Woolwich Equitable Building Society v Inland Revenue Commissioners

Facts

The Revenue demanded from the Woolwich Equitable Building Society a very large sum of tax under regulations made by the Treasury. The society disputed the lawfulness of the regulations but paid the sum, under protest, to avoid the risk of penalties and interest and the damage to its business. The regulations were later held ultra vires, and the Revenue repaid the principal. The society claimed restitution of the sum together with interest from the date of payment, which on the existing law of restitution could succeed only if it could show that it paid under a mistake or under duress.

History

The society had earlier established in judicial review proceedings that the regulations were ultra vires, and the remaining dispute concerned its claim in restitution for the sum paid and for interest from the date of payment.

Issue

Whether a taxpayer who has paid money to the Revenue in response to a demand that was unlawful because it was ultra vires is entitled to recover that money, with interest, without having to prove mistake or duress.

Held

Appeal allowed by a majority of three to two. The society was entitled to recover the money paid, with interest from the date of payment.

Ratio

• Money paid by a citizen to a public authority pursuant to an ultra vires demand for tax is recoverable as of right in restitution, without proof of mistake, duress or any other traditional ground.
• The basis of the right is that the authority has no lawful claim to the money and that principle, together with the constitutional rule that tax may be levied only by authority of Parliament, requires that the citizen be restored.

The judgments

Key reasoning

• It would be anomalous that a citizen who pays because of an unlawful demand by the state must show duress or mistake, when the pressure of penalties and interest operates just as powerfully whether or not a threat is made.
• The constitutional principle that the state may take taxes only if authorised by Parliament means that unauthorised exaction is a wrong to be undone, not merely an error to be forgiven.
• Recognising a right of recovery avoids the injustice of a public authority keeping money, and the use of it, to which it never had a legal claim.

Where it fits in the module

In the FHS restitution topic, Woolwich shows the interaction between public law invalidity and private law remedies, since the fact that a demand was ultra vires gives rise to a claim in unjust enrichment. It stands in contrast to the earlier restrictive position and to the approach in cases on invalid contracts, such as Credit Suisse v Allerdale [1997] QB 306. Later decisions, including Kleinwort Benson v Lincoln City Council [1999] 2 AC 349 and Deutsche Morgan Grenfell v Inland Revenue Commissioners [2006] UKHL 49, developed the law on mistake of law and on limitation for claims for tax paid under unlawful demands. A tutorial question is whether Woolwich establishes a general principle for payments to public authorities or a special rule of constitutional origin.

Criticisms

• The ultra vires demand principle is difficult to define, because it does not explain why unlawfulness of the demand, rather than the payer's state of mind, should be the unjust factor.
• The ground is limited to public authorities and so leaves private claimants subject to the old restrictions, creating an uneven law of restitution.
• A broad right of recovery ignores the fiscal consequences for the state and the need for certainty, which was the reason for the dissenting opinions.
• The reliance on constitutional principle suggests a rule of general application to all unlawful exactions, but the majority did not state its limits clearly, leaving doubt about voluntary payments and payments under settled practice.