Lloyd's Maritime and Commercial Law Quarterly
Change of position as a defence to restitution of unlawfully exacted tax
Elise Bant *
This article examines the major doctrinal hurdles to establishing the defence of change of position in claims for restitution of unlawfully exacted tax. In so doing, it demonstrates that in virtually all cases considerations of high public policy will play the final, determining role. The paper concludes that, ultimately, it may be more straightforward and transparent to recognise that restitution of unlawfully exacted tax arises for policy reasons simpliciter, outside the law of unjust enrichment, and that the change of position defence does not apply because to allow it would undermine the dominant policy favouring restitution.
I. INTRODUCTION
This paper examines the application of the defence of change of position to claims against the Revenue for restitution of unlawfully exacted tax. In the course of considering that issue, it incidentally touches upon the related question of the availability of the defence to public authorities more generally.
The senses in which a tax may be regarded as “unlawfully exacted” are both broad and diverse.1 A taxing statute may breach some independent legal or statutory obligation owed by the Revenue. Or it may be ultra vires the Revenue, or may be invalid in part or in whole, such as for a failure to comply with legislative procedures. Or a taxpayer may pay more tax than is properly due under a valid taxation statute, whether because of a mistake induced by the Revenue or for other reasons. All these cases raise the question whether the Revenue must make restitution of, or may retain, the benefit of the tax. As recent cases attest, the financial implications of the grant or denial of the defence to the Revenue in such circumstances can be staggering. The amounts at stake in the FII Group Litigation case2 may total £5 billion, while the Littlewoods group of companies have claimed in their separate strand of litigation £1 billion by way of compound interest alone.3 While the
* Associate Professor of Law, Melbourne Law School. This article builds on a paper prepared for the “Restitution of Overpaid Tax” conference, convened by Eoin O’Dell and held at Merton College, Oxford in July 2010. My thanks to Michael Bryan for his helpful comments on earlier drafts of this paper and to my research assistant, Glyn Ayres.
1. The ramifications of the different senses of unlawfulness are considered below at 125–126, 136–138, 140–141.
2. Test Claimants in the FII Group Litigation v Revenue and Customs Commissioner [2008] EWHC 2893 (Ch); [2009] STC 254; rvsd in part [2010] EWCA Civ 103; [2010] WLR (D) 58; [2010] STC 1251 (hereafter “FII”).
3. Littlewoods Retail Ltd v Revenue and Customs Commissioners [2010] EWHC 1071 (Ch); [2010] STC 2072 (hereafter “Littlewoods”), [1], per Vos J. Terms of reference to the Court of Justice of the European Union were settled at [2010] EWHC 2771 (Ch); [2011] STC 171.)
CHANGE OF POSITION AND UNLAWFULLY EXACTED TAX
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