Supreme Court allows tax refund pending appeal, ruling retention of overpaid tax constitutes unjust enrichment.

THE SUPREME COURT

Record No. 154/05

Geoghegan J.

McCracken J.

Macken J.

BETWEEN/

ROBERT HARRIS

Plaintiff/Respondent

and

J.J. QUIGLEY AND LIAM J. IRWIN

Defendants/Appellants

JUDGMENT of Mr. Justice Geoghegan delivered the 1st December 2005

1. There is a net issue of law to be determined in this appeal namely, whether in the event of an appeal by the Revenue

Commissioners to the High Court by way of case stated from a determination of the Appeal Commissioners under the Tax Acts, any

overpayment of tax, (which in this case meant overretention of tax) resulting from the determination of the Appeal Commissioners,

ought to be refunded to the taxpayer or on the other hand whether the Revenue Commissioners are entitled to retain the overpaid

tax pending the outcome of the case stated to the High Court and any appeal therefrom to the Supreme Court. If the first of these

options represents the correct legal position, the taxpayer fully concedes that if, as a consequence of the decision of the High Court

or on appeal, the decision of the Supreme Court, he is found to be liable for more tax than had been payable pursuant to the

determination of the Appeal Commissioners, he is obliged to repay that additional tax with interest as though it was arrears of tax. If

the second of the two options represents the correct legal position, the appellants representing the Revenue Commissioners concede

that in the event of the determination of the Appeal Commissioners being upheld the overpaid tax must, at that stage, be paid back

to the taxpayer with interest as provided for in the Tax Acts.

2. As to which position is correct is entirely a matter of construction of the relevant statutory provisions.

3. The background facts are not in dispute. The respondent’s claim is for a refund of €9,136,776.59 being a refund of tax for the year

ended the 5th April, 2001, the period ended 31st December, 2001 and the year ended 31st December, 2002 and arising out of a

determination made on the 29th October, 2004 by the Appeal Commissioner in a tax appeal taken by the respondent. The respondent

is a taxpayer subject to Schedule E, who has his tax deducted at source. The respondent had become a partner in a limited

partnership arising out of which he claimed to become entitled to the benefit of certain capital allowances. The partnership had been

established under the laws of the Cook Islands and was for the purpose of carrying on the trade of operating high class luxury yachts

and undertaking hospitality events and similar activities. The claim for capital allowances arose out of major refurbishment work which

was carried out on a motor yacht which had been purchased by the partnership. Under Irish tax law there are restrictions placed on

the tax relief available to limited partners. These restrictions, however, apply only to “limited partners” within the meaning of section

1,013(1)(d) of the Taxes Consolidation Act, 1997. The Appeal Commissioner determined that the respondent was not a “limited

partner” within the meaning of that statutory provision and was not, therefore, subject to the restrictions. The effect of the Appeal

Commissioner’s determination was that the Revenue Commissioners had retained excessive sums as tax amounting to €9,136,776.59.

Immediately following the determination by the Appeal Commissioners the Revenue Commissioners gave notice of an appeal by way of

case stated. It is of some interest to note that the terms of the case stated have not even yet received final approval from the

Appeal Commissioners. Quite apart from any inevitable delay in the drafting of a case stated and the approval by the Appeal

Commissioners there would then follow the inevitable delays in obtaining a hearing in the High Court. If a point of law is considered by

the Revenue Commissioners to be of such importance as to warrant an appeal by way of case stated to the High Court, it is highly

likely that no matter what the outcome in the High Court there will be a further appeal to the Supreme Court. In each court there

would be likely to be a reserved judgment and, therefore, if ultimately, the Appeal Commissioners’ determination was upheld, the

respondent would have been without the benefit of the monies which ought to have been repaid for a very considerable period. Such

hardship would not, necessarily, be remedied by ultimate repayment with interest.

4. It is against this background that it is necessary to interpret the relevant statutory provisions.

5. The first of these is section 933(4) of the Taxes Consolidation Act, 1997. That subsection reads as follows:

“All appeals against assessments to income tax or corporation tax shall be heard and determined by the Appeal

Commissioners, and their determination on any such appeal shall be final and conclusive, unless the person assessed requires

that that person’s appeal shall be reheard under section 942 or unless under the Tax Acts a case is required to be stated for

the opinion of the High Court.”

6. The reference to section 942 is a reference to appeals to the Circuit Court a matter which does not arise except inferentially in this

case. The purpose of the subsection is to make clear that in the absence of either an appeal to the Circuit Court or an appeal by way

of case stated to the High Court, the determination by the Appeal Commissioners becomes “final and conclusive”. It is clear that in

the event of such appeal or case stated the Appeal Commissioners’ determination is not “final and conclusive”. This is something

heavily relied on by the appellants in resisting the claim for the refund. I will return in due course to this aspect of the appellants’

argument. It is appropriate, however, to signpost at this stage that because a determination by the Appeal Commissioners has not

become “final and conclusive” it does not necessarily follow that the claim for the refund is ill-founded. A High Court judgment is

necessarily not final and conclusive if an appeal from it is pending before the Supreme Court but that does not mean that in the

meantime the judgment of the High Court is not a lawful judgment capable of being executed upon. It is only if the High Court or the

Supreme Court grants a stay of execution on the judgment that the execution process can be prevented notwithstanding the

pendency of an appeal. Even then the High Court judgment remains lawful until overruled. I am not suggesting that the High Court

analogy to which I have just referred could be directly relevant to the interpretation of a tax statutory provision but it does illustrate

the conceptual normality, at least, of a determination by a lower tribunal being valid and enforceable notwithstanding an intended or

actual appeal from it.

7. I now turn to the statutory provision which, in my view, is most relevant to the outcome of this appeal. That is section 934(6) of

the same Act of 1997. The subsection reads as follows:

“Where an appeal is determined by the Appeal Commissioners, the inspector or other officer shall give effect to the Appeal

Commissioners’ determination and thereupon, if the determination is that the assessment is to stand or is to be amended, the

assessment or the amended assessment, as the case may be, shall have the same force and effect as if it were an

assessment in respect of which no notice of appeal had been given.”

8. Section 934 is one of a group of sections dealing with appeals and contained in Part 40 of the Act of 1997. It is obvious on a

reading of these sections that the wording of each section has been carefully thought out and for the most part each contingency

and necessary exception has been expressly provided for. It is the appellants’ case, however, that subsection (6) cited above has no

application where an appeal is brought to the Circuit Court or on a case stated to the High Court. The learned trial judge in the High

Court (Gilligan J.) seems to have taken the same view even though on other grounds he held in favour of the respondent. While, as

far as possible, a taxing statute should be interpreted in the same way as any other statute and should not be interpreted, if at all

possible, as to create an absurdity, nevertheless there is a countervailing principle that where there is an ambiguity a taxing statute

will be interpreted in favour of the taxpayer. I do not consider that this court would be justified in implying into subsection (6) words

of exception which are not there, covering appeals to the Circuit Court or cases stated to the High Court.

9. Counsel for the appellants, Mr. McDonald, partly relied on what was the practice apparently for many years. That practice appears

to be that if there is a case stated the inspector does nothing under section 934(6). As the correctness of that view has never been

argued, I do not think that any particular force can be attached to the existence of such a practice. The stronger argument put

forward by Mr. McDonald is based on the last words of the subsection, that is to say “shall have the same force and effect as if it

were an assessment in respect of which no notice of appeal had been given”. This is a reference back to the provisions of section

933(6)(a) of the same Act. That provision reads as follows:

“In default of notice of appeal by a person to whom notice of assessment has been given, the assessment made on that

person shall be final and conclusive.”

The appellants argue that since under section 934(6) the assessment based on the Appeal Commissioners’ determination is to have

the same force and effect as if it were an assessment in respect of which no notice of appeal had been given then that means, if the

respondent’s argument is correct, that even in a case where a case stated is brought to the High Court, the assessment based on

the determination of the Appeal Commissioners would become “final and conclusive”. Counsel for the appellants, however, point out

that that cannot be right because it would contradict section 933(4) which as I have already demonstrated expressly provides that

only Appeal Commissioners’ determinations unappealed shall be final and conclusive.

10. I do not think that this apparent discrepancy justifies the step of wholly ignoring section 934(6) in a case where no appeal is

brought to the Circuit Court or no case stated to the High Court. Every attempt must be made to interpret subsection (6) in such a

way as to remove such inconsistency.

11. In endeavouring to carry out this exercise, I would first point out that subsection (6) of section 934 does not provide that the

relevant assessment shall be deemed to be an assessment as provided for in section 933(6). Rather it provides that it “shall have the

same force and effect as if it were an assessment in respect of which no notice of appeal had been given.” It is quite clear from that

wording that not only is it not an assessment in respect of which no notice of appeal has been given but it is not deemed to be such

an assessment. The words “as if” make that clear. Having regard to section 933(4) one characteristic which such relevant

assessment does not have is that it is “final and conclusive”. But in my view, that does not mean that it is not a lawful assessment

with the effect that in so far as the Revenue Commissioners may be retaining monies over and above what has been lawfully

determined by the Appeal Commissioners such monies are not required to be refunded. Furthermore, I would interpret subsection (6)

as meaning that irrespective of whether there is an appeal or not, the assessment, if necessary, should be amended to correspond

with the determination even if that is not the practice at the moment. If the decision of the High Court or on appeal the Supreme

Court differs from the determination of the Appeal Commissioners in a way that renders the revised assessment to be incorrect that

eventuality is expressly provided for by section 941(9) of the 1997 Act. That particular subsection reads as follows:

“(9) Notwithstanding that a case has been required to be stated or is pending, income tax or, as the case may be, corporation

tax shall be paid in accordance with the determination of the Appeal Commissioners; but if the amount of the assessment is

altered by the order or judgment of the Supreme Court or the High Court, then –

(a) if too much tax has been paid, the amount overpaid shall be refunded with interest in accordance with the provisions

of section 865 A or

(b) if too little tax has been paid, the amount unpaid shall be deemed to be arrears of tax (except in so far as any

penalty is incurred on account of arrears) and shall be paid and recovered accordingly.”

12. It would appear, therefore, that if as a consequence of the decision of the High Court or the Supreme Court the revised

assessment following on the determination of the Appeal Commissioners short-changes the Revenue Commissioners, the balance is

deemed to be arrears of tax and recovered accordingly.

13. Given these express provisions for adjustments following on the determination of the case stated and similar provisions following

an appeal to the Circuit Court, I see no particular reason why section 934(6) should be given the interpretation put on it by the

appellants, or more accurately, I see no reason why the submission of the appellant that subsection (6) is for some reason or other to

be wholly ignored if there is either a case stated or an appeal, should be accepted. In this connection, it may be of some significance

that there is no equivalent of section 934(6) requiring the inspector or other officer to give effect to a High Court or Supreme Court

determination or indeed to a Circuit Court determination. It is particularly of interest that there is no such provision in relation to a so

called Circuit Court appeal because although it is normal to refer to an “appeal” to the Circuit Court in tax matters, strictly speaking

that is a misnomer. Under the provisions of section 942 of the 1997 Act the function of the Circuit Court is to conduct a rehearing of

the appeal to the Appeal Commissioners. In point of form and in point of law it is not strictly speaking an appeal from the Appeal

Commissioners. Rather it is a rehearing of the same appeal. That is all the more reason why a subsection equivalent to section 934(6)

would have been expected to have been inserted in, say, section 942 if the appellants’ submissions are correct.

14. In each instance, however, the scheme of the Act in so far as it relates to alterations of assessments by the High Court, the

Supreme Court or the Circuit Court in favour of the Revenue Commissioners as distinct from similar alterations by the Appeal

Commissioners is that the balance due to the Revenue Commissioners is recoverable as arrears of tax. More accurately, it is deemed

to be arrears of tax.

15. Subsection (9) of section 941 is relevant to this appeal in three respects. First of all, it is relevant in relation to the scheme by

which the Revenue Commissioners recover additional tax due to them when they are successful on a case stated, as I have already

indicated. Under paragraph (b) the amount unpaid “shall be deemed to be arrears of tax …and shall be paid and recovered

accordingly”. The second respect in which it is relevant is with regard to a major argument being put forward by the appellants and

which was more or less accepted by the learned High Court judge that as there is a statutory provision for refunding overpayments

following on the determination of a case stated, that provision represents a comprehensive statutory scheme for refunding and there

cannot be an obligation to refund pending the hearing of a case stated. The latter conclusion, as the argument runs, is based on the

fact that the statute expressly provides for a refund in one situation and is completely silent in relation to the other and that that

must be taken to be a statutory intention that there be no refund pending an appeal. By the same token, it is argued that there

cannot be a common law claim for refunding pending the determination of a case stated as the common law allegedly does not come

into play if there is in place a statutory scheme. I will be returning to this second aspect of relevance of subsection (9) in due course.

In relation to the first aspect of relevance, I think it appropriate to complete the picture by citing section 943(1) of the same Act. It

reads as follows:

“Section 941 shall, subject to this section, apply to a determination given by a judge pursuant to section 942 in the like

manner as it applies to a determination by the Appeal Commissioners, and any case stated by a judge pursuant to section 941

shall set out the facts, the determination of the Appeal Commissioners and the determination of the judge.”

16. It follows that the provisions of subsection (9) of section 941 as cited above applies to the outcome of a so called Circuit Court

appeal. If the result of the Circuit Court appeal is that the Revenue Commissioners are owed more money that extra tax due is

deemed to be arrears of tax and must be paid and recovered accordingly.

17. I have not mentioned up to now (apart from citing the subsection) the third aspect of relevance to this appeal of section 941(9).

As will have been noted, the subsection provides that notwithstanding that a case stated has been required, income tax or

corporation tax, as the case might be must be paid in accordance with the determination of the Appeal Commissioners but if the

amount of assessment is altered by the order or judgment of the Supreme Court or the High Court then if too much tax has been paid

the overpayment shall be refunded with interest. The interest provisions are now governed by section 865A of the 1997 Act as

inserted by the Taxes Act, 2003. Counsel for the respondent argues that this obligation on the part of a taxpayer who as a

consequence of a determination by the Appeal Commissioners is liable for additional tax to pay that tax forthwith notwithstanding that

he may be bringing a case stated to the High Court is discriminatory against the taxpayer if there is no reciprocal obligation on the

part of the Revenue Commissioners to refund excessive tax retained by them in the event of a Schedule E taxpayer being successful

on an appeal to the Appeal Commissioners and in circumstances where the Revenue Commissioners are requiring a case stated. Such

perceived discrimination lends weight, in the view of counsel for the respondents, to the argument that a refund pending the

determination of a case stated must be made by the Revenue Commissioners. Otherwise the respective obligations are quite unequal.

I find myself in agreement with that submission.

18. There is a second type of discrimination flowing from the interpretation of the statutory provisions put forward on behalf of the

appellants. That is a discrimination between two categories of taxpayers. If, for instance, a successful appeal was brought to the

Appeal Commissioners by a Schedule D taxpayer he or she would not be required to pay all the tax originally assessed pending the

outcome of a case stated sought by him. On the other hand, if the argument of the appellants is correct a Schedule E taxpayer i.e. a

PAYE taxpayer is not entitled to the use of the extra money pending the hearing of the case stated because according to their

argument the Revenue Commissioners are entitled to retain all the original tax deducted. Again, this rather unfair result militates, in

my view, against interpreting the statutory scheme in the way suggested by the appellants.

19. On the other hand, by a letter of the 26th November, 2004 to the solicitors for the respondents the Revenue solicitor put forward

the following argument which was repeated in the written and oral submissions.

“The obligation on an inspector to amend an assessment pursuant to section 934(6) TCA, only applies where such

determination is final and conclusive. There is no obligation under section 934(6) TCA to amend the assessment where there is

an appeal from the Appeal Commissioners’ decision, since to amend the assessment in accordance with that subsection would

give it the same force and effect as if it were ‘an assessment in respect of which no appeal had been given’. Such an

assessment would render an appeal to the Circuit Court under section 942 or an appeal by way of case stated under section

941 redundant.”

20. I have effectively dealt with this argument earlier on in this judgment when I was treating of the question of whether section

934(6) applied to a determination of the Appeal Commissioners in circumstances where there was to be a case stated. For the

reasons which I have already indicated, I would disagree with that submission and there is nothing further which I can usefully add. In

my view, it is correctly responded to at paragraph 20 of the written submissions of the respondent where it is pointed out:

“The appeal is no more redundant than it would be in the case of a taxpayer who loses before the Appeal Commissioners and

is obliged to pay the tax.”

21. In summary, therefore, I am satisfied that it would be entirely wrong to insert words into section 934(6) which are not there. In

arguing the contrary on this appeal, counsel for the appellants primarily rely on the unreported judgments of this court delivered by

Murray J. (as he then was) and by myself and with which Hardiman J. concurred in the Criminal Assets Bureau v. McDonnell,

judgments delivered 20th December, 2000. In dealing with some problems of construction in that case in relation to the process of

appeals to the Appeal Commissioners the court resolved those problems by applying what Murray J. described as a “cohesive and

schematic interpretation”. However, the problems in that case were quite different than the problems in this case. That was a case

where a notice of appeal was served in time but was refused by the inspector. The issue of whether the appeal ought to have been

refused by the inspector or not came before the Appeal Commissioners but the taxpayer did not turn up. The court took the view that

there was no “default of notice of appeal” so as to render the assessment final and conclusive. There had in fact been a notice of

appeal. On a very literal interpretation of the sections, the court might have arrived at a different conclusion but it declined to do so.

The literal interpretation was, in the view of the court, unnecessary and would have been unfair and oppressive towards the

taxpayer. I do not think that there is any analogy with this appeal. Having sat on the court, I am entirely satisfied that it was never

intended that the McDonnell case could possibly be regarded as an authority for the view that a broad schematic interpretation must

always be given to tax statutes.

22. It is clear that section 934(6) contains no exception for situations where there is either a case stated or an appeal to the Circuit

Court. It would be quite wrong for this court to read the subsection as though it included those exceptions or to ignore the

subsection altogether if there is a case stated. It must follow from that that the retention of the controversial monies by the Revenue

Commissioners pending the determination of the case stated is not lawful.

23. It is now necessary to consider does that mean that the appellant has a right of action to recover the monies. In this connection,

I am in agreement with the appellants on one point. In the same letter of the 26th November, 2004 referred to above Ms. Frances

Cooke, Revenue Solicitor, stated the following:

“The direction in section 941(9) TCA that ‘tax shall be paid in accordance with the determination of the Appeal Commissioners’

is not a direction that tax shall be repaid. Repayment only arises in accordance with the provisions of section 941(9)(a) if the

amount of the assessment is altered by order or judgment of the Supreme Court or the High Court.”

24. The solicitors for the respondent argued otherwise in a letter of reply of the same date. In my view, however, the Revenue

Solicitor was correct. It would appear to me that section 941(9) does not lend itself to that interpretation. There is no other

statutory provision entitling the respondent to claim the refund at this stage. The question, therefore, arises does he have such an

action at common law. But before I consider that question, I must first deal with the submission that the issue of a common law

action does not arise at all once there is a comprehensive statutory scheme. Having regard to the modern case law in England and

Ireland relating to restitution, I cannot accept that submission. The absence of a specific statutory provision providing for

recoupment in a quite different situation from the situation covered by section 941(9) cannot give rise to a submission that there is a

statutory prohibition on recoupment.

25. It follows therefore that the question of whether there is a common law action does arise. Until some recent case law it was

assumed that money paid under a mistake of law was not recoverable by action subject to the exception of money exacted colore

officii as explained by Kenny J. in his High Court judgment in Dolan v. Neligan [1967] I.R. 247. The law of restitution however has been

reconsidered and revised in a number of common law jurisdictions and in particular by the House of Lords in England in Woolwich

Building Society v. Inland Revenue Commissioners [1993] A.C. 70. The principles in Woolwich have been further elaborated upon by

the House of Lords in Kleinwort Benson Limited v. Lincoln City Council [1999] 2 A.C. 349 and by the Court of Appeal in a judgment of

Jonathan Parker LJ in Deutsche Morgan Grenfell Group plc v. Inland Revenue Commissioners [2005] EWCA Civ 78. I do not find it

necessary to review in detail any of these English cases as I am quite satisfied that the principles laid down by Keane J. (as he then

was) in the High Court case of O’Rourke v. The Revenue Commissioners [1996] 2 I.R. 1 correctly represent Irish law. I am equally

satisfied that if the O’Rourke case is correct, which I believe it is, it governs this case and that even if the law as apparently laid

down in Woolwich has the limited application suggested by Jonathan Parker LJ, that limited application is relevant to this appeal. I,

therefore, propose to concentrate on the judgment of Keane J.

26. The facts of O’Rourke v. The Revenue Commissioners were that as a consequence of another High Court decision it was

discovered that the plaintiff had, for some years, been wrongly treated as a Schedule E taxpayer when he was in fact taxable under

Schedule D. As a consequence, an excessive amount of tax had been retained. Under an informal agreement the plaintiff was

recouped in respect of the overpayment but the Revenue Commissioners refused to pay interest. The statutory preconditions to any

statutory claim to interest did not apply to the facts of the case and as a consequence the plaintiff’s entitlement to interest, if at all,

arose at common law. Keane J. allowed the claim on the basis that he agreed with the majority view of the House of Lords in the

Woolwich Building Society case. He relied particularly on passages in the speeches of Lord Goff of Chievely, Lord Browne-Wilkinson and

Lord Slynn of Hadley. Each of these passages is set out in the judgment but for the purposes of this appeal I think it is sufficient to

cite the passage of Lord Goff which reads as follows:

“I would, therefore, hold 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. As at present advised, I incline

to the opinion that this principle should extend to embrace cases in which the tax or other levy has been wrongly exacted by

the public authority, not because the demand was ultra vires but for other reasons, for example, because the authority has

misconstrued a relevant statute or regulation. It is not, however, necessary to decide the point in the present case, and in

any event cases of this kind are generally the subject of a statutory regime which legislates for the circumstances in which

money so paid either must or may be repaid. Nor do I think it necessary to consider for the purposes of the present case to

what extent the common law may provide the public authority with a defence to a claim for the repayment of monies so paid:

though for the reasons I have already given I do not consider the principle of recovery should be inapplicable simply because

the citizen has paid the money under a mistake of law.”

27. After setting out the three passages Keane J. commented as follows:

“It seems to me that, if the law laid down in those passages is also the law applicable in Ireland, the tax overpaid by the

plaintiff was recoverable as a matter of right. It would follow automatically from that conclusion that the plaintiff was entitled

to interest so as to compensate him for the unjust enrichment effected at his expense by the defendants. I do not consider

that any meaningful distinction can be drawn in this context between tax paid under a regulation subsequently found ultra

vires, as in the Woolwich case, and excessive amounts paid by a taxpayer because the taxing authority has misconstrued a

relevant statute or regulation, which is the position. Lord Goff in the Woolwich case while not deciding the point indicated his

view that it was not a significant distinction and Lord Jauncey, in the course of his dissenting opinion, dismissed it as a

distinction without a difference. I would respectfully agree with those views. Similarly, while the fact that the plaintiff

permitted the sums to be deducted from his payments without protest is clearly of significance in another context, dealt with

at a later point in this judgment, it is clear from the passages which I have already cited that the majority decision in the

Woolwich case was also founded on a wider principle i.e. that the money was paid for no consideration.”

28. After going on to consider whether the claim might be defeated by Murphy v. The Attorney General [1982] I.R. 241 and having

concluded that having regard in particular to the limited scope of the payments it was not, Keane J. went on to approve the law as

laid down in Woolwich and the obiter dicta of Lord Goff cited above.

29. An attempt has been made in this case on behalf of the appellants to draw a distinction between a claim for refund of tax and a

claim for interest. I cannot see any validity in the distinction provided that the statute when properly interpreted does not exclude a

common law claim. I have already expressed the view that it does not. I also entirely agree with Keane J. that no logical distinction

can be made between tax deducted pursuant to an ultra vires regulation and tax deducted due to a mistake of interpretation on the

part of the Revenue Commissioners of the relevant statute law. In this case although the determination of the Appeal Commissioner

was not final and conclusive within the meaning of the Tax Acts, it was a lawful determination which then had to be put into effect

by the inspector. The retention of the excessive tax as found by the Appeal Commissioner was unlawful and was tantamount to an

unjust enrichment of the Revenue Commissioners at least for the period between the determination of the Appeal Commissioner and

the ultimate determination of the case stated.

30. I believe that in the absence of a provision in the Tax Acts precluding a refund pending the determination of the case stated the

appellants are bound to effect such refund. Although my views are somewhat different from those of the learned High Court judge, I

agree with his conclusion and I would dismiss the appeal.