Lexploria

AS TO THE ADMISSIBILITY OF

Applications Nos. 21319/93, 21449/93 & 21675/93,

the NATIONAL & PROVINCIAL BUILDING SOCIETY, the LEEDS

PERMANENT BUILDING SOCIETY and the YORKSHIRE BUILDING SOCIETY

against the United Kingdom

The European Commission of Human Rights sitting in private on

13 January 1995, the following members being present:

MM. C.L. ROZAKIS, Acting President

F. ERMACORA

E. BUSUTTIL

G. JÖRUNDSSON

S. TRECHSEL

A.S. GÖZÜBÜYÜK

Mrs. G.H. THUNE

J. LIDDY

MM. L. LOUCAIDES

J.-C. GEUS

M.P. PELLONPÄÄ

B. MARXER

I. CABRAL BARRETO

B. CONFORTI

N. BRATZA

D. SVÁBY

E. KONSTANTINOV

G. RESS

Mr. H.C. KRÜGER, Secretary to the Commission

Having regard to Article 25 of the Convention for the Protection

of Human Rights and Fundamental Freedoms;

Having regard to the application introduced on 15 January 1993

by the National and Provincial Building Society and registered on

3 February 1993 under file no. 21319/93, to the application introduced

on 21 December 1992 by the Leeds Permanent Building Society and

registered on 1 March 1993 under file no. 21449/93, and to the

application introduced on 11 January 1993 by the Yorkshire Building

Society and registered on 16 April 1993 under file no. 21675/93;

Having regard to:

- the reports provided for in Rule 47 of the Rules of Procedure of

the Commission;

- the observations submitted by the respondent Government on

4 November 1993 and the observations in reply submitted by the

applicant societies on 21 February 1994;

- the parties' oral submissions at the hearing on 13 January 1995;

Having deliberated;

Decides as follows:

THE FACTS

The applicants are building societies under the Building

Societies Act 1986. The first applicant society ("the National &

Provincial") is represented before the Commission by Mr. C. Evans,

solicitor, of Messrs. Slaughter and May, London. The second applicant

society ("the Leeds") is represented before the Commission by Mr.

N.R.V. Jordan, Solicitor, of Messrs. Clifford Chance, London. The third

applicant society ("the Yorkshire") is represented by Ms. S. Garrett,

solicitor, of Messrs. Booth & Co., Leeds. The facts of the cases, as

submitted by the parties, may be summarised as follows.

The particular circumstances of the cases

On 15 March 1991 the Leeds began proceedings against the Inland

Revenue for the restitution of £57,973,690 which had been paid pursuant

to the transitional provisions in Regulations 3 and 11 of the Income

Tax (Building Societies) Regulations 1986 ("the 1986 Regulations"),

which had been found to be void by the House of Lords in a case brought

by the Woolwich Building Society ("the Woolwich"). On 25 July 1991

Section 53 of the Finance Act 1991 retroactively validated those

regulations. The Leeds' proceedings for restitution of the sums paid

were thereby thwarted.

On 10 July 1991 the Leeds applied for leave to commence judicial

review proceedings for a declaration that the Treasury Orders

establishing the composite rates of tax for 1986-87 to 1989-90 were

unlawful because of the retroactive validation of the 1986 Regulations.

Mr. Justice McPherson ordered that the application should be joined

with applications made by the Bradford and Bingley Building Society and

the National & Provincial.

On 1 June 1992 the Leeds issued further proceedings in the High

Court for recovery of the monies it had paid under the allegedly

invalid Treasury Orders.

On 16 July 1992 Section 64 of the Finance (No. 2) Act 1992

entered into force. The provisions retroactively validated the

Treasury Orders which were being challenged in the judicial review

proceedings. The judicial review proceedings and the writ proceedings

begun on 1 June 1992 were thereby thwarted.

* * *

On 15 March 1991 the National & Provincial began proceedings

against the Inland Revenue for the restitution of £15,873,945.27 which

had been paid pursuant to the transitional provisions in the 1986

Regulations. With the entry into force of Section 53 of the Finance

Act 1991, the National & Provincial's proceedings for restitution of

the sums paid were thwarted.

On 6 November 1991 the National & Provincial was granted leave

to commence judicial review proceedings for a declaration that the

Treasury Orders establishing the composite rates of tax for 1986-87 to

1989-90 were unlawful because of the retroactive validation of the

1986Regulations. Mr. Justice McPherson ordered that the application

by the National & Provincial should be joined with applications made

by the Bradford and Bingley Building Society and the Leeds.

On 12 June 1992 the National & Provincial issued further

proceedings in the High Court for recovery of the monies it had paid

under the allegedly invalid Treasury Orders.

On 16 July 1992, with the entry into force of Section 64 of the

Finance (No. 2) Act 1992, the judicial review proceedings and the writ

proceedings begun on 12 June 1992 were thwarted.

***

On 3 March 1992 the Yorkshire applied for leave to commence

judicial review proceedings for a declaration that the Treasury Orders

establishing the composite rates of tax for 1986-87 to 1989-90 were

unlawful because of the retroactive validation of the 1986 Regulations.

The Yorkshire limited its claim to the sum of £8,902,620.71 alleged to

have been paid under the transitional provisions of the 1986

Regulations.

On 11 May 1992 the Yorkshire issued proceedings in the High Court

for recovery of the monies it had paid under the allegedly invalid

Treasury Orders.

On 16 July 1992, with the entry into force of Section 64 of the

Finance (No. 2) Act 1992, the judicial review proceedings and the writ

proceedings begun on 11 May 1992 were thwarted.

Relevant domestic law and practice

Income tax is an annual tax authorised by Parliament and

calculated by reference to income accruing in a given period.

From 1894 until 1985-86 there existed a series of agreements

between building societies and the Inland Revenue that building

societies would account for income tax on interest accruing to members

by way of direct payment from the society concerned to the Revenue.

The Revenue and the individual members were thereby relieved of the

administrative task of collecting and declaring the usually small

amounts of interest involved. The tax was paid at a "composite rate",

that is, an approximate average of the rate at which investors would

have paid their individual amounts of tax. It was calculated by

reference to the principle of "revenue neutrality" which means that,

overall, the same amount would be paid as if the individuals had

declared the amounts themselves. The rate, originally decided by the

Revenue after consultation with the societies, and later by the

Treasury, was slightly less than the rate of "basic rate" tax (25.5%

for the tax year 1985-86, compared with a basic rate of 30%). The tax

year runs from 6 April to 5 April of the following year.

For the period immediately preceding the tax year 1986-87, the

sum due in any tax year was calculated by reference to the interest

paid by the society concerned to its members during a period of,

generally, 12 months (the society's "accounting period") ending in the

year of assessment. The tax was paid on 1 January of the year of

assessment and discharged the liability of investors to pay income tax

upon the interest received by them from the building society in the

year being taxed.

Section 40 of the Finance Act 1985 amended Section 343 of the

Income and Corporation Taxes Act 1979 to enable the Revenue to make

regulations introducing a new regime to come into force on 6 April 1986

in place of the old voluntary arrangements. Under the regulations, the

Income Tax (Building Society) Regulations 1986, SI 1986/482 ("the 1986

Regulations"), tax was calculated on a quarterly basis on actual

interest in the quarter concerned. Transitional provisions of the 1986

Regulations for the tax years 1986-87 and 1987-88 purported to require

building societies to account, in addition to the tax on actual

interest, for tax in respect of interest paid to depositors after the

end of the last accounting period but before the new system became

effective (that is, during the so-called "gap period").

The Woolwich, which had paid some £70 m. more as a result of the

transitional provisions than it would have paid had the new provisions

simply had effect from 6 April 1986, applied for judicial review

seeking a declaration that the relevant parts of the 1986 Regulations

were unlawful. At first instance, Mr. Justice Nolan on 31 July 1987

found nothing in the enabling legislation to indicate that Parliament

had intended to authorise a departure from the principle that income

tax should only be levied on the income of one year. The main

regulation at issue (Regulation 11) was therefore void, and the

remaining regulations were void so far as they purported to apply to

payments and receipts prior to 6 April 1986 (R. v. Inland Revenue

Commissioners, ex parte Woolwich Building Society, [1987] STC 654).

The Court of Appeal, allowing the Revenue's appeal, found inter

alia that an intention to legislate retroactively could be discerned

in the enabling legislation, in particular the amendment to Section 343

of the Income and Corporation Taxes Act made by Section 47 of the

Finance Act 1986. It considered that in any event there was no element

of double taxation in the case because the interest paid to investors

in the gap period had not otherwise been subject to tax. It also found

that ordinary principles of tax law did not necessarily apply to the

special case of the lump sums paid by building societies. It had been

conceded that paragraph (4) of Regulation 11 was invalid, but the Court

of Appeal found the remainder of the Regulations to be valid ([1989]

STC 463].

On 25 October 1990 the House of Lords allowed the appeal,

agreeing with the Court of Appeal that Parliament had manifested an

intention to require taxation in 1986-87 and subsequent years of both

interest during the year in question and interest paid in the gap

period. It disagreed, however, over the effect of that finding on the

regulations. The Revenue conceded that paragraph (4) was ultra vires

and had to be deleted. The House of Lords considered that the deletion

of that paragraph alone, leaving the remainder of Regulation 11 and the

related Regulation 3 in force, would produce an effect not intended by

the draftsman. Accordingly both regulations, which contained the

transitional provisions, were invalid. Lord Lowry, who agreed with the

conclusion of the majority, considered that the wording of Section

343of the Income and Corporation Taxes Act did not authorise the taking

of additional tax from the Woolwich either in its initial form or as

amended by Section 47 of the Finance Act 1986.

In the meantime, the Woolwich had issued a second set of

proceedings for recovery of the monies paid in respect of the gap

period. The Revenue refunded the principal sum but refused to pay

interest on the sum between the date of payment and the finding of the

House of Lords that the relevant regulations were invalid. Mr. Justice

Nolan found for the Revenue in this respect on 12 July 1988. The

Woolwich's appeal to the Court of Appeal was allowed, by a majority,

on 22 May 1991, and the Revenue's appeal to the House of Lords was

dismissed on 20 July 1992, the House of Lords finding, also by a

majority, that as the society's claim fell outside the statutory

framework for claiming overpaid tax, the common law required repayment

of the money with interest from the day the money had been paid.

On 25 July 1991 Section 53 of the Finance Act 1991 entered into

force. It provided that the transitional regulations which had been

found to be invalid were retrospectively validated, save that it did

not apply to any building society which had brought proceedings to

challenge the validity of the regulations before 18 July 1986. Only

the Woolwich fulfilled this condition.

On 16 July 1992 Section 64 of the Finance (No. 2) Act 1992

entered into force. It provided that the Treasury Orders setting out

the composite rate tax for the tax years 1986-87 to 1989-90 should be

taken to be and always to have been effective.

COMPLAINTS

The applicant societies allege violations of Article 1 of

Protocol No. 1, and of Articles 6 and 14 of the Convention. Complaints

initially made by the National & Provincial and the Leeds under Article

13 of the Convention were subsequently withdrawn. Under Article 14 of

the Convention the applicant societies consider that there was no

justification for the difference in treatment between them and the

Woolwich, which was exempted from the effects of Section 53 of the

Finance Act 1991.

PROCEEDINGS BEFORE THE COMMISSION

The National & Provincial's application was introduced on

15 January 1993, the Leeds' application on 21 December 1992 and the

Yorkshire's application on 11 January 1993. The applications were

registered on 3 February 1993, 1 March 1993 and 16 April 1993

respectively.

On 28 June 1993 the Commission decided to communicate the

applications to the respondent Government and to request them to submit

written observations on their admissibility and merits.

The Government's observations were submitted on 2 November 1993,

and the applicant societies' observations in reply were submitted on

21 February 1994.

On 30 August 1994 the Commission decided to join Applications

Nos. 21319/93 and 21675/93 (the National & Provincial and the

Yorkshire). On the same date, it also decided to hold a hearing on the

admissibility and merits of the applications.

On 10 January 1995 the Commission decided to join Applications

Nos. 21319/93 and 21675/93 with Application No. 21449/93 (the Leeds).

At the hearing, which was held on 13 January 1995, the parties

were represented as follows:

For the Government :

Mr. M. Eaton, Agent

Mr. A. Moses, QC, Counsel

Mr. D. Anderson, Counsel

Ms. Shepherd, Trainee barrister

Mr. W. Durrans, Inland Revenue, Adviser

Mr. W. Streeter, Inland Revenue, Adviser

For the applicant societies:

Mr. J. Gardiner, QC, Counsel

Mr. P. Duffy, Counsel

Mr. J. Peacock, Counsel

Mr. T. Eicke, Trainee barrister

The National & Provincial

Mr. J. Thurwell and Ms. D. Reed, both from the applicant society

Ms. F. Ferguson, solicitor

Mr. C. Evans, solicitor

Ms. E. Hunt, solicitor

The Leeds

Mrs. D. Gaskin, from the applicant society

Mr. N. Jordan, solicitor

Mr. H. Ross, solicitor

Mr. M. Marks, solicitor

The Yorkshire

Ms. S. Wyresdale, solicitor, from the applicant society

Ms. S. Garrett, solicitor.

THE LAW

The applicant societies allege violations of Article 6

(Art. 6) of the Convention and Article 1 of Protocol No. 1 (P1-1) to

the Convention, taken alone and in conjunction with Article 14

(Art. 6+P1-1+14) of the Convention. Article 6 (Art. 6) of the

Convention provides, so far as relevant, as follows:

"1. In the determination of his civil rights and obligations

..., everyone is entitled to a fair and public hearing ... by an

independent and impartial tribunal established by law."

Article 1 of Protocol No. 1 (P1-1) to the Convention provides as

follows:

"Every natural or legal person is entitled to the peaceful

enjoyment of his possessions. No one shall be deprived of his

possessions except in the public interest and subject to the

conditions provided for by law and by the general principles of

international law.

The preceding provisions shall not, however, in any way impair

the right of a State to enforce such laws as it deems necessary

to control the use of property in accordance with the general

interest or to secure the payment of taxes or other contributions

or penalties."

Article 14 (Art. 14) of the Convention provides as follows:

"The enjoyment of the rights and freedoms set forth in this

Convention shall be secured without discrimination on any ground

such as sex, race, colour, language, religion, political or other

opinion, national or social origin, association with a national

minority, property, birth or other status."

The applicant societies consider that the legislative

interventions in the proceedings which they had brought were in

conflict with Article 6 (Art. 6) in that the proceedings were brought

for the determination of their civil rights and obligations within the

meaning of the Convention and that, by virtue of Section 53 of the

Finance Act 1991 and Section 64 of the Finance (No. 2) Act 1992, the

applicant societies were deprived of a judicial determination of the

disputes at issue.

The Government consider in this connection that the proceedings

were tax proceedings and therefore did not attract the guarantees of

Article 6 (Art. 6) of the Convention, but that in any event the

enactment of the measures at issue amounted to a legitimate

intervention in the pending proceedings as its aim was to rectify a

technical defect in the introduction of the new system, thereby giving

effect to the original intention of Parliament, and to prevent any

further collateral challenge to the legislative provisions.

Under Article 1 of Protocol No. 1 (P1-1) to the Convention, the

applicant societies consider that the cumulative effect of Section 53

of the Finance Act 1991 and Section 64 of the Finance (No. 2) Act was

to deprive them of monies to which they were entitled, namely the sums

which had been paid pursuant to the transitional regulations which had

initially been found to be void and were then validated by Section 53

of the Finance Act 1991.

The Government submit that the legislation at issue in the

present case was "to secure the payment of taxes or other

contributions" within the meaning of the second paragraph of Article

1 (Art. 1), but that in any event any deprivation of possessions was

in the public interest as its purpose was to remedy the technical

defects in the 1986 Regulations.

Under Article 14 (Art. 14) of the Convention the applicant

societies submit that they were subjected to discrimination in

connection with both Article 6 (Art. 6) of the Convention and Article

1 of Protocol No. 1 (P1-1). In particular, they consider that there

was no justification for the fact that in Section 53 of the 1991 Act

they were treated differently from the Woolwich. The Government submit

that the justification for the difference in treatment between the

applicant societies and the Woolwich lies in the fact that the Woolwich

alone brought proceedings to challenge the validity of the transitional

regulations, and that it was therefore proper to let the Woolwich

recover the money paid by it under the regulations.

The Commission finds that the application raises complex issues

of fact and law which must be examined on the merits. The application

cannot, therefore, be declared manifestly ill-founded within the

meaning of Article 27 para. 2 (Art. 27-2) of the Convention. No other

ground for declaring it inadmissible has been established.

For these reasons, the Commission, by a majority

DECLARES THE APPLICATION ADMISSIBLE,

without prejudging the merits of the case.

Secretary to the Commission Acting President of the Commission

(H.C. KRÜGER) (C.L. ROZAKIS)

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THE NATIONAL & PROVINCIAL BUILDING SOCIETY, THE LEEDS PERMANENT BUILDING SOCIETY AND THE YORKSHIRE BUILDING SOCIETY v. THE UNITED KINGDOM

THE NATIONAL & PROVINCIAL BUILDING SOCIETY, THE LEEDS PERMANENT BUILDING SOCIETY AND THE YORKSHIRE BUILDING SOCIETY v. THE UNITED KINGDOM

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