Aidan O’Neill QC
Francovich damages and San Giorgio recovery of EU incompatible levies
EU law allows for the possibility of damages being claimed against Member States where three conditions are met:
- the rule of EU law infringed must be intended to confer rights on individuals;
- the breach must be sufficiently serious; and
- there must be a direct causal link between the breach of the obligation resting on the state and the damage sustained by the injured parties, with the onus of establishing such a nexus resting on the party claiming damages.
Such claims are known as Francovich damages. They were said by Lord Mance in Sempra Metals Ltd v Inland Revenue Commissioners to be ‘analogous to a claim for, breach of statutory duty, in other words a tortious claim.’ In Spencer v Secretary of State for Work and Pensions, Carnwath LJ (as he then was) noted:
Liability under the Francovich principle does not fit naturally into a conventional domestic legal analysis. It is a principle of Community law, concerned with the effectiveness of the integration of European legal rights with domestic remedies. It is not surprising that it has been hard to find a convincing analogy in the English law cases.
In Energy Solutions EU Ltd v Nuclear Decommissioning Authority the Court overruled the decision of the Court of Appeal which had held that the Francovich conditions set-out minimum conditions for a finding of liability, and that it remained open to the Member States to be more liberal in their approach to these criteria. Lord Mance, giving the unanimous judgment of the Court, disagreed and noted as follows:
Where the Court of Appeal in the present case went in my opinion clearly wrong was in its assumption that any claim for damages under the [Public Contracts Regulations 2006 (SI 2006/5)] was no more than a private law claim for breach of a domestically-based statutory duty, and for that reason subject to ordinary English law rules which include no requirement that a breach must be shown to be “sufficiently serious” before damages are awarded. The Court of Appeal appears to have assumed that the categorisation in domestic law of a claim based on EU law as being for breach of statutory duty freed it automatically from any conditions which would otherwise apply under EU law. That this is not so is clear if one takes the simple case of a domestic claim against the State for failure correctly to transpose EU law. Such a claim is subject to the Francovich and Brasserie du Pêcheur principles and conditions.
Paragraph 4 of sch 1 to the Withdrawal Bill abolishes any continuing right to claim Francovich damages post-Brexit in stating: ‘There is no right in domestic law on or after exit day to damages in accordance with the rule in Francovich.’ But the CJEU has long held that, distinct from Francovich damages claims, EU law confers on undertakings or individuals a right to repayment of charges levied contrary to EU law. This is known as a San Giorgio right. In the case of monies wrongly paid to HMRC as Value Added Tax (‘VAT’) by a VAT registered business, Parliament has provided a statutory mechanism for its recovery from the Revenue. This has a four-year limitation period. Separately from this the common law, under the influence of EU law, has developed a general right and new causes of action for repayment of monies unlawfully levied or otherwise paid in error of law. These have a six-year limitation period. In Commissioners for HM Revenue and Customs v Investment Trust Companies (in liq), the Court held that where a statutory scheme was available in principle to the taxpayer for the recovery from HMRC of monies which had been overstated and overpaid as VAT, this would bar recourse by the consumers (who ultimately bore the burden of paying VAT on the services provided by the accountable taxpayer) to any general common law causes of action directly against HMRC whether for the recovery of tax unlawfully levied or for the restitution of sums paid under a mistake of law. Where the taxpayer is not insolvent, the consumer has no direct right of action against HMRC for recovery of these monies and can only seek reimbursement from the taxpayer of the monies which the taxpayer is entitled to recover from the revenue under the statutory scheme. This was held by the Court to be compatible with EU principles of effectiveness and equivalence such as to be acte clair and require no reference to the CJEU. By contrast, in Comrs for HM Revenue and Customs v Volkswagen Financial Services (UK), the Court has made a preliminary reference to the CJEU on the issue of the proper apportionment of general business overheads in relation to the provision by Volkswagen Financial Services (UK) of hire-purchase finance for the sale of vehicles manufactured by the Volkswagen group.
The theme of seeking recovery of charges made by national authorities in breach of EU law also figured in v Westminster City Council (No 2) v R (Hemming) in which the Court applied a reference it had received back from the CJEU ruling it to be incompatible with Directive 2006/123/EC on services in the internal market for a licensing authority to charge an applicant for the grant or renewal of a sex shop licence a sum to cover the running and enforcement costs of the licensing scheme, despite the licence fee being refundable if the application were refused.
This is an excerpt from a chapter in Daniel Clarry (ed), The UK Supreme Court Yearbook, Volume 8: 2016-2017 Legal Year (Appellate Press 2017).
 Case C-46/93 Brasserie du Pêcheur v Germany  QB 404 .
 Francovich and Bonifaci v Republic of Italy  ECR I-5357.
  UKHL 34,  3 WLR 354.
 ibid  (emphasis added).
  EWCA Civ 750,  QB 358.
 ibid .
  UKSC 34,  1 WLR 1373.
 ibid ; compare Energy Solutions EU Ltd v Nuclear Decommissioning Authority  EWCA Civ 1262,  PTSR 689,  (Vos LJ (with whom Lord Dyson MR and Tomlinson LJ agreed)).
 Case C-38/16 Compass Contract Services ECLI:EU:C:2017:454 .
 Comrs for HM Revenue and Customs v Littlewoods Ltd  EWCA Civ 515,  3 WLR 1748, [53-54] (Arden LJ).
 Value Added Tax Act 1994, ss 80 or 80A; Value Added Tax Regulations 1995 (SI 1995/2518), pt VA.
 Value Added Tax Act 1994, s 80(4).
 Case C-640/13 Commission v United Kingdom EU:C:2014:2457  Ch 476, -, citing Limitation Act 1980, ss 5 and 32(1)(c); Woolwich Equitable Building Society v Inland Revenue Comrs  AC 70; Kleinwort Benson Ltd v Lincoln City Council  2 AC 349.
  UKSC 29,  2 WLR 1200.
 ibid  (Lord Reed (with whom Lord Neuberger, Lord Mance, Lord Carnwath and Lord Hodge agreed)).
  UKSC 26,  STC 824.
  UKSC 50,  3 WLR 342.
 Case C-316/15 EU:C:2016:879,  PTSR 325.