Monro v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Mummery |
| Judgment Date | 09 April 2008 |
| Neutral Citation | [2008] EWCA Civ 306 |
| Docket Number | Case No: A3/2007/0392 |
| Court | Court of Appeal (Civil Division) |
| Date | 09 April 2008 |
[2008] EWCA Civ 306
Lord Justice Mummery
Lady Justice Arden
Lord Justice Longmore
Case No: A3/2007/0392
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(CHANCERY DIVISION)
SIR ANDREW MORRITT
Royal Courts of Justice
Strand, London, WC2A 2LL
(Transcript of the Handed Down Judgment of WordWave International Limited A Merrill Communications Company 190 Fleet Street, London EC4A 2AG Tel No: 020 7404 1400, Fax No: 020 7831 8838 Official Shorthand Writers to the Court)
Hearing date : 21 November 2007
Introduction
This is an unusual case. Mr Monro has in error overpaid a very substantial amount of tax which he understandably wishes to recover. However, his claim for return of those monies at common law was dismissed by the Chancellor ( [2007] STC 1182) because he could not satisfy the conditions for the available statutory remedy, being the specific statutory provisions for repayment of tax paid in error in s 33 of the Taxes Management Act 1970 (“ TMA 1970'), and because in the judgment of the Chancellor no claim could be brought under the general law. The respondent, whom I shall call “HMRC”, accepts that in principle a claim would lie at common law for a sum including tax paid under a mistake of law, and that s 33 of the TMA 1970 has not expressly excluded such a claim. However, HMRC contends that to permit such a claim on the facts of this case would be inconsistent with the statutory scheme to be found in s 33.
I have set out s33 of the Taxes Management Act 1970 (“the TMA 1970') in the appendix to this judgment. It is important to be familiar with the scheme of s 33 when considering the issue on this appeal. At the time when it was first enacted, it may have been thought to provide an enabling remedy on the grounds that the common law did not permit repayment of any money paid under a mistake of law. But that view of the common law was revealed to be an erroneous view of the law in Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349. It is one of the virtues of the common law that it continues to develop. As Cockburn CJ said in Wason v Walter (1868) LR 4 QB 73, 93:
“Whatever disadvantages attach to a system of unwritten law, and of these we are fully sensible, it has at least this advantage, that its elasticity enables those who administer it to adapt it to the varying conditions of society, and to the requirements and habits of the age in which we live, so as to avoid the inconsistencies and injustice which arise when the law is no longer in harmony with the wants and usages and interests of the generation to which it is immediately applied.”
Legislation is always enacted against the background of the common law. So there is always a risk while the legislation is in force the common law will change in some material way and with retrospective effect. The relationship between the common law and statute often gives rise to problems. The fact that Parliament was ignorant about the common law may for example throw light on the meaning of a provision (see, for example, Billson v Residential Apartments Ltd [1991] 3 All ER 265), but the court cannot adopt a different approach to the interpretation of a statute simply because the common law has developed since the statute was enacted or because Parliament may not have fully appreciated recent developments in the common law. The court cannot rewrite the scheme. The court has thus to take the words and structure of s 33 as they stand.
S 33 contains a clear scheme applying to error claims. It applies whenever there has been an error or mistake in a return which leads to the calculation of tax for self-assessment purposes in an excessive amount. There is no doubt but that s 33(1) taken on its own is satisfied in this case.
Subs (2) then provides that HMRC must inquire into the claim and then, unless precluded from doing so by some other provision in s 33, HMRC must give such relief in respect of the error as is reasonable and just. Subs (3) contains specific directions as to what HMRC should consider in coming to their conclusion on any claim for relief. These considerations appear to be directed to ensuring that the taxpayer making the claim is not unjustly enriched.
The critical provision in this case is subs (2A). It is a provision to which ss(2) is subject. Ss (2A) was inserted into section 33 by the Finance Act 1994 in place of a proviso which formerly appeared in subs (2). The relevant words of the previous proviso were the same as now appear in ss (2A) and a proviso in this form can be traced back to the Finance Act 1923. It originally applied only to income tax and surtax but was then extended to capital gains tax and corporation tax. Subs (2A) provides that if after inquiring into the matter pursuant to subs (2) the position is that the error or mistake was made on the basis or in accordance with the practice generally prevailing at the time when it was made HMRC may not grant any relief. The purpose of this provision is clear. It is to protect public finances. If there was no control over claims for repayment, there would always be the risk that a very substantial amount of tax would become repayable as a result of developments in case law possibly many years after it had been spent. That would create understandable difficulty.
Looking at s 33 as a whole, it is clear that it creates its own code for repayments to which s 33(1) applies. It is a parallel universe to the common law remedy. It thus does not rely on the general law for limitation of actions (see s 33(1)), or remedies (see s 33(2)) or appeals (see s 33(4)). In many respects, as Mr Bruce Carr, for HMRC, submits, the provisions of s 33 are more restrictive than those of the common law. Thus, s 33 applies only where there is an error or mistake in the return which has resulted in an assessment which is excessive. The limitation period of five years, starting on the 31 January in the year following the year of assessment, is less than that available for common law claims: see the Limitation Act 1980, including s 32 of that Act. The common law does not recognise a “settled understanding of the law defence” (see Kleinwort Benson and c.f. s 33 (2A)); and appeal lies to the special commissioners and thence to the High Court and this court on a point of law only (see s 33(4)). These differences may likewise be attributed to the public policy in conserving public finances and managing the risk thereto created by error claims.
There is, however, one provision which is conspicuous by its absence in s 33, and that is a provision which takes away common law rights. Thus, by contrast, s 80 (7) of the Value Added Tax Act 1994 provides that:
“(7) Except as provided by this section, the Commissioners shall not be liable to repay an amount paid to them by way of VAT by virtue of the fact that it was not VAT due to them.”
Nonetheless, it is important to point out that it is a corollary, which Mr Bruce Carr, for HMRC, accepts, of the parallel universe that there would have been a remedy at common law for Mr Monro but for s 33. It is not HMRC's case that the common law remedy would never have arisen. Parliament has therefore taken away a right which he would otherwise have. Pursuant to the court's duty under s 3 of the Human Rights Act 1998, s 33 has to be interpreted so far as possible so as to be Convention-compliant, that is, compliant with the European Convention on Human Rights (“the Convention”). In any event under domestic law principles rights can only be taken away by express language or necessary implication (see R v Home Secretary ex parte Simms [2000] 2 AC 115 at 131 per Lord Hoffmann). Mr Monro also has on his side the fact that in two recent decisions the House of Lords has found that common law causes of action lie in the field of tax notwithstanding the existence of statutory remedies: see Deutsche Morgan Grenfell Group plc v Inland Revenue Commissioners (referred to below as “DMG”) and Total Network SL v IRC [2008] UKHL 19.
I now turn to outline the factual background, the judgment of the Chancellor, counsels' submissions and my conclusions.
Background
I can take the background from [1] to [9] of the judgment of the Chancellor, omitting [7] which sets out s 33:
”(1) In this action the claimant, Mr Monro, seeks judgment against the defendant, HMRC, for the sum of £846,000, interest under s.35A Supreme Court Act 1981 and costs. The nature of his claim is accurately summarised in the claim form issued on 5th April 2006 as a restitutionary claim for the repayment of tax paid by him pursuant to a mistake of law or as tax paid pursuant to an unlawful demand being tax collected which was not lawfully due. The pleadings, witness statement of the claimant, on which there has been no cross-examination, and the arguments addressed to me all show that there is no dispute as to the essential facts. The only question is whether those facts entitle Mr Monro to the relief that he seeks.
(2) Mr Monro was the chief executive of Matalan plc. On 12th May 1998 he was granted for no consideration an option to acquire 1,357,230 shares in Matalan at an exercise price of zero. On 14th May 1998 he exercised the option and acquired that number of shares for nothing. Their market value then was £3,121,629 or £2.35 per share. On 1st May 1999 Mr Monro sold 900,000 shares in Matalan for £7,386,955. As the acquisition and the disposal took place in different years of assessment the acquisition was dealt with in Mr Monro's self-assessment tax return...
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