Deutsche Morgan Grenfell Group Plc v (1) Commissioners of Inland Revenue (2) Hm Attorney General
| Jurisdiction | England & Wales |
| Judge | Mr Justice Park |
| Judgment Date | 18 July 2003 |
| Neutral Citation | [2003] EWHC 1866 (Ch),[2003] EWHC 1779 (Ch) |
| Docket Number | Case No: HC000 4650 CH |
| Court | Chancery Division |
| Date | 18 July 2003 |
[2003] EWHC 1866 (Ch)
The Honourable Mr Justice Park
Case No: HC000 4650 CH
Laurence Rabinowitz QC and Francis Fitzpatrick (instructed by Slaughter & May) for the Claimant
Ian Glick QC and Bruce Carr (instructed by The Solicitor of Inland Revenue) for the Defendants
Hearing dates: 12.05.03 to 15.05.03
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Abbreviations, dramatis personae, glossary, etc.
Overview
| ACT | Advance corporation tax |
| CJEC | The Court of Justice of the European Communities |
| DBAG | Deutsche Bank AC, a German company and the parent company, direct or indirect of DBI and DMG. |
| DBI | DB Investments (GB) Limited |
| DMG | Deutsche Morgan Grenfell Group Plc, the claimant company |
| The Income and Corporation Taxes Act 1988 in its form before amendments which took effect in 1999. | |
| Kleinwort Benson | The House of Lords decision in Kleinwort Benson v Lincoln City Council [1999] 2 AC 349. |
| Metallgesellschaft/Hoechst | The combined cases in the CJEC of Metallgesellschaft Ltd and others v Commissioners of Inland Revenue and the Attorney General ( Case C-397/98) and (1) Hoechst AG (2) Hoechst United Kingdom Ltd v Commissioners of Inland Revenue and the Attorney General ( Case C-410/98). The judgment of the CJEC was delivered on 8 March 2001 and is reported at [2001] STC 452. |
| MCT | Mainstream corporation tax, as to which see paragraph 6 of the judgment. |
| Pirelli case, the | Pirelli Cable Holding NV and others v Commissioners of Inland Revenue [2003] STC 250. |
2. At the times relevant for this case United Kingdom tax law provided that, where subsidiary companies paid dividends to their parents, 'group income' elections could be made which enabled the dividends to be paid without the paying subsidiary having to pay ACT to the UK Revenue. Until the decision of the CJEC in Metallgesellschaft/Hoechst such elections could be made only between United Kingdom resident companies: section 247(1) of ICTA included the words: 'both being bodies corporate resident in the United Kingdom'. However, in Metallgesellschaft/Hoechst the CJEC held that it was contrary to article 52 (now article 43) of the EC Treaty for United Kingdom law to deny the right to make group income elections where the parent company was resident in a Member State other than the United Kingdom. The CJEC also held that, as respects payments of ACT which had already been made in the past, Community law conferred a right of compensation or restitution which the aggrieved companies were entitled to pursue in the United Kingdom courts.
3. Many United Kingdom subsidiaries of Member State parents, including DMG, a subsidiary of a German parent, commenced actions seeking compensation or restitution accordingly. The actions are now all organised within a Group Litigation Order (as to which see the Civil Procedure Rules, rules 19.11 to 19.15), and a series of test cases is being heard to determine various questions of principle to which they, or some of them, give rise. The first such case was the Pirelli case, which concerned an issue which arose where the parent company was resident in a Member State which had a particular kind of Double Taxation Agreement with the United Kingdom. The second such case is this one, in which the test claimant is DMG.
4. The special feature of this case, and of others within the Group Litigation Order for which this is the test case, is that questions of limitation of actions arise: some of the payments of ACT which DMG made to the United Kingdom Revenue were made more than six years before DMG commenced its action claiming compensation or restitution. The Revenue say that DMG's claims in respect of those ACT payments are barred by the normal six years time limit laid down by section 2 of the Limitation Act 1980. DMG argues that it can circumvent this effect of the 1980 Act by a combination of two principles of law: first, that English law recognises an action for restitution of money paid under a mistake of law (see the decision of the House of Lords in the Kleinwort Benson case identified in the Table of Abbreviations etc, at the beginning of this judgment); second, that under section 32(l)(c) of the 1980 Act, the limitation period where an action is brought for relief from the consequences of a mistake begins to run only when the claimant discovered the mistake or could with reasonable diligence have discovered it. DMG has pleaded its case in ways which include a claim for restitution on the ground that it made the payments of ACT under a mistake of law. It says that it did not discover the mistake until the decision of the CJEC in Metallgesellschaft/Hoechst. That decision was given on 8 March 2001, by which date DMG had already commenced its action. Alternatively, DMG says that the earliest time at which it could be said to have discovered its mistake was when the Advocate General delivered his opinion in Metallgesellschaft/Hoechst. That was on 12 September 2000, well within six years before DMG commenced its action. DMG argues that therefore it is not time-barred from recovering the relief which it claims, notwithstanding that the ACT payments (or some of them) were made more than six years before the action was commenced.
5. It seems to me that three principal questions arise:
i) Does a claim for restitution of a payment made under a mistake of law apply in the case of a payment of tax to a Revenue authority? In my view the answer is: yes.
ii) Did DMG make the relevant payments of ACT under a mistake of law so as to be entitled to claim restitution in accordance with the principles laid down by the House of Lords in Kleinwort Benson? In my view the answer is again: yes.
iii) Under section 32(1)(c) of the Limitation Act 1980, when did the limitation period begin to run? Did it begin to run only at the time of the CJEC's decision in Metallgesellschaft/Hoechst (or possibly at the time of the Advocate General's opinion)? Or did it begin to run at the earlier time in mid-1995 when DMG first learned that the Hoechst group of companies was arguing that the rule that only United Kingdom resident companies could make group income elections was contrary to Community law? In my opinion the period began to run only at the time of the CJEC's decision.
It follows that DMG's claims succeed.
The relevant United Kingdom tax law
6. At the times with which this case is concerned the general rule of United Kingdom tax law was that, if a company resident in the United Kingdom paid a dividend, it had to pay ACT to the Revenue: ICTA s.14. The rate of ACT varied over the years. At the times with which the present case is concerned it was normally 25% of the dividend. In the usual case the amount so paid could be set off against the company's normal liability to pay corporation tax on its profits, sometimes referred to as mainstream corporation tax or (as in this judgment) MCT. Where the ACT was so set off the payment of it did not cause the company to suffer an absolute loss of the money, because the set-off reduced on a pound for pound basis a later payment of MCT which the company would otherwise have had to make anyway. However, it did have the effect that the company had to pay some of its corporation tax bill early, so the ACT meant that the company suffered a timing disadvantage and the United Kingdom Revenue received a corresponding timing advantage. (There could be cases where a subsidiary had paid ACT and could not set it off against MCT. In such cases the ACT payment did represent an absolute loss of the money and not just a timing disadvantage. However, in the case of DMG all the relevant ACT payments were eventually set off against MCT, so that the disadvantage for which DMG seeks relief is a timing disadvantage only.)
7. There was an exception to the rule that a company which paid a dividend had to pay ACT. If it was a subsidiary of a United Kingdom holding company the two companies could jointly make a group income election under section 247 of ICTA. The effect was that the subsidiary did not have to pay the ACT after all. It did still have to pay its full MCT when the due date came round, but the group income election removed the timing disadvantage. However, if the dividend-paying company was a subsidiary of a non-United Kingdom holding company the two companies could not make a group income election, so the subsidiary had to pay ACT and suffer the timing disadvantage, in circumstances where a subsidiary of a United Kingdom holding company, if it and its parent had made a group income election, did not. That was the feature of United Kingdom law which, in Metallgesellschaft/Hoechst, the CJEC held to have been contrary to EC law and also to entitle the companies which had suffered from it to claim compensation or restitution. Where, as in this case and as in the cases of the Metallgesellschaft and the Hoechst groups, the ACT had been set off against MCT, the compensation or restitution would be an amount calculated by reference to interest over the period from the payment of the ACT until it was set off against MCT.
8. Sections 2 and 5 of this Act provide that an action founded on tort (section 2) or on simple contract (section 5) may not be brought after the expiration of six years from the date when the cause of action accrued. The parties agree that a claim for compensation or restitution of the nature which the CJEC said in Metallgesellschaft/Ho...
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