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Mistakes of Law and Ultra Vires Public Authority Receipts and Payments

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Mistakes of Law and Ultra Vires Public Authority Receipts and Payments RESTITUTION: MISTAKES OF LAW AND ULTRA VIRES PUBLIC AUTHORITY RECEIPTS AND PAYMENTS LAW COMMISSION LAW COM No 227 The Law Commission (LAW COM.No.227) RESTITUTION: MISTAKES OF LAW AND ULTRA VIRES PUBLIC AUTHORITY RECEIPTS AND PAYMENTS REPORT ON A REFERENCE UNDER SECTION 3(1)(e) OF THE LAW COMMISSIONS ACT 1965 Presented to Parliament by the Lord High Chancellor by Command of Her Majesty November 1994 LONDON: HMSO 618.10 net Cm273 1 The Law Commission was set up by section 1 of the Law Commissions Act 1965 for the purpose of promoting the reform of the law. The Commissioners are: The Honourable Mr Justice Brooke, Chairman Professor Andrew Burrows Miss Diana Faber Mr Charles Harpum Mr Stephen Silber QC The Commissioners who signed the report on 30 September 1994 were: The Honourable Mr Justice Brooke, Chairman Professor Jack Beatson Miss Diana Faber Mr Charles Harpum Mr Stephen Silber QC The Secretary of the Law Commission is Mr Michael Sayers and its offices are at Conquest House, 37-38 John Street, Theobalds Road, London, WClN 2BQ. .. 11 LAW COMMISSION RESTITUTION: MISTAKES OF LAW AND ULTRA VIRES PUBLIC AUTHORITY RECEIPTS AND PAYMENTS CONTENTS Paragraph Page SECTION A: INTRODUCTION PART I: INTRODUCTION AND SUMMARY OF MAIN RECOMMENDATIONS 1.1 1 The response on consultation 1.5 2 Developments since publication of our Consultation Paper 1.8 3 Co-operation with the Scottish Law Commission 1.12 4 Discussions with the Inland Revenue, HM Customs & Excise and other interested public bodies 1.14 5 Summary of main recommendations 1.17 6 Arrangement of the rest of this Report 1.19 8 SECTION B: RESTITUTION OF BENEFITS CONFERRED UNDER A MISTAKE OF LAW PART 11: THE PRESENT LAW The general rule 2.1 9 Qualifications and exceptions to the general rule 2.5 11 Qualifications: (a) Illegal contracts 2.6 11 (b) Implied contracts 2.7 12 (c) Other grounds for restitution 2.8 12 Exceptions: (a) Overpayments by trustees or personal representatives 2.9 13 (b) Payments made to an officer of the court 2.10 13 (c) Payments made by an officer of the court 2.11 14 (d) Mistakes of foreign law 2.12 14 (e) Mistakes in equity 2.13 14 (f) Ultra vires charges and taxes 2.14 14 (g) Manipulation of the distinction between fact and law 2.15 15 Defences to restitutionary claims 2.16 15 (a) Change of position 2.17 15 (b) Estoppel 2.24 19 ... 111 Paragraph Page (c) Submissions to an honest claim and compromises 2.25 20 Recent developments 2.39 27 PART 111: REFORM OF THE MISTAKE OF LAW RULE The case for reform 3.1 29 Summary of the Consultation Paper’s provisional conclusions 3.5 31 Response on consultation 3.6 31 Conclusion on reform 3.7 31 PART IV: METHOD OF REFORM Method of reform 4.1 34 The options for reform 4.3 34 Response on consultation 4.5 37 Conclusion on reform 4.10 39 Services 4.11 40 PART V: SPECIFIC ASPECTS OF THE LAW Introduction 5.1 42 Change in the law or understanding of the law 5.2 42 Change of position 5.14 48 Estoppel 5.17 48 Submissions to an honest claim and compromises 5.18 49 Limits to the recommended reforms 5.19 49 SECTION C: CLAIMS IN RESPECT OF ULTRA VIRES PAYMENTS MADE TO PUBLIC AUTHORITIES PART VI: INTRODUCTION AND PRESENT LAW Introduction 6.1 51 Recovery at common law 6.3 51 The traditional formulation 6.5 52 Qualifications and exceptions 6.6 53 (a) Mistake of fact and duress 6.6 53 (b) Implied contracts to repay 6.10 54 (c) Payments demanded for the performance of a public duty 6.13 55 (d) “Recovery” through a set-off against money owed 6.16 57 (e) Payments made to an officer of court 6.17 57 (f) Application for judicial review 6.18 58 Overturning the traditional formulation: the general restitutionary principle 6.21 59 Foundations of the general restitutionary right 6.25 61 The scope of the Woolwich rule 6.32 64 (a) The formulation of the principle 6.36 64 (b) The authorities underlying the principle 6.40 66 (c) The reasons underlying the decision 6.41 66 Charges made by public utilities 6.43 67 iv Paragraph Page Summary 6.46 69 PART VII: STATUTORY PROVISIONS FOR RECOVERY Introduction 7.1 71 Repayment provisions in subordinate legislation 7.2 71 The relationship between the legislative structure and the general restitutionary principle 7.3 72 PART VIII: THE CASE FOR REFORM Proposals in our Consultation Paper 8.1 75 Responses to consultation 8.2 75 Factors affecting our provisional approach 8.5 76 Common law development approach 8.8 76 (a) Common law development approach: scope of the rule 8.10 77 (b) Common law development approach: safeguards 8.11 77 (c) Common law development: conclusions 8.12 78 Statutory codification approach 8.13 78 (a) Difficulties of definition: “public” and “private” bodies 8.16 79 (b) Difficulties of definition: origin of charging powers 8; 17 80 Specific statutory provisions approach 8.20 81 Factors influencing the shape of reform 8.23 82 (a) Existing framework of revenue law 8.24 82 (b) Commonality of approach 8.33 86 (c) Dealing with points raised by the SLC and the IRC 8.34 86 PART IX: THE MODEL SCHEME IN RELATION TO INCOME TAX Introduction 9.1 88 The legislative scheme 9.6 89 Assessments 9.9 90 Time limits for assessment 9.10 90 Appeals against assessments 9.12 91 Reopening of assessments 9.13 92 Relationship between statutory recovery rights and rights of appeal 9.15 94 Defence of non exhaustion of statutory rights of appeal 9.19 95 Importance of recovery rights 9.21 96 Taxes Management Act 1970, section 33 9.22 96 Reform of the recovery rights 9.24 99 PART X: THE MODEL SCHEME - DEFENCES Introduction 10.1 101 Change in a settled view of the law: payments in accordance with general practice 10.10 104 (a) Mistake claims 10.10 104 (b) Ultra vires claims 10.22 110 Submission to an honest claim 10.31 114 V . ..- Paragraph Page (a) Mistake claims 10.31 114 (b) Ultra vires claims 10.35 116 Limitation periods 10.36 117 (a) Mistake claims 10.36 117 (b) Ultra vires claims 10.41 119 Non-exhaustion of statutory remedies 10.42 119 Recovery would unjustly enrich the payer 10.44 121 (a) Mistake claims 10.44 121 (b) Ultra vires claims 10.47 122 PART XI: THE MODEL SCHEME AND THE PROBLEM OF DISRUPTION TO PUBLIC FINANCE Introduction 11.1 124 Mistake claims and serious disruption to public finance 11.2 125 Possible defences 11.6 126 (a) A defence of serious disruption to public finance 11.6 126 (b) Prospective overruling 11.7 127 (c) Denying recovery to later challengers 11.8 128 (d) Change of position 11.10 129 Ultra vires claims and the problem of serious disruption to public finance 11.18 132 Provisional proposals 11.18 132 Summary of consultation 11.19 132 Possible defences 1 1.23 133 (a) Prospective overruling and serious disruption to public finance 11.23 133 (b) Denying recovery to later challengers 11.26 137 (c) Change of position 11.31 140 Estoppel 1 1.32 141 PART XII: THE PAYE SYSTEM AND THE SELF-ASSESSMENT SYSTEM The PAYE System 12.1 142 The Self-Assessment System 12.8 144 PART XIII: INHERITANCE TAX AND STAMP DUTIES Introduction 13.1 148 Determination of the amount due 13.3 148 Appeals 13.6 149 Recovery provisions 13.7 149 Defences 13.1 1 150 Stamp Duties 13.12 151 Main Principles 13.13 151 Adjudication 13.15 151 Appeals 13.16 152 Recovery provisions 13.17 152 vi Paragraph Page PART XIV: EUROPEAN COMMUNITY LAW AND INDIRECT TAXES The influence of European Community law 14.1 155 The types of charges affected 14.2 155 Value Added Tax 14.6 158 The nature of VAT 14.6 158 The collection of VAT 14.8 158 Recovery rights 14.14 160 Excise Duties 14.20 162 Insurance Premium Tax 14.24 164 PART XV: NATIONAL INSURANCE CONTRIBUTIONS AND COUNCIL TAX National insurance contributions 15.1 165 The system 15.1 165 Recovery provisions 15.4 166 Administrative remedies 15.7 167 Contributions paid by mistake 15.8 167 Council Tax 15.13 169 Introduction 15.13 169 The charge 15.15 170 Banding 15.16 170 Calculation of the charge 15.18 170 Valuations 15.19 171 Appeals 15.21 172 Recovery provisions 15.24 173 PART XVI: RESIDUAL DUTIES FALLING WITHIN THE SCOPE OF WOOLWICH AND PROCEDURE Introduction 16.1 175 Statutory recovery rights 16.3 175 Common law development 16.9 178 Procedure and interest 16.1 1 179 Interest 16.1 1 179 Procedure 16.15 180 SECTION D: CLAIMS BY PUBLIC BODIES PART XVII: THE PRESENT LAW Recovery under the common law 17.1 182 Defences at common law 17.3 182 Recovery under Statute 17.4 183 European Community law 17.5 183 (a) Payments made unlawfully under community provisions 17.5 183 (b) Unlawful state aids 17.7 184 The case for reform 17.9 185 Summary of Provisional Proposals 17.9 185 Response on Consultation 17.10 185 The scope of the present right 17.1 1 185 Arguments against reform 17.13 186 vii Paragraph Page The effect of reform 17.17 188 Conclusions 17.19 188 SECTION E: SUMMARY OF RECOMMENDATIONS Section B: Restitution of benefits conferred under a I mistake of law 190 , Section C: Ultra vires receipts by public authorities 191 Section D: Ultra vires payments by public authorities 194 APPENDIX A: Draft Restitution (Mistakes of Law) Bill with Explanatory Notes 195 APPENDIX B: Draft Tax Clauses with Explanatory Notes 20 1 APPENDIX C: List of persons and organisations who commented on Consultation Paper No 120 210 I ~ i SECTION A INTRODUCTION PART I INTRODUCTION AND SUMMARY OF MAIN I RECOMMENDATIONS I- 1.1 In March 1990 the Lord Chancellor made a reference to the Commission in the following terms: To examine the law relating to payments made but not lawfully due and in particular the common law rule that payments made under a mistake of law are irrecoverable, and to make recommendations.
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