
(a) may be sent by the agent of the person by whom it is required to be made under that section; and
(b) shall be made to the person, or to an agent of the person, whose title or claim is being acknowledged or, as the case may be, in respect of whose claim a payment is being made."
(a) the date of payment of the uncapped claim, namely 16 August 2004; or alternatively
(b) the date of issue of business brief 22/02, namely 5 August 2002.
It will be recalled that business brief 22/02 was the Commissioners' first public response to the judgment of the ECJ in Marks & Spencer I which had been delivered on 11 July 2002: see paragraph 33 above.
(a) a debtor acknowledges a claim for the purposes of the subsection only if he acknowledges that he actually owes money to the claimant (so there can be no acknowledgment if the debtor denies liability on the ground of a set off or cross- claim which exceeds the debt); and
(b) the acknowledgment can only relate to the particular claim in respect of which it is made.
"What I draw from these authorities, and from the ordinary meaning of "acknowledges the claim", is that the debtor must acknowledge his indebtedness and legal liability to pay the claim in question. There is now no need to go further to seek for any implied promise to pay it. That artificiality has been swept away. But, taking the debtor's statement as a whole, as it must be, he can only be held to have acknowledged the claim if he has in effect admitted his legal liability to pay that which the plaintiff seeks to recover. … In effect, "acknowledges the claim" means that the statement in question must be an admission of that indebtedness which the plaintiff seeks to recover notwithstanding the expiry of the period of limitation."
"A part-payment, like an acknowledgment, can only revive the cause of action and start time running afresh if it provides evidence in the form of an admission by the debtor that the debt remains due despite the passage of time. This is consonant with the authorities."
"the function of the court is not one of interpreting the contract but of deciding, in accordance with legal principles, what compensation, if any, should be paid to redress any harm done by its breach."
"2. The phrase "liquidated claim" connotes a claim for a specific sum or, alternatively, for a sum which can be readily and precisely ascertained. None of the authorities reviewed in Part 3 of this judgment is inconsistent with this proposition. A claim for damages in tort is by definition not a liquidated claim. The assessment of damages in tort involves the application of a set of common law rules to the particular circumstances of the case. The application of those rules may be relatively straightforward in some instances, but that does not make the claim a liquidated one.
3. The global phrase "any debt or other liquidated pecuniary claim" suggests a claim which is due to be paid pursuant to some contractual or similar obligation. The words on their natural meaning do not connote damages or compensation which the law requires to be paid by someone who has acted in breach of an obligation or duty."
(4) Does Community law have any effect on the limitation defence?
"(1) The requirement in section 80(4) of VATA 1994 that a claim under that section be made within 3 years of the relevant date does not apply to a claim in respect of an amount brought into account, or paid, for a prescribed accounting period ending before 4 December 1996 if the claim is made before 1 April 2009."
It would be strange, submitted Mr Conlon, if the claimants' existing claims were time-barred, when Parliament has expressly provided a window of opportunity until 1 April 2009 for new claims to be brought under section 80(4) of VATA 1994 which are freed from the three year cap and may therefore claim recovery of overpaid VAT back to 1973. Mr Conlon further submitted, in the course of his reply, that the effect of the judgments of the majority of the House in Fleming was that the breach of Community law occasioned by the cap remained unremedied in domestic law until the enactment of section 121. Accordingly, it was not open to the UK to rely on domestic limitation defences to claims for VAT overpaid before 4 December 1996 while the breach remained unremedied. Both Chalke and Barnes issued their claims before section 121 came into force, so the Commissioners' section 32(1)(c) defence, assuming it to be otherwise established, must be disapplied.
"21. So long as a directive has not been properly transposed into national law, individuals are unable to ascertain the full extent of their rights. That state of uncertainty for individuals subsists even after the Court has delivered a judgment finding that the Member State in question has not fulfilled its obligations under the directive and even if the Court has held that a particular provision or provisions of the directive are sufficiently precise and unconditional to be relied upon before a national court.
22. Only the proper transposition of the directive will bring that state of uncertainty to an end and it is only upon that transposition that the legal certainty which must exist if individuals are to be required to assert their rights is created.
23. It follows that, until such time as a directive has been properly transposed, a defaulting Member State may not rely on an individual's delay in initiating proceedings against it in order to protect rights conferred upon him by the provisions of the directive and that a period laid down by national law within which proceedings must be initiated cannot begin to run before that time."
"68. The Governments' arguments concerning the financial consequences of Emmott also raise an important point of principle. As they correctly observe, the Emmott ruling, if read literally, would expose Member States to the risk of claims dating back to the final date for implementing a Directive …
69. Moreover, such liability would arise even in the event of a minor or inadvertent breach. Such a result wholly disregards the balance which must be struck in every legal system between the rights of the individual and the collective interest in providing a degree of legal certainty for the state. That applies particularly to matters of taxation and social security, where the public authorities have the special responsibility of routinely applying tax and social security legislation to vast numbers of cases.
70. The scope for error in applying such legislation is considerable. Regrettably that is particularly so in the case of Community legislation, which is often rather loosely drafted … The recent Argos and Elida Gibbs cases provide a further example of how huge repayment claims can arise from a comparatively minor error in implementing a Community tax Directive. In those cases the court found that the fiscal treatment accorded by the United Kingdom to voucher transactions – used extensively in that Member State as a business promotion technique – was not in accordance with the Sixth VAT Directive. The resultant repayment claims are reported to be between £200 and £400 million."
"On the basis of the limited argument and evidence we have received on the point, it appears to me that the duration of a transitional period required in the present case to satisfy Community law would have been between 6 and 12 months. Six months was the minimum period thought by the ECJ to be appropriate in Grundig II, where a time limit was retrospectively reduced from 5 or 10 years to 3 years. At the other extreme, albeit without the benefit of detailed argument, I find it hard to conceive of circumstances which would require a transitional period of more than a year, at least where a time limit is retrospectively created or reduced in relation to commercial tax claims."
(5) Change of position
(a) that the San Giorgio principle must now be regarded as entitling a claimant who has paid tax levied in breach of Community law not only to repayment of the tax itself, but also to reimbursement of all directly related benefits retained by the member state as a consequence of the unlawful charge;
(b) that the principle thus stated is a reflection of the general principle of effectiveness; and
(c) that an award of compound interest is required in order to satisfy the principle.
"93. The Court has consistently held that individuals are entitled to obtain repayment of charges levied in a Member State in breach of Community provisions. That right is the consequence and the complement of the rights conferred on individuals by Community provisions as interpreted by the Court. The Member State in question is therefore required, in principle, to repay charges levied in breach of Community law …
94. According to the case-law, there is only one exception to that obligation to make repayment. A Member State may resist repayment to the trader of a charge levied though not due only where it is established by the national authorities that the charge has been borne in its entirety by someone other than the taxable person and that reimbursement of the charge would constitute unjust enrichment of the latter. It follows that, if the burden of the charge has been passed on only in part, the national authorities are required to repay the amount not passed on …
95. As that exception is a restriction on a subjective right derived from the Community legal order, it must be interpreted restrictively, taking account in particular of the fact that passing on a charge to the consumer does not necessarily neutralise the economic effect of the tax on the taxable person."
"40. A general principle of national law under which the courts of a Member State should dismiss claims for the recovery of charges levied over a long period in breach of Community law without either the authorities of that State or the persons liable to pay the charges having been aware that they were unlawful, does not satisfy the above conditions [i.e. the principles of equivalence and effectiveness]. Application of such a principle in the circumstances described would make it excessively difficult to obtain recovery of charges which are contrary to Community law. It would, moreover, have the effect of encouraging infringements of Community law which have been committed over a long period."
VIII. The Damages Claims
"31. The Commissioners have committed the following breaches of EC law:
(a) in breach of the claimant's directly effective EC law rights under Articles 11 and 13 of the [Sixth Directive] (and, prior to the entry into force of the Sixth Directive, under Article 2 of the [First Directive]), the United Kingdom enacted and maintained, and the Commissioners enforced, legislation which imposed VAT on manufacturers' bonus payments and which did not exempt from VAT onward sales of demonstrator cars on the purchase of which input tax recovery had been blocked; and/or
(b) in breach of the Principle of Effectiveness in relation to the breach described at subparagraph (a) above, the United Kingdom enacted and maintained in section 80 of VATA 1994, and the Commissioners enforced, a three-year limitation period introduced retrospectively and with no transitional period in respect of rights which had accrued prior to 18 July 1996; and/or
(c) the Commissioners repaid the Principal Sums with simple interest only, thereby failing to pay compound interest on that sum at a commercial rate and consequently acting in breach of the Principle of Effectiveness and/or the Principle of Equivalence; and/or
(d) in so far as section 78(3) VATA 1994 constitutes a statutory bar to the payment of compound interest at a commercial rate, the Commissioners enacted and maintained in force that provision in breach of the Principle of Effectiveness and/or the Principle of Equivalence. But for any statutory bar contained in section 78(3), following the decision of the House of Lords in Sempra, the claimant would be entitled to compound interest."
(a) the rule of Community law which has been infringed must have been intended to confer rights on individuals;
(b) the breach in question must be sufficiently serious; and
(c) there must be a direct causal link between the breach and the loss or damage sustained by the injured party.
See Robins v Secretary of State for Work and Pensions (Case C-278/05),  ECR I-1053, at paragraph 69; FII at paragraph 209; Thin Cap at paragraph 115; and Byrne v Motor Insurers' Bureau  EWCA Civ 574,  3 WLR 1421, ("Byrne") at paragraph 32 per Carnwath LJ.
"213. In order to determine whether a breach of Community law is sufficiently serious, it is necessary to take account of all the factors which characterise the situation brought before the national court. Those factors include, in particular, the clarity and precision of the rule infringed, whether the infringement and the damage caused were intentional or involuntary, whether any error of law was excusable or inexcusable, and the fact that the position taken by a Community institution may have contributed towards the adoption or maintenance of national measures or practices contrary to Community law …
214. On any view, a breach of Community law will clearly be sufficiently serious if it has persisted despite a judgment finding the infringement in question to be established, or a preliminary ruling or settled case-law of the court on the matter from which it is clear that the conduct in question constituted an infringement …"
"37. I agree, however, that the application of those principles varies within the context, as Lord Slynn's summary illustrates. An important consideration is the degree of discretion left to the member state. In that respect the Brasserie du Pêcheur and Dillenkofer cases can be seen as opposite ends of a spectrum. In Dillenkofer [Dillenkofer v Federal Republic of Germany (Joined Cases C –178, 179, 188-190/94),  QB 259] there was little doubt what the Directive required. The German Government had simply delayed implementation, with the result that direct loss was suffered by those who would have enjoyed its protection in the interim. In those circumstances, it was held that mere infringement was "sufficiently serious" to found liability. Although in theory this was an application of the Brasserie du Pêcheur principles, use of such apparently opprobrious terms as "manifest disregard" may distort the enquiry. Culpability may be relevant; but state liability does not necessarily depend on a successful witch-hunt."
In paragraph 45 of his judgment, Carnwath LJ said that the "sufficiently serious" criterion laid down by the ECJ is not a hard-edged test, and it requires a value judgment by the national court, taking account of the various factors summarised by the ECJ.
(2) The breaches of Articles 11 and 13 of the Sixth Directive
(a) The breaches of Article 11
(b) The breach of Article 13B(c)
"In this connection it is important to recognise that there are different ways in which such a breach may cause damage. Thus, an isolated event amounting to such a breach may cause a chain of damage development commencing when the effects of the breach first affect the claimant, and those [effects] may continue for a long period of time. If that period commences prior to the cut-off date for the purposes of a period of limitation, the claim will prima facie be time-barred notwithstanding that the effects of the breach may continue beyond that date. The position is similar to a claim in tort for negligence.
By contrast, there may be a continuing or repeated breach of statutory duty, over an extended period, such as an unlawful emission of toxic fumes which continues to affect and injure those exposed to it over the whole period of that breach. In such a case, if the limitation cut-off date occurs during the period, the claimant's cause of action for the damage suffered after the date in question will not be time-barred. He is then in the position where he can identify a continuing or repeated breach of duty within the limitation period: see Crumbie v Wallsend Local Board  1 QB 503 at 508, per Lord Esher MR, applying the principles for identifying a cause of action in a continuing breach situation articulated by the House of Lords in Darley Main Colliery Co v Mitchell (1886) 11 App Cas 127."
In my judgment it is clear that each overpayment of VAT was an isolated event which caused loss to the claimant, and the claimant's cause of action in respect of each such payment accrued immediately it had been made.
(3) The three year cap
(a) they were in fact able to recover the whole of the principal sums which they had overpaid, together with simple interest thereon, under the flawed transitional arrangements, thereby satisfying in full their uncapped rights under sections 80 and 78 of VATA 1994; and
(b) their claim to recover compound interest is not, properly analysed, a claim under sections 80 or 78 at all, but a quite separate Community law claim (whether sounding in restitution or damages) to which the cap never applied in the first place.
In short, there is no legal, logical or factual connection between the loss which the claimants now wish to recover and the UK's admitted breach of Community law in introducing and maintaining the cap without proper transitional provisions.
(a) the need to have regard to all the circumstances of the case, including but not necessarily confined to those specifically mentioned by the ECJ;
(b) the essentially objective nature of the enquiry (save where bad faith or an intention to act unlawfully or, as in Factortame No. 5, a deliberate decision to run the risk of illegality is in issue); and
(c) the helpful guidance given by the Court of Appeal in Byrne, to which I have referred in paragraph 182 above.
The background to the introduction of the cap
"If traders discover that they have overpaid tax by reason of a mistake, there is effectively no time limit to how far they can go back with a claim, e.g. in some VAT cases claims can go back to 1973."
"If necessary he is prepared to consider introducing it before the next budget. The UK could be vulnerable to challenge under Community law if the time limit went below six years, because for Inland Revenue taxes there is a 6 year reclaim period, and a shorter period for VAT might be regarded as discriminatory. However, we are seeking the advice of the Law Officers on time limits."
"Subject to the outcome of all this research, I propose that we should announce the intention to have a 3 year limit and also say that if Parliament eventually agrees the legislation the time limit will apply to claims made on or after the date of the announcement. I propose that we should also publish draft Finance Bill legislation incorporating the time limit."
"The bigger the gap between the time periods for collecting underpaid tax and for repaying overpaid tax, e.g. 6 years for the former and 3 years for the latter, the more likely it was that the UK would run into difficulties. It is fair to say that they [i.e. the Law Officers' representatives] were firm in their views.
3. As the Chancellor appears to be minded to introduce a 3 year limit for refunds because 6 years still leaves him exposed to a very large bill if we were eventually to lose the cars cases, we will need to put forward some hard figures about the likely effects on the revenue, compliance, staffing, visiting programme etc, so that he can take an informed view about whether or not to reduce the 6 year assessment period to 3 years."
I comment that the focus is still on the question of equivalence, and the possible human rights implications of introducing a three year limit.
"Clearly no new rules can actually be in place when the Chancellor makes his announcement, but the idea would be that legislation eventually introduced in the Budget/Finance Bill would clearly have retrospective effect back to the date of the announcement, and we would (administratively?) refuse to pay up against valid claims lodged the day after the announcement."
I comment that this is indeed what happened, and the Commissioners' refusal to pay valid claims in the interval between the announcement of the cap on 18 July 1996 and its bringing into force on 4 December 1996 by a resolution under the Provisional Collections of Taxes Act 1968 was the subject of successful judicial review proceedings: see R v Customs and Excise Commissioners, ex parte Kay & Co  STC 1500. However, this was a problem of legality under domestic law: it had nothing to do with Community law.
"The Government has become concerned at the increasing amounts of revenue at risk in taxation boundary disputes, particularly VAT. Large sums, collected and paid in good faith, are being repaid to businesses, in some cases many years after the tax was collected and with no possibility that refunds will be passed on to final consumers. The Chancellor therefore asked Customs to undertake a review of the refund provisions applying to VAT and other indirect taxes. I am today announcing the outcome of that review.
I am proposing that with effect from today, a three year limit will be introduced for retrospective refund claims, applying to VAT and other indirect taxes, and to associated statutory interest. This will be subject to Parliamentary approval.
I also propose to recommend changes to the unsatisfactory law on unjust enrichment. Draft legislation effecting these changes will be published shortly and will subsequently be included in the 1997 Finance Bill. "
The 3-year cap on refunds is proving very unpopular with businesses with large claims in the pipeline that are now caught. Some are arguing that the new policy will fall foul of EC law. We will clearly take all views on board between now and Budget-time, but Ministers were advised that the policy was defensible in EC law, and acted to stop large unexpected bonuses to a few companies at the expense of taxpayers' pockets in general. Hard cases such as M & S are outweighed by the public interest."
"We will, I assume, be making our own presentation to the VAT Committee to demonstrate the problems the decision has caused already and will cause in the future."
"The Commission objects to the new UK measures because, by their retroactive nature, they unfairly penalise taxable persons acting in good faith who were counting on a period of six years at the time they made their claims for repayment, and thus have acquired a right to repayment. The same applies as regards the retroactive repeal of section 80(5) of the 1994 Act. Such treatment cannot be justified by an overriding requirement such as legal certainty. In so far as it retroactively shortens limitation periods applying at the time when the cause of action arose, section 47 of the Finance Act 1997 thus falls foul of the principle of effectiveness (Case 309/85 Barra  ECR 355 and Case 240/97 Deville  ECR 3513).
The Commission therefore considers that the retroactive nature of the new UK measures contravenes this principle, in that repayment of the portion going back beyond the new time-limit becomes impossible even though there was full entitlement to it before the new measures came into force."
The UK government was requested to submit its observations within two months, and warned that, if appropriate, the Commission might deliver a Reasoned Opinion pursuant to Article 226 EC after taking note of the observations.
How clear was the law?
"In particular, it is necessary to make sure that reduction of the limitation period does not have the effect of suddenly rendering inadmissible actions for repayment which could properly have been brought under the old legislation or, in any event, that taxpayers have had a reasonable period in which to safeguard their rights."
However, that paragraph begins by recording the submission of the French government, and the sentence which I have quoted is naturally read in its context as forming part of the French government's submission, rather than as part of the reasoning of the Court.
(4) The repayment of the principal sums with simple interest only
(5) The enactment and maintenance in force of section 78(3) of VATA 1994
IX. The period before 1 January 1978
"Whereas a system of value added tax achieves the highest degree of simplicity and of neutrality when the tax is levied in as general a manner as possible and when its scope covers all stages of production and distribution and the provision of services; whereas it is therefore in the interest of the Common Market and of Member States to adopt a common system which shall also apply to the retail trade;"
Articles 1 and 2 then provide, so far as material, as follows:
Member States shall replace their present system of turnover taxes by the common system of value added tax defined in Article 2.
The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.
On each transaction, value added tax, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.
The common system of value added tax shall be applied up to and including the retail trade stage.
However, until the abolition of the imposition of tax on importation and the remission of tax on exportation in trade between Member States, Member States may, subject to the consultation provided for in Article 5, apply this system only up to and including the wholesale trade stage, and may apply, as appropriate, a separate complementary tax at the retail trade stage or at the preceding stage."
"25. Thus, wherever the provisions of a directive appear, as far as their subject-matter is concerned, to be unconditional and sufficiently precise, those provisions may, in the absence of implementing measures adopted within the prescribed period, be relied upon as against any national provision which is incompatible with the directive or in so far as the provisions define rights which individuals are able to assert against the State."
Accordingly, if a provision of a directive is to have direct effect and to be capable of being relied upon by an individual in a national court, it must be "unconditional and sufficiently precise". In so far as paragraph 25 of the judgment may be thought to imply that such reliance can no longer be placed on a directly effective provision of a directive once the directive has been properly transposed into national law, it must of course now be read in the light of the contrary view affirmed by the ECJ in Marks & Spencer I.
(a) the tax is charged on each transaction in the production and distribution process;
(b) the tax is to be "exactly proportional" to the price of the goods or services supplied; and
(c) input tax is to be deducted before the output tax is calculated at each and every stage of production and distribution, in order to ensure that the principle of neutrality is observed.
"(a) in the case of supply of goods and of the provision of services, everything which makes up the consideration for the supply of the goods or the provision of services, including all expenses and taxes except the value added tax itself",
while Article 11(4) provided that:
"Certain goods and services may be excluded from the deduction system, in particular those capable of being exclusively or partially used for the private needs of the taxable person or of his staff."
There was no equivalent of the much fuller provisions to be found in Article 11 of the Sixth Directive dealing with ascertainment of the taxable amount, including in particular the key provision in Article 11(C)(1) which says that "where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States". Nor was there any equivalent of the much fuller provisions relating to exemptions contained in Article 13(B) of the Sixth Directive, including in particular Article 13(B)(c) which in turn interacts with Article 17(6).
"96. It is clear that the general principle in the Sixth Directive that the taxable amount is consideration actually received and cannot exceed the consideration actually paid by the consumer was derived originally from the Second Directive. What is much less clear is whether the Second Directive can be regarded by implication as requiring the taxable amount to be reduced when the actual amount received is less than the amount which at the time of supply was to be received. The neutrality principle derived from the First Directive suggests that a reduction should be made. Almost certainly a provision in domestic law precluding such adjustment would have been contrary to the Second Directive. That does not necessarily mean that Article 8(a) and Annex A [to the Second Directive] were sufficiently precise to have direct effect. [Reference was made to the Becker test]. It seems to us that if a term or a provision has to be implied it would not be normal to describe it as "precise". We are not aware of any case in which the Court of Justice has held that a provision which is to be implied in the Sixth Directive has been held to have direct effect. Certainly Mr Cordara [counsel for the appellant, Mr Roderick Cordara QC] did not cite any case to that effect.
97. We conclude that the Appellant's directly effective rights do not extend back beyond 1 January 1978 when the Sixth Directive took effect. While we have formed this view, we cannot be wholly confident that it is correct. If we were referring a question to the Court of Justice on the effect of the absence of transitional relief, we would have included a question as to the Second Directive."
They went on to say that, if a reference was to be made, it should be by a higher court, and should be made in the light of the conclusions of the House of Lords in Fleming.
X. Summary of Conclusions
(1) As a matter of English domestic law, the statutory scheme in VATA 1994 for the repayment of wrongly levied VAT and the payment of simple interest thereon is exhaustive and excludes any other remedy.
(2) However, the Community law principle of effectiveness overrides the domestic statutory scheme where (as in the present cases) the overpayment of VAT was caused by breach of directly effective provisions of Community law. In those circumstances the San Giorgio principle, as it is now to be understood in the light of the judgments of the ECJ in FII and Thin Cap, requires that compound interest should be paid.
(3) The basis upon which an award of compound interest should be made in order to satisfy the claimants' directly effective Community law rights is the basis laid down by the majority of the House of Lords in Sempra.
(4) The restitutionary claims advanced by the claimants for the recovery of such interest are, however, time-barred, because the extended time limit for bringing the claims in section 32(1)(c) of the Limitation Act 1980 had already expired before the present claims were begun, and the claims were not revived by any acknowledgment or part payment within section 29(5).
(5) There is a principle of Community law which, in certain exceptional circumstances, may prevent a member state from relying upon its own wrong, but the principle does not apply in the present case so as to prevent the Commissioners from relying on the expiry of the limitation period under section 32(1)(c).
(6) The claimants' alternative damages claim also fails in its entirety, partly for reasons of limitation and causation, but also because the breaches of Community law which caused the claimants loss were not in my judgment sufficiently serious to found liability.
(7) The question whether the relevant provisions of Article 2 of the First Directive have direct effect is not clear, and if it were necessary to my decision I would refer it to the ECJ for a preliminary ruling.