Judgments - Burton (Her Majesty's Collector of Taxes) (Respondent) v. Mellham Limited (Appellants)

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    19.  These reasons all call for respectful attention, but I have to say that the brevity of the first reason suggests to me that the Lord Justice may not have stood back and considered the position in the round. As he had already recorded (para 6),

    "The logic of the Revenue's case is that interest continues to be due on the whole of that sum, but as a concession it limits its claim to interest due before 4 December 2001."

    The proposition that a failure to pay tax should carry a statutory liability to pay interest forever afterwards, if the principal liability is discharged or satisfied otherwise than by payment, is so startling as to suggest that it would be a good reason for construing the statute more flexibly. No doubt the Revenue were displeased at Mellham's unexplained failure to pay the ACT, and some observations of Buxton LJ seem to reflect this displeasure (paras 20 to 21):

    "[20] … had it paid its advance corporation tax as the statute required, in January, none of this trouble would have occurred and we would not have had to spend time investigating what I have to say are arcane matters of equitable law.

    [21]  This system is simple and straightforward. Taxpayers may not like it but it is what Parliament has decided. If people keep the rules everybody knows where they are. The rules were not kept in this case."

    I have to say that I feel some sympathy with these observations (except as regards the simplicity of the tax system). Nevertheless a perpetual liability to pay interest, subject only to a discretionary (and possibly dubious) official power of remission would be so disproportionate a penalty as to raise real doubt whether Parliament can have intended the system to work like that.

    20.  Buxton LJ's second reason was that the statutory language distinguished between "paid" and "repaid", and also referred expressly (in another context) to set-off. These points must be given due weight. But sections 246N(2) is describing the statutory machinery as it ought to operate. It is not concerned with the consequences of non-compliance. Moreover the reference in section 246N(2) to tax being "set off" looks forward to section 246Q(2) which refers to an amount being "set off against the company's liability to corporation tax for the relevant period", a clear echo of the familiar process under section 239(1) of ICTA 1988. This is not an ordinary set-off of cross-claims. It is treating a payment of ACT by a company to the Revenue as discharging in advance a liability for MCT to be paid by the same company to the Revenue.

    21.  The third reason mentioned by Buxton LJ was that the statutory purpose of ACT was to help the Revenue's cash flow, and that this would not be achieved unless ACT were actually paid. Plainly that point is correct, so far as it goes. But there is a deterrent to non-payment in the interest charge under section 87 of TMA 1970. If the Treasury considers that the deterrent is insufficiently severe it can (within the limits of what is authorised by section 178 of the Finance Act 1989) provide a stiffer sanction. But the notion of a perpetual liability to pay interest, subject only to the possibility of administrative remission, cannot in my view be justified on grounds of policy.

    22.  Buxton LJ's fourth and final reason was that if Parliament had intended the complicated concept of equitable set-off to apply in this area, it would have said so expressly. Again, I have some sympathy with this view. The provisions for the assessment, collection and repayment of corporation tax in force between 1994 and 1999 were complex, and had to be gathered from the sometimes obscure provisions of TMA 1970 (as amended) and ICTA 1988 (as amended). Nevertheless set-off is a general principle founded in simple convenience and fairness, even if it has some arcane fringes. It should be taken to apply generally to all liquidated cross-claims unless excluded by statute or contract. I think that the difficulties said to arise in this case are not as intractable as the Court of Appeal took them to be. I draw attention to three points in particular.

    23.  In the first place, it is worth noting that section 87 of TMA 1970 was enacted some years before ACT was introduced, and many years before foreign income dividend relief was introduced. It is in a statute concerned with the management of the tax system. To my mind there is no good reason why "payment" in section 87(1) should not include other forms of discharge or satisfaction. Although TMA 1970 is to be construed as one with ICTA 1988 (see section 119 (3) of the former Act) it would be unrealistic to let the detailed provisions in Chapter VA of ICTA 1988, introduced in 1994, have much influence on the construction of section 87 of TMA 1970. The setting off referred to in sections 246N to 246Q is, as I have explained, a different sort of set-off.

    24.  Secondly, Mellham's claim to DTR cannot in my view be described as an attempt at self-help. It had a statutory claim to DTR which was eventually conceded in its entirety. It is no doubt true to say that the claim, if not conceded by the Revenue, could not have been resolved in the county court or the mercantile court but would have had to go to the Special Commissioners. But the courts below do not seem to have been worried about that jurisdictional point. Mellham's cross-claim was on a definite, justiciable issue which might in due course have had to be resolved by the High Court on appeal from the Special Commissioners. It had in fact been conceded by the Revenue before the case came before Her Honour Judge Alton for decision.

    25.  We do not know the reasons for the long delay in resolving the DTR claim. But it is a very common occurrence that (for a variety of reasons, including the need for further investigation of the facts) the amount of a monetary claim or cross-claim cannot be finally ascertained until long after its due date for payment. Nevertheless interest may run from when the amount, if ascertained, would have been due and payable. In this case, as I understand it, the delay in resolving the DTR claim was not because it depended on any contingency, but because of a need to satisfy the Revenue about facts which already lay in the past.

    26.  But, it was said on behalf of the Revenue—and this is the third point—there could be no question of the Revenue having to make any repayment under section 826 of ICTA 1988 until the ACT was actually paid. Any cross-claim by Mellham was therefore truly contingent on an event which had not happened and has still never happened, except for the £100,000 extracted from Mellham under the summary judgment on admissions. This is a point which carried weight with the judge, in a passage which I have already quoted. Buxton LJ (para 19) also quoted the passage, and agreed with it.

    27.  In answer to this point Mr Ghosh (for Mellham) relied before your Lordships on the decision of the Court of Appeal in Safa Ltd v Banque du Caire [2000] 2 Lloyd's Rep 600 (which does not seem to have been cited below). Safa claimed summary judgment as assignee of letters of credit opened by the bank. In unusual circumstances which I need not detail, it was established (partly by concession, and partly by decision, at any rate for the purposes of the summary judgment application) that even if payment was due under the letters of credit, the bank would have been entitled to immediate reimbursement by the beneficiary (and assignor) of the liquidated sum payable under the letters of credit. The right to reimbursement would necessarily have been contingent on actual payment. Nevertheless Waller LJ (with whom Schiemann and Hale LJJ agreed) concluded (for the purposes of the appeal against the refusal of summary judgment) that a defence of set-off would be available. The present case is a simpler case, as only two parties were involved. It would have been an absurd formality (as Mr Cunningham QC for the Revenue himself said, farcical) for each side to make a solemn exchange of cheques for £250,000, Mellham's payment being regarded as a necessary precondition of the Revenue's almost instantaneous repayment.

    28.  No point seems to have been taken below as to Mellham having by its conduct disentitled itself to a set-off to which it was otherwise entitled. That submission was made, but not very strongly pressed, before your Lordships. I would not accept it. Mellhams's unexplained failure to pay the ACT, although apparently replete with cash, is unattractive. But that (and any shortcomings in the MCT return) are in my opinion far short of the sort of conduct (truly amounting to unlawful self-help) referred to by my noble and learned friend Lord Hoffmann in Smith (Administrator of Cosslett (Contractors) Ltd) v Bridgend County Borough Council [2002] 1 AC 336, 351, para 36.

    29.  The Revenue did not place any reliance on the differential between the rates of interest from time to time payable under section 87 of TMA 1970 and those payable under section 826 of ICTA 1988. I think they were right not to do so, since set-off operates to extinguish the liability in question, and the rate at which interest might have been payable, but for its extinction, is immaterial.

    30.  For these reasons I would allow the appeal and set aside the orders dated 24 April 2002 and 23 May 2002 of Her Honour Judge Alton, except as regards (i) the admitted liability for interest on the sum of about £100,000 (to be precise, £100,117) from 14 January 1998 until payment and (ii) interest on the sum of about £250,000 (to be precise, £250, 833) from 14 January 1998 until the date on which foreign interest dividend relief would (if the ACT had been paid, and but for administrative delays over the DTR claim) have been granted. The judge rightly took that date as 1 October 1998, since section 246N(7) simply imposes a condition, and does not regulate the date from which interest is to run. That is, as I understand it, now agreed.


My Lords,


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