Deutsche Morgan Grenfell Group Plc v Commissioners of Inland Revenue
| Jurisdiction | UK Non-devolved |
| Judge | LORD HOFFMANN,LORD HOPE OF CRAIGHEAD,LORD SCOTT OF FOSCOTE,LORD WALKER OF GESTINGTHORPE,LORD BROWN OF EATON-UNDER-HEYWOOD |
| Judgment Date | 25 October 2006 |
| Neutral Citation | [2006] UKHL 49 |
| Date | 25 October 2006 |
| Court | House of Lords |
and another
and another
[2006] UKHL 49
Appellate Committee
Lord Hoffmann
Lord Hope of Craighead
Lord Scott of Foscote
Lord Walker of Gestingthorpe
Lord Brown of Eaton-Under-Heywood
HOUSE OF LORDS
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)
My Lords,
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.
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.
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.
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.
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.
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.
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.
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.
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...
To continue reading
Request your trial
- Test Claimants in the Franked Investment Group Litigation v Revenue and Customs Commissioners
-
Test Claimants in the Franked Investment Income Group Litigation and Others v Revenue and Customs Commissioners; Test Claimants in the Franked Investment Income Group Litigation and Others v Revenue and Customs Commissioners
...4 All ER 645; [2003] STC 1017; [2005] EWCA Civ 78 ; [2006] Ch 243; [2006] 2 WLR 103; [2005] 3 All ER 1025; [2005] STC 329, CA; [2006] UKHL 49; [2007] 1 AC 558; [2006] 3 WLR 781; [2007] 1 All ER 449; [2007] STC 1, HL(E)Diplock, In re [1947] Ch 716; [1947] 1 All ER 522; [1948] Ch 4......
-
Quilvest Finance Ltd Appellant/Defendant v Fairfield Sentry Ltd ((in Liquidation)) Respondent/Claimant
...never invalidated. On the true construction of the contract it was still possible to be performed. Deutshe Morgan Grenfell Group plc v Inland Revenue Commissioners and another [2007] 1 A.C. 558 applied; Bell and Another v Lever Brothers, Limited [1932] A.C. 161 applied. 6. Mistake as to ......
-
R (Child Poverty Action Group) v Secretary of State for Work and Pensions
... ... the parties on the decision in Munro v Revenue and Customs Commissioners [2009] Ch 69 , which I ... House of Lords was concerned with in Deutsche Morgan Grenfell Group Plc v IRC [2007] 1AC 558 ... ...
-
Group Litigation Orders: Binding Effect Of Decisions In Test Cases
...have discovered it (referred to as the date of "constructive discovery"). In a decision in 2006, Deutsche Morgan Grenfell Group plc v IRC [2006] UKHL 49 ("DMG"), the House of Lords held that the date of constructive discovery was the date of the judicial ruling that established the unlawful......
-
'The receipt of what?': Questions concerning third party recipient liability in equity and unjust enrichment.
...Enrichment' (2004) 28 Melbourne University Law Review 759. But see Deutsche Morgan Grenfell Group plc v Inland Revenue Commissioners [2007] 1 All ER 449, 500 (Lord (96) Birks, Unjust Enrichment, above n 85, 39. (97) The fourth question, as to the form of relief, will also be considered furt......
-
Restitution
...he might be wrong, and this requires an assessment of the facts and circumstances of the case: Deutsche Morgan Grenfell Group Plc v IRC[2007] 1 AC 558 at [26] and [65]. Further, there is a spectrum of state of minds between sheer ignorance to positive but incorrect belief (David Securities ......
-
Retroactive Adjudication.
...OF ACTIONS [section] 8.3 (1991); infra note 381. (356.) Deutsche Morgan Grenfell Grp. Plc v. Her Majesty's Comm'rs of Inland Revenue [2007] 1 AC 558 (HL), [31], [71], [144], applied in FII Test Claimants, [2017] STC 696, [372] ("[I]n the case of a point of law which is being actively disput......
-
THE LAW WANTS TO BE FORMAL.
...state officials when the state has acted unconstitutionally). (250) See Deutsche Morgan Grenfell Grp. Pic v. Inland Revenue Comm'rs (DMG) [2006] UKHL 49, [2007] 1 All ER 449 [6]-[8] (Lord (251) See id. at [8]. (252) See id. at [18]; cf. WILLIAMS, supra note 246, at 20-39. (253) See Sempra M......