‘But We’ve Spent the Money’: Defending Overpaid Tax Claims under English and German Law

by Sabrina Nanchahal*

(2020) Oxford U Comparative L Forum 3 at ouclf.law.ox.ac.uk | How to cite

Despite extensive litigation concerning restitution claims against the tax authority in the English courts, the role and parameters of the change of position defence have not been satisfactorily established in this context. German law provides a clear example of how these issues can be addressed within a public law restitution framework. This article explores the conceptual basis for the German position before turning to the current English framework. An analysis of the application of the defence according to unjust enrichment principles emphasises the practical and conceptual difficulties the English courts have faced in such claims. In light of these issues, two alternative potential developments of the defence are examined with the aim of achieving a conceptually cohesive common law restitution framework.

1. Introduction

Since the recognition of so-called Woolwich[1] claims there has been significant development and debate concerning the application and suitability of the private law of unjust enrichment in restitution claims against the state. One such area of contention is the ‘change of position defence’, whereby a defendant’s liability may be extinguished or reduced if he can show that his ‘position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively restitution in full’.[2] In particular, questions have been raised as to the availability and scope of the defence to public body defendants. Claims for recovery of overpaid tax are the paradigm example of restitution claims against the state and constitute a significant proportion of restitution claims brought against the state in which the change of position defence has been raised.[3]

The German approach to tax restitution claims has been referenced both in the case law and the literature as an instructive alternative to the English framework.[4] Under German law the position is clear: the tax authority[5] cannot raise the ‘disenrichment objection’ (the German principle most closely corresponding to the change of position defence). The English framework on the other hand, is still in the developmental stage.

This article seeks to address both the utility of such a comparison in informing the development of the English law, as well as put forward a conceptually sound suggestion for the development of the English position. This is particularly important where such a development is most likely to take place in the courts through the common law, as opposed to statutory enactment, and must therefore stand up to wider conceptual and normative scrutiny. To that end, this article first sets out the respective English and German overpaid tax restitution frameworks and examines their conceptual underpinnings by reference to their national legal methods and customs. This contextualised understanding of the respective approaches taken to the change of position defence and the disenrichment objection highlights the fundamental conceptual differences underlying the two systems and reveals the inaptness of simply superimposing the position under German law onto the English framework. On the other hand, this deeper conceptual examination leads to the identification of the broader policies underlying the approaches, which provide a further point of reference for comparison. The similarities in the underlying policies do support the proposition that English law should develop in line with the position under German law, although this must ultimately be assessed within the national legal framework.

Part 2 sets out the German framework for overpaid tax claims, before exploring the conceptual basis for disallowing the tax authority from raising the disenrichment objection. Part 3 then considers the English tax restitution framework and, in particular, two significant practical and conceptual difficulties the courts have encountered in applying the change of position defence in tax restitution claims. This facilitates the assessment of two alternative potential developments of the change of position defence under English law. It is ultimately concluded that the equivalent position to that under German law, based on broadly the similar policy considerations, should be reached. However, the mechanism and precise legal analysis can and should be developed within the English common law restitution framework, without recourse to the wholesale recharacterisation of tax restitution claims.

2. German Law

2.1 Framework of recovery

The German private law of unjust enrichment (ungerechtfertigte Bereicherung, more accurately translated as unjustified enrichment) has been set out in §§ 812-822 Civil Code (Bürgerliches Gesetzbuch, abbreviated BGB) since the BGB came into force in 1900.[6] It forms the conceptual basis of unjust enrichment as it is understood in Germany and is the point of reference for all restitution law discussion.

Restitution claims for overpaid tax, however, are exclusively governed by § 37 II of the Fiscal Code 1977 (Abgabenordnung, abbreviated AO), which provides:[7]

Where a tax, a tax rebate, a liability amount or an ancillary tax payment was paid or repaid in the absence of legal grounds the person on whose account the payment was made shall be entitled to a refund from the recipient of the amount paid or repaid. This shall also apply where the legal grounds for the payment or repayment are subsequently abolished. […][8]

§ 37 II AO is a blanket clause encompassing all restitution claims arising from the listed payments, whether brought by or against the tax authority.[9] Individual taxation statutes do not establish specific or alternative restitution claims that supersede § 37 II AO.[10] They can, however, set further requirements and limit or exclude restitution claims for specific taxes. As § 37 II AO is the basis of all restitution claims arising from taxation dealings, the provisions of specific tax statutes will not be examined further.

Just as in the German private law of unjust enrichment, the tax restitution framework operates on an absence of basis approach. A tax restitution claim therefore exists where a tax (related) payment is made in the absence of legal grounds. Tax restitution claims against the tax authority can broadly be divided into ‘unlawfully levied tax’ claims and ‘mistaken tax payment’ claims.[11]

The first category of restitution claims arises in relation to payments made on the basis that they were (unlawfully) levied by the state. While a taxpayer’s tax liability arises once the statutory provisions are met (§ 38 AO), the liability is not due (and cannot be enforced) until the tax authority has issued an appropriate tax assessment notice (Steuerbescheid).[12] The tax assessment notice is a species of administrative act, issued by the tax authority setting the tax liability (§ 155 I AO). An administrative act is ‘any order, decision or sovereign measure taken by an authority to regulate an individual case in the sphere of public law and intended to have a direct, external legal effect’ (§ 118 I AO). It concretises the tax liability arising from the generally addressed, abstract legislation to the individual and his or her circumstances. Vis-à-vis the addressed taxpayer, the tax assessment notice (and the individual tax liability stipulated therein) has the force of law and constitutes a legal ground for payment. There are only very narrow circumstances in which an administrative act is void (Nichtigkeit des Verwaltungsakts, set out in § 125 AO) and any payment made pursuant to it is made without legal ground. In particular, it will not be void merely by reason of unlawfulness, including where the tax assessment notice violates federal or European Union law,[13] where it is based on unconstitutional legislation[14] (a fortiori where such legislation has not yet been voided by the constitutional court[15]) or the unconstitutional interpretation of valid legislation. Therefore, unless the tax notice is repealed or modified by a subsequent tax assessment notice (or is struck down in court), the administrative act remains valid and enforceable. Where a tax assessment notice is later repealed or modified in the taxpayer’s favour by a second tax assessment notice, the taxpayer has a restitutionary claim with respect to the resultant ‘overpayment’ (the difference between the amount paid pursuant to the original notice and the tax liability fixed in the later notice), which now has no legal basis. This category falls within § 37 II 2 AO.

Mistaken tax payment claims are not predicated on a repealing or modifying tax assessment notice. They arise where a taxpayer mistakenly makes a higher payment than the tax liability stipulated in the tax assessment notice or makes a payment to meet a tax liability that has already been discharged or never existed. There is no legal ground for the (over-)payment to begin with. This category of claims falls within § 37 II 1 AO.

All recovery claims under § 37 II AO are subject to a five-year limitation period (§ 228 AO), commencing from the expiry of the year in which the claims arise. In cases of mistaken tax payment, this will be from the date the payment is made. There are two further timeframe considerations in unlawfully levied tax claims. Firstly, these claims are predicated on a repealing or modifying tax assessment notice. While the tax authority can of its own accord generally issue such a corrective tax assessment notice within four years of issuing the original notice, the taxpayer’s ability to apply for such a notice is severely restricted.[16] The taxpayer must first lodge an appeal with the tax authority within one month of the initial tax assessment notice being issued (Einspruchsverfahren, §§ 347-367, in particular § 355 AO). If unsuccessful, the individual can then bring court proceedings within one month of the tax authority’s appeal decision (§ 47 I FGO). Should the individual be unsuccessful or fail to appropriately raise the unlawful nature of the original tax assessment notice in this time, it will become incontestable (unanfechtbar) and, thereby, constitute a (formal) legal basis for any payment. Secondly, the disagreement (both in the case law and the literature) about when unlawfully levied tax claims actually arise – whether at the time of payment or the issuing of the corrective tax assessment notice – is of practical significance in determining the commencement of the limitation period set out in § 228 AO.[17] However, as the unlawfully levied tax claims and mistaken tax payment claims only arise on mutually exclusive facts, the differing commencement of limitation periods is immaterial to the discussion of the disenrichment objection and will not be considered further.

2.2 Non-availability of the disenrichment objection: a principled basis?

In German law the change of position defence is conceptualised as the disenrichment objection to a claim and is enunciated in § 818 III BGB: ‘[t]he liability to undertake restitution or to reimburse the value is excluded to the extent that the recipient is no longer enriched’.

It is universally accepted that the tax authority cannot raise the disenrichment objection under § 37 II AO. However, the principled basis for this conclusion is not obvious, in particular as it relates to both unlawfully levied tax claims and mistaken tax payment claims. This section will focus on identifying a principled basis for denying the disenrichment objection to the tax authority.[18] The following analysis is broadly modelled on the classical four-element canon of grammatical, systematic, historical and teleological interpretation as expanded by the introduction of the German Basic Law 1949 (Grundgesetz, abbreviated GG), used in German statutory interpretation.[19]

2.2.1 Statutory construction of § 37 II AO

The starting point of statutory interpretation is the grammatical or literal construction of the legislative provision. It is doubtful whether the statutory construction of § 37 II AO precludes the disenrichment objection being raised. The disenrichment objection of § 818 III BGB could be applied to § 37 II AO claims either directly or by analogy.

§ 37 II AO makes no reference to the disenrichment rationale. Some conclude that this alone means that disenrichment cannot be raised.[20] This argument is advanced by drawing a comparison with other public law norms, which do make such a reference: for example § 49a II 6 VwVfG and § 52 II BeamtVG (both make explicit reference to the BGB provisions). Thus, it is argued, where the BGB provisions are not explicitly referred to, they are not applicable. While it is accepted that § 37 II AO does not provide for the direct application of § 818 III BGB, the mere absence of such a reference does not preclude the application of § 818 III BGB by analogy or at least the general principle it embodies.

To apply a norm by analogy, according to German legal thinking, two requirements must be fulfilled.[21] First, there must be a gap in the legislative framework and, second, the underlying interests within the incomplete framework must be comparable to those that the to-be-transposed provision balances in its original application. It has been argued that as public law (including tax law) is conceptualised as a legal institution sui generis that has developed its own legal principles, BGB provisions cannot be applied by analogy.[22] Put another way, the fact that there is no comparable legal doctrine provided for in the tax restitution framework does not mean that there is a gap in the recovery framework. However, this strict approach is not reflected in practice. In fact, § 37 II AO is formulated in such a general and bare manner that the application of existing restitutionary concepts is unavoidable.[23] For instance, the courts have applied the concepts of §§ 812-822 BGB in determining the payment beneficiaries in claims brought under § 37 II AO.[24] Therefore, as there is no specific provision for the disenrichment rationale under § 37 II AO there is a legislative gap in the overpaid tax recovery framework.[25]

It has further been argued that the competing interests in § 37 II AO claims (or any restitutionary claims in the public law sphere) are different to those in private law claims.[26] Thus, the private law disenrichment provision of § 818 III BGB cannot be transposed to § 37 II AO claims. This is advanced on the basis that private law is individualistic and selfishly orientated, whereas public law should serve the common good.[27] It does not, however, necessarily follow that a private law provision does not appropriately address the competing interests in a certain situation in the public law sphere. After all, § 818 III BGB is only a question of quantification of the claim according to the remaining value, rather than a careful balancing act between the interests of the parties. Furthermore, the disenrichment rationale has been explicitly recognised in the public law context (in claims brought by the state).[28] The principle, therefore, cannot per se be contrary to public law principles.

While the statutory construction of § 37 II AO does not expressly provide for the availability of the disenrichment objection or a manifestation thereof,[29] equally, it does not necessarily exclude it.

2.2.2 Systematic assessment of recovery claims

A systematic analysis takes particular account of the cause of action in the context of the wider legal framework. On this analysis, the distinction between unlawfully levied tax and mistaken tax payment claims becomes particularly relevant and they are therefore examined separately here.

Unlawfully levied tax claims stem from the primary tax liability under the relevant legislation, which provides the basis for the initial tax assessment notice. A modifying or repealing tax assessment notice is issued to rectify the incorrect assessment stipulated in the first notice. It supersedes the initial tax assessment notice in setting the individual tax liability. The taxpayer is now only subject to the most recently stipulated tax liability but has paid the amount initially levied. The payment is credited to the ‘new’ tax liability, which is thereby discharged. A restitution claim then arises in respect of the difference between the amount paid and the amount now stipulated (rather than the whole payment). The restitution claim is, therefore, intrinsically linked to the latter tax assessment notice as it arises to give effect to the tax liability stipulated within.[30] This is further evidenced by the fact that the modifying or repealing tax assessment notice constitutes the basis of the restitutionary claim and no further administrative act is required to effect the recovery claim.[31] The claim is simply part of the taxation system in enforcing the (correct) primary tax liability under the statute. A defining element of taxation law is the generality and equality of taxation, as required under Article 3 (equality by and before the law) of the German Basic Law.[32] The individual can only be subject to the tax liability accruing under the law, no more and no less, and must not be treated differently to other taxpayers in the same circumstances. Therefore, there is no room to address the parties’ rights with respect to the expenditure of received payments in the context of these unlawfully levied tax claims.[33]

Mistaken tax payment claims on the other hand, simply arise to reverse the unjustified shift of assets as there was never a (formal[34]) legal basis for the payment.[35] In contrast to unlawfully levied tax claims, this category of claims is not made pursuant to an unlawful tax liability demand by the state. Rather, the taxpayer mistakenly transfers (excessive) monies to the tax authority. In fact, it is doubtful whether this is a recovery claim of overpaid tax at all as the transfer does not constitute a tax payment under § 3 I AO:

Taxes shall mean payments of money, other than payments made in consideration of the performance of a particular activity, which are collected by a public body for the purpose of raising revenue and imposed by the body on all persons to whom the characteristics on which the law bases liability for payment apply; […]. (emphases added)

These claims are therefore more accurately described as tax-related recovery claims, as money was paid ‘as’ tax to the tax authority, without constituting a tax payment. In contrast to the first category of claims these do not arise to affect the correct tax liability under statute and are strictly speaking not part of the taxation system. The tax liability never existed or has already been discharged. A restitution claim arises with respect to the superfluous amount solely due to the legally baseless (sine causa) transfer of that (over)payment.[36] As such they are very similar in nature to private law restitution claims in the sense that they simply seek to rebalance the parties’ rights.[37] Therefore, in principle, the basis of this type of restitution claim does not preclude the application of the disenrichment rationale. Nonetheless, it is denied to tax authority defendants.

A systematic review of the tax recovery framework only explains the exclusion of the disenrichment objection in unlawfully levied tax claims, but does not account for its prohibition in mistaken tax payment claims.

2.2.3 Purpose of restitution: then and now

Finally, it may be argued that under the current recovery scheme (§ 37 II AO) the tax authority is barred from raising the disenrichment defence due to the limits set by the rule of law under the German Basic Law 1949. Article 1 III GG stipulates that the basic rights set out in the German Basic Law are binding on the three branches of state as directly applicable law. Article 20 III GG stipulates a specific manifestation of the rule of law as it applies to the executive, namely the principle of ‘legality of the administration’ (Gesetzmäßigkeit der Verwaltung).[38] This principle is further conceptualised as the ‘primacy of the law’ (Vorrang des Gesetzes) and the ‘proviso of the law’ (Vorbehalt des Gesetzes).[39] In the context of tax law, primacy of law means that the administration is bound by the law, and under the proviso of the law, the imposition of tax liability is reserved to the legislature. The proviso of the law in taxation matters is taken from Article 20 III GG together with Article 2 I GG (personal freedom[40]) and Article 14 I 2, II 2 GG (property rights), which require a legislative basis for any state interference with these rights. State interference constitutes any measure that encroaches on the exercise of an individual’s constitutional rights, regardless of whether this effect is final or unintentional, direct or indirect, legal or factual, that is attributed to the state and is not inconsequential (moderner Eingriffsbegriff).[41] Therefore, the administration can only act where authorised to do so by statute.[42] However, the state is only directly bound by the basic rights set out in the German Basic Law insofar as it is acting in its sovereign capacity. That is not the case where the state is on equal footing with the individual, for example the administration entering into a contract to purchase stationery. The imposition of taxation, however, is a paradigm example of the exercise of a state prerogative.

It is this prerogative power of the state that led to the recognition and development of the public law restitutionary claim in the first place. In Prussia the state held absolute power, not constrained by the rule of law. The individual, therefore, had only very limited options of defending him- or herself against the state administration. To afford some individual protections, matters were construed in such a way so as to fall within the jurisdiction of the private law courts. For this purpose, the ‘fiscal theory’ (Fiskuslehre) was developed, according to which the state itself did not have any assets, rather, these were held by a separate fiscal entity that was subject to private law. Thereby, all financial matters were considered to be of a private law nature and actions could be brought against the ‘fisc’ in the private law courts. By 1808 the Prussian state had enacted a regulation according to which it could enforce the tax liability stipulated in an unlawful but valid tax assessment notice, even before the time limit to appeal had elapsed.[43] As this provision could only be rationalised under a subordinate relationship between the taxpayer and the state, the private law classification of tax restitution claims became untenable. This was the basis of Lassar’s seminal work on the public law restitutionary claim, which he developed primarily in reference to tax restitution.[44] He argued that the existence of a restitutionary claim against the state can only be determined by ascertaining whether a tax liability existed. Therefore, the tax restitution claim is simply the reverse side of a tax liability claim, which is public law in nature and, consequently, falls within the jurisdiction of the administrative courts.[45] These claims, therefore, also constitute tax claims. This ‘reversal formula’ (Kehrseitentheorie) has stuck to the present day.[46]

In the circumstances in which unlawfully levied tax claims arise, the tax authority is undisputedly bound by Articles 1 III and 20 III GG. By issuing an unlawful tax assessment notice, which has legal effect and can be enforced against the individual, the tax authority has acted outside its legislative confines and infringed the taxpayer’s constitutional rights. As such, the tax authority is required to make full restitution to give effect to the individual’s constitutional rights. In order to raise the disenrichment objection, this would have to be specifically provided for by legislation to in turn provide a statutory basis for this limitation of constitutional rights.[47] While there is no general prohibition of the application of provisions by analogy in tax law, it does not satisfy the rule of law principles under the German Basic Law as a basis for limiting constitutional rights.

However, the direct applicability of the rule of law principles is not as clear in respect of mistaken tax payment claims. This category of claims differs from unlawfully levied tax claims in that they do not arise from the tax authority’s exercise of their taxation prerogative. Rather the shift of assets is due to the individual’s mistake. In this case there is no administrative action at the time of payment which would require legislative footing. Further, as there was never a tax liability (either on the basis of legislation or formally stipulated in a tax assessment notice) for the (over-)payment, the restitutionary claim cannot be said to be the reverse side of a tax liability claim. These restitution claims, therefore, strictly, do not constitute tax claims, which would establish the public law nature of such claims. It is noteworthy that tax restitutionary claims were first legislatively enacted in the Fiscal Code of the Reich 1919 (Reichsabgabenordnung, abbreviated RAO, §§ 150-159). This recovery scheme only provided for recovery claims against the state for overpaid tax that resulted from a repealing or modifying tax assessment notice (§ 151 RAO) or where otherwise provided for under specific tax statutes. Beyond the specified circumstances, however, there was no general claim for restitution of overpaid tax.[48] Consequently, mistaken tax payment claims could only have been brought under the private law of unjust enrichment (which would have been subject to the application of § 818 III BGB) before private law courts. This was the operative framework of tax restitution until it was replaced by the AO 1977, over 25 years after the German Basic Law came into force. Therefore, even after the enactment of the specific rule of law provisions in the German Basic Law, these were not operational in mistaken tax payment claims. Why then, is the disenrichment objection nonetheless denied to the tax authority in these claims under § 37 II AO? The answer lies in the restitution framework under the AO 1977. The AO introduced a blanket tax restitution clause for the first time. By virtue of their inclusion in § 37 AO, which lists all ‘[c]laims arising from the tax debtor-creditor relationship’ (title of the provision), mistaken tax payment claims are now classified as tax claims and are consequently of a public law nature. It is due to this classification that the principle of legality of the administration is directly applicable in these claims. While generally, the mere receipt of funds without a legal basis by the tax authority, for instance due to a void contract, does not infringe the constitutional rights of an individual, the situation is different where such funds are transferred ‘as’ a tax payment. The comprehensive regulation of all monies paid as (or related to) tax to the tax authority under § 37 II AO has resulted in an extension of the application of the proviso of the law: the tax authority can only receive money paid as tax where it is empowered to do so under legislation. Consequently, the mere receipt constitutes a breach of an individual’s constitutional rights. As in unlawfully levied tax claims, any retention of payment and reliance on the disenrichment objection by the tax authority would require a legislative basis.

2.3 Summary

In summary, the exclusion of the disenrichment objection for tax authorities in all restitution claims for overpaid tax stems from the application of the rule of law under the German Basic Law to the wholly public law governed recovery scheme. The public law nature of the present recovery scheme is itself a historical product of the principle of the rule of law (which was the underlying policy in justifying the jurisdictional competence of the administrative courts over tax restitution claims) and the introduction of a blanket recovery clause.

3. English Law

3.1 Frawework of recovery

In contrast, there is no exclusive tax restitution framework under English law. Rather, the framework of recovery of overpaid tax is comprised of statutory and (residual) common law claims in unjust enrichment. Statutory provisions only relate to specified taxes and establish specific recovery schemes with different requirements for establishing a claim.[49] These are not examined any further here. Thus, there is significant recourse to the private law of unjust enrichment to establish tax restitution claims.

A claim in unjust enrichment arises where

  1. the defendant was enriched,
  2. this enrichment was at the claimant’s expense, and
  3. the enrichment was unjust (measured against an unjust factor).

If a claim is established, the defendant may raise a defence to the claim.

In principle, a claim for restitution of overpaid tax may be pleaded on the basis of any unjust factor (although some will never arise on the facts). In practice, however, most common law tax restitution claims are based on the Woolwich principle and/or mistake.

The Woolwich principle refers to the unjust factor first recognised in Woolwich Equitable Building Society v IRC.[50] In that case the claimant building society challenged the validity of a tax regulation on the basis of which it was required to pay tax in respect of dividends and interest it had paid to its members. Despite issuing judicial review proceedings it paid three instalments as required by the regulation, without prejudice, in order to avoid adverse publicity and the imposition of penalties by the tax authority. The regulations were subsequently found to be ultra vires and the tax authority repaid the building society with interest from the date of the High Court judgment. However, it refused to pay any interest in respect to the time before the judgment. The Woolwich claimed payment of interest from the dates the payments were made on the basis that the sums were paid pursuant to an unlawful demand and, therefore, the principal had been repayable from these dates. The issue was that the claim could not be based on a hitherto recognised unjust factor. In particular, the claimant had not been mistaken in making the payment or done so under duress. By a majority the House of Lords found in favour of the Woolwich and held that ‘money paid by a citizen to a public authority in the form of taxes or other levies paid pursuant to an ultra vires demand by the authority is prima facie recoverable by the citizen as of right’.[51] Since then, it has been held that the Woolwich principle does not depend on a ‘demand’ by the tax authority.[52] Further, the principle not only applies where the legislation is found to be invalid, but also where valid legislation is misconstrued or misapplied.[53] The Woolwich principle, therefore, encompasses all claims for ‘unlawfully exacted’ tax.[54] Thus, Woolwich claims go beyond unlawfully levied tax claims under German law, where the tax system operates on the basis of tax assessment notices.

The second highly relevant type of tax restitution claims are mistake-based claims. Mistake-based claims now encompass any causative mistakes of fact or law. The recognition of the mistake of law ground for restitution has been particularly significant.[55] For one, a claim will arise even where the claimant is only ‘retrospectively’ mistaken. That is, the claimant will be deemed to have been mistaken even if he thought he was acting in accordance with the law at the time of payment and it is only subsequently held that this was not the case.[56] Thus, there is a very wide ambit for mistake-based claims: where legislation is subsequently held to be invalid (mistake as to validity of legislation), the interpretation of legislation was incorrect (mistake as to interpretation of legislation), or the tax assessment was mistaken (mistake as to calculation of tax assessment). Such claims also substantially overlap with the facts giving rise to Woolwich claims. Consequently, English mistake-based claims also go beyond German mistaken payment claims, which cannot arise on the same facts as unlawfully levied tax claims.

These claims must also be considered within the context of the applicable limitation periods. Common law claims in unjust enrichment are generally barred six years after the cause of action has accrued.[57] The unjust enrichment claim will arise at the time the defendant is enriched at the claimant’s expense. In practice, however, there is a large discrepancy in the time frames for bringing a claim under the Woolwich principle or mistake. Woolwich based claims start to run from the date of payment.[58] In R (on the application of Hemming (t/a Simply Pleasure Ltd)) v Westminster CC[59] it was held that as the ‘right to restitution and the obligation to make restitution are part of the private law of obligations’, Woolwich claims are not subject to the much more restrictive three month judicial review limitation period set out in CPR Part 54.5 (1)(b).[60] The claimant is therefore barred from bringing a Woolwich claim only six years after payment.

Mistake-based claims on the other hand, generally fall within section 32(1)(c) of the Limitation Act 1980, under which the six-year limitation period only begins from the time that the claimant discovered or could have with reasonable diligence discovered the mistake.[61] The commencement of the limitation period may, thereby, be significantly postponed.[62]

Consequently, where available on the facts, pleading the restitution claim as a mistake-based claim is generally more advantageous for claimants and often the only option of bringing a claim due to the time elapsed. The question has therefore arisen whether the two claims are mutually exclusive: that is, whether a claimant is barred from bringing a mistake-based claim where it would also fall within the scope of the Woolwich principle. This was explicitly addressed in Deutsche Morgan[63] where it was held that there was no such exclusion and the claims could be brought in the alternative.

3.2 Availability of defence: issues

The change of position defence is a general defence to common law restitution claims based on unjust enrichment.[64] In applying the defence in the context of common law restitution claims for overpaid tax, however, the courts have encountered both legal and practical issues, which have led to the haphazard application of unjust enrichment principles. Of course, no analogous issues have arisen for consideration in the German courts, where the disenrichment objection is simply disallowed. The following issues are examined on the basis that the change of position defence is rooted in ‘legal principle’ and is not simply a ‘matter of discretion for the court’.[65]

3.2.1 Issue 1: causation

To establish the defence, the defendant must prove on the balance of probabilities a causal link between the enrichment and his change of position.

The courts have held that the change of position must be causally linked on at least a ‘but for’ basis to the enrichment, and that the expenditure must have been extraordinary.[66] Extraordinary expenditure does not mean that the type of transaction must have been in any sense unusual, but that it would not have been entered into but for the enrichment. A general increase of expenditure as a result of the enrichment is sufficient.

The courts have opted for a generous standard of proof by not requiring the defendant to produce detailed accounting of expenditure to establish the causal link where on the balance of probabilities they are satisfied that the defendant has spent (all or some of) the money received in generally improving his or her lifestyle.[67] This generous approach is adopted where the defendant cannot produce any further detailed evidence of expenditure. The same, however, should not apply to the tax authority as it will always have a record of overall receipts and outgoings. This is analogous to the situation of a large corporate defendant. In such cases, as the corporation will always have records of its income and outgoings, it would be inappropriate for the court simply to accept that the money had been spent without having sight of its finances. The generous approach was only developed where detailed accounting of expenditure cannot be expected from an honest individual defendant. In the context of a claim for restitution of overpaid tax, this generous approach is neither required nor appropriate. Nonetheless, this was the approach initially followed in the case law, which appeared to even go as far as to establish a presumption in favour of the tax authority, thereby reversing the onus of proof. This is questionable as a matter of principle as well as policy.[68]

In FII (No 1) (HC), Henderson J proceeded on the basis that ‘common sense again suggests that planned government expenditure would not have taken place at the level which it did but for the availability of the tax receipts’.[69] Hamblen J followed this approach in Bloomsbury International, holding that ‘in the present case it can be inferred that the [defendant] spent more than it otherwise would have as a result of its receipt of the claimant’s levy payments’.[70] This apparent development, however, was undercut by Vos J’s careful analysis of Henderson J’s judgment in Littlewoods (No 1).[71] He distinguished the case before him, stating that, unlike in FII (No 1) (HC), there was no evidence of a causal link between the receipt and government expenditure plans. The ‘return’ to the usual burden of proof was affirmed by Henderson J’s findings in FII (No 2) (HC) in which he emphasised the preliminary nature of his views in FII (No 1) (HC), and found that the tax authority had failed on the evidence (now available to him) to make out a defence of change of position.

Although there is no requirement to demonstrate a ‘precise link […] between particular receipts and particular items of government expenditure[72] (emphasis added) there must be a correlation between the receipt of overpaid tax and government expenditure. Even so, it is difficult, if not impossible, for the tax authority to establish such a causal link as the relationship between long-term spending commitments and short-term revenue raising measures is not sufficiently close.[73] This becomes particularly clear when considering the time frame in which government fiscal policy is determined. A control total of expenditure for the coming fiscal year will usually be set by the treasury in July.[74] This will then be allocated between the various ministries by November, so as to be incorporated into the Chancellor’s Autumn Statement.[75] Other fiscal measures, including key decisions on taxation, are then announced in the Chancellor’s annual budget speech in March.[76] This means that the government will have set, at least in large part, its spending commitments well before its concrete revenue raising measures. In any event, HMRC’s estimates or projections of future revenue are ‘just that – estimates or projections – and [will] generally be proved to be wrong’, and have a built-in margin of error.[77] Of course, the control total of expenditure will, in the long-run, generally take account of government receipts. However, receipts of overpaid tax will constitute such an insignificant proportion of total receipts that they will most likely be subsumed, and do not require any specific adjustments of fiscal policy to reach the long-term equilibrium. Further, any short-term fluctuations are accommodated through public borrowing or, if necessary, are covered by a contingency reserve, which is separately provided for in the control total of expenditure.[78] Therefore, under the usual circumstances, the government will not be able to establish that its expenditure was in any way meaningfully linked to expected or actual receipt of (overpaid) tax, and will not be able to establish their change of position. This result is consistent with the principles enunciated in Scottish Equitable.[79] In that case, it was held that the defendant paying off his mortgage could not constitute a change of position as it is not a detriment to pay off a debt which would have had to have been paid off sooner or later in any event.[80] Similarly, once the government’s spending commitments have been set, it has to meet these one way or another, whether through the reallocation of available funds, increased borrowing or revenue raising measures. Any expenditure made pursuant to these commitments is not ‘extraordinary’ and any ‘use’ of overpaid tax revenue does not constitute a change of position. Subject to the ‘normal’ standard and burden of proof, the tax authority is, therefore, unlikely to be able to establish the necessary causal element of the defence in practice.

It is noteworthy that in the scarce instances the German literature has superficially considered a hypothetical scenario where the disenrichment defence is available to the public body authority, it has been argued that the public authority could not argue as a matter of law that it has been disenriched as it could not make any luxury payments (equivalent to extraordinary expenditure under English law).[81] Furthermore, it would hardly ever be able to make this out on the facts.[82]

3.2.2 Issue 2: ‘wrongdoer’ bar

Another issue which has received much attention is the ‘wrongdoer’ bar in excluding the tax authority defendant from raising the change of position defence.[83] This came to a head in FII (No. 1) (HC) where Henderson J held that the tax authority was barred from raising the defence as a ‘wrongdoer’ to the Woolwich claim, but it was open to the tax authority to raise the defence in response to the alternative mistake-based claim as it was not relevantly founded on a wrong.[84] This distinction was met with widespread academic criticism both on the basis of principle and the practical implications.[85]

Henderson J held that Woolwich claims are ‘founded on the unlawful levying of tax and therefore on the commission of a legal wrong’.[86] It was on this basis that the tax authority was not entitled to rely on the change of position defence to a Woolwich claim. It is, however, doubtful whether the unlawful exaction of a tax really constitutes a ‘wrong’. Under its widest construction, the relevant ‘wrong’ must either be a civil or criminal wrong.[87] However, an ultra vires exaction of tax does not constitute such a wrong. The unlawfulness of the levied tax is not illegal in the sense of contravening a law.[88] Therefore, contrary to Henderson J’s assertion, a Woolwich claim does not necessarily involve the commission of a wrong by the defendant tax authority, and there can be no blanket ‘wrongdoer’ bar to raising the defence in such claims. That is not to say that the wrongdoer bar cannot apply to Woolwich claims: for instance where a civil wrong has also been committed, such as misfeasance in public office. Rather, the claim is not predicated on wrongdoing and the defence is not to be denied on that basis.

Even if the unlawful exaction of tax did constitute a wrong, Henderson J’s distinction between the relevance of that wrongdoing in Woolwich and mistake claims – ‘the [latter] does not depend on establishing any wrongdoing by [the defendant]’ – is unconvincing.[89] In Barros Mattos it was in fact accepted by the claimant that the restitutionary claim was ‘not dependent upon showing that the recipient was a wrongdoer’.[90] Nonetheless, the defendants were denied the defence as the ‘recipients’ actions of changing position are treated here as illegal’.[91] Similarly, in O’Neil v Gale the judge commented that it would be strange if the defendant could ‘successfully oppose an innocent investor’s restitutionary claim by relying on the very payments that resulted in the losses […] that were themselves unlawful’.[92] The wrongdoer bar is therefore operational even where the ‘wrong’ is merely incidental[93] to, rather than the basis of, the restitution claim. The circumstances of O’Neil v Gale are perhaps more analogous to cases of overpaid tax. Just as the unlawful nature of the payments received by Mrs Gale does not form the basis of the restitution claim, the unlawful nature of the overpaid tax does not form the basis of a mistake-based claim. Following the reasoning in O’Neil v Gale, however, the unlawful nature of the payments themselves must lead to the exclusion of the defence. Hence, if the ultra vires exaction of tax is considered a wrong,[94] then the wrongdoer bar necessarily applies to both Woolwich and mistake-based claims.

Since his analysis in FII (No. 1) (HC), the question of the availability of the change of position defence to the tax authority arose again before Henderson J in FII (No. 2) (HC). He reconsidered his reasoning for barring the change of position defence to Woolwich claims, holding that:

a better explanation […] is to be found in the stultification principle advanced by Professor Bant and other scholars. In essence, to allow scope for the defence would unacceptably subvert, and be inconsistent with, the high principles of public policy which led to recognition of the Woolwich cause of action […].[95]

As to the availability of the change of position defence in respect of mistake-based claims, Henderson J found the issue to be res judicata in those proceedings, although he proceeded to recount the arguments advanced by the parties.[96] It is instructive that although the tax authority argued that the defence should be open to it in mistake-based claims, and the claimants argued that it should be denied to the tax authority under both claims, neither party explicitly sought to invoke the wrongdoer bar.

A principled application of the ‘wrongdoer’ bar does not adequately explain why the defence is denied in Woolwich claims or why, even if the bar were operative in such claims, it would not also exclude the defence in mistake-based claims. The untenability of this analysis is further supported by the lack of advancement of the wrongdoer bar in the subsequent case of FII (No. 2).

3.2.3 Summary

These issues have shown that cases involving the overpayment of tax have posed a number of challenges that have led to the unprincipled application of the law of unjust enrichment. This is particularly objectionable as the motives can often be traced back to external considerations including the assumption that government expenditure is in the public interest and the operation of the limitation provisions, which have no place in the law of unjust enrichment and simply lead to ‘well-meaning sloppiness of thought’.[97]

3.3 Future development of the defence

In light of these difficulties, this section will examine two alternative developments of the change of position defence in relation to the tax authority. These are broadly modelled on the arguments put forward by counsel in FII (No 2) (HC). Given the English courts’ adherence to the existing English tax restitution framework, they are necessarily evaluated by reference to the private law of unjust enrichment. However, as will be seen, similar considerations as underlie the German approach exist in the English law and, it is argued, should ultimately lead to the same result, albeit within the common law unjust enrichment framework.

3.3.1 Unjust factor bar

Thus far, the case law has been marked by its distinction between Woolwich and mistake-based claims in allowing the change of position defence.[98] The basis for this distinction put forward by the tax authority in FII (No. 2) (HC) is the differing fundamental nature of Woolwich and mistake-based claims.[99] Woolwich, it argued, is a policy-based unjust factor that gives effect to high constitutional principles. Mistake-based claims on the other hand, are concerned with impaired consent. In turn, this distinction is the reason for the different application of the limitation period and the availability of defences.

It is not the first time it has been argued that the availability of the defence is influenced by the unjust factor. Chen-Wishart has argued that that the real reason why the defence is or is not available to a defendant is based on the policy underlying the unjust factor.[100] In her analysis, she utilises Birks’ unjust factor classification: (1) the claimant’s defective consent to the transfer (which includes mistake); (2) the defendant’s unconscientiousness in receiving it; and (3) overriding policy reasons calling for restitution (including the Woolwich principle).[101] In simplified terms the question whether the defence is available in the first category of claim is determined by the quality of the defendant’s conduct at receipt.[102] Category (3) claims, on the other hand, rest on such strong public policies in favour of restitution that these policies would be unduly undermined if innocent defendants had unfettered access to the defence. Access should therefore be severely curtailed, if not shut off completely.[103] This analysis raises a number of issues.

Firstly, there is no explicit acknowledgement in the case law (concerning unjust enrichment generally) of a distinction as to the availability of the change of position defence based on the unjust factor. In fact, it has been held that ‘the defence of change of position is a general defence to all claims […] based on unjust enrichment’, provided the defendant does not fall foul of the bad faith disqualification (as, it is accepted, will often be the case in duress or undue influence-based claims).[104] Even the distinction of the Woolwich claim in the case law has not been on the basis of its underlying high public policy, but the (incorrect) application of the wrongdoer bar.[105]

This leads to the second objection, namely that the unjust factor does not account for all considerations underlying the restitution claim. For one, at least since the recognition of ‘deemed retrospective’ mistakes in law, it is questionable whether mistake-based claims can be rationalised under impaired consent. Further, there is no differentiation between mistake-based claims where the mistake is defendant induced or made independently by the claimant. This becomes even more evident when considering that Woolwich and mistake-based claims can, and often do, arise on the same facts. Just because such a claim can also be established on the basis of mistake, therefore, does not mean that there are no other considerations, including high public policy principles in play in the same circumstances.

Finally, it is apparent that the distinction within the case law has been equally, if not more so, motivated by the practical considerations of the operation of the limitation period. Henderson J in FII (No 1) (HC) emphasised that the defence should be available to the tax authority in mistake-based claims ‘particularly where [the claimant’s] motive in doing so is to take advantage of a more generous limitation period’.[106] With respect, this is approaching the question the wrong way around. The availability of the defence is a question of principle and to be determined solely in reference to the position of the defendant.[107] It cannot be determined by the claimant’s (legitimate) legal strategy of framing the claim most advantageously. This also demonstrates the fallacy of the argument that the different application of the limitation period gives any indication as to the nature of the claim. Their operation is merely a by-product of the development of the common law independent from the statutory provisions.

For these reasons the development of an overly formalistic unjust factor bar to the change of position defence must be rejected.

3.3.2 Purpose of restitution and the ‘ultra vires’ bar

An alternative approach would be barring the tax authority from raising the change of position defence in restitution claims for overpaid tax, irrespective of how the restitution claim is framed. The claimants in FII (No 2) (HC) argued that it is the ‘combination of constitutional and policy considerations’ underlying Woolwich claims that rules out the availability of the defence in such claims, and that the development of the law as it relates to mistake-based claims should be moulded by the same considerations.[108] This broadly reflects the normative justification for the German position, as set above.

First it must be established what the constitutional and policy considerations underlying the Woolwich principle are. In Woolwich, Lord Goff held that restitution must be awarded to give effect to the constitutional principle contained within Art. 4 of the Bill of Rights 1788: no taxes should be levied without the authority of Parliament.[109] The subsequent developments of the Woolwich principle, including that a claim is not predicated on a demand by the tax authority and also arises in cases of misinterpretation or misapplication of legislation, demonstrates that the Woolwich claim embodies an ever wider principle of the rule of law: the tax authority cannot receive tax payments[110] without lawful authority. Put another way, the tax authority, as a matter of constitutional law, cannot receive any ultra vires tax payment. It is this high constitutional principle to which the Woolwich principle gives effect, and it is on this basis that the change of position defence must be denied. Not to do so would undermine the very principle that gives rise to the restitutionary claim. However, this principle exists and must be applied irrespective of how a claim is framed. Similarly, Bant’s stultification argument is targeted at the law’s policy regarding unlawful taxation, rather than the form of claim.[111] Simply put, whenever money is paid as tax to the tax authority and the receipt of that payment is ultra vires, the individual has a restitutionary claim as of right that cannot be subverted (other than as provided for by legislation).

The question then arises whether such an ultra vires bar to the change of position defence has any place in the law of unjust enrichment. Firstly, it is noted that in formulating the change of position defence, Lord Goff explicitly adopted an open approach to facilitate its development.[112] A potential criticism could be that the development of an ultra vires bar would introduce a wholly public law element which is incongruous with the law of unjust enrichment. Contrary to this, it is pointed out that the public law principle that the ultra vires bar would give effect to has already been recognised in the law of unjust enrichment through the Woolwich principle. The ultra vires bar would simply be a development of the law of unjust enrichment to give full effect to the high constitutional principle in line with the development of the Woolwich principle itself. Finally, the ultra vires bar may be objected to on the basis that the defence would never be available to the tax authority in restitution claims for overpaid tax, which is not in the public interest and may even cause fiscal chaos. In response it is argued that, in any event, it is highly unlikely that the tax authority is able to establish a change of position as a matter of fact[113] and it is always open to parliament to pass ‘protective’ legislation to preserve the defence.[114]

4. Conclusion

The approach taken to the availability of the disenrichment objection and the change of position defence to the tax authority is distinctly marked by the nature of the restitution claim in German and English law respectively.

The reason for the exclusion of the disenrichment objection in claims for overpaid tax under German law is solely based on their public law nature. This strict approach has led to the indiscriminate application of public law doctrines to mistaken tax payment claims (whether rightly or wrongly) simply because they are classified as ‘claims arising from the tax debtor-creditor relationship’ under § 37 AO.

In contrast, under English law restitution of overpaid tax claims have developed as part of the private law of unjust enrichment. In this context, the courts have on occasion struggled with the ‘public law dimension’ of such claims, leading to the unprincipled application of unjust enrichment doctrines. Unsurprisingly, there have been calls for the recognition of Woolwich claims as wholly public law or hybrid claims as, it is claimed, they would be more adept at dealing with the competing concerns.[115] In relation to the availability of the change of position defence, this article has sought to show that there is no need to reclassify claims for restitution of overpaid tax. A principled development of the law of unjust enrichment could and should result in the same position as under the German law: the change of position defence must be denied to the tax authority to give effect to the individual’s constitutional rights. The development of a public law restitutionary claim would not necessarily lead to the same conclusion, particularly as public law remedies are discretionary. It must also be borne in mind that the current position under the German law is due to the particular operation of the German Basic Law and the breadth of the recovery scheme under the statutory provision. If anything, it is argued that the ultra vires bar would provide a more cohesive and persuasive basis for always denying the change of position defence to the tax authority defendant in all restitution claims for overpaid tax.

5. Endnotes

* I am particularly indebted to Professor Charles Mitchell for his insightful discussions and support. I am also grateful for comments received from Professor Birke Häcker and the anonymous reviewer. All errors remain my own.

  1. Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 (‘Woolwich’), described further below.
  2. Lipkin Gorman (A Firm) v Karpnale Ltd [1991] 2 AC 548, 580 (‘Lipkin Gorman’).
  3. The scope of this essay is limited to central taxation in England and federal taxation in Germany. The European law dimension is beyond the scope of this article but may be occasionally mentioned for completeness.
  4. Woolwich [1993] AC 70, 174; C Mitchell, P Mitchell and S Watterson (eds), Goff and Jones: The Law of Unjust Enrichment, 9th ed (Sweet & Maxwell, London, 2016), [22.44] (hereafter ‘Goff and Jones: The Law of Unjust Enrichment (2016)’).
  5. For ease of reference ‘tax authority’ will be used to refer to the non-ministerial department, the treasury, the government and the state receipt of tax.
  6. Although it has undergone some fundamental conceptual shifts, including the conceptual separation of performance and non-performance-based claims.
  7. The AO is applicable to taxes governed by federal and EU law insofar as they are administered by federal or state tax authorities (§ 1 I AO). The AO is only applicable to municipal taxes administered by municipalities insofar as it has been declared applicable by state law. For further details see R Seer, ‘§ 1 Steuerrecht als Teil der Rechtsordnung‘ in J Englisch and others (eds), Tipke/Lang Steuerrecht (22nd edn, Otto Schmidt, Cologne, 2015), 1 (hereafter ‘Englisch and others’).
  8. All translations of statutory provisions are those officially provided by the German Federal Ministry of Justice and Consumer Protection.
  9. BFH (31.08.1993), BStBl II 1995, 846, 848.
  10. For example, § 36 IV EStG, § 20 III GewStG, § 16 GrEStG, § 4 KraftStG, § 9 VersStG.
  11. These descriptions are not to be understood synonymously with the similarly named unjust factors in English law.
  12. Unless otherwise stipulated in the individual tax statute, see Englisch and others (2015), 245.
  13. BFH (17.03.2010), BFH/NV 2010, 1238; BVerwG (17.01.2007), NVwZ 2007, 709.
  14. § 79 II 1 of the Act on the Federal Constitutional Court (Bundesverfassungsgerichtsgesetz, abbreviated BVerfGG); BFH (28.06.2006), BStBl II 2007, 714 (715); BFH (17.03.2010), BFH/NV 2010, 1238.
  15. FG Nds (19.12.2007), DStRE 2008, 897 (897).
  16. The starting date and precise length of the applicable time period may differ on the specific circumstances (such as the reason for issuing the repealing or modifying act, the timing of when this reason was brought to the attention of the tax authority etc. These are set out in §§ 169-171, 181 AO).
  17. There remains disagreement about when the restitution claim arises: whether at the time of payment as the amount is higher than required by statute (materielle Rechtsgrundtheorie), or only once the repealing or modifying tax assessment notice is issued (formelle Rechtsgrundtheorie). The case law is inconsistent: although the Federal Fiscal Court generally follows the latter approach (BFH (27.10.2009), BStBl II 2010, 257; BFH (05.09.2012), BStBl II 2012, 854), it appears to favour the first approach when specifically considering when the claim arises (BFH (06.02.1990), BStBl II 1990, 523; BFH (15.10.1997), BStBl II 1997, 796; BFH (06.06.2000), BStBl II 2000, 491). It is, however, commonly accepted that the restitutionary claim can only be brought once the subsequent tax assessment notice has been issued. See K Drüen, ‘Steuerliche Erstattungsansprüche des Fiskus: Beratungswissen zur Rückforderung von Steuererstattungen und -vergütungen’ [2002] AO-Steuerberater 374, 375.
  18. While the disenrichment objection of § 818 III BGB is also not available to taxpayer defendants to restitution claims brought by the state under § 37 II AO, unlike tax authority defendants they are afforded similar protection under the principle of good faith (Treu und Glauben).
  19. First developed by Friedrich von Savingy; see F von Savigny, System des heutigen Römischen Rechts I, vol 1 (Veit, Berlin, 1840), § 33; The Federal Constitutional Court has consistently held that since the introduction of the German Basic Law statutory interpretation is limited by the constitution (verfassungskonforme Auslegung). See, for instance BVerfG (19.09.2007), BvF 3/02, Rn. 87 – 98.
  20. W Drenseck, Das Erstattungsrecht der Abgabenordnung 1977 (Deubner, Cologne, 1979), 4 (hereafter ‘Drenseck (1979)’).
  21. See, for instance P Meier and F Jocham, ‘Wie man Argumente gewinnt’ [2015] Juristische Schulung 490, 494; BGH (04.08.2010), XII ZR 118/08, Rn. 11.
  22. BFH (01.03.1974), BStBl II 1974, 369; A von Mutius, ‘Rückforderung überzahlter Beamtenbezüge – zu Voraussetzungen und Umfang des öffentlich-rechtlichen Erstattungsanspruchs –’ [1980] Verwaltungsarchiv 413, 415.
  23. M Weber, ‘Anwendbarkeit bereicherungsrechtlicher Grundsätze auf den öffentlich-rechtlichen Erstattungsanspruch nach § 37 Abs. 2 der Abgabenordnung’ [1992] Betriebs-Berater 404, 407 (hereafter ‘Weber’).
  24. BFH (30.08.2005), BStBl II 2006, 353 (355); BFH (10.11.2009), BStBl II 2010, 255 (257).
  25. Although the case law has developed a legal principle in the place of disenrichment based on good faith (Treu und Glauben) for citizen defendants to restitution claims brought by the tax authority. For a critical analysis see Weber [1992] BB 404.
  26. BVerwG (12.03.1985), BVerwGE 71, 85; U Koenig, ‘Der allgemeine Erstattungsanspruch der Abgabenordnung 1977’ [1991] Deutsches Steuerrecht 633, 638 (hereafter ‘Koenig’); W Lorenz, ‘Verbindungslinien zwischen öffentlichrechtlichem Erstattungsanspruch und zivilrechtlichem Bereicherungsausgleich’ in P Badura and R Scholz (eds), Wege und Verfahren des Verfassungslebens (C H Beck, Munich, 1993) 930.
  27. H Meier-Branecke, ‘Die Anwendbarkeit privatrechtlicher Normen im Verwaltungsrecht’ [1926] Archiv des öffentlichen Rechts 230, 259-262; F Ossenbühl, ‘PostG § 26; BGB §§ 812 ff.’ [1985] Juristenzeitung 792, 795.
  28. See examples above text to n 20; F Ossenbühl and M Cornils, Staatshaftungsrecht, 6th ed (C H Beck, Munich, 2013), 548.
  29. Such as the good faith principle that has been developed for taxpayer defendants to § 37 II AO claims brought by the tax authority.
  30. Drenseck (1979), 35.
  31. Ibid, 32.
  32. J Hey, ‘§ 3 Steuersystem und Steuerverfassungsrecht’ in Englisch and others, 22nd ed (2015), 92-100 (hereafter ‘Hey’).
  33. Drenseck (1979), 75.
  34. In the form of an administrative act.
  35. Drenseck (1979), 50.
  36. Koenig [1991] DStR 633.
  37. Drenseck (1979), 76.
  38. M Sachs, ‘Art. 20’ in M Sachs and others (eds), Grundgesetz Kommentar, 8th ed (C H Beck, Munich, 2018) 801, 840.
  39. Ibid, 841-844.
  40. Including economic freedom; BVerfG (03.12.1958), BVerfGE 9, 3.
  41. BVerfG (26.06.2002), BVerfGE 105, 279.
  42. Hey in Englisch and others, 22nd ed (2015), 113.
  43. § 42 Verordnung wegen verbesserter Einrichtung der Provinzal-, Polizey und Finanzbehörden vom 26.12.1808; see G Lassar, Der Erstattungsanspruch im Verwaltungs- und Finanzrecht (Otto Liebmann, Berlin, 1921) 123-124 (hereafter ‘Lassar’).
  44. Lassar (1921).
  45. A claim by the individual against the tax authority corresponds to the tax liability claim of the tax authority against the individual; Lassar (1921), 143.
  46. Although its original usage is now largely obsolete and if anything causes confusion when used in connection with the tax recovery framework today; R von Canstein, Der Erstattungsanspruch im Steuerrecht (Spitaler, Dusseldorf, 1966), 5.
  47. The constitutional validity of such a legislative disenrichment provision would be dependent, in particular on the proportionality (Grundsatz der Verhältnismäßigkeit) between the infringement of the constitutional rights and the legitimate aims pursued.
  48. BFH (06.09.1962), BStBl III 1962, 494 (494).
  49. For instance, section 33 of the Taxes Management Act 1970 (income and capital gains tax) only covers claims where the payment was excessive by reason of some error or mistake, while a claim under section 80 of the Value Added Tax Act 1994 (Value Added Tax) arises irrespective of whether the excessive payment was made by mistake, it being sufficient that the excessive amount was not due.
  50. [1993] AC 70.
  51. Ibid, 177 (Lord Goff).
  52. FII (No 1) [2012] UKSC 19; [2012] 2 AC 337, [79] (Lord Walker), [171-174] (Lord Sumption).
  53. British Steel Plc v Customs and Excise Commissioners (No. 1) [1997] 2 All ER 366, 376.
  54. E Bant, ‘Change of Position as a Defence to Restitution of Unlawfully Exacted Tax’ [2012] LMCLQ 122 (hereafter ‘Bant’).
  55. Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349.
  56. Deutsche Morgan [2006] UKHL 49; [2007] 1 AC 558, [23] (Lord Hoffmann).
  57. Section 5 of the Limitation Act 1980.
  58. Woolwich [1993] AC 70, 171.
  59. [2013] EWCA Civ 591; [2013] PTSR, [138] (‘Hemming’).
  60. In greater detail C Mitchell, ‘Recovery of Overpaid Tax Under English Law’ [2016] <http://dx.doi.org/10.2139/ssrn.2847060> last accessed 8 May 2018, 14 (hereafter ‘Mitchell’).
  61. An exception exists in relation to mistake of law claims relating to tax matters under the supervision of the Commissioners for Revenue and Customs under section 320 of the Finance Act 2004, section 2 of the Commissioners for Revenue and Customs Act 2005 and section 107 of the Finance Act 2007. However, the validity of these provisions has been successfully challenged in the context of the EU right to recovery. For further discussion see C Mitchell [2016] <http://dx.doi.org/10.2139/ssrn.2847060>, 15-16.
  62. For instance, the sums claimed in FII (No 1) (HC) had accrued over 26 years; see Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2008] EWHC 2893 (Ch); [2009] STC 254, [310] (‘FII (No 1)’).
  63. [2006] UKHL 49; [2007] 1 AC 558, [18] (Lord Hoffmann).
  64. Haugesund Kommune v Depfa ACS Bank [2010] EWCA Civ 579; [2012] QB 549, [122] (‘Haugesund Kommune’).
  65. Lipkin Gorman [1991] 2 AC 548, 578.
  66. Goff and Jones: The Law of Unjust Enrichment (2016), [27.32]; Dextra Bank & Trust Co Ltd v Bank of Jamaica [2002] 1 All ER (Comm) 193, [38] (‘Dextra Bank’).
  67. Philip Collins Ltd v Davis [2000] 3 All ER 808, [80]; Scottish Equitable Plc v Derby [2001] EWCA Civ 369; [2001] 3 All ER 818, [33] (‘Scottish Equitable’).
  68. E Bant, ‘Restitution from the Revenue and Change of Position Defence: FII Group v Revenue and Customs’ [2009] LMCLQ 166, 170-171 (hereafter ‘Bant’); N Cleary, ‘Property, Proportionality, and the Change of Position Defence’ in S Elliott and others (eds), Restitution of Overpaid Tax (Hart, Oxford, 2013) 127, 130 (hereafter ‘Cleary’).
  69. FII (No 1) [2008] EWHC 2893 (Ch); [2009] STC 254, [344].
  70. Bloomsbury International Ltd v Sea Fish Industry Authority [2009] EWHC 1721 (QB); [2009] 7 WLUK 659, [142] (‘Bloomsbury’).
  71. Littlewoods Retail Ltd v Revenue and Customs Commissioners [2010] EWHC 1071 (Ch); [2010] STC 2072 (‘Littlewoods (No 1)’).
  72. FII (No 1) [2008] EWHC 2893 (Ch); [2009] STC 254, [344]; this understanding of the causation requirement may have been what led to Henderson J to erroneously adopt the broad brush ‘common sense’ approach, as it would never be possible for the tax authority to show this once the receipts have been paid into the Consolidated Fund.
  73. Cleary in S Elliott and others (eds), Restitution of Overpaid Tax (2013), 131-132.
  74. Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2014] EWHC 4302 (Ch); [2015] STC 1471, [389] (‘FII (No 2)’).
  75. Ibid, [389].
  76. Ibid, [389].
  77. Jazztel plc v Revenue and Customs Commissioners [2017] EWHC 677 (Ch); [2017] 1 WLR 2369, [111] (‘Jazztel’).
  78. Ibid, [111]; FII (No 2), [387], [388], [390].
  79. [2001] EWCA Civ 369; [2001] 3 All ER 818
  80. Ibid, [35].
  81. See F Ossenbühl and M Cornils, Staatshaftungsrecht, 6th ed (C H Beck, Munich, 2013), 550.
  82. Ibid.
  83. A similar concept is encapsulated in § 819 BGB.
  84. This approach was followed in Bloomsbury [2009] EWHC 1721 (QB); [2009] 7 WLUK 659, [134] and Littlewoods (No 1) [2010] EWHC 1071 (Ch); [2010] STC 2072, [101]-[109] with no further discussion as to the merits of Henderson J’s analysis (although in Littlewoods (No. 1) Vos J confirmed that Woolwich claims still necessarily involve the commission of a wrong after the Court of Appeal had held that no demand was necessary).
  85. Goff and Jones: The Law of Unjust Enrichment (2016), [27.62].
  86. FII (No 1) [2008] EWHC 2893 (Ch); [2009] STC 254, [339].
  87. Lipkin Gorman [1991] 2 AC 548, 572, 580; Barros Mattos Junior v MacDaniels Ltd [2004] EWHC 1188 (Ch); [2005] 1 WLR 247 (‘Barros Mattos’); O’Neil v Gale [2013] EWCA Civ 1554; [2013] WLUK 188 (‘O’Neil v Gale’).
  88. The only exception could be where the unlawful exaction is contrary to European Union law and constitutes a sufficiently serious breach to amount to a breach of statutory duty. In that case the tax authority is a tort feasor; Deutsche Morgan Grenfell (n 56) [91] (Lord Scott). However, it is commonly accepted that the change of position defence is in any case not open to the tax authority in respect to San Giorgio claims (Case 199/82 Amministrazione delle Finanze dello Stato v San Giorgio SpA EU:C:1983:318; [1983] ECR 3595) as to afford the defence would be in breach of the European legal principle of effectiveness.
  89. FII (No 1) [2008] EWHC 2893 (Ch); [2009] STC 254, [337].
  90. Barros Mattos [2004] EWHC 1188 (Ch); [2005] 1 WLR 247, [10].
  91. Ibid, [43].
  92. O’Neil v Gale [2013] EWCA Civ 1554; [2013] WLUK 188, [28].
  93. Term used by Bant; Bant [2009] LMCLQ 166, 172.
  94. Although it is argued that this is not the case; infra text to n 96.
  95. FII (No 2) [2014] EWHC 4302 (Ch); [2015] STC 1471, [315].
  96. Ibid, [316]-[341].
  97. FII (No 1) [2008] EWHC 2893 (Ch); [2009] STC 254, [341] and [344]; Adopting the language of Scrutton LJ in Holt v Markham [1923] 1 KB 504, as noted in Scottish Equitable [2001] EWCA Civ 369; [2001] 3 All ER 818, [53].
  98. See supra Part B(2)(b).
  99. FII (No 2) [2014] EWHC 4302 (Ch); [2015] STC 1471, [335]-[338].
  100. M Chen-Wishart, ‘Unjust Factors and the Restitutionary Response’ [2000] OJLS 557 (hereafter ‘Chen-Wishart’).
  101. P Birks, An Introduction to the Law of Restitution (Clarendon Press, Oxford, 1989), 140-355.
  102. Chen-Wishart [2000] OJLS 557, 560.
  103. Ibid, 562.
  104. Haugesund Kommune [2010] EWCA Civ 579; [2012] QB 549, [122]; A Burrows, The Law of Restitution, 3rd ed (OUP, Oxford, 2010) 544; While this remains the generally accepted view, some doubts as to the universal availability of the change of position defence in all cases of restitution were raised in Skandinaviska Enskilda Banken AB (Publ) v Conway [2019] UKPC 36; [2019] 3 WLR 493, [95]-[96].
  105. FII (No 1) [2008] EWHC 2893 (Ch); [2009] STC 254; Bloomsbury [2009] EWHC 1721 (QB); [2009] 7 WLUK 659; Littlewoods (No. 1) [2010] EWHC 1071 (Ch); [2010] STC 2072; But see Henderson J’s reconsideration of the matter in FII (No 2) [2014] EWHC 4302 (Ch); [2015] STC 1471, [309]-[315].
  106. FII (No 1) [2008] EWHC 2893 (Ch); [2009] STC 254, [341].
  107. Lipkin Gorman [1991] 2 AC 548; FII (No 1) [2008] EWHC 2893 (Ch); [2009] STC 254, [321].
  108. FII (No 2) [2014] EWHC 4302 (Ch); [2015] STC 1471, [320]-[322]; Arguments to similar effect, albeit in the context of San Giorgio claims, were described as ‘powerful’ by Henderson J in Prudential Assurance v HMRC [2013] EWHC; [2014] STC 1236, [188].
  109. Woolwich [1993] AC 70, 172.
  110. That is, money paid to the tax authority as tax. This does not, of course, extend to receipt of other payments by the tax authority such as where a payee intended to pay another but accidentally paid the funds to the tax authority. Such cases would not give rise to a (concurrent) Woolwich claim in any event.
  111. Bant [2012] LMCLQ 122, 140-141.
  112. Lipkin Gorman [1991] 2 AC 548, 580; Niru Battery Manufacturing Co v Milestone Trading Ltd (No 1) [2003] EWCA Civ 1446; [2004] QB 985, [147].
  113. Supra Part 3.2.1.
  114. The fact that this may be unlikely to occur in practice, not least of all due to political pressures, is not a relevant consideration and in any case, simply demonstrates the effectiveness of the checks and balances in the constitutional order.
  115. R Williams, Unjust Enrichment and Public Law: A Comparative Study of England, France and the EU (Hart, Oxford, 2010), in particular chapters 2 and 3.

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