Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v Inland Revenue Commissioners and another – Butterworths Law Direct 31.7.07 has been heralded as a significant decision of the House of Lords.
It was a test case involving the overpayment of advance corporation tax (ACT). HM Revenue and Customs accepted that Sempra had overpaid and that the company was entitled to get its money back but it has fought against paying compound interest. However, the High Court ruled in 2004 that Sempra was entitled to compound interest on what was described as the ‘premature tax payment period’—the time between the payment of the ACT and the time it was used. This was upheld by the Court of Appeal and appealed to the House of Lords.
The issue was whether a claimant who sought a remedy on the ground of unjust enrichment was entitled to an award for restitution of the value of money that was measured by compound interest.
The House of Lords dismissed the appeal.
It held that a court had a common law jurisdiction to award interest, simple and compound, as damages on claims for non-payment of debts as well as on other claims for breach of contract and in tort. A cause of action was available at common law for money paid under a mistake of law. The court had jurisdiction at common law to award compound interest where the claimant sought a restitutionary remedy for the time value of money paid under a mistake. It explained that the remedy of restitution differed from that of damages: it was the gain that needed to be measured, not the loss to the claimant. Where the claim included restitution for the value of the use of the asset that had been transferred, subtraction of the enrichment from the defendant included more than the return of the money that was transferred at its nominal or face value.
In this case the subject matter of the taxpayer's claim was the time value of the enrichment, and restitution required that the entirety of that time value be transferred from the Revenue back to the taxpayer. Accordingly, the principal sum to be awarded in the instant case should be calculated on the basis of compound interest.
It also held that if a conventional rate of interest was to be adopted, it should be one which was appropriate to the circumstances of the enriched party. In this case, therefore, the conventional rate should be arrived at by reference to the rate of Government borrowing.