I find it particularly interesting that this argument is essentially the same which the House of Lords used in Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 for establishing that overcharged taxpayers may always recover without having to resort to any particular unjust factor.

Can we hear from any other jurisdictions?

Gerhard

Eoin O'Dell wrote:

Dear all,

Thanks, Charles, for the reference to Henderson J's judgment in Test Claimants in the FII Group Litigation v HMRC [2008] EWHC 2893 (Ch). The application of the defence of change of position on the facts is very interesting, in part because, in the immortal words, "there is an Irish case" where the Supreme Court did the same thing.

In Murphy v AG [1982] IR 241, the Supreme Court held that provisions of the Income Tax Act by which married couples paid more tax than unmarried couples contravened the constitutional obligation on the State "to guard with special care the institution of marriage" (Article 41.3). Henchy J (Griffin and Parke JJ concurring) held that, in these circumstances, the plaintiffs and those in similar circumstances had claims in restitution to recover their overpaid taxes, and that the State could nevertheless rely on the defence of change of position against most of those claims. (O'Higgins CJ held that this striking down should be prospective only, but the other four members of the Supreme Court rejected this approach. The fifth judge, Kenny J, held that the plaintiffs had a claim in restitution, but did not consider whether the State could rely on the defence of change of position.)

I've always wondered about this, for at least two reasons. First, Henchy J took an extremely generous understanding of when the State's receipt is in good faith: in his view, it was only after each individual taxpayer objected that the State's receipt of that taxpayer's tax was not in good faith. And second, he took the view that the mere fact of the State's expenditure (that is, expenditure in the ordinary course of the affairs of State) was a sufficient change of position. These two factors combined to defeat the vast majority of possible claims. For those who are interested, I reproduce the relevant extracts from his judgment at the end of this email. By way of comparison or contrast, it doesn't seem to me to that Henderson J spent much time on the question of whether or how the Revenue's receipt could be said to be in good faith. Rather, it seems that his focus was on whether expenditure could be said to be causally related to receipt, with an acknowledgement that expenditure in the ordinary course is insufficient ([322] and [343]). In the event, his view of the necessary causal link between the receipt and expenditure was just as generous as Henchy J's views of the other elements of the defence:

[344] ... As a matter of causation, no precise link can be demonstrated between particular receipts and particular items of government expenditure, but 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 which were taken into account in fixing departmental budgets. If all concerned, both the government and the taxpayers, proceeded on the footing that the tax was validly levied, I ask myself what is wrong with the argument that it would now be inequitable to require the Revenue to make restitution for the tax which was paid by mistake, because the money in question has long ago been spent in the public interest, and everybody assumed in good faith that it had been validly levied? I confess that, once the question is stated in these terms, the answer to it seems to me to be obvious. It would in my judgment be inequitable to require repayment in such circumstances, ...

And he ultimately concluded that in respect of those claims in which it could be pleaded, the defence of change of position would likely be successful [445]. But it seems to me that Henchy J in Murphy and Henderson J in FII both afford to the State the benefit of extraordinarily generous views of the defence of change of position.

As a lawyer, that hardly seems an accurate application of the terms of the defence. Worse, as a taxpayer, that hardly seems fair to me.

What do others think?