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



              EUROPEAN COMMISSION OF HUMAN RIGHTS

        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

                   REPORT OF THE COMMISSION

                   (adopted on 25 June 1996)

                       TABLE OF CONTENTS

                                                          Page

I.   INTRODUCTION

     (paras. 1-18). . . . . . . . . . . . . . . . . . . . . .1

     A.   The applications

          (paras. 2-4). . . . . . . . . . . . . . . . . . . .1

     B.   The proceedings

          (paras. 5-13) . . . . . . . . . . . . . . . . . . .1

     C.   The present Report

          (paras. 14-18). . . . . . . . . . . . . . . . . . .2

II.  ESTABLISHMENT OF THE FACTS

     (paras. 19-52) . . . . . . . . . . . . . . . . . . . . .4

     A.   The background of the present case

          (paras. 19-25)  . . . . . . . . . . . . . . . . . .4

     B.   The particular circumstances of the case

          (paras. 26-48). . . . . . . . . . . . . . . . . . .5

     C.   The relevant domestic law

          (paras. 49-51). . . . . . . . . . . . . . . . . . 10

III. OPINION OF THE COMMISSION

     (paras. 52-114). . . . . . . . . . . . . . . . . . . . 11

     A.   Complaints declared admissible

          (para. 52). . . . . . . . . . . . . . . . . . . . 11

     B.   Points at issue

          (para. 53). . . . . . . . . . . . . . . . . . . . 11

     C.   As regards Article 1 of Protocol No. 1

          to the Convention

          (paras. 54-81). . . . . . . . . . . . . . . . . . 11

          CONCLUSION

          (para. 81). . . . . . . . . . . . . . . . . . . . 17

     D.   As regards Article 1 of Protocol No. 1 taken

          together with Article 14 of the Convention

          (paras. 82-94). . . . . . . . . . . . . . . . . . 17

          CONCLUSION

          (para. 94). . . . . . . . . . . . . . . . . . . . 19

     E.   As regards Article 6 of the Convention

          (paras. 95-107) . . . . . . . . . . . . . . . . . 19

          CONCLUSION

          (para. 107) . . . . . . . . . . . . . . . . . . . 22

     F.   As regards Article 6 para. 1 of the Convention

          taken together with Article 14 of the Convention

          (paras. 108-110)  . . . . . . . . . . . . . . . . 22

          CONCLUSION

          (para. 110) . . . . . . . . . . . . . . . . . . . 22

     G.   Recapitulation

          (paras. 111-114). . . . . . . . . . . . . . . . . 22

     PARTIALLY DISSENTING OPINION OF Mr. N. BRATZA, JOINED BY

     Mr. A.S. GÖZÜBÜYÜK, Mrs. G.H. THUNE, MM. J.-C. GEUS,

     M.P. PELLONPÄÄ, B. MARXER AND B. CONFORTI. . . . . . . 24

     PARTIALLY DISSENTING OPINION OF Mr. E. BUSUTTIL  . . . 26

     PARTIALLY DISSENTING OPINION OF Mr. L. LOUCAIDES . . . 28

     PARTIALLY DISSENTING OPINION OF Mr. G. RESS  . . . . . 30

APPENDIX :     DECISION OF THE COMMISSION AS TO THE

               ADMISSIBILITY OF THE APPLICATIONS. . . . . . 31

I.INTRODUCTION

1.   The following is an outline of the case as submitted to the

European Commission of Human Rights, and of the procedure before the

Commission.

A.   The applications

2.   The applicants are three building societies, the National &

Provincial Building Society ("the National & Provincial"), the Leeds

Permanent Building Society ("the Leeds"), and the Yorkshire Building

Society ("the Yorkshire").  The National & Provincial is represented

by Mr. C. Evans, of Messrs. Slaughter and May, London, the Leeds by

Mr. R.V. Jordan, of Messrs. Clifford Chance, London, and the Yorkshire

by Ms. S. Garrett, of Messrs. Booth & Co., Leeds.

3.   The applications are directed against the United Kingdom.  The

respondent Government were represented by Mr. M. Eaton as Agent, from

the Foreign and Commonwealth Office, London.

4.   The case concerns legislation which retrospectively validated

regulations and Treasury Orders which had been challenged in

litigation. The applicant societies invoke Article 1 of Protocol No. 1

of the Convention, taken alone and together with Article 14 of the

Convention, and Article 6 of the Convention, again taken alone and

together with Article 14 of the Convention.

B.   The proceedings

5.   The National & Provincial's application was introduced on

15 January 1993 and registered on 3 February 1993.  The Leeds'

application was introduced on 21 December 1992 and registered on

1 March 1993. The Yorkshire's application was introduced on

11 January 1993 and registered on 16 April 1993.

6.   On 28 June 1993 the Commission decided, pursuant to Rule 48

para. 2 (b) of its Rules of Procedure, to give notice of the

application to the respondent Government and to invite the parties to

submit written observations on its admissibility and merits.

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

and the applicant societies' observations in reply were submitted on

21 February 1994.

8.   On 30 August 1994 the Commission decided to join the National &

Provincial's application and the Yorkshire's application.  On the same

date, it decided to hold a hearing of the parties.

9.   On 10 January 1995 the Commission decided to join the Leeds'

application with the other two applications.

10.  The hearing was held on 13 January 1995.  The Government were

represented by Messrs. M. Eaton, Agent, A. Moses, QC, Counsel, and

D. Anderson, Counsel.  The applicant societies were represented by

Messrs. J. Gardiner, QC, Counsel, P. Duffy, Counsel, and J. Peacock,

Counsel.  The names of the other participants at the hearing are set

out in the Commission's decision on admissibility which is annexed to

the present report.

11.  On 13 January 1995 the Commission declared the application

admissible.  The text of the Commission's decision on admissibility was

sent to the parties on 25 January 1995 and they were invited to submit

such further information or observations on the merits as they wished.

The applicant societies submitted observations on 3 March 1995 to which

the Government replied on 5 April 1995.  The applicant societies

submitted a further memorandum on 31 May 1995.

12.  On 2 December 1995 the Commission asked the parties for comments

in the light of the judgment of the European Court of Human Rights in

the case of Pressos Compania Naviera S.A. and others v. Belgium.  The

Government and the applicant societies made such comments on

25 January 1996.  The applicant societies made further remarks on the

Government's comments on 26 February 1996.

13.  After declaring the case admissible, the Commission, acting in

accordance with Article 28 para. 1 (b) of the Convention, also placed

itself at the disposal of the parties with a view to securing a

friendly settlement.  In the light of the parties' reaction, the

Commission now finds that there is no basis on which such a settlement

can be effected.

C.   The present Report

14.  The present Report has been drawn up by the Commission in

pursuance of Article 31 of the Convention and after deliberations and

votes, the following members being present:

          MM.  S. TRECHSEL, President

               C.L. ROZAKIS

               E. BUSUTTIL

               G. JÖRUNDSSON

               A.S. GÖZÜBÜYÜK

          Mrs. G.H. THUNE

          Mrs. J. LIDDY

          MM.  L. LOUCAIDES

               J.-C. GEUS

               M.P. PELLONPÄÄ

               B. MARXER

               I. CABRAL BARRETO

               B. CONFORTI

               N. BRATZA

               D. SVÁBY

               G. RESS

15.  The text of this Report was adopted on 25 June 1996 by the

Commission and is now transmitted to the Committee of Ministers of the

Council of Europe, in accordance with Article 31 para. 2 of the

Convention.

16.  The purpose of the Report, pursuant to Article 31 of the

Convention, is:

     (i)  to establish the facts, and

     (ii) to state an opinion as to whether the facts found disclose

          a breach by the State concerned of its obligations under

          the Convention.

17.  The Commission's decision on the admissibility of the application

is annexed hereto.

18.  The full text of the parties' submissions, together with the

documents lodged as exhibits, are held in the archives of the

Commission.

II.  ESTABLISHMENT OF THE FACTS

A.   The background to the present case

19.  Investors in a building society are liable to pay income tax in

respect of interest paid to them.  In principle such tax would have to

be collected from each investor individually.  However, because of the

very large number of building society investors and the (usually) small

amounts of income tax due from each investor, it had for many years up

to and including the fiscal year 1985-1986 been the practice for the

Inland Revenue to make voluntary arrangements with the building

societies (under Section 343 (1) of the Income and Corporation Taxes

Act 1970 - "the 1970 Act") for a single annual composite payment to be

made by each society to discharge its investors' liability for income

tax.  That payment was calculated for each fiscal year by reference to

the global amount of interest paid by the society to its investors:

a reduced rate of tax was applied, to reflect the fact that some of the

investors would not have been liable for tax at all.  The payments made

under these arrangements were referred to as "reduced-rate tax" or

"composite-rate tax", or "CRT".

20.  Each year, the Treasury sets, by statutory instrument, the rate

for composite-rate tax; in doing so, it is required to aim at a result

whereby the same amount of tax is collected as if collection had been

made directly from the individual taxpayers.  This requires an estimate

to be made of the amount of tax to be collected under the composite-

rate tax system.

21.  Until 1985-86, a "prior-period" system applied in respect of CRT.

The amount of CRT to be paid by each building society for each fiscal

year (i.e. from 6 April in one year to 5 April in the next) was

calculated by reference to the interest which it paid to its investors

not during the actual year being taxed, but during the society's own

12 months accounting period ending within that fiscal year.  The tax

was in every case paid on 1 January of the year of assessment.  The

legal effect of this payment was to discharge the liability of

investors to pay income tax upon the interest received by them from the

building society in the year being taxed.

22.  The accounting period of the Leeds ran from 1 October to

30 September; the accounting period of the National & Provincial and

the Yorkshire ran from 1 January to 31 December.  Thus, in January

1986, the three applicant societies paid to the Revenue, to discharge

their investors' liability to tax for the fiscal year 1985-86, sums

measured by reference to the interest paid to their investors in their

accounting periods ended 30 September 1985 and 31 December 1985

respectively.  These payments completely discharged the income tax

liability of their investors in respect of the interest paid to them

by the societies for the fiscal year 1985-86 i.e. up to and including

5 April 1986.

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

1970 Act (by inserting sub-section (1A)) so as to terminate the

arrangements as from 6 April 1986 and to empower the Revenue to make

regulations introducing a new system of accounting for the fiscal year

1986-87 and  for  subsequent  years.  Under  the  Income Tax  (Building

Society) Regulations 1986 ("the 1986 Regulations"), which came into

force on 6 April 1986, tax was to be calculated on a quarterly basis

on the actual interest paid during the year of assessment.

24.  The ending of the voluntary arrangements exposed a gap ("the gap

period") between the end of the applicant societies' accounting periods

in 1985-86 and the start of the first quarter under the new regime.

In the case of the Leeds the gap period was from 1 October 1985 to

5 April 1986, and in the case of the National & Provincial and the

Yorkshire it was from 1 January 1986 to 5 April 1986.  Regulation 11

(read with Regulation 3) of the 1986 Regulations purported to require

building societies to account for tax relating to payments of interest

to their investors in the gap period.

25.  Regulation 11(4) provided for tax to be charged on interest paid

in the gap period at 1985-86 rates i.e. 25.15 %.

B.   The particular circumstances of the present case

26.  Each of the three applicant societies paid the tax claimed to be

due under the transitional provisions of the Regulations as follows:

          National & Provincial    -    £15,873,945

          Leeds                    -    £56,973,690

          Yorkshire                -    £ 8,902,620

The Government contend that the payments were made "without formal

protest".  The applicants assert that they made clear from the outset

that they disputed the lawfulness of the tax and that they associated

themselves with the proceedings by Woolwich Equitable Building Society

("the Woolwich") challenging the lawfulness of the transitional

provisions in Regulation 11.

27.  On 18 June 1986 the Woolwich commenced judicial review

proceedings seeking a declaration that Regulation 11 was unlawful as

being outside the scope of the enabling legislation:  it was further

alleged that the transitional provisions transgressed the fundamental

principles of constitutional and taxation law and that the machinery

adopted by the 1986 Regulations in order to implement the change in the

system resulted in a double charge to tax over the gap period

("Woolwich 1").

28.  On 25 July 1986 the Finance Act 1986 ("the 1986 Act") received

the Royal Assent.  Section 47 of the Act retrospectively amended

Section 343 (1A) of the 1970 Act with the purpose of authorising the

Revenue to make Regulations requiring the taxation in the year 1986-87

and subsequent years of assessments of sums paid to investors in the

gap period and not previously brought into account.

29.  On 15 July 1987 the Woolwich issued a writ against the Revenue

claiming repayment of the sums paid by way of tax under the

transitional provisions of the Regulations, as well as interest from

the date of payment ("Woolwich 2").

30.  On 31 July 1987 Nolan J. granted the application in Woolwich 1

and made a declaration that Regulation 11 was void in its entirety and

that the remaining Regulations were void so far as they purported to

apply to payments made to investors prior to 6 April 1986.  He held:

     (a)  there was nothing in the enabling legislation to indicate

          that Parliament intended to authorise a departure from the

          principle that income tax should only be levied on the

          income of one year;

     (b)  the power to make regulations conferred by Section 343 (1A)

          was to be exercised solely with respect to 1986-87 and

          later years and nothing in the Section authorised the

          Revenue to go back on the arrangements with the building

          societies and impose further tax on interest paid to their

          members during the gap period;

     (c)  the fact that Regulation 11 (4) provided for tax to be

          charged at 1985-86 rates (which were higher than the 1986-

          87 rates) was itself a clear indiction that the Regulations

          went beyond the powers conferred by Section 343 (1A);

     (d)  the position was not affected by the amendment in Section

          47 (1) of the 1986 Act which, whatever its intention, still

          left the power conferred by Section 343 (1A) as a power

          exercisable only with respect to 1986-87 and subsequent

          years.

31.  The Revenue appealed against the decision.  They conceded that

Regulation 11 (4) was invalid but contended that this partial

invalidity did not invalidate the rest of the Regulation.

32.  Towards the end of 1987, the Revenue repaid to Woolwich the sum

of £57 m. with interest from 31 July 1987 (the date of the order of

Nolan J.) but refused to pay interest from any earlier date.  Thus, the

remaining issue in the Woolwich 2 proceedings came to be whether or not

Woolwich had grounds for claiming interest on the payments made by them

up to 31 July 1987.

33.  On 12 July 1988 Nolan J. dismissed the Woolwich 2 action, holding

that the Woolwich was not entitled to recover the sums in issue under

any general principle of restitution or as having been paid under

duress.  He took the view that the sums had been paid under an implied

agreement that they would be repaid if and when the dispute about the

validity of the 1986 Regulations was resolved in favour of the

Woolwich:  thus the Woolwich had no cause of action to recover the

money until the date of his order of 31 July 1987.  The Woolwich

appealed against the decision and order.

34.  On 12 April 1989 the Court of Appeal allowed the appeal of the

Revenue in Woolwich 1.  The Court held that:

     (a)  as a matter of ordinary construction, the words of Section

          47 of the 1986 Act were clear and enabled the Revenue to

          take account of, and to charge to tax, interest paid by the

          societies in the gap period; and

     (b)  subject to the invalidity of Regulation 11 (4), which was

          conceded by the Revenue, Regulation 11 was valid.

35.  On 25 October 1990 the House of Lords allowed the appeal of

Woolwich in Woolwich 1 and declared Regulations 3 and 11 to be wholly

void.  The House of Lords (Lord Lowry dissenting) held that:

     (a)  read in its ordinary and natural meaning the amendment made

          by Section 47 of the 1986 Act was intended by Parliament to

          authorise the Revenue to make regulations requiring the

          taxation, in the year 1986-87 and subsequent years of

          assessment, of sums paid to investors by way of interest in

          the gap period and not previously brought into account:

          the well established presumption against double taxation,

          and the presumption that income tax was an annual tax

          payable only on the income of a particular year, were

          rebuttable and were in the present case rebutted by

          circumstances which showed that Parliament did not intend

          them to apply;

     (b)  however, it was conceded by the Revenue that Regulation 11

          (4) was invalid.  Although severance of part of a provision

          in a statutory instrument might be effected by a simple

          deletion without affecting the grammatical sense of the

          remainder, where such a deletion altered the substance of

          the remainder and the provision became substantially

          different from the original, the whole provision had to be

          declared bad:  since the admitted invalidity of Regulation

          11(4) infected the whole of that Regulation and since, to

          reconcile Regulations 3 and 11 of the 1986 Regulations with

          Section 343 (1A) of the 1970 Act, mere excision was

          insufficient, they should be declared wholly invalid.

36.  Lord Oliver, delivering the judgment of the majority, concluded:

     " ... I confess that I find the conclusion irresistible that

     Parliament intended by these words [Section 47 of the 1986 Act]

     to enable the Revenue to take account of and to charge to tax

     sums which, rightly or wrongly, it regarded as otherwise

     representing windfalls in the hands of building societies.  One

     has only to look at the circumstances.  The Regulations of 1986

     had been made and had been objected to.  They were made the

     subject of a direct challenge in legal proceedings, the evidence

     in support of which clearly adumbrated the arguments advanced

     before the judge and the Court of Appeal.  The notion that

     Parliament should go to the trouble of enacting an expressly

     retrospective amendment in order to provide, unnecessarily, for

     the use of these sums as a measurement of tax liability - a

     matter never remotely in issue - is simply fanciful ...

     ... I am bound to say that I think it unfortunate that the

     Revenue, through Parliament, should have chosen by secondary

     rather than primary legislation to take what was, on ordinary

     principles, the very unusual course of seeking to tax more than

     one year's income in a single year of assessment, but Section 47

     of the Finance Act 1986 is, on any analysis, a very unusual

     provision and I have, in the end, found myself irresistibly

     driven to the conclusion that this was what Parliament intended

     should occur.  It may be - I do not know - that the legislature

     did not appreciate fully that the effect of the arrangements made

     in 1985 was to discharge all liability for tax on interest paid

     in the year of assessment 1985-86, including tax on interest paid

     after the end of a society's accounting year, and that,

     accordingly, to tax those sums again in a subsequent year was,

     in a sense, to tax them twice.  But even making that assumption

     it amounts to no more than saying that the legislature should not

     have intended to do that which it plainly set out to do.  I

     would, for my part, therefore, reject the Woolwich's principal

     argument."

37.  On 15 March 1991 the Leeds commenced proceedings ("Leeds 1")

against the Revenue for the restitution of the sum of £56,973,690 paid

pursuant to the 1986 Regulations which had been found to be void.

38.  On 17 March 1991 the National & Provincial commenced proceedings

against the Revenue for the restitution of the sum of £15,873,945

("National & Provincial 1") paid pursuant to the void regulations.

39.  On 19 March 1991, in his budget statement, the Chancellor of the

Exchequer announced the introduction of legislation to remedy "the

technical defects in the Regulations".  This legislation became Section

53 of the Finance Act 1991 ("the 1991 Act").

40.  On 22 May 1991 the Court of Appeal, by a majority, allowed the

appeal by the Woolwich in Woolwich 2 and awarded the interest claimed.

41.   The majority of the Court of Appeal accepted the Woolwich's

primary submission that, where money was paid under an illegal demand

for taxation by a Government body, the payer had an immediate prima

facie right to recover the payment.

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

review proceedings for a declaration that the Treasury Orders

establishing the composite rate tax for 1986-87 and for the following

years were unlawful ("Leeds 2").  The Leeds claimed that

     (a)  it was clear that in making the estimates for the years

          following 1986/87, and setting the rates of composite-rate

          tax on the basis of it, the Treasury had assumed the

          correctness of the Government's position that the

          Regulations collected no "extra" tax;

     (b)  this position had been shown by the judgments in Woolwich

          1 to be wrong, with the result that the Treasury had under-

          estimated the amount of tax collection under the composite-

          rate tax system and so set the rate of tax for those years

          substantially too high;

     (c)  this was of no significance so long as the Regulations were

          held to be invalid, because the "extra" tax was in law

          repayable to the building societies; however, by

          retrospectively validating them the Government had

          automatically invalidated the bases of the statutory

          instruments setting the rates;

     (d)  this, in principle, meant that all composite-rate tax paid

          in those years had to be repaid, but in its proceedings the

          Leeds made a binding commitment not to seek to recover more

          than the £57 m. initially overpaid.

43.  On 25 July 1991, Section 53 of the 1991 Act became law.  It

provided inter alia:

     "Section 343(1A) of the [1970 Act] ... shall be deemed to have

     conferred powers to make all the provisions in fact contained in

     [the 1986 Regulations]."

     The provision had retrospective effect, save that by sub-

section (4) it had no effect "in relation to a building society which

commenced proceedings to challenge the validity of the Regulations

before 18 July 1986".  The Woolwich was the only building society which

satisfied this condition.  The Leeds 1 and the National & Provincial

1 proceedings were effectively stifled.

44.  On 6 November 1991 the National & Provincial was granted leave

to commence judicial review proceedings similar to those in Leeds 2 for

a declaration that the Treasury Orders establishing the composite-rate

tax for 1986-87 and subsequent years were unlawful because of the

retrospective validation of the Regulations ("National & Provincial

2").  The application was joined with the Leeds 2 proceedings and with

a similar application made by Bradford and Bingley Building Society.

45.  On 3 March 1992 the Yorkshire applied for leave to commence

similar judicial review proceedings for a declaration that the Treasury

Orders establishing the composite-rate tax for 1986-87 and subsequent

years were unlawful ("Yorkshire 1").

46.  Further proceedings were commenced by the Yorkshire on

11 May 1992 ("Yorkshire 2"), by the Leeds on 1 June 1992 ("Leeds 3")

and by the National & Provincial on 12 June 1992 ("National &

Provincial 3").  In those proceedings the applicant societies claimed

restitution of the money due to them if the judicial review proceedings

(Leeds 2 and National & Provincial 2, and Yorkshire 1) were successful.

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

1992 Act") entered into force.  It retrospectively validated the

Treasury Orders by providing that the Orders "shall be taken to be and

always to have been effective".  All outstanding proceedings were

thereby stifled.

48.  On 20 July 1992 the House of Lords, by a majority, dismissed the

Revenue's appeal in the Woolwich 2 proceedings.

The House of Lords did not accept that, on the facts of the Woolwich

case, there was any implied agreement for the repayment of the money

paid under the invalid Regulations if and when the dispute was resolved

in the taxpayer's favour.  Nevertheless, by a majority, the House of

Lords held:

     (a)  that money paid by a citizen to a public authority in the

          form of taxes or other levies pursuant to an ultra vires

          demand by the authority is prima facie recoverable by the

          citizen as of right;

     (b)  that, accordingly, since the building society claims fell

          outside the statutory framework governing repayment of

          overpaid tax, it was entitled at common law to repayment of

          the sums and to interest in respect thereof from the date

          of payment.

C.   The relevant domestic law

49.  Section 343 (1A) of the 1970 Act (introduced by Section 40 of the

Finance Act 1985, and as amended by Section 47 of the Finance Act 1986)

provides as follows:

     "The Board may by regulations made by statutory instrument make

     provision with respect to the year 1986-87 and any subsequent

     year of assessment requiring building societies, on such sums as

     may be determined in accordance with the regulations (including

     sums paid or credited before the beginning of the year but not

     previously brought into account under subsection (1) above or

     this subsection), to account for and pay an amount representing

     income tax ... and any such regulations may contain such

     incidental and consequential provisions as appear to the Board

     to be appropriate, including provisions requiring the making of

     returns."

     The words in bold print were added by the 1986 Act.

50.  Section 53 of the Finance Act 1991 provides, so far as relevant,

as follows:

     "(1) Section 343 (1A) of the Income and Corporation Taxes Act

     1970 ... shall be deemed to have conferred power to make all the

     provisions in fact contained in the Income Tax (Building

     Societies) Regulations 1986 ...

     (4) In relation to a building society which commenced proceedings

     to challenge the validity of the Regulations before 18th July

     1986, this Section shall not have effect to the extent that the

     Regulations apply (or purport to apply) to payments or credits

     made before 6th April 1986."

51.  Section 64 of the Finance Act 1992 provides as follows:

     "(1) For the purposes of this Section each of the following is

     a relevant order-

     (a) the Income Tax (Reduced and Composite Rate) Order 1985 ...

     (b) the Income Tax (Reduced and Composite Rate) Order 1986 ...

     (c) the Income Tax (Reduced and Composite Rate) Order 1987 ...

     (d) the Income Tax (Reduced and Composite Rate) Order 1988 ...

     (2) If apart from this Section a relevant order would not be so

     taken, it shall be taken to be and always to have been effective

     to determine the rate set out in the order as the reduced rate

     and the composite rate for the year of assessment for which the

     order was made."

III. OPINION OF THE COMMISSION

A.   Complaints declared admissible

52.  The Commission has declared admissible the applicant societies'

complaints that the effect of the legislative provisions in the present

case was to deprive them of their possessions and to deny them a fair

hearing before a court in connection with their dispute with the

Revenue, and that they were subjected to discriminatory treatment.

B.   Points at issue

53.  The points at issue in the present case are as follows:

-    whether there has been a violation of Article 1 of Protocol No. 1

     (P1-1) to the Convention, taken alone;

-    whether there has been a violation of Article 1 of Protocol No. 1

     (P1-1) taken together with Article 14 (Art. 14) of the

     Convention;

-    whether there has been a violation of Article 6 para. 1

     (Art. 6-1) of the Convention, taken alone, and

-    whether there has been a violation of Article 6 para. 1

     (Art. 6-1) of the Convention, taken together with Article 14

     (Art. 14) of the Convention.

C.   As regards Article 1 of Protocol No. 1 (P1-1) to the Convention

54.  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."

55.  The applicant societies argue that, consistently with the

judgment of the Court in the Pressos case (Eur. Court H.R., Pressos

Compania Naviera S.A. and others, judgment of 20 November 1995, Series

A no. 332), their rights to restitution of the quantified sums paid

under the invalid Regulations were sufficiently established to

constitute an "asset" and thus amounted to a "possession" for the

purposes of Article 1 of Protocol No. 1 (P1-1).

56.  The applicant societies consider that they were originally

deprived of their possessions when they paid money under the

transitional regulations.  It was then that they acquired rights to

claim the restitution of the money, and the cumulative effect of

Section 53 of the 1991 Act 1991 and Section 64 of the 1992 Act was to

deprive them of those rights.  For them, it is not a question of the

levying of taxation, but rather opportunistic legislation by the

Government to avoid having to repay money paid in good faith under

unlawful regulations.  The societies see the judicial review

proceedings in which they challenged the relevant Treasury Orders, and

the writ proceedings begun in May and June 1992, as the logical next

step in their attempt to recover their money once Section 53 of the

1991 Act had prevented the restitution actions from proceeding, but had

failed to destroy the underlying claims.  The applicant societies

argue, relying on the Court's Pressos judgment, that there has been a

complete failure to respect the fair balance required under Article 1

(Art. 1).  As in the Pressos case itself, the financial consequences

for the Revenue of allowing the applicants' claims to proceed could not

amount to an exceptional circumstance justifying the denial of

compensation and there existed no other and more general consideration

affecting the Government's decision to deprive the applicants of their

possessions than the simple desire to deprive the applicants of the

monies they were entitled to.

57.  The Government do not accept that there has been a deprivation

of possessions in the present case, submitting that the legislation 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).  They regard any deprivation of property as in the public

interest as its aim was to remedy the technical defects in the

transitional regulations.  Moreover, this aim was not "manifestly

without reasonable foundation" as that term is used by the Convention

organs.

58.  In connection with the question of whether the applicant

societies were deprived of their possessions by Section 53 of the 1991

Act and Section 64 of the 1992 Act, the Government consider that the

applicant societies at no stage had a binding and enforceable award in

their favour, as defined by the European Court of Human Rights in the

case of Stran Greek Refineries (Eur. Court H.R., Stran Greek Refineries

and Stratis Andreatis judgment of 9 December 1994, Series A no. 301-B).

They consider that this position has not been changed by the judgment

of the Court in the Pressos case (Eur. Court H.R., Pressos Compania

Naviera S.A. and others judgment of 20 November 1995, to be published

in Series A no. 332).  In particular, they underline that the purpose

of the 1991 legislation was to correct technical defects in the 1986

Regulations and to give effect to the original intention of Parliament,

and that the purpose of the 1992 legislation was, again, to give effect

to that original parliamentary intention.

59.  In connection with Section 64 of the 1992 Act, the Government

agree that the provision removed the possibility of any further

challenge to the initial legislation, but add that the fresh argument

in the further challenge was dependent on the argument as to double

taxation which the House of Lords had failed to accept in the first

Woolwich case.  They also point out that the effect of the attack on

the rate of composite rate tax in the tax years 1986/87 to 1989/90 was

to throw into doubt the lawfulness of the collection of all sums from

building societies, banks and other deposit-takers in the periods in

question.

     Whether there was an interference with the applicant societies'

     peaceful enjoyment of their "possessions"

60.  The Commission must first consider whether the legislative

provisions in the present case affected the applicant societies'

"possessions" within the meaning of Article 1 of Protocol No. 1, (P1-1)

as, if no possessions are involved, the provision cannot apply.

61.  The Commission recalls that in the Stran Greek Refineries case

the Court held that, in order to determine whether the applicants had

a "possession" for the purposes of Article 1 of Protocol No. 1, (P1-1)

it had to ascertain whether the judgment of the Athens Court of First

Instance and the arbitration award of 27 February 1984 "had given rise

to a debt in their favour that was sufficiently established to be

enforceable."  The Court held that the judgment of the Athens Court,

while appearing to accept in principle that the State owed a debt to

the applicants, had not done so:  the effect of the decision of the

Athens Court "was merely to furnish the applicants with the hope that

they would secure recognition of the claim put forward.  Whether the

resulting debt was enforceable would depend on any review by two

superior courts" (Eur. Court H.R., Stran Greek Refineries and Stratis

Andreatis judgment of 9 December 1994, Series A no. 301-B, p. 84,

paras. 59-60).  On the other hand, the arbitration award was found by

the Court to be "final and binding:  it did not require any further

enforcement measure and no ordinary or special appeal lay against it."

Accordingly, the Court held that at the time of the passing of the

impugned law in question the arbitration award conferred on the

applicants a right to the sums awarded and this right constituted a

"possession" within the meaning of Article 1 of the Protocol (P1-1)

(ibid,. p. 85, paras. 61-62).

62.  The Commission further recalls that in its judgment in the

Pressos case the Court held that the applicants' claims for damages in

tort, which under Belgian law came into existence when the damage

occurred, "constituted an asset" and therefore "amounted to a

possession within the first sentence of Article 1 (Art. 1)", even

though none of the claims had been recognised and determined by a

judicial decision having final effect.  The Court further observed that

on the basis of the judgment of the Court of Cassation "the applicants

could argue that they had a 'legitimate expectation' that their claims

deriving from the accidents in question would be determined in

accordance with the general law of tort".  (Eur. Court H.R., Pressos

Compania Naviera S.A. and others judgment of 20 November 1995, to be

published in Series A no. 332, para. 31 with further references).

63.  The Government consider that the present case is similar to the

Stran Greek Refineries case and that the applicants' claims to recover

the monies were not "sufficiently established" to amount to possessions

within the meaning of Article 1 of Protocol No. 1 (P1-1).  The

applicant societies on the other hand contend that the Pressos case

confirms that their claims for restitution constituted assets and

therefore amounted to possessions for the purposes of the Article.

64.  The Commission notes that when Section 53 of the 1991 Act entered

into force on 25 July 1991, both the Leeds and the National &

Provincial had pending proceedings against the Inland Revenue for

restitution of the sums paid by way of tax in respect of the gap

period.  The two actions were ordinary civil proceedings by way of writ

for the recovery of quantified sums of money paid to the Revenue under

the transitional Regulations, which had been held by the House of Lords

to be invalid in the Woolwich 1.  While neither building society had

obtained a judgment for recovery of the sums paid or otherwise

established its right to recover the sums, the Commission notes that

such a right of recovery at common law was subsequently established by

the decision of the House of Lords in the Woolwich 2.  Moreover, having

regard to the terms of that decision, there is nothing to suggest that,

if Section 53 of the 1991 Act had not been passed, the Revenue would

have had any sustainable defence to the claims made for recovery of the

sums in question.  In these circumstances, the Commission considers

that the claims of the two applicant societies to recover the sums

constituted assets and thus amounted to possessions for the purposes

of Article 1 of Protocol No. 1 (P1-1).

65.  When Section 64 of the 1992 Act entered into force on

16 July 1992, none of the applicants any longer had an enforceable

claim to recover the sums paid in respect of the gap period on the

grounds of the invalidity of the 1986 Regulations, since the

Regulations had been retrospectively validated.  However, each

applicant society had at that date pending judicial review proceedings,

seeking declarations that the Treasury Orders establishing the

composite rate tax for the fiscal year 1986-87 and following years were

unlawful.  The effect of such proceedings, if successful, would have

been to invalidate the Treasury Orders, with the consequence that all

tax payable by the building societies in 1986-87 and subsequent years

would prima facie have been repayable.  In addition, by 16 July 1992,

each applicant society had begun proceedings by writ for the recovery

of the monies it had paid under the allegedly unlawful Treasury Orders

- the Yorkshire on 11 May 1992, the Leeds on 1 June 1992 and the

National & Provincial on 12 June 1992.

66.  Viewed in isolation from the earlier restitution proceedings, the

Commission considers it doubtful whether the claims made by the

applicant societies in the proceedings commenced in May and June 1992

are properly to be regarded as amounting to a possession for the

purposes of Article 1 (Art. 1).  Not only were the claims to recover

the sums not established by any judgment of a court, but they were

contingent on the applicants' succeeding in establishing that the

Treasury Orders were invalid.  While the applicant societies may have

had good prospects of success in the judicial review proceedings, it

is open to question whether the applicants' claims were, viewed alone,

sufficiently clear or certain to amount to a possession.

67.  Nevertheless, the Commission considers that, in determining

whether the applicants had a possession at this latter stage, it cannot

ignore the background to the proceedings or the fact that the

proceedings constituted an alternative  route to the recovery by each

of the applicant societies of sums paid under Regulations which had

been held to be invalid.  Accordingly, the Commission will proceed on

the assumption that each of the applicant societies had claims which

amounted to possessions for the purposes of Article 1 (Art. 1) at the

time of the coming into effect of Section 53 of the 1991 Act and

Section 64 of the 1992 Act.  On this assumption, there was an

"interference" with the applicant societies' enjoyment of their

"possessions" within the meaning of Article 1 of Protocol No. 1 (P1-1).

     The applicable rule

68.  Article 1 of Protocol No. 1 (P1-1) guarantees in substance the

right to property.  It comprises three distinct rules.  The first,

which is expressed in the first sentence of the first paragraph and is

of a general nature, lays down the principle of peaceful enjoyment of

property.  The second rule, in the second sentence of the same

paragraph, covers deprivation of possessions and subjects it to certain

conditions.  The third, contained in the second paragraph, recognises

that Contracting States are entitled, amongst other things, to control

the use of property.  The second and third rules, which are concerned

with particular instances of interference with the right to peaceful

enjoyment of property, are to be construed in the light of the general

principle laid down in the first rule (see the above-mentioned Pressos

judgment, para. 33 with further reference).

69.  The third rule explicitly reserves the right of Contracting States

to pass such laws as they may deem necessary to secure the payment of

taxes (Eur. Court H.R., Gasus Dosier- und Fördertechnik GmbH judgment

of 23 February 1995, Series A no. 306-B, p. 48, para. 59).  The

Commission notes in the present case that Section 53 of the 1991 Act

and Section 64 of the 1992 Act were passed with a view to securing that

building societies were liable to pay, and paid, tax in respect of the

gap period.  Accordingly, the Commission considers that the present

cases fall to be examined under the third rule.  According to the

Court's well-established case-law, the second paragraph of Article 1

of Protocol No. 1 (P1-1) must be construed in light of the principles

laid down in the Article's first sentence.  Consequently, an

interference must achieve a "fair balance" between the demands of the

general interests of the community and the requirements of the

protection of the individual's fundamental rights.  The concern to

achieve this balance is reflected in the structure of Article 1

(Art. 1) as a whole, including the second paragraph: there must

therefore be a reasonable relationship of proportionality between the

means employed and the aims pursued (above-mentioned Gasus judgment,

p. 49, para. 62).

     Compliance with the conditions laid down in the second paragraph

70.  The applicant societies do not accept that the legislation at

issue in the present case had a legitimate aim.  They claim that there

cannot be a public interest in offending against presumptions as to

double taxation and the taxation of annual income in the United

Kingdom, and that it is morally wrong to levy tax where the liability

to tax has already been met.

71.  In the Government's view, the legislation at issue in the present

case had a legitimate aim as it was remedial legislation to put into

effect the intention of Parliament in 1985 and 1986, when the regime

which regulated the way in which building societies was amended.  They

also point to the importance of ensuring an equitable distribution of

the burden of tax.

72.  The Commission recalls that the Convention organs will respect

the legislature's judgment as to what is in the general interest in

questions of tax legislation - an area in which States have a wide

margin of appreciation - unless that judgment is manifestly without

reasonable foundation (above-mentioned Gasus judgment, p. 49, paras.

60, 61).

73.  The Commission considers that the view of Parliament that

remedial legislation was required to secure that effect was given to

the original legislative intention cannot be said to be "manifestly

without reasonable foundation".  Such an aim is therefore in the

general interest.

74.  The applicant societies submit that there has been a complete

failure to respect the fair balance required under Article 1 (Art. 1)

and Protocol No. 1 and invoke the Pressos judgment of the Court to the

effect that the taking of property without payment of an amount

reasonably related to its value would normally constitute a

disproportionate interference and that a total lack of compensation can

be considered justifiable under Article 1 (Art. 1) only in exceptional

circumstances.  It is contended that, as in the Pressos case itself,

financial considerations cannot justify legislating with retrospective

effect with the aim and consequence of depriving the applicants of

their claims to recover the sums due.

75.  The Government submit that the Act in issue in the Pressos case

effected a retrospective change to a legislative scheme of long

standing, which had reflected a true policy choice and which gave the

applicants a legitimate expectation as to the applicable law on the

basis of case-law stretching back for almost 70 years.  By contrast,

the amendments effected by the 1991 and 1992 legislation, far from

signalling a change of policy, represented a technical means of giving

effect to the undisputed wishes of Parliament.  It is contended that,

when the legislator leaves an inadvertent loophole in complex

legislation, it is reasonable that the legislator should be entitled

to remedy the defect without incurring liability to any person astute

enough to have brought a claim in the interim, on the basis of the law

as it was but was never intended to be.

76.  The Commission recalls that in its Pressos judgment the Court

found that the important financial considerations cited by the

respondent Government and their concerns to bring Belgian law into line

with the law of neighbouring countries could warrant prospective

legislation to derogate from the general law of tort, but that such

considerations could not justify legislating with retrospective effect

with the aim and consequence of depriving the applicants of their

claims for compensation.  Such a fundamental interference with the

applicants' rights was, in the view of the Court, inconsistent with

preserving a fair balance between the interests at stake (above-

mentioned Pressos judgment, at para. 43).

77.  In determining whether a fair balance was preserved in the

present case, the Commission first notes that retrospective legislation

is not unknown in the United Kingdom in tax matters (see, for example

the facts of Application No. 8351/79, Dec. 10.3.81, D.R. 23, p. 203).

While, as established by the Pressos case, the retrospective

deprivation of a claim for compensation will often not be compatible

with the preservation of a fair balance between the interests at stake

under the second sentence of the first paragraph of Article 1, (Art. 1)

the same will not necessarily apply to legislation "to secure the

payment of taxes".

78.  Moreover, it is, in the view of the Commission, of particular

importance to have regard to the origins and background of the

legislation in the present case.  Section 40 of the Finance Act 1985

(by amending Section 343 of the 1970 Act) conferred on the Revenue

power to make regulations for a new system of accounting for tax by

building societies for the fiscal year 1986-7 and for subsequent years.

The 1986 Regulations, which were made under the 1985 Act, purported to

require building societies to account for tax relating to payments of

interest to their investors in the "gap period".  On 18 June 1986, the

Woolwich challenged the validity of these Regulations on the grounds

that they were outside the scope of the enabling legislation.  On

25 July 1986, the Finance Act 1986 came into effect: Section 47 of that

Act retrospectively amended Section 343 of the 1970 Act, with the

purpose of authorising the Revenue to make regulations requiring the

taxation of sums paid to investors in the gap period.  In its decision

of 25 October 1990 the House of Lords, while holding that the 1986

Regulations were void, nevertheless concluded that it was an

irresistible conclusion that Parliament intended by Section 47 of the

1986 Act to enable the Revenue to charge to tax the sums which it

regarded as otherwise representing windfalls in the hands of the

building societies.

79.  In consequence, by March 1991, when two of the applicant societies

first commenced proceedings to recover the tax on sums paid to

investors in the gap period, Parliament had already made clear its

intention that such sums should be liable to tax.  The aim of Section

53 of the 1991 Act and Section 64 of the 1992 Act was to prevent

building societies from frustrating this legislative intention, and

thereby benefiting from a windfall, by exploiting technical defects in

the drafting of the Regulations.

80.  In these circumstances, the Commission finds that, in passing

retrospective legislation with the aim of ensuring that building

societies should not benefit from such a windfall but should remain

liable for tax on sums paid to investors in the gap period, the

legislature did not upset the fair balance required to be preserved

between the demands of the general interest of the community and the

protection of the fundamental rights of the applicant societies.

CONCLUSION

81.  The Commission concludes by 13 votes to 3 that there has been no

violation of Article 1 of Protocol No. 1 (P1-1).

D.   As regards Article 1 of Protocol No. 1 (P1-1) taken together with

     Article 14 (Art. 14) of the Convention

82.  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."

83.  The applicant societies submit that there was no reason for the

Government to legislate in such a manner as to prevent them from

benefiting from the judgments in the Woolwich case, and underline that

the Leeds in particular was known to be associated with the Woolwich's

case.  They contend that they were discriminated against in comparison

with the Woolwich.  They submit that public law decisions can be relied

on by persons not parties to the litigation at issue, and that the

Leeds could not have foreseen the risk that the outcome of the

Woolwich's case would be overturned by legislation.

84.  The Government submit that the difference in treatment of the

Woolwich and other societies was objectively and reasonably justified

because the Woolwich in fact brought the proceedings and it was

essential for comity  between the legislature  and the courts that it

should not be deprived of the results of its victory.  They do not

accept that a decision in judicial review proceedings will necessarily

operate erga omnes.

85.  The Commission recalls that Article 14 (Art. 14) of the

Convention affords protection against discrimination, that is, treating

differently, without an objective and reasonable justification, persons

in "relevantly" similar situations (Eur. Court H.R., Fredin judgment

of 18 February 1991, Series A no. 192, p. 19, para. 60).

86.  The applicant societies claim in substance that, although they

did not bring proceedings to challenge the transitional provisions,

they were in a "relevantly" similar situation to the Woolwich which

brought such proceedings and was successful.

87.  The Commission notes that the provision which treated the

Woolwich differently from the applicant societies was Section 53 of the

1991 Act, rather that Section 64 of the 1992 Act.  While the former

provision, by excluding from its scope any building society which had

commenced proceedings to challenge the validity of the 1986 Regulations

before 18 July 1986, applied to every building society with the

exception of the Woolwich, the latter provision, by retrospectively

validating the Treasury Orders, was of general application to all

building societies.

88.  The Commission must therefore ascertain whether, as regards the

enactment of Section 53 of the 1991 Act, the applicant societies were

in a "relevantly" similar situation to the Woolwich and, if so, whether

there existed a reasonable and objective justification for treating

them differently and less favourably than the Woolwich.

89.  The Commission notes that the Woolwich alone of all the building

societies brought proceedings to challenge the validity of the 1986

Regulations and pursued those proceedings to the House of Lords, where

it obtained a decision in its favour.  The Commission further notes

that, having been repaid in 1987 the principal amount of the tax paid

by it under the Regulations, the Woolwich commenced further proceedings

to recover interest on the said sum and by the date of the enactment

of Section 53 had obtained judgment in its favour in the Court of

Appeal.

90.  In contrast, none of the applicant societies brought proceedings

to challenge the validity of the Regulations or was joined as a party

to the proceedings brought by the Woolwich.  Moreover, the proceedings

brought by two of the applicants to recover the sums paid under the

1986 Regulations were only commenced in March 1991, shortly before the

budget statement announcing the introduction of legislation to remedy

the technical defects in the Regulations.

91.  The applicant societies assert that they made clear from the

outset that they disputed the lawfulness of the tax imposed under the

1986 Regulations and associated themselves with the proceedings of the

Woolwich challenging the lawfulness of the Regulations, while not

formally being joined to the proceedings or initiating their own

proceedings.  It nevertheless remains the position that the Woolwich

alone bore the risks and incurred the costs of the litigation to

challenge the validity of the transitional Regulations.  While other

building societies may have expected to have benefited from the

successful outcome of such proceedings, and may accordingly have

awaited that outcome before commencing their own proceedings to recover

the tax paid, they were in this respect not in a relevantly similar

position to the Woolwich.

92.  The Commission moreover recalls that it has already found that

the legislature was entitled retrospectively to validate the

Regulations and thereby prevent the building societies from frustrating

the intention of the legislature and obtaining the benefit of a

windfall.  The Commission considers it reasonable that, in enacting

Section 53 of the  1991 Act, the legislature should not wish to disturb

claims for recovery of the tax which had already been settled following

the successful challenge to the validity of the Regulations.

93.  In these circumstances, if and to the extent that the applicant

building societies were in a relevantly similar position to the

Woolwich, the Commission finds that there existed an objective and

reasonable justification for treating them differently by excluding the

Woolwich from the ambit of Section 53 of the 1991 Act.

CONCLUSION

94.  The Commission concludes by 14 votes to 2 that there has been no

violation of Article 14 (Art. 14) of the Convention taken together with

Article 1 of Protocol No. 1 (P1-1).

E.   As regards Article 6 (Art. 6) of the Convention

95.  Article 6 para. 1 (Art. 6-1) of the Convention provides, so far

as relevant, as follows:

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

     everyone is entitled to a fair and public hearing within a

     reasonable time by an independent and impartial tribunal

     established by law."

96.  The applicant societies consider that the effect of the

legislative provisions in the present case was such as to deprive them

of a judicial determination of their disputes with the Revenue.  They

point out that the proceedings were to vindicate claims for restitution

and as such were private law claims under domestic law, but submit that

the claims were in any event pecuniary in nature.  They regard the

legislative interference with the pending proceedings as without any

legitimate aim and disproportionate.

97.  The Government submit that the proceedings in the present case

were tax proceedings and that Article 6 (Art. 6) did not apply to them.

Moreover, they consider that the judicial review proceedings were, in

effect, a collateral challenge to the legislation which parliament

introduced to overcome the technical defects in the transitional

provisions as originally drafted.  They consider that even if Article 6

(Art. 6) of the Convention were to apply to the proceedings, the

interference brought  about  by Section 53 of the 1991 Act  and by

Section 64 of the 1992 Act was nothing more that the closing of a

loophole which the applicant societies were seeking to exploit.  They

regard the closing of that loophole as proper and appropriate.

98.  The Commission recalls that Article 6 para. 1 (Art. 6-1) of the

Convention applies where the subject matter of an action is "pecuniary"

in nature and is founded on an alleged infringement of rights which are

likewise pecuniary, or where its outcome is "decisive for private

rights and obligations" (Eur. Court H.R., Ortenberg judgment of 25

November 1994, Series A no. 295-B, p. 48, para. 28 with further

references).  In that case, the applicant brought a public law

challenge to an administrative act (a grant of planning permission to

a neighbour) with a view to avoiding an infringement of her "pecuniary

rights, because she considered that the works on the land adjoining her

property would jeopardise her enjoyment of it and would reduce its

market value" (para. p. 49, para. 28).  The Court found that Article 6

(Art. 6) applied to the proceedings even though there was no direct

evidence of loss of value to the property.  It is not, however,

sufficient to show that a dispute is "pecuniary" in nature: matters

which belong exclusively to the realm of public law - such as fines in

criminal cases, obligations deriving from tax legislation or other

normal civic duties in a democratic society - are not covered by the

notion of "civil rights and obligations" (Eur. Court H.R., Schouten and

Meldrum judgment of 9 December 1994, Series A no. 304, p. 21, para.

50).

99.  The restitution actions in the present case - that is, the

proceedings initially brought by the Leeds and the National &

Provincial and the subsequent proceedings brought in May and June 1992

by the applicant societies - were classic private law actions for the

recovery of monies alleged to have been wrongfully withheld and the

subject matter of the actions was clearly "pecuniary" in nature.  The

Government argue that the actions nevertheless did not involve the

determination of the "civil rights and obligations" of the applicants

for the purposes of Article 6, (Art. 6) since they were proceedings to

recover monies paid as tax, and accordingly they did not fall within

the scope of Article 6 (Art. 6).

100. The Commission is unable to accept this argument.  The Commission

observes that the proceedings in question were not proceedings brought

against a taxpayer to recover tax or by a taxpayer to challenge an

assessment to tax; nor did they involve a complaint about the fairness

of a particular tax in its effect on the applicants' property rights.

The restitution proceedings were proceedings brought to recover

specific sums paid by the applicants pursuant to a demand which had

been found to be ultra vires, and, as was established by the House of

Lords in Woolwich 2, such sums were recoverable as of right.  The fact

that the sums in question were fiscal in origin does not in the view

of the Commission affect the civil nature of the right (cf. Eur. Court

H.R. Editions Périscope v. France judgment of 26 March 1992, Series A

no. 234-B at p. 66 para. 40).

101. The judicial review proceedings had a less direct link with the

monies which the applicant societies were trying to recover, in that

they were a public law challenge to the validity of the Treasury Orders

fixing the composite rate tax.  However, these actions, if successful,

would have provided the necessary basis for the private law restitution

claims which had been brought by the applicants in May and June 1992.

There was therefore a close link between the judicial review

proceedings and the consequences of their outcome for the applicant

societies' property (cf. above mentioned Ortenberg judgment , p. 49,

para. 28; see also Eur. Court. H.R., Procola judgment of 28 September

1995, to be published in Series A no. 326, para. 39).  The Commission

accordingly considers that in the particular circumstances of the

present case the judicial review proceedings are to be seen not purely

as public law proceedings but rather as an alternative route to the

recovery of sums paid under Regulations which had been held to be

invalid.

102. Accordingly, the Commission finds that the rights at issue in

both the restitution proceedings and the judicial review proceedings

were "civil" in nature and that Article 6 para. 1 (Art. 6-1) was

applicable.

103. As to the question of whether there was a breach of Article 6

(Art. 6) by reason of the intervention of the legislature the

Commission recalls that in the Stran Greek Refineries judgment the

Court did not question the Government's intention to act in response

to the concern of the Greek people to re-establish democratic legality.

The Court did, however, reiterate that the principle of equality of

arms in Article 6 (Art. 6) implied that each party to litigation should

be afforded a reasonable opportunity to present his case under

conditions that did not place him at a substantial disadvantage vis-à-

vis his opponent.  In this regard the Court drew attention to the fact

that the offending provision (Article 12 of Law 1701/1987) had been

introduced at a time when judicial proceedings in which the State was

a party were pending and that it was in reality aimed at the applicant

company.  The Court held that "[the] principle of the rule of law and

the notion of fair trial enshrined in Article 6 (Art. 6) preclude any

interference by the legislature with the administration of justice

designed to influence the judicial determination of the dispute"

(above-mentioned Stran Greek Refineries judgment, para. 48).  The Court

accordingly concluded that the State had infringed the applicants'

rights under Article 6 para. 1 (Art. 6-1) "by intervening in a manner

which was designed to ensure that the - imminent - outcome of the

proceedings in which it was a party was favourable to it." (ibid.,

para. 80).

104. In the Pressos case the Court did not find it necessary to

consider issues under Article 6 para. 1 (Art. 6-1) of the Convention.

In its Report in that case, the Commission accepted that the reasons

advanced by the Government to justify the law in question were

legitimate reasons.  However, it found that the principal effect of the

legislature's intervention had been to prevent the Belgian State from

being found liable in the various different proceedings to which the

State was a party and that this offended against the principle of

equality of arms.  The Commission concluded that by adopting the law

and applying it to the applicants, the Belgian authorities had deprived

them of the right to obtain a determination of their civil rights and

obligations at the conclusion of fair proceedings before a court.

105. In the present case it is not disputed that Section 53 of the

1991 Act effectively put an end to the actions for restitution of two

of the applicant societies and that Section 64 of the 1992 Act

effectively put an end to the judicial review proceedings and to the

further restitution proceedings brought by all the applicant societies.

Further, it is apparent from both the timing of the legislation and

from the retrospective character of the provisions that they were

introduced in response to the proceedings brought against the Revenue

and were in large measure intended to put an end to those proceedings.

106. The Commission recalls that it has already found that there were

legitimate reasons for introducing the measures, namely to prevent

building societies from gaining an unintended windfall advantage from

technical deficiencies in the 1986 Regulations.  Nevertheless, as in

the Stran Greek Refineries and Pressos cases, by retrospectively

validating the transitional Regulations and the Treasury Orders which

were the subject of the litigation, the State through the legislature

intervened in a manner which was decisive to ensure that the outcome

of the proceedings to which the Revenue was a party was favourable to

it and to deprive the applicant societies of their right to obtain a

determination of their civil rights and obligations following a fair

hearing before a court.  There has accordingly been a violation of the

applicants' rights under Article 6 para. 1 (Art. 6-1) of the

Convention.

CONCLUSION

107. The Commission concludes by 9 votes to 7 that there has been a

violation of Article 6 para. 1 (Art. 6-1) of the Convention.

F.   As regards Article 6 para. 1 (Art. 6-1) of the Convention taken

     together with Article 14 (Art. 14) of the Convention

108. The applicant societies in addition allege a violation of

Article 6 (Art. 6) of the Convention taken together with Article 14

(Art. 14) of the Convention.

109. The Commission has above examined the complaints concerning

access to court under Article 6 (Art. 6) of the Convention.  It finds

it unnecessary also to examine the complaints under Article 6 (Art. 6)

taken together with Article 14 (Art. 14).

CONCLUSION

110. The Commission concludes by 14 votes to 2 that it is not

necessary to examine the complaints under Article 6 para. 1 (Art. 6-1)

of the Convention taken together with Article 14 (Art. 14) of the

Convention.

G.   Recapitulation

111. The Commission concludes by 13 votes to 3 that there has been no

violation of Article 1 of Protocol No. 1 (P1-1) (para. 81 above).

112. The Commission concludes by 14 votes to 2 that there has been no

violation of Article 1 of Protocol No. 1 (P1-1) taken together with

Article 14 (Art. 14) of the Convention (para. 94 above).

113. The Commission concludes by 9 votes to 7 that there has been a

violation of Article 6 para. 1 (Art. 6-1) of the Convention (para. 107

above).

114. The Commission concludes by 14 votes to 2 that it is not

necessary to examine the complaints under Article 6 para. 1 (Art. 6-1)

of the Convention taken together with Article 14 (Art. 14) of the

Convention (para. 110 above).

Secretary to the Commission          President of the Commission

       (H.C. KRÜGER)                       (S. TRECHSEL)

                                                 (Or. English)

PARTIALLY DISSENTING OPINION OF Mr. N. BRATZA, JOINED BY

Mr. A.S. GÖZÜBÜYÜK, Mrs. G.H. THUNE, MM. J.-C. GEUS, M.P. PELLONPÄÄ,

B. MARXER AND B. CONFORTI

     I share the view of the majority of the Commission that there has

been no violation in the present case of Article 1 of Protocol No. 1,

read alone or in conjunction with Article 14 of the Convention.  I

regret, however, that I cannot agree with the conclusion of the

majority that there has been a violation of Article 6 of the

Convention.

     The conclusion of the majority is based on the decision and

reasoning of the Court in its Stran Greek Refineries judgment, and of

the Commission in its Report in the Pressos case,  to the effect that

the principle of the rule of law and the notion of fair trial enshrined

in Article 6 preclude any interference by the legislature with the

administration of justice designed to influence the determination of

a dispute.

     While fully accepting the general principles expressed in these

two authorities, it does not however follow in my view that the

intervention of the legislature in pending legal proceedings to which

the State is a party will in all cases involve a violation of Article 6

of the Convention, even where such intervention has the purpose and

effect of ensuring that the outcome of the proceedings is favourable

to the State.  Whether it does so will in my view depend on a number

of factors, including in particular the background of the dispute

giving rise to the proceedings in question, the nature of the

proceedings, the stage at which the proceedings had reached and the

grounds justifying the intervention by the legislature.

     In this regard, it is notable that in the Stran Greek Refineries

case the claim in question was a private law claim for damages for

breach by the State of its contractual obligations to the applicants.

At the time of enactment of Law No. 1701/87 the proceedings had already

been on foot for some nine years, the applicants had succeeded in

obtaining an arbitration award in their favour and the Law was enacted

shortly before the validity of the arbitration award was to be

determined by the Court of Cassation and after the parties had received

the opinion of the judge-rapporteur recommending the dismissal of the

State's appeal.  Moreover, as was noted by the Commission, no

explanation was given for the apparent inconsistency between the

State's position in 1979, when it called for arbitration, and the

action taken in 1987, when the legislature intervened in favour of the

invalidity of the arbitration clause and proceedings.

     In the Pressos case the proceedings in question were similarly

private law claims in tort for damages arising out of ship collisions.

The effect of the Act of 30 August 1988 was to extinguish the claims

by reversing, with retrospective effect going back thirty years, the

principle that the State and public law bodies were subject to the

general law of tort - a principle which the Court held had been

established by judicial decision in 1920 and reaffirmed by the Court

of Cassation in 1983.

     In the present case, it is true, as noted by the majority of the

Commission, that the effect of Section 53 of the 1991 Act and

Section 64 of the 1992 Act was to bring an end to the various

proceedings brought against the Revenue and that this was in large

measure the purpose of the legislative provision.  Nevertheless, it is

important to recall the special circumstances in which the legislation

came to be introduced and which, in my view, serve to distinguish the

case from the two earlier decisions.  In particular, the applicants'

claims were brought, directly or indirectly, to recover monies paid by

way of tax under statutory Regulations which had been held to be

invalid.  At the time when two of the applicant societies first

commenced proceedings to recover the monies, Parliament had already

made clear in the 1986 Act its intention that sums paid to investors

in the gap period should be liable to tax.  The introduction of the

1991 legislation was announced within days of the commencement of the

proceedings and Section 53 of the 1991 Act came into effect four months

thereafter.  The purpose and effect of the legislation, and of the

subsequent enactment of Section 64 of the 1992 Act, was to prevent

building societies from frustrating the intention of Parliament, and

thereby benefiting from a windfall, by exploiting technical defects in

the drafting of the 1986 Regulations.  As the Commission has found,

this was a legitimate aim for the purposes of Article 1 of Protocol

No. 1 and the legislature was entitled not only to validate the

Regulations but to do so retrospectively.

     In these particular circumstances I consider that, by enacting

and applying Section 53 of the 1991 Act and Section 64 of the 1992 Act,

the United Kingdom authorities did not infringe the applicants' right

under Article 6 para. 1 of the Convention to have their civil rights

and obligations determined after a fair hearing by a tribunal.

Accordingly there has in my view been no violation of Article 6 of the

Convention.

     The applicant societies in addition allege a violation of

Article 6 of the Convention taken together with Article 14 of the

Convention, on the grounds that they were discriminated against in

comparison to the Woolwich.

     In the context of the applicants' complaint under Article 1 of

Protocol No. 1, the Commission has found that other building societies,

including the applicant societies, were not in a relevantly similar

position to the Woolwich and that in any event there existed a

reasonable and objective justification for treating them differently,

by excluding the Woolwich from the ambit of Section 53 of the 1991 Act.

For the same reasons, mutatis mutandis, it is my view that the

applicant societies were not discriminated against in the enjoyment of

their rights under Article 6 of the Convention.

                                                 (Or. English)

       PARTIALLY DISSENTING OPINION OF Mr. E. BUSUTTIL

     With regret, I demur from the conclusion reached by the majority

that there has been no violation of Article 1 of Protocol No. 1 in the

present case.

     In its Pressos Compania Naviera S.A. judgment, the Court held

that retrospective legislation having the aim and effect of depriving

the applicants of their claims for compensation was not justified, such

fundamental interference being inconsistent with the preservation of

a fair balance between the interests at stake - the public interest,

on the one hand, and the interest of the individual applicants, on the

other.

     In para. 75 of the Report, the majority would appear to accept

the general conclusion in Pressos Compania Naviera S.A. as far as the

second sentence of the first paragraph of Article 1 of Protocol No. 1

is concerned, but go on to assert that the same conclusion does not

necessarily apply to legislation purporting "to secure the payment of

taxes" in terms of the second paragraph of the same Article.  The

argument, however, is left suspended in mid-air for no explanation of

any kind is provided in support of this latter proposition.

     To my mind, this statement is in contradiction with the well-

established case-law of the Court that the second paragraph of

Article 1 of Protocol No. 1 must be construed in the light of the

general principle laid down in the Article's first sentence of the

first paragraph.  Thus, while taxation can lawfully interfere with the

right of natural or legal persons to the peaceful enjoyment of their

possessions in the general interest of establishing a more equitable

distribution of wealth in the community, any such interference must

achieve a 'fair balance' between the demands of the general interest

of the community and the requirements of the protection of the

individual's fundamental rights.  The concern to achieve this balance

is reflected in the structure of Article 1 as a whole, including

therefore the second paragraph.  In particular, there must be a

reasonable relationship of proportionality between the means employed

and the aim pursued by any measure depriving a person of his

possessions.

     In the present case, it is evident from both the timing and

retrospective character of the legislation that the intention of

Parliament in passing the 1991 and 1992 Acts was simply that of

interfering with pending judicial proceedings.  Section 53 of the

Finance Act 1991 effectively stifled the actions for restitution of two

of the applicant societies and Section 64 of the Finance Act 1992

effectively extinguished the judicial review proceedings and further

restitution proceedings by all the applicant societies.  Indeed, the

majority of the Commission itself found that this constituted a breach

of Article 6 para. 1 of the Convention in that the legislative organ

of the State intervened in a manner which deprived the applicant

societies of their right to a fair and independent determination of the

matter in issue before a court of law.

     If this is so, then the subsequent intervention by Parliament to

frustrate pending judicial proceedings must equally be material to the

assessment as to whether such intervention respected the requisite fair

balance between the demands of the general interest of the community

and the requirements of the protection of the individual's fundamental

rights.  For this fair balance to be properly respected, it seems to

me that the general public interest must be embodied in legislation

which is not flawed at its inception, as was the case here with the

Income Tax (Building Society) Regulations 1986 which were ultra vires

the enabling powers conferred on the Revenue by Section 40 of the

Finance Act 1985.  As Lord Oliver (delivering the judgment of the

majority in the House of Lords) observed, it is "unfortunate that the

Revenue, through Parliament, should have chosen by secondary rather

than primary legislation to take what was, on ordinary principles, the

very unusual course of seeking to tax more than one year's income in

a single year of assessment".

     Furthermore, it is neither fair nor even-handed to re-invent the

public interest at different moments in time through subsequent

retrospective legislation validating otherwise invalid Regulations.

If the jurisdiction of the courts were to be ousted in this fashion,

the ordinary citizen would be virtually left at the mercy of his rulers

and become subject to the misrule of law rather than to the Rule of

Law.

     Accordingly, for the State to legislate with retrospective effect

in order to deprive the applicants of their claims for compensation

constitutes such a fundamental interference with the applicant

societies' rights as to be incompatible with the preservation of a fair

balance between the interests at stake, and thus amounts to a violation

of Article 1 of Protocol No. 1 of the Convention.

                                                 (Or. English)

       PARTIALLY DISSENTING OPINION OF Mr. L. LOUCAIDES

     To my regret I disagree with the conclusion of the majority that

Article 1 of Protocol No. 1 considered alone or in conjunction with

Article 14 was not violated in this case.

     In the light of the judgment of the Court in the case of Pressos

Compania Naviera S.A. and others (Series A no. 332) the claims of the

applicants for restitution constituted assets and therefore amounted

to possessions for the purposes of Article 1 of Protocol No. 1.

     The impugned retrospective legislation had, in my opinion, the

effect of depriving the applicants of their possessions in question:

because of that legislation they could not any more recover the money

they had paid under invalid regulations - contrary to what has happened

with the Woolwich.

     The majority examined the interference with the applicants

possessions under Article 1 of Protocol No. 1 and found that the

interference in question fell to be considered under the third rule

which explicitly reserves the right of Contracting States to pass such

laws as they may deem necessary to secure the payment of taxes.

     I disagree with this approach for the following reason:

     In the cases under consideration the impugned legislation was not

ordinary taxation law; it retrospectively validated past taxation

regulations the invalidity of which gave rise to the claims of the

applicants for the recovery of the sums of taxes levied under such

regulations. As already pointed out, these claims amounted to

possessions. Therefore the direct and clear effect of the legislation

in question was to deprive the applicants of these possessions even

though its backdrop was one of taxation.

     The majority also found that a fair balance was struck between

the demands of the general interests of the community and the

requirements of the protection of the individual's fundamental rights.

According to the majority the relevant legislation was in fact serving

the general interests in that it was aiming at implementing the

original intention of the parliament as expressed in 1985 and 1986

which was later on frustrated due to the invalidity of the relevant

regulations.

     In my view, the intention of Parliament could not tilt the

balance in favour of the public interest so long as that intention was

not at the material time, i.e. when the Regulations were originally

introduced, expressed in a legally effective way. When it was so

expressed it took the form of retrospective legislation which

interfered with the pending judicial proceedings of the applicants.

This amounted to a breach of Article 6 of the Convention. In these

circumstances, I believe that the legislation in question could not be

considered as serving a legitimate public or general interest for the

purposes of any right safeguarded under the Convention including the

right to property.

     Therefore I find that there has been a violation of Article 1 of

Protocol No. 1 in this case.

     Furthermore, I am of the view that the complaint of the

applicants that they were discriminated against in comparison with the

Woolwich is well-grounded.

     The majority found that there existed an objective and reasonable

justification for treating the applicants differently from the Woolwich

as, unlike the applicants, the Woolwich at the material time had

already obtained a judicial decision for the recovery of the money paid

under the invalid taxing regulations.  However, both in the case of the

Woolwich and in the cases of the applicants the claims of restitution

related to the same situation i.e. the invalidity of the regulations

under which the amounts claimed were paid in the form of taxes; in both

cases the lawfulness of the regulations in question was disputed from

the outset and the relevant claims were legally well-founded.

Furthermore, as I have already pointed out above the retrospective

validation of the regulations in question amounted to an unjustified

interference with the applicants' claims - possessions.

     Article 14 prohibits discriminatory treatment, as regards the

rights safeguarded by the Convention, between persons similarly

situated taking into account the aim and effects of the measure under

consideration.

     In the circumstances of the case, I do not find that the

different treatment of equally valid claims i.e. those of the

applicants and of the Woolwich, which were based on the same facts and

legal grounds, was justified given the aim and effect of the relevant

legislation i.e. to validate the taxation challenged by all of the

claimants. The difference in the means of procedures used by the

claimants in pursuing their claim cannot, I think, be a valid ground

for the difference of the treatment accorded to them. Such means of

procedures had no direct link with the object of the legislation in

question.  In any case it may be useful to add in this respect that the

applicants while not formally being joined to the proceedings of the

Woolwich could legitimately expect to benefit from a favourable outcome

of the Woolwich proceedings.

     In the light of the above, I find that there was no reasonable

justification for treating the applicants differently by excluding the

Woolwich from the ambit of section 53 or the 1991 Act. This, in my

view, amounts to a violation of Article 14 of the Convention taken

together with Article 1 of Protocol No. 1.

                                                 (Or. English)

          PARTIALLY DISSENTING OPINION OF Mr. G. RESS

     I agree with the general approach taken by Mr. Busuttil and

Mr. Loucaides.

     It seems quite artificial to me to come to different conclusions

under Article 6 of the Convention and Article 1 of Protocol No. 1,

especially in this case where the "possessions" involved under Article

1 are the claims whose "determination" is at issue under Article 6.

     In connection with Article 1 of Protocol No. 1, I would stress

that the original intention of Parliament cannot have been very clear

to anybody, even not to the average building society, as it took

extensive court proceedings before that intention was "clarified".

Further, I would lay particular emphasis on the difficulty for the

applicant societies in foreseeing, even in the light of the judgments

in the Woolwich cases, that retroactive legislation would deprive them

of claims made in reliance on the findings of those judgments.

 

Full & Egal Universal Law Academy