The Overpaid Tax Litigation: Roadblocked
| Published date | 01 September 2021 |
| Author | Samuel Beswick |
| Date | 01 September 2021 |
| DOI | http://doi.org/10.1111/1468-2230.12630 |
bs_bs_banner
Modern Law Review
DOI:10.1111/1468-2230.12630
The Overpaid Tax Litigation: Roadblocked
Samuel Beswick∗
Over the past two decades, English courts have construed section 32(1)(c) of the Limitation
Act 1980 to extend the time for pleading a cause of action in mistake of law until a decision
of a nal court authoritatively resolves the point of law at issue. The Supreme Court in Tes t
Claimants in the Franked Investment Income Group Litigation v Revenue and Customs Comrs held
that this interpretation was illogical and erroneous. In construing section 32(1)(c), the focus
of attention should not be on judicial decisions, but on the claimant’s ability to discover that
they had a worthwhile claim. Limitation begins to run once a reasonably diligent person in
the position of the claimant could have known that there was a real possibility that a mistake
of law had been made. This welcome reinterpretation obviates the former mischief of judicial
developments of the law extending causes of action for an indenite period of time.
The Supreme Court’s second judgment in Test Claimants in the Franked Invest-
ment Income Group Litigation vRevenue and Customs Comrs (FII) is one of ‘the
most important decisions on the law of limitation of recent times’.1A majority
of a panel of seven judges armed the House of Lords’ holding in Kleinwort
Benson Ltd vLincoln City Council2(Kleinwort Benson) that the extended limita-
tion period provided by section 32(1)(c) of the Limitation Act 1980 (section
32(1)(c)) applies to actions for relief from the consequences of a mistake of law.
The minority would have overruled Kleinwort Benson on this point and held
that section 32(1)(c) applies only to mistakes of fact. The judges unanimously
departed from the House of Lords’ holding in Deutsche Morgan Grenfell Group
plc vInland Revenue Comrs3(Deutsche Morgan) under which the commencement
of limitation on mistake-of-law claims was thought to be postponed ‘until the
true state of the law is established by a judicial decision from which there lies
no right of appeal’.4Instead,the Supreme Court held (by a majority) that lim-
itation begins to run once a reasonably diligent person in the position of the
claimant could have known that there was a real possibility that a mistake of
law had been made.5
∗Assistant Professor, Peter A. Allard School of Law,The University of Br itish Columbia. Disclosure:
In 2015-16 the author contracted legal services to HM Revenue & Customs’Solicitor’s Oce – and
practised in the team that managed the defence to this and other overpaid corporation tax cases –
although he did not have charge of this litigation.The views expressed are solely the author’s and do
not reect the Revenue’s primary position on appeal. This note is informed by the author’s doctoral
research as presented in The Discoverability of Mistakes of Law (SJD Dissertation, Harvard Law School,
26 September 2019).
4FII (SC II) n 1 above at [8].
5 And thus that a worthwhile claim could be brought:ibid at [178].
© 2021 The Author.The Modern Law Review © 2021 The Modern Law Review Limited. (2021) 84(5) MLR 1105–1121
The Overpaid Tax Litigation
The Supreme Court’s judgment is a triumph for coherence in English lim-
itation law. It defuses much of the ‘mineeld of diculties which surround
section 32’.6For the defendant Revenue, the judgment represents an eleventh-
hour rescue from exposure to ‘colossal’monetary liability.7For the claimants, it
represents a decimation of the expected value of their long-running tax restitu-
tion claims. For scholar s of unjust enrichment, it shakes the foundation of one
of the most prominent grounds of their discipline to emerge in the last two
decades.
This note contends that the majority opinion in FII was – for the most part
– correctly reasoned. Aside from the surprising neglect of relevant comparative
law and some mystifying remarks regarding the declaratory theory of adjudi-
cation, the judgment brings much clarity and a welcome realignment of the
principle of discoverability within the law of limitation.
BACKGROUND
The inciting incident to the overpaid tax saga was the corporate dividend
tax regime that the UK implemented upon its entry into the European Eco-
nomic Community in 1973. The regime taxed dividends transferred between
wholly UK-resident groups of companies more favourably than it taxed divi-
dends transferred between company groups that were not entirely based in the
UK. The UK overhauled this system in 1999.
In July 1995, two German company groups, Metallgesellschaft and Hoechst,
led proceedings in the Chancery Division of the High Court challenging the
UK’s treatment of tax charged on dividends received by foreign companies
from UK-resident subsidiaries. The Court made a reference to the European
Court of Justice (ECJ). On 8 March 2001, the ECJ held that the UK’s corporate
dividend tax regime had unfairly discriminated against European companies
operating in the UK and that these companies were owed a remedy.8
The ECJ’s judgment sent shockwaves throughout two communities: the
community of corporate taxpayers and advisors, which sought to implement
this newly declared right; and the community of unjust enrichment scholars,
who sought to rationalise the taxpayers’legal avenues for recovery.9On 18 June
2003, in the wake of the ECJ’s judgment, the FII claimants led proceedings
claiming restitution of their previous tax payments. Their claims concerned the
reverse situation to that litigated in Metallgesellschaft and Hoechst’s case – they
concerned the tax treatment of dividends received by UK-resident companies
from foreign subsidiaries.10 These claims were consolidated by a group litiga-
tion order. The British American Tobacco (BAT) group became the lead test
6Burnden Holdings (UK) Ltd vFielding [2018] UKSC 14, [2018] 2 WLR 885 at [26].
7FII (SC II) n 1 above at [9].
8Metallgesellschaft Ltd vInland Revenue Comrs, Hoechst AG vInland Revenue Comrs (Joined Cases
C-397/98 and C-410/98) [2001] ECR I-1727, [2001] Ch 620 (Metallgesellschaft/Hoechst).
9 See generally S. Elliott, B. Häcker and C.Mitchell (eds),Restitution of Over paid Tax (Oxford:Hart
Publishing, 2013).
[2009] STC 254 at [2].
1106 © 2021 The Author.The Modern Law Review © 2021 The Modern Law Review Limited.
(2021) 84(5) MLR 1105–1121
To continue reading
Request your trial