Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2015] CSOH 137

CA111/13

OPINION OF LORD WOOLMAN

In the cause

BIFFA WASTE SERVICES LIMITED

Pursuer;

against

PATERSONS OF GREENOAKHILL LIMITED

Defender:

Pursuer:  Lord Davidson of Glen Clova, Delibegovic Broome;  CMS Cameron McKenna LLP Defender:  J Gillies, Solicitor Advocate;  Pinsent Masons LLP

20 October 2015

Introduction

[1]        Patersons of Greenoakhill Ltd (“Patersons”) owns a landfill tip in South Lanarkshire (“the Tip”).  In March 1998 it entered into two tipping agreements with Biffa Waste Services Ltd (“Biffa”).  The parties agreed that Biffa would deliver a minimum quantity of waste materials to the Tip each year for a period of 15 years.  

[2]        In respect of each delivery of waste materials it made to the Tip, Biffa paid two sums to Patersons:  (a) an agreed rate per tonne, and (b) the monies due in respect of Value Added Tax (“VAT”) and Landfill Tax (“LFT”).  Patersons then accounted for the tax to HM Revenue & Customs (“HMRC”).  

[3]        This case arises out of a significant repayment of LFT made by HMRC to Patersons.  Biffa claims that it is entitled to a share of that sum. 

[4]        LFT was introduced by the Finance Act 1996 (“the 1996 Act”) and came into force in July 1997.  Subsequently questions about its scope arose within the industry.  In July 2008 the Court of Appeal ruled that there was not a taxable disposal if the waste materials were used for site engineering purposes:  HMRC v Waste Recycling Group Ltd [2009] Env LR 5. 

[5]        Patersons read that decision with interest.  For several months in 2007 and again in 2009 it had used waste materials to construct “fluff layers” at cells one and four at the Tip.  It considered those works should be classified as being for site engineering purposes.  Accordingly, it submitted a claim for an LFT repayment.  Following negotiations, HMRC repaid the sum of £529,946 to Patersons.  

[6]        Biffa did not participate in those negotiations.  When it learned that Patersons had made a claim, it naturally wished to find out more.  It wanted to ascertain whether it had a right to a share of the repayment.  It asked Patersons to disclose (a) whether any Biffa waste materials had been used in the construction of the fluff layers in question;  and (b) the amount of the HMRC repayment.  

[7]        Patersons declined to provide that information.  I should add that the commercial relationship between the parties has been under strain from time to time.  Lord Hodge has narrated the full background to another litigation that arose out of the 1998 agreements:  Patersons of Greenoakhill Ltd v Biffa Waste Services Ltd  2013 SLT 729.  

[8]        Biffa served the summons in the present action on 19 July 2013.  It seeks an order for count, reckoning and payment to recover that part of the sums that can be attributed to its LFT payments.  Failing an accounting, it seeks payment of the sum of £2 million.  That sum is pitched well above the figure of £529,946, as Biffa believes that further repayments may be made by HMRC. 

[9]        Biffa bases its claim on the proper construction of the tipping agreements and on unjustified enrichment.  It offers a proof before answer.

[10]      Patersons defends the claim on the facts.  It offers to prove that it did not use Biffa’s waste materials to construct the fluff layers.  It also defends the claim on the law, contending that Biffa is barred or has waived its right to make the claim.  The case came before me to debate four further legal points advanced by Patersons.  It maintains that these points render the claim irrelevant and lacking in specification, which should lead either to dismissal, or to the excision of various parts of the pleadings.  

The four issues
[11]      Patersons’ first submission is that the remedy of count, reckoning and payment is not available, because the parties were not in an agency relationship.  Secondly, on a proper construction of the agreements, Patersons has no duty to repay any sums to Biffa.  Thirdly, no claim lies in unjust enrichment.  Fourthly, part of the claim has prescribed.  The parties lodged a joint statement of admissions in which they agreed the core facts relating to these arguments. 

Statutory background
[12]      Patersons claimed repayment from HMRC under Schedule 5 of the 1996 Act. It provides:

“14.—(1) Where a person has paid an amount to the Commissioners by way of tax which was not tax 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 paragraph on a claim being made for the purpose.

(3) It shall be a defence, in relation to a claim under this paragraph, that repayment of an amount would unjustly enrich the claimant.

(4) The Commissioners shall not be liable, on a claim made under this paragraph, to repay any amount paid to them more than 4 years before the making of the claim.

(5) …

(6) Except as provided by this paragraph, the Commissioners shall not be liable to repay an amount paid to them by way of tax by virtue of the fact that it was not tax due to them.”

Count reckoning and payment
[13]      It is plain that there was no agency relationship here.  The 1996 Act required Patersons to pay LFT as the landfill site operator:  section 41(1).  As the taxpayer, it could not act as an agent for any other person.  

[14]      Mrs Gillies submits that in the absence of agency, Biffa is not entitled to seek an order for count, reckoning and payment, because Patersons has no liability to account to Biffa.  She founds on a passage in Maclaren’s Court of Session Practice, which states (page 654) that the remedy is:  

“founded upon the relation of principal and agent, in which the principal, whether he be a partner, beneficiary, landlord, or other principal, demands an account of his agent’s intromissions, whether he be a co-partner, guardian, factor, or other agent, with the estate of the principal.”

[15]      Lord Maxwell revisited the issue in Coxall v Stewart 1976 SLT 275.  He thought that to restrict the remedy to agency would be “somewhat surprising and inequitable" (page 276).  He concluded that Maclaren was merely giving examples of the categories of relationship in which the remedy could be used, but not providing an exhaustive list.

[16]      Lord Maxwell reformulated the position as follows: 

“Where assets belonging to one person come into the possession of another and where the person to whom the assets belong has, broadly speaking, a right to recover those assets or their value from the possessor, but where the nature of the property, or the rights and obligations of the possessor, or both are such that the intromissions of the possessor may effect the precise extent or value of the owner’s claim against him, at least in some cases our law provides the remedy of an action of count, reckoning and payment.”

[17]      Sheriff Macphail (as he then was) approved that test in Collins v EIS Financial Services 1995 SCLR 628.  He noted (page 632C) that Maclaren subsequently wrote the article on actions of accounting in Green’s Encyclopaedia of the Laws of Scotland.  In that article he did not state that the remedy was based on the relation of principal and agent.  

[18]      Recent textbooks follow Lord Maxwell’s approach.  They state that the categories of relationship in which count reckoning and payment is available are not closed:  Encyclopaedia of Court of Session Practice [F 2052];  Stair Memorial Encyclopaedia, Volume 13, Judicial and Other Remedies, paragraph 88.  

[19]      Having regard to the cogency of Lord Maxwell's reasoning and the high authority of Lord Macphail in procedural matters, I likewise hold that agency is not a necessary prerequisite.  The question is therefore a narrow one.  Do Biffa’s pleadings meet the criteria? I answer that question yes.  

[20]      I reach that conclusion having regard to the following factors.  First, Patersons’ role was analogous to that of an agent.  It acted as a conduit in respect of the LFT sums.  Second, Patersons demanded and Biffa paid the LFT sums in error.  Third, Patersons’ actions affected the value of the claim.  Fourth, an accounting is suitable as it will enable Biffa to discover (i) whether its materials were used in the construction of the fluff layers, and (ii) the basis upon which HMRC made its repayment.  

[21]      In short, I regard the remedy of count, reckoning and payment as an appropriate one to determine whether Biffa has a right of recovery.  I therefore reject the first ground of challenge.  

Construction of the tipping agreements
[22]      Both tipping agreements contain the following clause:  

"All monies … undertaken to be paid to [Patersons] by [Biffa] under the terms of this Agreement are exclusive of all Value Added Tax and Landfill Tax at the rate for the time being in force as shall be legally payable to (sic) [Patersons] in respect of such monies. [Biffa] shall, upon demand, make payment to [Patersons] of all such Value Added Tax and Landfill Tax."

[23]      That provision must be construed in context.  Mrs Gillies draws attention to the fact that the parties made a commercial bargain at arm’s length, two years after the passing of the 1996 Act.  She submits that as it is silent on the question, Patersons has no obligation of repayment.  Biffa should have raised the matter during the course of negotiations.  It failed to do so.  To impose an obligation of repayment now would amount to redrawing the bargain.  Further, it would give rise to difficult questions.  Was Patersons obliged, for example, to arrange matters so that Biffa paid the lowest LFT sum? How should any repayment be shared? She argued that the LFT sums were part of the price. 

[24]      I do not accept Mrs Gillies’ argument.  In particular I do not accept that the LFT sums were part of the price.  The wording of the agreements is clear.  The parties differentiated between payment of the price on the one hand and VAT and LFT on the other.  Patersons was not to benefit from those taxes.  Its role was simply to remit the sums to HMRC.  

[25]      To my mind the use of the word “such” in the second sentence of the clause is of critical importance.  Patersons could only demand sums from Biffa that were “legally payable”.  The decision in Waste Recycling Group Ltd meant that Patersons had not been entitled to demand payment of LFT monies for materials used in site engineering works.  

[26]      If it never had any rights to the monies in the sense that they formed part of its assets, I see no basis upon which it can now retain them.  An analogy can be drawn with a consumer purchase.  If a seller wrongly charges VAT, the purchaser is entitled to recoup that sum without the need for a specific repayment provision. 

[27]      If, contrary to my view, the wording is ambiguous, a reasonable commercial person would not hold that Biffa had agreed to confer a windfall benefit on Patersons. 

Unjustified enrichment
[28]      Mrs Gillies submits that Biffa is not entitled to make a claim based on unjustified enrichment, because "contractual remedies should solve contractual problems":  McBryde The Law of Contract in Scotland, third edition, paragraph 20-132.  

[29]      I agree that is the default position.  It is not, however, a strict rule.  Professor McBryde acknowledges that in special circumstances such a claim can be made.  He adds that there “is not unanimity either as to what the law is, or as to what the law should be”.  The precise contours of unjustified enrichment remain to be mapped:  see Lord Tyre in Stork Technical Services (RGB) Ltd v Ross’s Executor 2015 SLT 160 at paragraph 34.

[30]      In this case I hold that there are special circumstances.  In Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd 1998 SC (HL) 90, at 94D-F, Lord Hope of Craighead stated that: 

“An obligation in unjustified enrichment is owed where the enrichment cannot be justified on some legal basis arising from the circumstances in which the defender was enriched. There can be no better justification for an enrichment than that it was obtained and is being retained in the exercise of a contractual right against the party who seeks to invoke the remedy.”

[31]      Against that background, I shall therefore allow the parties an opportunity to lead evidence.  The enquiry will determine (a) whether Patersons has been enriched at all;  (b) whether it has simply received an incidental benefit (Shilliday v Smith 1998 SC 725);  and (c) if so, whether the enrichment is unjustified. 

[32]      Mrs Gillies also argued that if there had been unjustified enrichment, HMRC would either have resisted repayment, or directed that part of the sums should go to Biffa in terms of paragraph 14 (3) of Schedule 5 to the 1996 Act.  I have a degree of scepticism about this argument, but believe that it should also go to proof. 

Prescription
[33]      Mrs Gillies contends that the claim relating to cell 1 has prescribed, as Biffa sustained a loss when it made the LFT payments in 2007.  On her analysis, the HMRC repayment retrospectively altered the initial price paid, which became the “appropriate date” in terms of section 6(1) of the Prescription and Limitation (Scotland) Act 1973.  

[34]      I am inclined to accept, Lord Davidson’s submission that the appropriate date is the date upon which Patersons received the LFT repayment.  Only then could there be said to be a loss.  I prefer, however, to allow this matter also to be addressed after evidence is led. 

[35]      One reason for doing so is that there is a second issue on prescription.  Biffa contends that, if the claim has prescribed, it was induced to refrain from making a timeous claim by Patersons:  section 6(4) of the 1973 Act.  In Dryburgh v Scotts Media Tax Ltd 2014 SC 651, the court recently stated:  

“In a case where delay has been induced by the debtor’s actings, the failure to act promptly is not the responsibility of the creditor, and thus it is clearly unfair that his claim should be defeated by the passage of time.”

[36]      I agree with Mrs Gillies that Biffa has exiguous pleadings on this point:  Johnston, Prescription and Limitation, second edition, paragraph 6.107.  

[37]      Lord Davidson stated, however, that Biffa first sent a query to Patersons about this matter in 2009 and has been hampered because Patersons only supplied the relevant information in late 2014 and early 2015.  In my view this matter should go to proof as Patersons do have notice of the point.

Conclusion

[38]      I shall fix a by order hearing to determine further procedure in the light of this opinion.  I wish counsel for Biffa to address me on the basis upon which it claims an alternative monetary sum above the repayment figure mentioned in the joint minute.  (£529,946).