The House of Lords in Woolwich Equitable Building Society v. Inland Revenue Commissioners 1 has, for the first time, recognized the existence of a common law right to recover money exacted under an ultra vires demand by a public authority. As Lord Goff acknowledged, the case is of considerable importance for the future of the law of restitution and it “could have a profound effect upon the structure of this part of our law”.2 The existence of this new right having been recognized, the task which lies ahead is to establish the scope of the claim and the defences, if any, which exist. But the significance of the case transcends the law of restitution, because it raises the issue of: how our highest court should develop our law; the limits of the judicial function; and the relationship between the judiciary and the legislature.

The plaintiffs, Woolwich, made three payments, totalling some £56.998 million, to the Revenue in response to a tax demand issued under the Income Tax (Building Societies) Regulations 1986.3 Although Woolwich paid the sums demanded, it disputed the validity of the regulations from the outset. It paid the first sum on 16 June 1986, because it feared that it would incur penalties and adverse publicity if it did not do so, and it commenced judicial review proceedings by notice of application on the following day. At first instance, Nolan, J., held that the regulations were ultra vires and void.4 The Revenue then returned the capital sum with interest from the date of judgment but refused to pay interest from the date of receipt. In the meantime, Woolwich had commenced a second action against the Revenue, in which it sought to recover the capital sum together with interest. The capital sum having been recovered, the claim proceeded as one to recover the interest on the capital sum. In order to claim interest under the Supreme Court Act 1981, s. 35A, Woolwich had to show that it was entitled to restitution as of right from the moment of receipt by the Revenue. However, Nolan, J., dismissed its claim,5 holding that the Revenue had impliedly promised to return the sum paid if the regulations were held to be ultra vires but, that apart, were under no restitutionary