Taylor v Wilson's Trustees
| Jurisdiction | Scotland |
| Judgment Date | 26 March 1975 |
| Date | 26 March 1975 |
| Docket Number | No. 13. |
| Court | Court of Session (Inner House - Second Division) |
SECOND DIVISION.
Lord Fraser.
Repetition—Money paid in error—Condictio indebiti—Overpayment to shareholders by liquidator in members' voluntary liquidation of private company—Erroneous estimate of company's tax liability—Whether error of fact or of law—Whether error of law always a bar to repetition—Effect thereon of "special" relationship between liquidator and members of company in liquidation—Finance Act 1965 (cap. 25) secs. 46, 77—Finance Act 1967 (cap. 54), Schedule 11, paragraph 8—Companies Act 1948 (cap. 38), secs. 302, 309.
The liquidator of a private company in a members' voluntary liquidation, when calculating the amount of money available for distribution, made provision for liability to income tax on deposit receipt interest received by the company after it ceased trading, whereas he should have provided for liability to corporation tax in this respect. He further failed to provide for short-fall tax payable after the company ceased trading. In these circumstances he miscalculated the sums due to the ordinary shareholders and overpaid them. The liquidator died before the winding up was completed. His successor brought an action against the trustees of the principal shareholder, claiming repayment of the overpayment. Following a proof before answer the action was dismissed as irrelevant.
Held (aff. judgment of Lord Fraser) that the basic cause of the overpayment was the liquidator's error of law in failing to know or appreciate that under the Finance Acts the company was owing more money to the Inland Revenue than he had budgeted for; that the special position of the liquidator vis-à-vis the defenders as shareholders of the company did not take the case out of the general rule applicable to payments made arising out of an error of law; that in any event, had the error fallen to be regarded as one of fact, it was an inexcusable one; and that the overpayment could not be recovered.
Peter Cranbourne Taylor, C.A., in his capacity as liquidator, raised an action against the trustees of the late Robert F. Wilson, principal shareholder of R. Wilson (Leith) Limited, for repayment of money overpaid by his predecessor, the late Thomas W. Jackson, C.A., to them as such shareholders. On behalf of the liquidator it was pleaded on record that since the overpayment resulted from an error of fact, or of mixed fact and law, the money paid in error was recoverable. Alternatively, it was pleaded that if the error was one of law, repetition should still operate because the relationship of the late liquidator to the defenders was that of liquidator of the company to the shareholders. In reply the defenders pleaded inter alia: (1) The pursuers averments being irrelevant et separatim lacking in specification the action should be dismissed; and (3) the said distribution having been made by the then liquidator under error as to the effect of a taxing statute, the defenders are not liable to repeat. On 18th April 1974, after a proof before answer, the Lord Ordinary sustained the said first and third pleas-in-law for the defenders and dismissed the action.
The averments of parties and the facts established at the proof appear from the Lord Ordinary's opinion.
At advising on 26th March 1975,—
LORD JUSTICE-CLERK (Wheatley).—The issue in this action is succinctly set out by the Lord Ordinary in the first paragraph of his opinion. After a proof before answer the Lord Ordinary sustained the first and third pleas-in-law for the defenders and dismissed the action. His interlocutor giving effect to that decision, and his reasons therefor have been brought under review by this reclaiming motion.
The parties found it unnecessary to reproduce the notes of evidence taken at the proof, since there was no real dispute on the facts, and they were content to accept the Lord Ordinary's findings thereon.
The salient facts can be briefly summarised. In his calculations on the amount of money available for distribution among the shareholders of the company, the pursuer's predecessor as liquidator, a Mr Jackson, a chartered accountant, made certain mistakes. In the first place he made provision for liability to income tax on deposit receipt interest being received by the company after it had ceased trading whereas he should have made provision for corporation tax thereon. As corporation tax was at a higher rate than income tax, the underestimated he amount of tax due to the Inland Revenue on that item. In the second place he made no provision for short-fall tax payable by the company after 6th October 1967, the date on which the company ceased to trade. As a result he miscalculated the sums due to the ordinary shareholders, and overpaid them. The Lord Ordinary has found, and it is not disputed, that Mr Jackson's errors were due to the fact that he was either unaware of the relevant provisions of the Finance Acts, or that he had forgotten them. It was accepted by the parties that it did not matter which of these was the cause of the errors. In this action, which we were informed was in the nature of a test case for all the ordinary shareholders, the pursuer, as liquidator of the company, is seeking repayment of the over-payment made to the executors of the late Robert Wilson, who was the principal shareholder in the company. It is a matter of agreement that the defenders received the over-payment in complete good faith, believing that it was the amount properly due to them, and in any event the Lord Ordinary has so held. It should perhaps be noted, as the Lord Ordinary has pointed out, that Mr Jackson also made other omissions in his calculations, such as failing to provide for expenses involved in the liquidation and for a contingency sum to meet possible unforeseen eventualities.
The issues debated before the Lord Ordinary were these. The pursuer's primary submission was that the over-distribution to the defenders was recoverable because it was made under an error of fact. His alternative argument was that esto it was made under an error of law, it was recoverable because of the special relationship between Mr Jackson and the defenders, namely that of liquidator of the company to the member shareholders. The defenders argued that the pursuer's averments were irrelevant, and in particular submitted that the distribution having been made by Mr Jackson under error as to the effect of a taxing statute, they were not liable to make repetition. These arguments reflect their first and third pleas-in-law which were ultimately sustained by the Lord Ordinary.
In sustaining these pleas the Lord Ordinary proceeded on the basis that it has now been authoritatively decided that, if the mistake of law is in the interpretation of a public Act of Parliament, payments made in consequence of the...
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