Deutsche Morgan Grenfell Group Plc (Respondents) v. Her Majesty's Commissioners of Inland Revenue and another (Appellants)
20. The next question is whether the money was paid by mistake. This might seem at first sight to be a simple question but the division of opinion in the Kleinwort Benson case  2 AC 349 and the academic literature show that it can lead one into deep waters. One might start by asking why it matters. The effect of the decision in Metallgesellschaft  Ch 620 was that the Inland Revenue had not been entitled to the money. Nor could the Revenue have thought that DMG was intending to make an interest-free loan to the British government or that there was any other proper ground on which they had been entitled to retain it. Why, then, is it necessary to investigate the precise state of mind (of which the Revenue would have known nothing) with which DMG made the payment?
21. The answer, at any rate for the moment, is that unlike civilian systems, English law has no general principle that to retain money paid without any legal basis (such as debt, gift, compromise, etc) is unjust enrichment. In the Woolwich case  AC 70, 172 Lord Goff said that English law might have developed so as to recognise such a general principle - the condictio indebiti of civilian law - but had not done so. In England, the claimant has to prove that the circumstances in which the payment was made come within one of the categories which the law recognizes as sufficient to make retention by the recipient unjust. Lord Goff provided a list in the Woolwich case at pp 164-165 and the decision itself added another. One such category, long recognized, is payment by mistake: see Kelly v Solari (1841) 9 M & W 54. The late Professor Birks argued, in the second edition of his book on Unjust Enrichment (2005), that the trend of recent English decisions meant that, for the purpose of entitling a claimant to recover, the categories were now superfluous. The fact that the money had not been due was, in the absence of some other causa for payment, a sufficient ground for recovery. We have now developed a condictio indebiti. The absence of a basis for the payment is a ground which generalises and subsumes all the separate categories of situation in which a payment of money not due was recoverable.
22. I do not think it is necessary for us to decide this question about the fundamental basis of enrichment liability because the question before the House is not the fundamental juridical basis of DMG's cause of action but whether the action can be described as being "for relief from the consequences of a mistake" within the meaning of section 32(1)(c) of the 1980 Act. Kleinwort Benson  2 AC 349 is recent authority for the proposition that an action for restitution of money paid under a void contract can fall within this description. That does not seem to me inconsistent with the existence of the mistake not being essential to the cause of action but merely one example of a case which falls within a more general principle, just as one could have (say, for the purposes of limitation) a category called "clinical negligence" without implying that it is a cause of action different in nature from other kinds of negligence.
23. I come back, therefore, to the question of whether DMG made a mistake, against the consequences of which the action seeks relief. The first point to make is that the alleged mistake was one of a very special kind. If DMG had known for certain what the Court of Justice was going to say in Metalgesellschaft on 8 March 2001, it is very unlikely that it would have paid ACT. But it had no means of knowing that. It was only in retrospect that it became clear that the ACT could not lawfully have been exacted. Professor Birks said that this was not a mistake at all. It was merely an inability to predict what the Court of Justice was going to say, just as one cannot predict with certainty what the weather is going to be like. And Sir Jack Beatson, writing extra-judicially in the volume to be published in memory of Professor Birks (Unlawful Statutes and Mistake of Law: Is there a Smile on the Face of Schrödinger's Cat? in Mapping the Law (ed Burrows and Rodger) at pp 163-180) describes the majority decision in Kleinwort Benson to treat a similar failure of prediction as a mistake as an "emphatic endorsement of the declaratory theory of judicial decision-making" and "abstract juridical correctitude". This seems to me, with respect, to muddle two different questions. One is whether judges change the law or merely declare what it has always been. The answer to this question is clear enough. To say that they never change the law is a fiction and to base any practical decision upon such a fiction would indeed be abstract juridical correctitude. But the other question is whether a judicial decision changes the law retrospectively and here the answer is equally clear. It does. It has the immediate practical consequence that the unsuccessful party loses, notwithstanding that, in the nature of things, the relevant events occurred before the court had changed the law: see In re Spectrum Plus Ltd  UKHL 41;  2 AC 680. There is nothing abstract about this rule. So the main question in the Kleinwort Benson case was whether a person whose understanding of the law (however reasonable and widely shared at the time) is falsified by a subsequent decision of the courts should, for the purposes of the law of unjust enrichment, be treated as having made a mistake. The majority view in Kleinwort Benson was that he should. The effect of the later judgment is that, contrary to his opinion at the time, the money was not owing. It is therefore fair that he should recover it. It may be that this involves extending the concept of a mistake to compensate for the absence of a more general condictio indebiti and perhaps it would make objectors feel better if one said that because the law was now deemed to have been different at the relevant date, he was deemed to have made a mistake. But the reasoning is based upon practical considerations of fairness and not abstract juridical correctitude.
24. Mr Glick, taking Kleinwort Benson at face value, accepted that the DMG made the 1993 and February 1995 payments by mistake. But he said that the commencement of the Metallgesellschaft litigation in July 1995 must, at the very lowest, have raised a doubt in the relevant minds of DMG. There was evidence that in July 1995 DMG had discussed the implications of the Metalgesellschaft challenge and considered making a "protective" group election in case Metallgesellschaft won its case. (Whether such an election would have done them any good is another matter: see Park J at  4 All ER 645, 657.) So the Revenue say that the 1996 payment was made when a state of doubt existed and that this was not a mistake.
25. There is some authority for the view that a state of doubt does not amount to a mistake: see Burrows The Law of Restitution (2nd ed 2002) pp 139-140. In the Kleinwort Benson case ( 2 AC 349, 410) my noble and learned friend Lord Hope of Craighead said:
26. This was a very compressed remark in the course of a discussion of other matters and I do not think that Lord Hope could have meant that a state of doubt was actually inconsistent with making a mistake. Contestants in quiz shows may have doubts about the answer ("it sounds like Haydn, but then it may be Mozart") but if they then give the wrong answer, they have made a mistake. The real point is whether the person who made the payment took the risk that he might be wrong. If he did, then he cannot recover the money. Speaking for myself, I think that there is a parallel here with the question of whether a common mistake vitiates a contract. As Steyn J said in Associated Japanese Bank (International) Ltd v Credit du Nord SA  1 WLR 255, 268:
27. Likewise, the circumstances in which a payment is made may show that the person who made the payment took the risk that, if the question was fully litigated, it might turn out that he did not owe the money. Payment under a compromise is an obvious example: see Brennan v Bolt Burdon  EWCA Civ 1017;  QB 303. I would not regard the fact that the person making the payment had doubts about his liability as conclusive of the question of whether he took the risk, particularly if the existence of these doubts was unknown to the receiving party. It would be strange if a party whose lawyer had raised a doubt on the question but who decided nevertheless that he had better pay should be in a worse position than a party who had no doubts because he had never taken any advice, particularly if the receiving party had no idea that there was any difference in the circumstances in which the two payments had been made. It would be more rational if the question of whether a party should be treated as having taken the risk depended upon the objective circumstances surrounding the payment as they could reasonably have been known to both parties, including of course the extent to which the law was known to be in doubt.
28. These thoughts may be said to support the view of Professor Birks that English law should be less concerned with whether the person who paid the money made a mistake (involving an inquiry into his subjective state of mind) than with whether there was a valid causa for the payment, such as a debt, compromise or gift, these being matters of objective inquiry into the circumstances of the payment as they would have been known to both parties. But they do not arise in this case because both the judge and Jonathan Parker LJ in the Court of Appeal decided on the facts that, even if a state of doubt was inconsistent with a mistake, DMG had been mistaken. Mr Thomason, the Head of Taxation at DMG, gave evidence about his state of mind when it paid the ACT. He said:
29. Park J accepted this evidence as showing that, whether or not a state of doubt was consistent with making a mistake, DMG, in the person of Mr Thomason, was not in a state of doubt. Jonathan Parker LJ agreed. He said ( 2 WLR 103, 179, para 235):
30. Buxton and Rix LJJ, on the other hand, doubted whether this could be reconciled with the observations of Lord Hope which I have cited above. But I do not understand why this should be so. The judge attributed Mr Thomason's state of mind to DMG and found as a fact that he was not in doubt. He thought that DMG had to pay. Someone with a more sophisticated approach to the law might have had doubts - might even have thought that Metallgesellschaft had a good case and that the ECJ ruling would apply retrospectively - but not Mr Thomason. I would therefore agree with the judge and Jonathan Parker LJ that on any view of the law on this point, he made a mistake.
31. If DMG made a mistake about the law, when could they "with reasonable diligence" have discovered it? On this question it is important to bear in mind the special nature of the mistake, namely that it was deemed to have been made because of the retrospective operation of a later decision of the Court of Justice. The "reasonable diligence" proviso depends upon the true state of affairs being there to be discovered. In this case, however, the true state of affairs was not discoverable until the Court of Justice pronounced its judgment. One might make guesses or predictions, especially after the opinion of the Advocate General. This gave DMG sufficient confidence to issue proceedings. But they could not have discovered the truth because the truth did not yet exist. In my opinion, therefore, the mistake was not reasonably discoverable until after the judgment had been delivered.
32. Two footnotes on the question of mistake. First, Park J took a rather sophisticated view of the nature of the mistake. He said that the mistake was not about whether ACT was payable. DMG had not made an election and therefore it was payable. The mistake was about whether DMG should have been allowed to elect. But I agree with the Court of Appeal that the mistake was about whether DMG was liable for ACT. The election provisions were purely machinery, which DMG would undoubtedly have used, by which it could enforce its right to exemption from liability.
33. Secondly, Buxton LJ said that the problems about what counted as a mistake, some of which I have discussed above, showed the "ineptitude" of extending the law of payment under a mistake of law to payment of taxes. It is true that there may be anomalies in the different limitation treatment of claimants who paid under a mistake and those who paid without a mistake but pursuant to an ultra vires demand (Woolwich) or a void contract (Kleinwort Benson): see  2 WLR 103, 190 and 192. But these anomalies flow from any recognition of payment by mistake as a cause of action and not from a distinction between payments of tax and private payments. In either case, there is the possibility of alternative causes of action, with one producing more favourable treatment under the Limitation Act than the other.
34. It follows that in my opinion section 32(1)(c) postponed the commencement of the limitation period in respect of all three ACT payments until 8 March 2001. That makes it unnecessary to decide whether the proceedings in respect of the last two payments were begun when the proceedings were issued or when they were amended. I will say only that on this point I agree with the majority of the Court of Appeal. I would allow the appeal and restore the judgment of Park J.
LORD HOPE OF CRAIGHEAD
35. I have had the great advantage of reading in draft the speeches of my noble and learned friends Lord Hoffmann and Lord Walker of Gestingthorpe, in which the background to this appeal is so comprehensively and helpfully set out. With that advantage, which I gratefully acknowledge, I can proceed directly to the three of the various issues in dispute which Lord Walker has summarised in para 117 on which I wish to comment. These are (1) the cause of action" issue; (2) the "mistake" issue; and (3) the "discovery" issue.
36. As Lord Walker points out (para 96), the focus of the present appeal is on limitation of actions. DMG seeks to avoid the six year time limit by taking advantage of the extended limitation period that is available in England and Wales (but not in Scotland: see the Prescription and Limitation (Scotland) Act 1973, section 6 and Schedule I, para 1(b)) under section 32(1)(c) of the Limitation Act 1980 which provides that, where the action is for relief from the consequences of a mistake, the period of limitation shall not begin to run until the claimant has discovered the mistake or could with reasonable diligence have discovered it. This provision no longer applies in relation to a mistake of law relating to a taxation matter under the care and management of the Commissioners for Revenue and Customs: Finance Act 2004, section 320 (read together with section 5 of the Commissioners for Revenue and Customs Act 2005). That section, which applies only to actions brought on or after 8 September 2003, was enacted in response to the judgment of Park J in this case which was given on 18 July 2003:  4 All ER 645. The application of this provision to claims existing but not yet made by 8 September 2003 is being challenged under Community law: Aegis Group plc v IRC  EWHC 1468 (Ch);  STC 23. It is enough, however, for the purposes of this case to say that it is not in dispute that the extended limitation period is available to DMG if the issues which are raised in this appeal are decided in its favour.
37. The fact that the benefit of the extended period is being removed from future cases does not deprive the question whether English law recognises a restitutionary claim for tax paid under a mistake of law of all its interest. But the fact that the limitation period is now the same, at least for all new claims, whichever of the various available avenues for the recovery of money from the Revenue is chosen makes it unlikely that this issue will require to be revisited in cases to which it is a party. Tax paid in response to an unlawful demand will be recoverable under the Woolwich principle, subject to the ordinary time limit of six years: Woolwich Equitable Building Society v Inland Revenue Commissioners  AC 70. Where the revenue's assessment to tax was excessive by reason of some error or mistake made by the taxpayer in a return, a statutory remedy for repayment is available. The leading examples are to be found in section 33 of the Taxes Management Act 1970 as to income tax and capital gains tax and the Finance Act 1998, Schedule 18, para 51 as to corporation tax. The remedy available under these provisions must be sought not later than six years after the end of the relevant accounting period: see TMA 1970, section 33(1). Cases not covered by one or other of these remedies in which it will be necessary to resort to a remedy under the principle of unjust enrichment are likely to be rare.
The cause of action issue
38. Lord Goff of Chieveley made it clear in Kleinwort Benson Limited v Lincoln City Council  2 AC 349, 371H-372A (his speech in that case, so rich in scholarship, was the last which he prepared before his retirement as Senior Law Lord) that he was under no illusions about the difficulties which the House faced in formulating satisfactory limits to the right to recover money paid under a mistake of law. He observed that there was more sense in the old mistake of law rule than its more strident critics had been prepared to admit. But its rejection by the common law world was not, as he said at pp 372F-373D, due to a wish to depart from the policy underlying the rule but rather to an acknowledgement, due essentially to the work of scholars, that it could best be achieved by recognising a general right of recovery subject to specific defences to cater for the fears which formerly appeared to require a blanket exclusion of recovery. It was his acceptance of this general right of recovery of money paid under a mistake, whether of fact or law, that lay at the centre of the discussion that then followed. As he put it at p 373C, a blanket rule of non-recovery, irrespective of the justice of the case, could not survive in a rubric of the law based on the principle of unjust enrichment. Instead it was for the law to evolve appropriate defences which could, together with the acknowledged defence of change of position, provide protection where appropriate for recipients of money paid under a mistake of law in those cases in which justice or policy does not require them to refund the money.
39. This then is the background against which the argument for the Revenue on this issue must be examined. On the one hand there is the proposition which lay at the heart of Lord Goff's analysis. (An indication of the immense care he took over his speech, which was so evident to those of your Lordships who had the privilege of sitting with him on that case, can be gathered from the fact that the original version of it lacked some of the section headings that appear in the revised version that was later published in the Appeal Cases: see  3 WLR 1095 at pp 1119G and 1121A-B;  2 AC 349 at pp 379F and 381B). As he put it at p 385A-B, money paid under a mistake of law is recoverable on the ground that its receipt by the defendant will, prima facie, lead to his unjust enrichment, just as receipt of money paid under a mistake of fact will do so. Then there is the principle recognised by Professor Peter Birks, to whom Lord Walker has so fittingly paid tribute. With characteristic simplicity he declared that, unless displaced by statute, causes of action good against private citizens are no less good against public bodies: see his essay (in the volume Essays on Restitution (1990), edited by Professor P D Finn) entitled Restitution from the Executive, at p 174. That was why he acknowledged that, if in Woolwich Equitable Building Society v Inland Revenue Commissioners  AC 70 the building society had made a mistake of fact, it would undoubtedly have entitled the society to restitution of the money paid to the Revenue in consequence of its mistake, just as it plainly would have been had the transaction been with a private citizen.
40. The question is whether an exception to the general rule which Lord Goff identified should now be recognised in the case of payments made under a mistake of law to the Revenue. How would Lord Goff himself have reacted to it? I think that there is no doubt what his initial reaction would have been. We can see what he made of the argument that the Revenue was in a special position in the Woolwich case at pp 171-172. The Revenue had made an unlawful demand for tax but it was asserting that it was under no obligation to pay back the money. That position seemed to him, as matter of common justice, to be untenable - a position made worse by the fact that it involved the Revenue having the benefit of a massive interest-free loan as the fruit of its unlawful action:
We can also see, from the way in which he dealt with the suggested defence of honest receipt in Kleinwort Benson  2 AC 349, pp 384-385, how determined he was to preserve the purity and simplicity of the principle which he had described earlier:
I think that Mr Rabinowitz QC for DMG was right therefore to take as the starting point for his argument the general right to recover, and then to ask on what grounds either of policy or principle the Revenue can claim that an exception should be made in its case.
41. I should add, before I complete this introduction, that I believe that we are in a very different field from that which Lord Rodger of Earlsferry was contemplating when in Commissioners of Customs and Excise v Barclays Bank plc  UKHL 28;  3 WLR 1, 19, para 51 he reminded us of the philosopher's advice to "Seek simplicity and distrust it." The proposition that money paid under a mistake is recoverable is based on the principle that, prima facie, its receipt by the defendant will lead to his unjust enrichment. There is no reason to distrust a proposition based on such an elementary principle just because it is simple. Now that the common law world has recognised that there is a general right of recovery whether the mistake is of fact or law, it should be careful not to disturb its purity and its simplicity unless there is a clear basis on grounds of principle or policy for doing so.
42. The Revenue submit that a common law claim for restitution based on mistake of law is not available to a party in relation to an overpayment of tax to the Revenue. They maintain that common law claims for restitution arising from a tax measure which is ultra vires or otherwise unlawful can only be made on the principle in Woolwich or by analogy with that principle, and that they are subject to a limitation period of six years. They also point to the existence of statutory remedies. To bring the case within the Woolwich principle by analogy they submit that, while ACT cannot be said to have been an unlawful tax, the payments that were made in this case were the result of the unlawful exclusion of certain subsidiaries in section 247(1) of the ICTA 1988. It follows that a right to a remedy arises in respect of that unlawfulness. As for the statutory remedies, they submit that there is a general principle that a common law remedy will be excluded where Parliament has enacted a statutory scheme inconsistent with the remedy. That scheme is revealed by the various provisions that have been enacted which, subject to certain conditions, permit the recovery of tax paid by reason of an error or a mistake in an assessment. The authority which they cite in support of this proposition is Marcic v Thames Water Utilities Ltd  2 AC 42.
43. Two issues of principle lie at heart of this argument. The first is whether the remedy in restitution that is available for payments made under a mistake recognised in Kleinwort Benson Limited v Lincoln City Council  2 AC 349 is subject to an exception in the case of taxes paid under a mistake of law to the Revenue. The second is whether, if they are not subject to any such exception, it is open to a litigant to choose whichever of two or more concurrent remedies best suits his interests. The argument that, where there is a statutory scheme which occupies the same ground as the common law remedy, the common law remedy must be held to be excluded by it, cannot be said to raise an issue of principle as the effect of the scheme must depend on the words of the statute. Nevertheless it raises an issue of policy that needs to be dealt with.