High Court of Ireland Decisions

 
THE HIGH COURT

2000 No 7923p

BETWEEN

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

Plaintiff

And THE REVENUE COMMISSIONERS

Defendant

JUDGMENT of Mr. Justice Kelly delivered on the 15th day of July, 2003.

Introduction

On the 29th November, 2002 I decided that the plaintiff was entitled to interest upon repayments of Value Added Tax (VAT) made to it by the defendants. The VAT repaid amounted to IR£1,750,000. Prior to the hearing in October, 2002 which led to that judgment the parties agreed that if interest was payable to the plaintiff the determination of the rate of such interest and the quantification of the amount payable should be left over for another day. That day came on the 27^th June, 2003 and this is my judgment on the matter.

Background

The background to the case is set forth in detail in my judgment of the 29th November, 2002. A short summary of the salient facts will suffice for the purposes of this ruling.

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The plaintiff has for many years been involved in the acquisition, development and management of a portfolio of properties. It was registered for VAT. It made the usual bi-monthly returns in respect of its VAT liability. VAT was paid by or refunded to the plaintiff on foot of those returns between 1981 and 1997.

On the 22nd March, 1991 the plaintiff gave written notice of a claim for repayment of such tax for the period 1st November, 1986 to 30th April, 1989. The defendants refused repayment.

An appeal was taken to the Appeal Commissioners. The appeal was brought in respect of a single two month period but it was a test case the result of which was to govern liability for all of the relevant periods in respect of which a claim was made. The claim for refund was ultimately made retrospective to 1981 being the maximum period permissible having regard to the limitation period for such claims.

The plaintiff lost before the Appeal Commissioners. A case was stated to the High Court where it lost again. An appeal was taken to the Supreme Court. On the 16th December, 1997 it reversed the decision of the High Court. On foot of the Supreme Court determination IR£1.75 million VAT was repaid. That occurred in January, 1999.

It was agreed that all VAT periods from the 1st March, 1981 should be treated as having been under appeal. Repayment of VAT was made on that basis.

The plaintiff contended that it was entitled to interest on the VAT overpaid on two separate bases. First, it alleged that it was entitled to interest pursuant to the relevant legislation. I found in its favour in this regard. Having considered the relevant legislation I said:

"I am of opinion that the correct construction to be given to these statutory provisions is that all of the provisions of the Income Tax Acts relating to the payment of tax in accordance with the determination of the Appeal Commissioners where that decision is under appeal by way of case stated are necessarily imported into the VAT

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legislation. If that be correct then if a claim for repayment of VAT is determined by the High Court or on appeal by the Supreme Court in favour of the taxpayer, the position in relation to a VAT appeal is the same as that which applies to an income tax appeal. It follows that the amount of VAT overpaid falls to be treated as if it were income tax overpaid and to be refunded with such interest, if any, as the court may allow."

Later in the judgment I held that

"The plaintiff is entitled to interest in accordance with the provisions of s. 941(9) of the Taxes Consolidation Act, 1997 ".

I held that a specific provision had been made by statute for the payment of interest.

I went on to consider the second basis upon which the plaintiff claimed interest. It did so by reference to the doctrine of unjust enrichment. I held that the doctrine applied in the context of taxes paid where they ought not to have been and refunds not made when they should have been. I held that the plaintiff would be entitled to recover under the general law of restitution and unjust enrichment if the payment of interest was not specifically provided for pursuant to the statutory provisions. Strictly speaking it was not necessary for me to consider this second limb of the plaintiff's case. I did so for the sake of completeness lest my decision on the first part of the claim might have been considered erroneous in the event of an appeal to the Supreme Court.

My judgment of the 29th November, 2002 was not appealed. Such being so, the plaintiff re-entered the case for the purposes of having the amount of interest assessed by the court.

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The Claim

It is common case that the task which I have been asked to undertake is that contemplated in s.941(9)(a) of the Taxes Consolidation Act, 1997. The plaintiff does not seek to have me determine a claim under the general law of restitution or unjust enrichment. Indeed it would be difficult to see how it could do so having regard to my finding that the payment of interest is specifically provided for by statute.

The plaintiff does contend however, that in exercising the statutory discretion I ought to bear in mind the legal principles which inform the doctrine of restitution and unjust enrichment. This, it contends, is so because of the nature of the statutory jurisdiction. I now turn to a consideration of the statutory provision.

The Statutory Provision

S.941(9) (insofar as it is relevant) provides as follows:

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

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

It is clear that the statute leaves it to the court to decide if any interest is to be paid in a particular case and if so how much.

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This is in marked contrast to other statutory provisions which are to be found in the taxes legislation. There specific rates of interest are prescribed. The legislature chose not to do so in the present case.

Is Interest Payable?

The defendants contend that this is the first question which has to be answered. They concede however that it must be answered in favour of the plaintiff. That is so having regard to the earlier determination made by the court and the facts of the case. I can therefore immediately turn to the question of the rate of interest which is to be applicable and the period of time for which interest should be paid.

What Rate of Interest Applies?

No fewer than seven different rates of interest were identified as being capable of being resorted to by the court in carrying out its statutory task. Five of these consist of simple interest and two of compound interest. For the period March 1982 to January 1999 they range in terms of their value (on the plaintiff's calculations) from as little as £913,384 to £3,332.660. That upper limit goes to £5,912,998 if a particular compound rate were held to be applicable in the circumstances of this case to May 2003. It is clear therefore that there is an enormous range of values involved depending upon the rate of interest which the court may ultimately choose.

Previous Jurisprudence

There is only a small number of cases where an issue such as the present one has been considered by the High or Supreme Court.

The first is Texaco Ireland Limited v. Murphy [1992] 4 ITR 91. In the second judgment of the Supreme Court of the 15th May, 1992 McCarthy J. had to consider the

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provisions of s.428(9) of the 1967 Income Tax Act which is in the same terms as s.941(9) of the Taxes Consolidation Act, 1997. On the topic of interest he said

"The enabling section, s.428(9) of the 1967 Act clearly leaves the calculation of interest, if any, within the discretion of the Court. This is in marked contrast with the statutory obligation on the Revenue to pay interest at the rate in force in respect of late payments or overpayments under s.30 of the 1976 Act, where the rate of interest, itself free of tax, is fixed by the statute. In accordance with the established jurisprudence of the Court as outlined in the judgment on the substantive issue, as to the construction of a taxing statute and referring to the decisions in McGrath v McDermott [1988] 1.R. 258, Revenue Commissioners v. Doorley [1933] 1. R. 750 and Inspector of Taxes v Kiernan [1981] I.R. 117, in my view the calculation of interest here does not fall within F.A. 1976 s.30(4) or I.T.A. 1967 s.550(1). As to a claim based upon various bank rates, I would not wish to shut out the possibility in an appropriate case of proving actual loss of interest sustained; this carries the hazard that investigation might show that the relevant investment would itself have had a negative return. In my view, in accordance with the consequential decision in McGrath's case the Court should apply the rate under the Courts Act as applicable throughout the relevant period".

The next case where the topic was considered is O'Rourke v. Revenue Commissioners [1996] I.T.R. 321. It is the judgment of Keane J. (as he then was) delivered on 18th December, 1996 that is relevant for present purposes. I have already referred to this case in my first judgment. It involved the entitlement of a tax payer who had tax wrongly deducted under the PAYE system to a repayment together with interest. There the judge said

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"As to the rate of interest applicable, Mr. McDowell conceded that the rate under FA 1976 s.30 was not appropriate. I am also satisfied that the overdraft rate applicable in respect of current accounts at the relevant times would not be appropriate: as Mr. O'Keeffe pointed out, that rate would be significantly higher, particularly in recent years, than the rates payable to lenders in respect of money on deposit. At the same time, to apply the deposit rate would clearly result in an injustice to the plaintiff. I find myself, in the result, in the same position as the Supreme Court in Texaco Ireland v. Murphy (No. 3), where the Court had a discretion as to how the interest should be calculated. It seems to me that no distinction can usefully be drawn between a case such as the present, where the repayment arises under common law, and the case such as Texaco (Ireland) Ltd. where it arose by virtue of statute. I will, accordingly, follow the same course as that adopted by McCarthy J., with the concurrence of the other members of the court, in that case and hold that the appropriate rate of interest in the present case is that ruling at the relevant times under the Courts Act, 1981 s.22(7) in respect of the period prior to the enactment of that provision, the rate ruling under the Debtors (Ireland) Act 1840 s. 26. "

These two decisions demonstrate that when the superior courts were in the past called upon to adjudicate upon a matter similar to that in suit the opted to apply the rate of interest prescribed under the Courts Act, 1981. It is not immediately apparent why that course was chosen in either case, but chosen it was.

The Rates

The five rates of simple interest which have been identified are as follows –

(1) Interest at the rate prescribed under the Taxes Acts.

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(2) Interest at the rate prescribed under the Courts Act.

(3) Bank interest rate.

(4) Performance rate.

(5) Gilt rate.

Two rates of compound interest were identified. They were bank interest rate and performance rate.

The plaintiffs claim 'performance rate' regardless of whether simple or compound interest is permitted. I should therefore say a word about it and what it entails. The other types of interest require no explanation.

The plaintiff in this case is a unit trust fund. A unit trust fund has a performance. The performance rate is claimed by reference to the increase or decrease in value of the portfolio of properties. It is argued that that is the appropriate rate which should be applicable because that is what the plaintiff would have done with the monies in question if it had been provided with them from the time that they ought to have been repaid.

In my view I would not be justified in awarding interest (whether simple or compound) by reference to the performance rate which is claimed. The legislative provision under which I am operating provides for the payment of "interest". I am not involved in assessing damages. The interest which is permissible under s.941 (9) arises in respect of a specified sum of overpaid tax. It is referrable to a sum certain which constitutes the principal which in this case was the overpayment of £1.75 million VAT. To accede to the plaintiff's request would not be to carry out the operation of granting interest on a sum certain, but rather would be treating the principal as a constantly changing one reflecting the accretions of capital to the unit trust. The performance rate is not in my view a rate of interest at all. It involves applying interest to a measure of the increase in the value of a fund over the years in question. Indeed not merely the increase would be taken into account but also the capital appreciation. In

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my view I would not be justified in applying the 'performance rate' under any heading of interest.

I have also concluded that I would not be justified in awarding any form of compound interest. None of the statutory provisions which allow for interest to be awarded, whether under the taxes legislation or the Courts Act, provide for other than simple interest. I am of the view that if the legislature wished the court to have discretion to award a different species of interest in a case such as this it would have specifically said so. It did not. I therefore interpret "interest" in this context as having no different meaning to that when used in other statutory provisions, that is to say, simple interest.

In these circumstances I am reduced in choice to one of four rates. The difference in money terms between them is small. They range from £913,830 (Taxes Act rate) to £945,436 (Courts Act rate).

In my view the Taxes Act rate is not applicable. If the legislature wished me to apply that rate it could have said so but did not. This appears to be the approach adopted by McCarthy J. in the Texaco case.

I am of opinion that I should follow the course which was adopted by both the Supreme Court and the High Court in the two cases mentioned and apply the Courts Act rate. In so concluding I bear in mind that the Courts Act rate is the interest rate prescribed by statute for litigants who come to court in order to prosecute their claims. It applies to all litigants and has the merit of certainty and equality of treatment for all litigants of which the plaintiff is one. I therefore propose to award interest pursuant to the provisions of the Courts Act, 1981.

For How Long Should Interest Be Permitted?

The £l.75 million was repaid in January, 1999. The money had been overpaid since March, 1982. It was not until 22nd March, 1991 that the plaintiff gave written notice of a claim for repayment of the tax.

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The plaintiff contends that it should be entitled to interest from the time of the first payment in March, 1982. The defendants contend that interest should be payable only from the time that notification of a claim for repayment was given in March, 1991. The plaintiffs say that they are entitled to interest from the time that the first overpayment was made.

The plaintiff relies upon O'Rourke's case in support of its contention. In my view there is a substantial difference between the facts in O'Rourke's case and the present one. Mr O'Rourke had tax deducted under the PAYE system and was in employment as a branch manager in a social welfare office. The plaintiff in the present case is a sophisticated financial house managing a large fund and operating in the commercial market. It is not unreasonable to assume that it has had available to it, at all times a range of professional services and advisers. In the present case it paid its VAT on the basis of an existing practice and was apparently quite content to do so for nine years. When counsel for the plaintiff spoke of its monies being unlawfully taken from it, such a contention must be seen in the context of these facts. I do not think that the case is comparable on its facts to O'Rourke's case.

In the exercise of my discretion I have come to the conclusion that a just result is achieved if the plaintiff is permitted interest from the time when it first gave notice of a claim for repayment of such tax. Accordingly, on the basis of the calculations put before me I will allow interest at the Courts Act rate from March, 1991 to January, 1999. On the defendant's figure this amounts to £724,473. I should note that the defendant's figure is slightly in excess of the plaintiff's calculation under this heading but I propose to allow the higher sum.

There will therefore be judgment for the Euro equivalent of IR£724,473.