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Judgments - Deutsche Morgan Grenfell Group Plc (Respondents) v. Her Majesty's Commissioners of Inland Revenue and another (Appellants)

HOUSE OF LORDS

SESSION 2005-06

[2006] UKHL 49

on appeal from [2005] EWCA Civ 78

 

OPINIONS

OF THE LORDS OF APPEAL

for judgment IN THE CAUSE

 

Deutsche Morgan Grenfell Group Plc (Respondents) v. Her Majesty's Commissioners of Inland Revenue and another (Appellants)

Deutsche Morgan Grenfell Group plc (Appellants) v. Her Majesty's Commissioners of Inland Revenue and another (Respondents) (Consolidated Appeals)

 

Appellate Committee

 

Lord Hoffmann

Lord Hope of Craighead

Lord Scott of Foscote

Lord Walker of Gestingthorpe

Lord Brown of Eaton-Under-Heywood

 

Counsel

For HM Commissioners of Inland Revenue and HM Attorney General

Ian Glick QC

David Ewart

(Instructed by HM Revenue and Customs Solicitors Office)

For Deutsche Morgan Grenfell

Laurence Rabinowitz QC

Francis Fitzpatrick

Steven Elliott

(Instructed by Slaughter & May)

 

Hearing dates:

26 and 27 july 2006

 

on

WEDNESDAY 25 October 2006

 

HOUSE OF LORDS

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

Deutsche Morgan Grenfell Group Plc (Respondents) v. Her Majesty's Commissioners of Inland Revenue and another (Appellants)

Deutsche Morgan Grenfell Group plc (Appellants) v. Her Majesty's Commissioners of Inland Revenue and another (Respondents)

(Consolidated Appeals)

[2006] UKHL 49

LORD HOFFMANN

My Lords,

    1.  On 8 March 2001 the Court of Justice for the European Communities decided that that United Kingdom revenue law, which had since 1973 allowed companies whose parents were resident in the United Kingdom to elect to pay dividends free of advanced corporation tax ("ACT"), discriminated unlawfully against companies with parents resident in other Member States: Metallgesellschaft Ltd v Inland Revenue Commissioners (Joined Cases C-397 and C-410/98) [2001] Ch. 620. The exaction of the tax from such companies had been contrary to the EC Treaty and they were entitled to compensation.

    2.  The forensic fall-out from this decision has been very considerable. Large numbers of subsidiaries of companies resident in other Member States have lodged claims for compensation or restitution, some raising difficult ancillary points of law. The High Court has made a group litigation order to enable these points to be resolved in an orderly fashion. The main point in this appeal concerns the period of limitation applicable to such claims. But that in turn raises some fundamental questions about the cause of action upon which the claimants rely.

    3.  Before coming to these questions, I must briefly enlarge upon the provisions relating to advance corporation tax which the ECJ held to be contrary to Community law. The tax, which was abolished in 1999, was in theory corporation tax payable in advance of the date on which it would otherwise have been payable. A company resident in the United Kingdom pays corporation tax on profits arising in a given accounting period and, generally speaking, the tax is payable nine months after the period ends. But the trigger for the payment of corporation tax was the payment of a dividend. A company which paid a dividend became liable to account to the Inland Revenue for ACT calculated as a proportion of the dividend. This could afterwards be set off against the corporation tax ("mainstream corporation tax" or "MCT") which became chargeable on its profits. The Revenue thereby obtained early payment of the tax and, in cases in which the company's liability for MCT turned out to be less than it had paid as ACT, payment of tax which would not otherwise have fallen due.

    4.  The rule that ACT was payable on dividends was however subject to an exception if the dividend was paid to a parent company in the same group. Under section 247 of the Income and Corporation Taxes Act 1988 the company and its parent could jointly make a group income election which gave them the right to be treated for the purposes of ACT as if they were the same company. No ACT would be payable on the distribution by the subsidiary. It would however be payable on any distribution by the parent. The Act confined the right of election to cases in which the parent was resident in the United Kingdom. Otherwise a subsidiary which had elected would not be liable to ACT and the parent, being non-resident, would not be liable either.

    5.  In the Metallgesellschaft case the Court of Justice decided that these arrangements infringed the right of establishment guaranteed by article 52 (now 43) of the EC Treaty in that they discriminated against companies resident in other Member States. It held that the companies which had been unlawfully required to pay ACT were entitled to restitution or compensation. The nature of the remedies, the procedures by which they could be enforced and matters like the appropriate limitation periods were said to be matters for domestic law. The only specific qualification imposed by the Court of Justice was that English courts could not apply the rule in the The Pintada (President of India v La Pintada Compania Navigacion SA [1985] AC 104) to deny any recovery of interest to a claimant whose ACT had been set off against MCT before the commencement of proceedings. The claimant was entitled to be compensated for loss of the use of the money between the date on which it was paid and the date when MCT became due.

    6.  In these proceedings, commenced on 18 October 2000, Deutsche Morgan Grenfell Group plc ("DMG") claims compensation for having had to pay ACT on three dividends paid to its German parent company between 1993 and 1996: in October 1993, February 1995 and January 1996. (No mention of the 1995 and 1996 ACT payments appeared in the pleadings until an amendment made on 19 August 2002 and there is an issue, to which I shall return later, over whether that latter date should be taken for the purposes of limitation as the commencement date of the proceedings in respect of those dividends.) All the payments were subsequently set off against MCT. The facts are set out more fully in the speech to be delivered by my noble and learned friend Lord Walker of Gestingthorpe, which I have had the privilege of reading in draft.

    7.  There is no dispute that if DMG had been entitled to make a group election, it would have done so. There is likewise no dispute that DMG is entitled to compensation for breach of statutory duty (the infringement of article 43) or by way of restitution of tax unlawfully demanded under the principle established in Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70. But the period of limitation for both of these causes of action runs from the date of payment and DMG wishes to claim in respect of the 1993 payment, which on any view was made more than six years before proceedings were commenced. In addition, if the proceedings in respect of the 1995 and 1996 ACT payments are treated as having been commenced on 19 August 2002, they would also have been more than 6 years earlier. DMG therefore argues that it has an additional cause of action for restitution on the ground that the money was paid by mistake. Section 32(1)(c) of the Limitation Act 1980 provides that where the action is for "relief from the consequences of a mistake", the period of limitation does not begin to run until the claimant has discovered the mistake "or could with reasonable diligence have discovered it." (With effect from 8 September 2003, this provision no longer applies to mistakes of law in tax cases: see section 320 of the Finance Act 2004.) DMG says that it did not discover its mistake until the ECJ gave judgment (after the commencement of proceedings) and no amount of diligence could have enabled it to know in advance what the ECJ was going to say.

    8.  The first question, therefore, is whether DMG has a cause of action which can be described as being "for relief from the consequences of a mistake" within the meaning of section 32(1) of the 1980 Act. It claims that it seeks relief against having paid money to the Inland Revenue in the mistaken belief that, since section 247 of the Taxes Act made no provision for a group election by a company with a German parent, it was obliged to pay ACT. In fact, article 43 of the Treaty made this denial of a right of election unlawful and, in consequence, since DMG would have exercised its election, it was not obliged to pay ACT.

    9.  Before the decision of the House of Lords in Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349, this mistake would not have given rise to any cause of action because it was a mistake of law. That rule has now been abandoned. Nevertheless, Mr Glick QC for the Inland Revenue submits that while it is now in general true that money paid by mistake can be recovered, whether the mistake is of fact or law, tax is different. There is still no cause of action at common law for the recovery of tax paid under a mistake of law. He says that there are only two remedies for the recovery of tax which was not due. One is the common law remedy to recover tax unlawfully demanded which was established in the Woolwich case. The other is the statutory remedy provided by section 33 of the Taxes Management Act 1973:

    33.--(1) If any person who has paid tax charged under an assessment alleges that the assessment was excessive by reason of some error or mistake in a return, he may by notice in writing at any time not later than six years after the end of the year of assessment (or, if the assessment is to corporation tax, the end of the accounting period) in which the assessment was made, make a claim to the Board for relief.

    (2) On receiving the claim the Board shall inquire into the matter and shall, subject to the provisions of this section, give by way of repayment such relief …in respect of the error or mistake as is reasonable and just:

    Provided that no relief shall be given under this section in respect of an error or mistake as to the basis on which the liability of the claimant ought to have been computed where the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when the return was made.

    (3) In determining the claim the Board shall have regard to all the relevant circumstances of the case, and in particular shall consider whether the granting of relief would result in the exclusion from charge to tax of any part of the profits of the claimant, and for this purpose the Board may take into consideration the liability of the claimant and assessments made on him in respect of chargeable periods other than that to which the claim relates.

    10.  Whether the claim is under the Woolwich principle or section 33, time runs from when the payment was made. So Mr Glick says that in either case, the claim for interest on the 1993 payment is statute barred. The judge (Park J) rejected the submission. He saw no reason in principle why the right to restitution of payments made by mistake, which had been extended in Kleinwort Benson to include mistakes of law, should not apply to payments of tax. No argument based on section 33 appears to have been advanced to him.

    11.  The Court of Appeal (Jonathan Parker, Rix and Buxton LJJ) disagreed. The main reason was their view that Lord Goff of Chieveley, in his speech in Kleinwort Benson, had said that payments of tax under a mistake of law were subject to a separate and distinct regime which provided remedies only under the Woolwich principle and section 33. Buxton LJ also offered some reasons why it would cause difficulties if payment by mistake was accepted as a ground for the recovery of taxes. I will come back to this point later, when I deal with the question of whether DMG did in fact pay the tax by mistake.

    12.  First, however, I must deal with the opinion attributed by the Court of Appeal to Lord Goff. Both Jonathan Parker LJ and Buxton LJ subjected his speeches in the Woolwich and Kleinwort Benson case to a detailed analysis which I have read more than once with attention and respect. The chief support for Mr Glick's argument is to be found in the following passage in Kleinwort Benson [1999] 2 AC 349, 382:

    "…in our law of restitution, we now find two separate and distinct regimes in respect of the repayment of money paid under a mistake of law. These are (1) cases concerned with repayment of taxes and other similar charges which, when exacted ultra vires, are recoverable as of right at common law on the principle in Woolwich, and otherwise are the subject of statutory regimes regulating recovery; and (2) other cases, which may broadly be described as concerned with repayment of money paid under private transactions, and which are governed by the common law."

    13.  There is no doubt that the regimes are different. Both the Woolwich principle and section 33 apply only to the recovery of money paid as taxes or the like. They do not apply to "private transactions". The Woolwich principle is indifferent as to whether the taxpayer paid the tax because he was mistaken or, as in Woolwich, for some other reason. And section 33 has its own rules. So the regime for taxes is certainly different. But the question is whether Lord Goff meant to say that the remedies provided by the two regimes are mutually exclusive. Woolwich and section 33 are available only for "taxes and other similar charges". Does it follow that the common law rule for recovery of payments made by mistake, as applied to private transactions in Kleinwort Benson, does not apply to taxes? That would be going a good deal further. It is one thing to say that the regimes are different and another to say that their remedies are mutually exclusive.

    14.  This question is discussed at considerable length in the judgments in the Court of Appeal. It is, I think, neither here nor there for me to say that, as one who (in the end) gave wholehearted concurrence to Lord Goff's speech, I never thought that it had the meaning attributed to it by the Court of Appeal. Once a judgment has been published, its interpretation belongs to posterity and its author and those who agreed with him at the time have no better claim to be able to declare its meaning than anyone else. But to my mind the context in which Lord Goff made the remarks which I have quoted demonstrates conclusively that he could not have meant what the Court of Appeal thought.

    15.  Early in his speech ([1999] 2 AC 349, 367) Lord Goff announced that he proposed to address first the question of whether the rule precluding recovery of money paid under a mistake of law should remain part of English law. This had not been much discussed in argument. Counsel for the respondents had not attempted to defend the old rule but had concentrated his fire on the questions of whether someone who acts in accordance with a settled understanding of the law can be said to have made a mistake, or whether, if he has, the rule should be subject to an exception in such a case. Nevertheless, Lord Goff devoted some space to an examination of the history and possible policies of the mistake of law rule and finally concluded (at p 375) that it should be abrogated. That part of his speech contains no hint of an exception for taxes paid under a mistake of law.

    16.  Lord Goff then went on to the question of whether it made a difference that the payments were made in accordance with a settled understanding of the law. It is here that the passage which I have quoted appears. He uses the distinction between tax payments and private transactions to argue that the case for a settled law exception is stronger in the case of tax payments ("large numbers of taxpayers may be affected" and "there is an element of public interest") than in the case of private transactions. At the end of this discussion, he leaves the door slightly open for an argument that there is such a defence for tax payments. But he rejects it for private payments.

    17.  My Lords, this reasoning is quite inconsistent with the absence of a cause of action for recovery of tax on the grounds of mistake of law. What kind of claim did Lord Goff contemplate that a settled law defence might protect the Revenue against? Surely, a claim to recover tax on the ground that it had been paid under a mistake of law. Lord Goff was not suddenly turning to the Woolwich cause of action and asking whether it should be subject to a defence that the demand for tax, although ultra vires, was in accordance with a settled understanding of the law. The question which he had announced (at p 367) that he intended to answer was "whether…there should be an exception to recovery on the ground of mistake of law…in cases where the money has been paid under a settled understanding of the law which has subsequently been changed by judicial decision." There would be little point in discussing whether a settled understanding of the law should be a defence to a claim for recovery of a tax payment on the grounds of mistake of law if there was no such cause of action.

    18.  In my opinion, Lord Goff's speech in Kleinwort Benson does not deny the right to recover tax on the ground that it was paid by mistake. On the contrary, his discussion of a possible settled law defence necessarily entails that he thought that there was such a cause of action. And for the reasons I gave in Kleinwort Benson, I do not think that there is an exception for cases in which there is a settled view of the law.

    19.  Mr Glick's alternative submission was that section 33 excluded any common law claim on the grounds of mistake. He said that Parliament, having provided a qualified remedy for one category of mistaken payments of tax (when "the assessment was excessive by reason of some error or mistake in a return"), must be taken to have dealt exhaustively with any kind of mistaken payment of tax and, so far as section 33 did not provide a remedy, must be taken to have intended that no remedy should exist. Mr Glick accepts that section 33 has no application to the present case because ACT was payable without any assessment, but nevertheless submits that section 33 excludes a remedy. In my opinion this goes much too far. Mr Glick advanced a similar argument in the Woolwich case, where section 33 did not apply because there had been no lawful assessment. The House of Lords rejected it. It is true that in Woolwich Mr Glick's argument was more ambitious, in that he was trying to use section 33 to exclude a remedy even when there had been no mistake of any kind. But the question is in the end one of construction. When a special or qualified statutory remedy is provided, it may well be inferred that Parliament intended to exclude any common law remedy which would or might have arisen on the same facts. That was the case in Marcic v Thames Water Utilities Ltd [2003] UKHL 66; [2004] 2 AC 42, upon which Mr Glick relied. But I see no reason to infer that Parliament intended to exclude a common law remedy in all cases of mistake (whether of fact or law) in which the Revenue was unjustly enriched but did not fall within section 33.

 
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