Deutsche Morgan Grenfell Group Plc v Commissioners of Inland Revenue and Attorney General
| Jurisdiction | England & Wales |
| Judge | Lord Justice Jonathan Parker,Lord Justice Rix,Lord Justice Buxton |
| Judgment Date | 04 February 2005 |
| Neutral Citation | [2005] EWCA Civ 78 |
| Docket Number | Case No: C3/2003/2785 |
| Court | Court of Appeal (Civil Division) |
| Date | 04 February 2005 |
[2005] EWCA Civ 78
Lord Justice Buxton
Lord Justice Rix and
Lord Justice Jonathan Parker
Case No: C3/2003/2785
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
The Hon Mr Justice Park
HC000 4650 CH
Royal Courts of Justice
Strand, London, WC2A 2LL
Ian Glick QG, Bruce Carr and David Ewart (instructed by Inland Revenue Solicitors) for the Appellants
Lawrence Rabinowitz QC and Francis Fitzpatrick (instructed by Slaughter & May) for the Respondent
CONTENTS
Jonathan Parker LJ:
PART I: Introduction (paras 1–11)
Rix LJ (paras 250–263)
Buxton LJ (paras 264–298)
PART I: INTRODUCTION
By its decision in Kleinwort Benson v. Lincoln City Council [1999] 2 AC 349 (" Kleinwort Benson") the House of Lords abrogated the common law rule that no restitutionary claim lies in respect of money paid under a mistake of law, holding that the claimant bank was entitled to a restitutionary remedy in respect of sums paid to a local authority under an illegal transaction. The instant appeal raises a question of general importance as to the scope of the principle established by that decision. The question is whether the principle applies where the payment in question is a payment to the revenue on account of a supposed liability to tax (in the instant case, advance corporation tax ("ACT")). The appellants on this appeal contend that it does not apply to such a payment, given (a) that statute provides for the recovery of tax overpaid by error or mistake in certain, albeit limited, circumstances (the statutory provision relating to overpayments of ACT is to be found in section 33 of the Taxes Management Act 1970 (" TMA")); and (b) that, as the House of Lords held in Woolwich Equitable Building Society v. Inland Revenue Commissioners [1993] AC 70 (" Woolwich"), a party who has made a payment to the revenue pursuant to an unlawful demand is entitled as of right to a restitutionary remedy, regardless of whether in making the payment the payer was acting under any mistake of law.
The answer to the above question has significant limitation consequences. For it is common ground that whereas (absent fraud, concealment or mistake) a restitutionary claim based on the Woolwich principle will, by virtue of section 5 of the Limitation Act 1980 ("the 1980 Act"), become statute-barred on the expiry of six years after the payment was made, section 32(1)(c) of the 1980 Act provides that (subject to immaterial exceptions) the six-year limitation period for a claim for relief from the consequences of a mistake—including (as the House of Lords held in Kleinwort Benson) a mistake of law—does not start to run until the claimant has discovered the mistake or could with reasonable diligence have done so.
The question identified in paragraph 1 above did not arise directly for decision either in Woolwich or in Kleinwort Benson (in Woolwich the payment was a payment to the revenue but it was not made under a mistake of law; whereas in Kleinwort Benson the payment was made under a mistake of law but it was a payment under a private transaction and not a payment to the revenue). Nonetheless, in order to answer that question it is necessary to undertake a close examination of the reasoning of their Lordships in Woolwich and in Kleinwort Benson, and in particular that of Lord Goff of Chieveley, who gave the leading speech in each of the two cases. Indeed, distinguished leading counsel have devoted the greater part of the four-day hearing before the judge and the two-day hearing in this court to that task.
The appeal is brought by the Commissioners of Inland Revenue and Her Majesty's Attorney-General, the defendants in the action, from an order made on 18 July 2003 by Park J whereby he entered judgment on liability in favour of Deutsche Morgan Grenfell Group plc ("DMG"), with quantum to be agreed between the parties.
The instant case is one of a large number of claims which have been brought against the appellants following the decision of the European Court of Justice ("the ECJ") in the joined cases of Metallgesellschaft Ltd & Ors. v. Inland Revenue Commissioners and Attorney-General and Hoechst AG v. Inland Revenue and Attorney-General C-397/98 and C-410/98 [2001] STC 452 (" Metallgesellschaft"). I refer to Metallgesellschaft in some detail in Part VI of this judgment, but the following brief account of the decision may suffice by way of introduction.
In Metallgesellschaft, the claimant taxpayers challenged the legality of the provisions of the Income and Corporation Taxes Act 1988 (" ICTA") relating to the imposition of a charge to ACT on dividends paid by a subsidiary resident in the UK to its parent, contending that the provisions in question contravened article 52 (now article 43) of the EC Treaty (freedom of establishment) in that they discriminated between those UK subsidiaries whose parent companies were resident in the UK and those whose parent companies were resident in other Member States. Since, in the event, the claimants had set off the sums paid by way of ACT against their subsequent liability for 'mainstream' corporation tax (as they were entitled to do under the provisions in question) they did not seek recovery of the sums paid; rather, they sought compensation to reflect the fact that the sums in question had been paid prematurely.
By its decision, which was delivered on 8 March 2001, the ECJ upheld the claimants' challenge. It found that the statutory provisions in question contravened article 52, and that the claimants were entitled to compensation for premature payment. However, it left the assessment of the compensation, together with all ancillary matters, to the national court.
The judge's decision in the instant case is one of a number of decisions which he has made in cases brought forward as test cases pursuant to a group litigation order, the purpose of which is to enable the claims arising from the ECJ's decision in Metallgesellschaft to be managed in an orderly way.
In the instant case, DMG seeks relief against the appellants in respect of various payments of ACT made prematurely by DMG, including payments made on 14 October 1993 ("the 1993 payment"), 15 February 1995 ("the 1995 payment") and 14 January 1996 ("the 1996 payment"). Its primary claim is for a restitutionary remedy, based on the ECJ decision in Metallgesellschaft. In the alternative, it claims damages for breach of statutory duty by the appellants in failing to ensure that the relevant statutory regime complied with Community law.
I shall have to refer to the pleadings in more detail later in this judgment, but I note at this stage that the claim form describes the claim as an unquantified claim for damages for breach of Community law, with no mention of any restitutionary claim. However, paragraph 13 of the Particulars of Claim, under the heading 'Restitution and Compensation', pleads that (in the alternative to the claim for damages for breach of statutory duty) DMG is entitled to compensation in respect of sums paid by way of ACT as set out in attached schedules (to which the 1993 payment, the 1995 payment and the 1996 payment were later added by amendment); subparagraph (B) of the particulars of loss and damage pleaded under paragraph 20 of the Particulars of Claim describes the compensation sought as being "for loss of use of the said ACT to be calculated from the dates of payment until the dates of set-off against [DMG's] liability to mainstream corporation tax"; and the prayer for relief contains claims for 'Restitution' and 'Compensation', in addition to damages. The appellants have at no stage objected to the fact that the Particulars of Claim pleads a claim which does not appear in the claim form.
The appellants plead a limitation defence in relation to the 1993 payment, the 1995 payment and the 1996 payment. DMG counters by relying on section 32(1)(c) of the 1980 Act. The limitation issues so raised, which (as will become apparent) are of some considerable complexity, were the only issues which, pursuant to the group litigation order, fell to be decided by the judge in the instant case. He resolved those issues in favour of DMG, holding that none of the three payments in question was statute-barred. He entered judgment for DMG accordingly. The appellants petitioned the House of Lords under the leapfrog procedure for permission to appeal, but their petition was refused. Accordingly, with the permission of the judge, the appellants now appeal to this court.
PART II: THE RELEVANT STATUTORY PROVISIONS
The relevant provisions of the 1980 Act are as follows (so far as material):
"2. Time limit for actions founded on tort
An action founded on tort shall not be brought after the expiration of six years from the date on which the cause of action accrued.
….
5. Time limit for actions founded on simple contract
An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued.
….
32. Postponement of limitation period in case of fraud, concealment or mistake
(1) …. where in the case of any action for which a period of limitation is prescribed by this Act, either —
(a) …. ; or
(b) …. ; or
(c) the action is for relief from the consequences of a mistake;
the period of limitation shall not run until the plaintiff has discovered the …. mistake …. or could with reasonable diligence have discovered it.
…."
I turn next to TMA section 33. It is common ground that, for a reason which...
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