A recurring issue that this blog has sought to explore is the problem of public authorities making mistakes. This blog for instance has spent some time considering the case of Hely-Hutchinson, wherein the Court of Appeal placed reliance upon the fact that public authorities like HMRC are entitled to renege on earlier commitments where this is necessary to correct a mistake. A different result however, albeit on different facts and in different circumstances, arose in the case of R (Gallaher) v Competition and Markets Authority. This case concerned an agreement to settle a dispute. The Office for Fair Trading (now subsumed within the Competition and Markets Authority) investigated several companies in relation to tobacco pricing and decided in 2008 that the companies had engaged in anticompetitive behaviour (namely price fixing). The public authority gave the companies the opportunity to settle the dispute on the same express terms. One provision provided that the parties could pursue an appeal (though if that option was taken, the public authority would increase the fine and pursue costs). All the companies agreed to the settlement agreement, but one party (TMR) was given an assurance additionally. This assurance provided that TMR would be entitled to a refund effectively of the fine paid (and a contribution to costs and interest) if any one of the other companies successfully appealed against the decision (in the proceedings this has been referred to as the “2008 decision”).

Some of these companies did in fact successfully appeal against the decision. TMR then got the benefit of the assurance and was refunded (the fact of this refund was published online and this has been referred to in the proceedings as the “2012 decision”). What about the other companies who did not pursue an appeal and did not receive an assurance like TMR (which in fact was the only company which received such an assurance)? That is precisely the issue that is being litigated at the moment in the Gallaher case. Gallaher (and another company Co-op, but this post for the purposes of simplicity will refer only to Gallaher) lobbied the public authority to get the same treatment as TMR, but this was refused. Gallaher then took a judicial review case against the public body which was unsuccessful in the Administrative Court, succeeded in the Court of Appeal (unanimously) and is to be heard by the Supreme Court in March (though the case name used there erroneously is “Gallagher”).

Cases such as this concern the principle of consistency and can broadly be broken down into the consideration of two questions. First, are there two persons or entities in comparable positions which have been subjected to different treatment? Second, is there a good reason for distinguishing between the two?

The Administrative Court found that Gallaher had been treated unfairly and unequally as compared with TMR in 2008 and that the refusal to make payment to Gallaher in 2012 required objective justification. But the distinction in treatment was indeed justified – not because of principles of finality and legal certainty, but because the initial assurance was itself a mistake. Thus, it was not wrong for the public authority to seek to remedy or contain this mistake: “a mistake should not be replicated where public funds are concerned” (this quotation was taken from the case of Customs and Excise v Natwest [2003] EWHC 1822 which the Court placed some reliance upon).

The Court of Appeal too found that the parties were in materially similar circumstances but was not convinced that there was an objective justification which was sufficient. The Master of the Rolls gave the only speech and reaffirmed the notion that this issue was grounded in fairness and that a mistake alone would not be sufficient to justify differing treatment. The matter must be considered against all of the circumstances of the case and thus offering differing treatment because a mistake had arisen would not be sufficient if in the circumstances the result would be so unfair as to amount to an abuse of power (see para 54 in particular). In the circumstances, the only real reason for the distinction in treatment was that TMR just so happened to ask for an assurance whilst Gallaher did not and there should not, according to the Court, be a distinction in treatment following from that fact alone.

The Court of Appeal also rejected the reasoning of the Administrative Court that public authorities should be entitled to offer differing treatment where a mistake has arisen in so far as the Administrative Court’s reasoning was based upon an earlier case of Customs and Excise v Natwest Bank. There Customs and Excise had made an error in repaying overpaid tax to some taxpayers but failing to take into account any reduction in the amount due on the basis of unjust enrichment – the idea being that some of the overpaid taxes, in this case VAT, were actually passed on to customers (by way of higher prices) and so the financial burden of the overpaid tax did not squarely fall upon the taxpayer. In this sense, the taxpayer should not be repaid the full amount of overpaid tax, as the taxpayer would then be unjustly enriched. One taxpayer received a reduced amount of overpaid tax on this basis and was disgruntled about not receiving the more benevolent treatment that others had received. The taxpayer was unsuccessful because Customs and Excise were entitled to apply dissimilar treatment in order to rectify the initial mistake(s).

The Master of the Rolls for three reasons distinguished the present case from Natwest. First, the taxpayer in that case had no strong right to expect equal treatment – in Gallaher the public authority expressly committed itself to affording equal treatment to a defined category of parties and this was set out too in a more general internal policy; second, there was no large administrative system in Gallaher as was at issue in the case of Natwest and so the effects would be limited and finally, there was no complex legal issue comparable to that in Natwest facing the public authority in Gallaher.

A better reason can be given however for distinguishing the cases. The mistake in Natwest that the public authority sought to rectify was of a different order to the mistake in Gallaher that the Office for Fair Trading sought to rectify. Whilst the underlying reason for the disparity of treatment in Natwest was administrative inconsistency – there was no coherent, consistent process or policy for dealing with these claims across the different offices of Customs and Excise – the actual “mistake” which Customs and Excise sought to rectify was substantive in that as a matter of law some taxpayers were receiving money to which they were not entitled: “Just because a tax gatherer makes a blunder which favours some taxpayers by way of a windfall does not mean that he should perpetuate the blunder in favour of others”. (Tangentially, in Hely-Hutchinson it was a mistake of this order too that HMRC claimed needed to be rectified).

In Gallaher on the other hand, the public authority’s “mistake” was not substantive, but simply administrative. As a matter of substantive law, Gallaher in this case had settled amounts that were not due. By effluxion of time, Gallaher’s claim to overturn the incorrect settlement was barred (the time within which an appeal against the initial decision could have been brought had passed). The public authority’s “mistake” related to allowing another party (TMR) the benefit of the substantive law. It was in this sense administrative in that the authority did not need to give the assurance in the first place. As the mistakes in these cases are of a different order, then the policy reasons justifying their rescission will likewise be different. Recourse to the reason of “public funds” means different things across the different mistakes – in the case of overpaid tax, it would be wrong to pay out monies from the public purse which are not owed as a matter of substantive law. In the case of an internal administrative mistake, the policy justification is less strong in that public authorities regularly have to pay out for maladministration – that for instance is why we have the Ombudsman!

The Supreme Court hearing in March will hopefully set out some guiding principles as to when it is appropriate for public authorities to renege on earlier commitments, or refuse to roll out commitments to other affected parties, where a mistake has been made. The resulting decision of the Supreme Court will be relevant too to the case of Hely-Hutchinson, where the taxpayer has sought permission to appeal to the Supreme Court, and more generally to HMRC.