Deutsche Morgan Grenfell Group Plc v Inland Revenue Commissioners

on appeal from [2005] EWCA Civ 78

OPINIONS

OF THE LORDS OF APPEAL

FOR JUDGMENT IN THE CAUSE

Deutsche Morgan Grenfell Group Plc (Respondents) v. Her Majesty’s Commissioners of Inland Revenue and another (Appellants) Deutsche Morgan Grenfell Group plc (Appellants) v. Her Majesty’s Commissioners of Inland Revenue and another (Respondents) (Consolidated Appeals)

Appellate Committee

Lord Hoffmann

Counsel

For HM Commissioners of Inland

For Deutsche Morgan Grenfell

Ian Glick QC	Francis Fitzpatrick
David Ewart	Steven Elliott

Solicitors Office)

Hearing dates:

26 and 27 JULY 2006

ON
WEDNESDAY 25 OCTOBER 2006

HOUSE OF LORDS

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

Deutsche Morgan Grenfell Group Plc (Respondents) v. Her

Majesty’s Commissioners of Inland Revenue and another

(Appellants)

Deutsche Morgan Grenfell Group plc (Appellants) v. Her Majesty’s

Commissioners of Inland Revenue and another (Respondents)

(Consolidated Appeals)

[2006] UKHL 49

LORD HOFFMANN

My Lords,

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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 liability of the claimant and assessments made on him in respect of chargeable periods other than that to which the claim relates.

10. Whether the claim is under the Woolwich principle or section 33, time runs from when the payment was made. So Mr Glick says that in either case, the claim for interest on the 1993 payment is statute barred. The judge (Park J) rejected the submission. He saw no reason in principle why the right to restitution of payments made by mistake, which had been extended in Kleinwort Benson to include mistakes of law, should not apply to payments of tax. No argument based on section 33 appears to have been advanced to him.

11. The Court of Appeal (Jonathan Parker, Rix and Buxton LJJ) disagreed. The main reason was their view that Lord Goff of Chieveley, in his speech in Kleinwort Benson, had said that payments of tax under a mistake of law were subject to a separate and distinct regime which provided remedies only under the Woolwich principle and section 33. Buxton LJ also offered some reasons why it would cause difficulties if payment by mistake was accepted as a ground for the recovery of taxes. I will come back to this point later, when I deal with the question of whether DMG did in fact pay the tax by mistake.

12. First, however, I must deal with the opinion attributed by the Court of Appeal to Lord Goff. Both Jonathan Parker LJ and Buxton LJ subjected his speeches in the Woolwich and Kleinwort Benson case to a detailed analysis which I have read more than once with attention and respect. The chief support for Mr Glick’s argument is to be found in the following passage in Kleinwort Benson [1999] 2 AC 349, 382:

“…in our law of restitution, we now find two separate and distinct regimes in respect of the repayment of money paid under a mistake of law. These are (1) cases concerned with repayment of taxes and other similar charges which, when exacted ultra vires, are recoverable as of right at common law on the principle in Woolwich, and otherwise are the subject of statutory regimes regulating recovery; and (2) other cases, which may broadly be described as concerned with repayment of money paid under private transactions, and which are governed by the common law.”

13.       There is no doubt that the regimes are different. Both the

Woolwich principle and section 33 apply only to the recovery of money paid as taxes or the like. They do not apply to “private transactions”. The Woolwich principle is indifferent as to whether the taxpayer paid the tax because he was mistaken or, as in Woolwich, for some other reason. And section 33 has its own rules. So the regime for taxes is certainly different. But the question is whether Lord Goff meant to say that the remedies provided by the two regimes are mutually exclusive. Woolwich and section 33 are available only for “taxes and other similar charges”. Does it follow that the common law rule for recovery of payments made by mistake, as applied to private transactions in Kleinwort Benson, does not apply to taxes? That would be going a good deal further. It is one thing to say that the regimes are different and another to say that their remedies are mutually exclusive.

14. This question is discussed at considerable length in the judgments in the Court of Appeal. It is, I think, neither here nor there for me to say that, as one who (in the end) gave wholehearted concurrence to Lord Goff’s speech, I never thought that it had the meaning attributed to it by the Court of Appeal. Once a judgment has been published, its interpretation belongs to posterity and its author and those who agreed with him at the time have no better claim to be able to declare its meaning than anyone else. But to my mind the context in which Lord Goff made the remarks which I have quoted demonstrates conclusively that he could not have meant what the Court of Appeal thought.

15. Early in his speech ([1999] 2 AC 349, 367) Lord Goff announced that he proposed to address first the question of whether the rule precluding recovery of money paid under a mistake of law should remain part of English law. This had not been much discussed in argument. Counsel for the respondents had not attempted to defend the old rule but had concentrated his fire on the questions of whether someone who acts in accordance with a settled understanding of the law can be said to have made a mistake, or whether, if he has, the rule should be subject to an exception in such a case. Nevertheless, Lord Goff devoted some space to an examination of the history and possible policies of the mistake of law rule and finally concluded (at p 375) that it should be abrogated. That part of his speech contains no hint of an exception for taxes paid under a mistake of law.

16. Lord Goff then went on to the question of whether it made a difference that the payments were made in accordance with a settled understanding of the law. It is here that the passage which I have quoted appears. He uses the distinction between tax payments and private transactions to argue that the case for a settled law exception is stronger in the case of tax payments (“large numbers of taxpayers may be affected” and “there is an element of public interest”) than in the case of private transactions. At the end of this discussion, he leaves the door slightly open for an argument that there is such a defence for tax payments. But he rejects it for private payments.

17. My Lords, this reasoning is quite inconsistent with the absence of a cause of action for recovery of tax on the grounds of mistake of law. What kind of claim did Lord Goff contemplate that a settled law defence might protect the Revenue against? Surely, a claim to recover tax on the ground that it had been paid under a mistake of law. Lord Goff was not suddenly turning to the Woolwich cause of action and asking whether it should be subject to a defence that the demand for tax, although ultra vires, was in accordance with a settled understanding of the law. The question which he had announced (at p 367) that he intended to answer was “whether…there should be an exception to recovery on the ground of mistake of law…in cases where the money has been paid under a settled understanding of the law which has subsequently been changed by judicial decision.” There would be little point in discussing whether a settled understanding of the law should be a defence to a claim for recovery of a tax payment on the grounds of mistake of law if there was no such cause of action.

18. In my opinion, Lord Goff’s speech in Kleinwort Benson does not deny the right to recover tax on the ground that it was paid by mistake. On the contrary, his discussion of a possible settled law defence necessarily entails that he thought that there was such a cause of action. And for the reasons I gave in Kleinwort Benson, I do not think that there is an exception for cases in which there is a settled view of the law.

19. Mr Glick’s alternative submission was that section 33 excluded any common law claim on the grounds of mistake. He said that Parliament, having provided a qualified remedy for one category of mistaken payments of tax (when “the assessment was excessive by reason of some error or mistake in a return”), must be taken to have dealt exhaustively with any kind of mistaken payment of tax and, so far as section 33 did not provide a remedy, must be taken to have intended that no remedy should exist. Mr Glick accepts that section 33 has no application to the present case because ACT was payable without any assessment, but nevertheless submits that section 33 excludes a remedy. In my opinion this goes much too far. Mr Glick advanced a similar argument in the Woolwich case, where section 33 did not apply because there had been no lawful assessment. The House of Lords rejected it. It is true that in Woolwich Mr Glick’s argument was more ambitious, in that he was trying to use section 33 to exclude a remedy even when there had been no mistake of any kind. But the question is in the end one of construction. When a special or qualified statutory remedy is provided, it may well be inferred that Parliament intended to exclude any common law remedy which would or might have arisen on the same facts. That was the case in Marcic v Thames Water Utilities Ltd [2003] UKHL 66; [2004] 2 AC 42, upon which Mr Glick relied. But I see no reason to infer that Parliament intended to exclude a common law remedy in all cases of mistake (whether of fact or law) in which the Revenue was unjustly enriched but did not fall within section 33.

20. The next question is whether the money was paid by mistake. This might seem at first sight to be a simple question but the division of opinion in the Kleinwort Benson case [1999] 2 AC 349 and the academic literature show that it can lead one into deep waters. One might start by asking why it matters. The effect of the decision in Metallgesellschaft [2001] Ch 620 was that the Inland Revenue had not been entitled to the money. Nor could the Revenue have thought that DMG was intending to make an interest-free loan to the British government or that there was any other proper ground on which they had been entitled to retain it. Why, then, is it necessary to investigate the precise state of mind (of which the Revenue would have known nothing) with which DMG made the payment?

21. The answer, at any rate for the moment, is that unlike civilian systems, English law has no general principle that to retain money paid without any legal basis (such as debt, gift, compromise, etc) is unjust enrichment. In the Woolwich case [1993] AC 70, 172 Lord Goff said that English law might have developed so as to recognise such a general principle – the condictio indebiti of civilian law – but had not done so. In England, the claimant has to prove that the circumstances in which the payment was made come within one of the categories which the law recognizes as sufficient to make retention by the recipient unjust. Lord Goff provided a list in the Woolwich case at pp 164-165 and the decision itself added another. One such category, long recognized, is payment by mistake: see Kelly v Solari (1841) 9 M & W 54. The late Professor Birks argued, in the second edition of his book on Unjust Enrichment (2005), that the trend of recent English decisions meant that, for the purpose of entitling a claimant to recover, the categories were now superfluous. The fact that the money had not been due was, in the absence of some other causa for payment, a sufficient ground for recovery. We have now developed a condictio indebiti. The absence of a basis for the payment is a ground which generalises and subsumes all the separate categories of situation in which a payment of money not due was recoverable.

22. I do not think it is necessary for us to decide this question about the fundamental basis of enrichment liability because the question before the House is not the fundamental juridical basis of DMG’s cause of action but whether the action can be described as being “for relief from the consequences of a mistake” within the meaning of section 32(1)(c) of the 1980 Act. Kleinwort Benson [1999] 2 AC 349 is recent authority for the proposition that an action for restitution of money paid under a void contract can fall within this description. That does not seem to me inconsistent with the existence of the mistake not being essential to the cause of action but merely one example of a case which falls within a more general principle, just as one could have (say, for the purposes of limitation) a category called “clinical negligence” without implying that it is a cause of action different in nature from other kinds of negligence.

23. I come back, therefore, to the question of whether DMG made a mistake, against the consequences of which the action seeks relief. The first point to make is that the alleged mistake was one of a very special kind. If DMG had known for certain what the Court of Justice was going to say in Metalgesellschaft on 8 March 2001, it is very unlikely that it would have paid ACT. But it had no means of knowing that. It was only in retrospect that it became clear that the ACT could not lawfully have been exacted. Professor Birks said that this was not a mistake at all. It was merely an inability to predict what the Court of Justice was going to say, just as one cannot predict with certainty what the weather is going to be like. And Sir Jack Beatson, writing extra-judicially in the volume to be published in memory of Professor Birks (Unlawful Statutes and Mistake of Law: Is there a Smile on the Face of Schrödinger’s Cat? in Mapping the Law (ed Burrows and Rodger) at pp 163-180) describes the majority decision in Kleinwort Benson to treat a similar failure of prediction as a mistake as an “emphatic endorsement…of the declaratory theory of judicial decision-making” and “abstract juridical correctitude”. This seems to me, with respect, to muddle two different questions. One is whether judges change the law or merely declare what it has always been. The answer to this question is clear enough. To say that they never change the law is a fiction and to base any practical decision upon such a fiction would indeed be abstract juridical correctitude. But the other question is whether a judicial decision changes the law retrospectively and here the answer is equally clear. It does. It has the immediate practical consequence that the unsuccessful party loses, notwithstanding that, in the nature of things, the relevant events occurred before the court had changed the law: see In re Spectrum Plus Ltd [2005] UKHL 41; [2005] 2 AC 680. There is nothing abstract about this rule. So the main question in the Kleinwort Benson case was whether a person whose understanding of the law (however reasonable and widely shared at the time) is falsified by a subsequent decision of the courts should, for the purposes of the law of unjust enrichment, be treated as having made a mistake. The majority view in Kleinwort Benson was that he should. The effect of the later judgment is that, contrary to his opinion at the time, the money was not owing. It is therefore fair that he should recover it. It may be that this involves extending the concept of a mistake to compensate for the absence of a more general condictio indebiti and perhaps it would make objectors feel better if one said that because the law was now deemed to have been different at the relevant date, he was deemed to have made a mistake. But the reasoning is based upon practical considerations of fairness and not abstract juridical correctitude.

24. Mr Glick, taking Kleinwort Benson at face value, accepted that the DMG made the 1993 and February 1995 payments by mistake. But he said that the commencement of the Metallgesellschaft litigation in July 1995 must, at the very lowest, have raised a doubt in the relevant minds of DMG. There was evidence that in July 1995 DMG had discussed the implications of the Metalgesellschaft challenge and considered making a “protective” group election in case Metallgesellschaft won its case. (Whether such an election would have done them any good is another matter: see Park J at [2003] 4 All ER 645, 657.) So the Revenue say that the 1996 payment was made when a state of doubt existed and that this was not a mistake.

25. There is some authority for the view that a state of doubt does not amount to a mistake: see Burrows The Law of Restitution (2nd ed 2002) pp 139-140. In the Kleinwort Benson case ([1999] 2 AC 349, 410) my noble and learned friend Lord Hope of Craighead said:

“A state of doubt is different from that of mistake. A person who pays when in doubt takes the risk that he may be wrong - and that is so whether the issue is one of fact or one of law.”

26. This was a very compressed remark in the course of a discussion of other matters and I do not think that Lord Hope could have meant that a state of doubt was actually inconsistent with making a mistake. Contestants in quiz shows may have doubts about the answer (“it sounds like Haydn, but then it may be Mozart”) but if they then give the wrong answer, they have made a mistake. The real point is whether the person who made the payment took the risk that he might be wrong. If he did, then he cannot recover the money. Speaking for myself, I think that there is a parallel here with the question of whether a common mistake vitiates a contract. As Steyn J said in Associated Japanese Bank (International) Ltd v Credit du Nord SA [1989] 1 WLR 255, 268:

“Logically, before one can turn to the rules as to mistake…one must first determine whether the contract itself, by express or implied condition precedent or otherwise, provides who bears the risk of the relevant mistake. It is at this hurdle that many pleas of mistake will either fail or prove to have been unnecessary.”

27. Likewise, the circumstances in which a payment is made may show that the person who made the payment took the risk that, if the question was fully litigated, it might turn out that he did not owe the money. Payment under a compromise is an obvious example: see Brennan v Bolt Burdon [2004] EWCA Civ 1017; [2005] QB 303. I would not regard the fact that the person making the payment had doubts about his liability as conclusive of the question of whether he took the risk, particularly if the existence of these doubts was unknown to the receiving party. It would be strange if a party whose lawyer had raised a doubt on the question but who decided nevertheless that he had better pay should be in a worse position than a party who had no doubts because he had never taken any advice, particularly if the receiving party had no idea that there was any difference in the circumstances in which the two payments had been made. It would be more rational if the question of whether a party should be treated as having taken the risk depended upon the objective circumstances surrounding the payment as they could reasonably have been known to both parties, including of course the extent to which the law was known to be in doubt.

28. These thoughts may be said to support the view of Professor Birks that English law should be less concerned with whether the person who paid the money made a mistake (involving an inquiry into his subjective state of mind) than with whether there was a valid causa for the payment, such as a debt, compromise or gift, these being matters of objective inquiry into the circumstances of the payment as they would have been known to both parties. But they do not arise in this case because both the judge and Jonathan Parker LJ in the Court of Appeal decided on the facts that, even if a state of doubt was inconsistent with a mistake, DMG had been mistaken. Mr Thomason, the Head of Taxation at DMG, gave evidence about his state of mind when it paid the ACT. He said:

“At all times prior to the determination of the European Court in the Hoechst case, I believed that the United Kingdom statute denying the ability to make a group income election was the law and that I was bound to act in accordance with this law. …It did not occur to me that I could ignore the law as it stood for the simple reason that the law is the law. Just because another taxpayer challenged the law that did not mean that I could or should ignore it.”

29. Park J accepted this evidence as showing that, whether or not a state of doubt was consistent wi th making a mistake, DMG, in the person of Mr Thomason, was not in a state of doubt. Jonathan Parker LJ agreed. He said ([2006] 2 WLR 103, 179, para 235):

“I accept Mr Rabinowitz’s submission … that mere knowledge that the statutory provisions in question are under challenge is not to be equated with a state of doubt as to the validity of those provisions. In any event, as I have already pointed out, Mr Thomason’s evidence was that he was in no doubt that the ACT was payable, whatever the decision in the Metallgesellschaft case.”

30. Buxton and Rix LJJ, on the other hand, doubted whether this could be reconciled with the observations of Lord Hope which I have cited above. But I do not understand why this should be so. The judge attributed Mr Thomason’s state of mind to DMG and found as a fact that he was not in doubt. He thought that DMG had to pay. Someone with a more sophisticated approach to the law might have had doubts – might even have thought that Metallgesellschaft had a good case and that the ECJ ruling would apply retrospectively - but not Mr Thomason. I would therefore agree with the judge and Jonathan Parker LJ that on any view of the law on this point, he made a mistake.

31. If DMG made a mistake about the law, when could they “with reasonable diligence” have discovered it? On this question it is important to bear in mind the special nature of the mistake, namely that it was deemed to have been made because of the retrospective operation of a later decision of the Court of Justice. The “reasonable diligence” proviso depends upon the true state of affairs being there to be discovered. In this case, however, the true state of affairs was not discoverable until the Court of Justice pronounced its judgment. One might make guesses or predictions, especially after the opinion of the Advocate General. This gave DMG sufficient confidence to issue proceedings. But they could not have discovered the truth because the truth did not yet exist. In my opinion, therefore, the mistake was not reasonably discoverable until after the judgment had been delivered.

32. Two footnotes on the question of mistake. First, Park J took a rather sophisticated view of the nature of the mistake. He said that the mistake was not about whether ACT was payable. DMG had not made an election and therefore it was payable. The mistake was about whether DMG should have been allowed to elect. But I agree with the Court of Appeal that the mistake was about whether DMG was liable for ACT. The election provisions were purely machinery, which DMG would undoubtedly have used, by which it could enforce its right to exemption from liability.

33. Secondly, Buxton LJ said that the problems about what counted as a mistake, some of which I have discussed above, showed the “ineptitude” of extending the law of payment under a mistake of law to payment of taxes. It is true that there may be anomalies in the different limitation treatment of claimants who paid under a mistake and those who paid without a mistake but pursuant to an ultra vires demand (Woolwich) or a void contract (Kleinwort Benson): see [2006] 2 WLR 103, 190 and 192. But these anomalies flow from any recognition of payment by mistake as a cause of action and not from a distinction between payments of tax and private payments. In either case, there is the possibility of alternative causes of action, with one producing more favourable treatment under the Limitation Act than the other.

34. It follows that in my opinion section 32(1)(c) postponed the commencement of the limitation period in respect of all three ACT payments until 8 March 2001. That makes it unnecessary to decide whether the proceedings in respect of the last two payments were begun when the proceedings were issued or when they were amended. I will say only that on this point I agree with the majority of the Court of Appeal. I would allow the appeal and restore the judgment of Park J.

LORD HOPE OF CRAIGHEAD

My Lords,

35. I have had the great advantage of reading in draft the speeches of my noble and learned friends Lord Hoffmann and Lord Walker of Gestingthorpe, in which the background to this appeal is so comprehensively and helpfully set out. With that advantage, which I gratefully acknowledge, I can proceed directly to the three of the various issues in dispute which Lord Walker has summarised in para 117 on which I wish to comment. These are (1) the cause of action” issue; (2) the “mistake” issue; and (3) the “discovery” issue.

36. As Lord Walker points out (para 96), the focus of the present appeal is on limitation of actions. DMG seeks to avoid the six year time limit by taking advantage of the extended limitation period that is available in England and Wales (but not in Scotland: see the Prescription and Limitation (Scotland) Act 1973, section 6 and Schedule I, para 1(b)) under section 32(1)(c) of the Limitation Act 1980 which provides that, where the action is for relief from the consequences of a mistake, the period of limitation shall not begin to run until the claimant has discovered the mistake or could with reasonable diligence have discovered it. This provision no longer applies in relation to a mistake of law relating to a taxation matter under the care and management of the Commissioners for Revenue and Customs: Finance Act 2004, section 320 (read together with section 5 of the Commissioners for Revenue and Customs Act 2005). That section, which applies only to actions brought on or after 8 September 2003, was enacted in response to the judgment of Park J in this case which was given on 18 July 2003: [2003] 4 All ER 645. The application of this provision to claims existing but not yet made by 8 September 2003 is being challenged under Community law: Aegis Group plc v IRC [2005] EWHC 1468 (Ch); [2006] STC 23. It is enough, however, for the purposes of this case to say that it is not in dispute that the extended limitation period is available to DMG if the issues which are raised in this appeal are decided in its favour.

37. The fact that the benefit of the extended period is being removed from future cases does not deprive the question whether English law recognises a restitutionary claim for tax paid under a mistake of law of all its interest. But the fact that the limitation period is now the same, at least for all new claims, whichever of the various available avenues for the recovery of money from the Revenue is chosen makes it unlikely that this issue will require to be revisited in cases to which it is a party. Tax paid in response to an unlawful demand will be recoverable under the Woolwich principle, subject to the ordinary time limit of six years: Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70. Where the revenue’s assessment to tax was excessive by reason of some error or mistake made by the taxpayer in a return, a statutory remedy for repayment is available. The leading examples are to be found in section 33 of the Taxes Management Act 1970 as to income tax and capital gains tax and the Finance Act 1998, Schedule 18, para 51 as to corporation tax. The remedy available under these provisions must be sought not later than six years after the end of the relevant accounting period: see TMA 1970, section 33(1). Cases not covered by one or other of these remedies in which it will be necessary to resort to a remedy under the principle of unjust enrichment are likely to be rare.

The cause of action issue

38. Lord Goff of Chieveley made it clear in Kleinwort Benson Limited v Lincoln City Council [1999] 2 AC 349, 371H-372A (his speech in that case, so rich in scholarship, was the last which he prepared before his retirement as Senior Law Lord) that he was under no illusions about the difficulties which the House faced in formulating satisfactory limits to the right to recover money paid under a mistake of law. He observed that there was more sense in the old mistake of law rule than its more strident critics had been prepared to admit. But its rejection by the common law world was not, as he said at pp 372F- 373D, due to a wish to depart from the policy underlying the rule but rather to an acknowledgement, due essentially to the work of scholars, that it could best be achieved by recognising a general right of recovery subject to specific defences to cater for the fears which formerly appeared to require a blanket exclusion of recovery. It was his acceptance of this general right of recovery of money paid under a mistake, whether of fact or law, that lay at the centre of the discussion that then followed. As he put it at p 373C, a blanket rule of non- recovery, irrespective of the justice of the case, could not survive in a rubric of the law based on the principle of unjust enrichment. Instead it was for the law to evolve appropriate defences which could, together with the acknowledged defence of change of position, provide protection where appropriate for recipients of money paid under a mistake of law in those cases in which justice or policy does not require them to refund the money.

39. This then is the background against which the argument for the Revenue on this issue must be examined. On the one hand there is the proposition which lay at the heart of Lord Goff’s analysis. (An indication of the immense care he took over his speech, which was so evident to those of your Lordships who had the privilege of sitting with him on that case, can be gathered from the fact that the original version of it lacked some of the section headings that appear in the revised version that was later published in the Appeal Cases: see [1998] 3 WLR 1095 at pp 1119G and 1121A-B; [1999] 2 AC 349 at pp 379F and 381B). As he put it at p 385A-B, money paid under a mistake of law is recoverable on the ground that its receipt by the defendant will, prima facie, lead to his unjust enrichment, just as receipt of money paid under a mistake of fact will do so. Then there is the principle recognised by Professor Peter Birks, to whom Lord Walker has so fittingly paid tribute. With characteristic simplicity he declared that, unless displaced by statute, causes of action good against private citizens are no less good against public bodies: see his essay (in the volume Essays on Restitution (1990), edited by Professor P D Finn) entitled Restitution from the Executive, at p 174. That was why he acknowledged that, if in Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 the building society had made a mistake of fact, it would undoubtedly have entitled the society to restitution of the money paid to the Revenue in consequence of its mistake, just as it plainly would have been had the transaction been with a private citizen.

40. The question is whether an exception to the general rule which Lord Goff identified should now be recognised in the case of payments made under a mistake of law to the Revenue. How would Lord Goff himself have reacted to it? I think that there is no doubt what his initial reaction would have been. We can see what he made of the argument that the Revenue was in a special position in the Woolwich case at pp 171-172. The Revenue had made an unlawful demand for tax but it was asserting that it was under no obligation to pay back the money. That position seemed to him, as matter of common justice, to be untenable – a position made worse by the fact that it involved the Revenue having the benefit of a massive interest-free loan as the fruit of its unlawful action:

“Common justice seems to require that tax to be repaid, unless special circumstances or some principle of policy require otherwise; prima facie, the taxpayer should be entitled to repayment as of right.”

We can also see, from the way in which he dealt with the suggested defence of honest receipt in Kleinwort Benson [1999] 2 AC 349, pp 384- 385, how determined he was to preserve the purity and simplicity of the principle which he had described earlier:

“In my opinion, it would be most unwise for the common law, having recognised the right to recover money paid under a mistake of law on the ground of unjust enrichment, immediately to proceed to the recognition of so wide a defence as this which would exclude the right of recovery in a very large proportion of cases. The proper course is surely to identify particular sets of circumstances which, as a matter of principle or policy, may lead to the conclusion that recovery should not be allowed.”

I think that Mr Rabinowitz QC for DMG was right therefore to take as the starting point for his argument the general right to recover, and then to ask on what grounds either of policy or principle the Revenue can claim that an exception should be made in its case.

41. I should add, before I complete this introduction, that I believe that we are in a very different field from that which Lord Rodger of Earlsferry was contemplating when in Commissioners of Customs and Excise v Barclays Bank plc [2006] UKHL 28; [2006] 3 WLR 1, 19, para 51 he reminded us of the philosopher’s advice to “Seek simplicity and distrust it.” The proposition that money paid under a mistake is recoverable is based on the principle that, prima facie, its receipt by the defendant will lead to his unjust enrichment. There is no reason to distrust a proposition based on such an elementary principle just because it is simple. Now that the common law world has recognised that there is a general right of recovery whether the mistake is of fact or law, it should be careful not to disturb its purity and its simplicity unless there is a clear basis on grounds of principle or policy for doing so.

42. The Revenue submit that a common law claim for restitution based on mistake of law is not available to a party in relation to an overpayment of tax to the Revenue. They maintain that common law claims for restitution arising from a tax measure which is ultra vires or otherwise unlawful can only be made on the principle in Woolwich or by analogy with that principle, and that they are subject to a limitation period of six years. They also point to the existence of statutory remedies. To bring the case within the Woolwich principle by analogy they submit that, while ACT cannot be said to have been an unlawful tax, the payments that were made in this case were the result of the unlawful exclusion of certain subsidiaries in section 247(1) of the ICTA 1988. It follows that a right to a remedy arises in respect of that unlawfulness. As for the statutory remedies, they submit that there is a general principle that a common law remedy will be excluded where Parliament has enacted a statutory scheme inconsistent with the remedy. That scheme is revealed by the various provisions that have been enacted which, subject to certain conditions, permit the recovery of tax paid by reason of an error or a mistake in an assessment. The authority which they cite in support of this proposition is Marcic v Thames Water Utilities Ltd [2004] 2 AC 42.

43. Two issues of principle lie at heart of this argument. The first is whether the remedy in restitution that is available for payments made under a mistake recognised in Kleinwort Benson Limited v Lincoln City Council [1999] 2 AC 349 is subject to an exception in the case of taxes paid under a mistake of law to the Revenue. The second is whether, if they are not subject to any such exception, it is open to a litigant to choose whichever of two or more concurrent remedies best suits his interests. The argument that, where there is a statutory scheme which occupies the same ground as the common law remedy, the common law remedy must be held to be excluded by it, cannot be said to raise an issue of principle as the effect of the scheme must depend on the words of the statute. Nevertheless it raises an issue of policy that needs to be dealt with.

44. The submission that the restitutionary remedy for payments made under a mistake is subject to an exception in favour of the Revenue where the mistake was one of law runs into difficulty as soon as it is articulated. It seeks to build in two exceptions, not just one, into the generality of the remedy that was recognised in Kleinwort Benson. The first exception would involve treating payments made under a mistake of fact differently from payments made under a mistake of law. The second would involve treating the Revenue differently from all other public authorities which receive payments made under a mistake of law. If this argument were to succeed it would have a significant impact on the law’s taxonomy. English law has been moving step by step towards a principled statement of the law of restitution. The carving out of exceptions which are not clearly based on principle would risk reversing this process.

(a) the debatable passage

45. The Revenue’s argument on grounds of principle is based on a passage in Lord Goff’s speech in Kleinwort Benson which Lord Walker has referred to (para 29(5)) as the debatable passage. In this passage Lord Goff drew a distinction between, on the one hand, “payments of taxes and other similar charges and, on the other hand, payments made under ordinary private transactions”: p 381G-H. Elaborating on this distinction at p 382B-D, he said that under our law of restitution there were now to be found “two separate and distinct regimes” in respect of the repayment of money paid under a mistake of law. These were (1) cases concerned with repayment of “taxes and other similar charges” exacted ultra vires, recoverable as of right at common law under the Woolwich principle, and (2) other cases, which might broadly be described as concerned with the repayment of money paid under private transactions, governed by the common law. At p 382D-E he went on to say that a case might be made in favour of a principle that, in cases concerned with taxes, payments made in accordance with a prevailing practice or a settled understanding of the law should be irrecoverable.

46. There are a number of points about this passage that have to be taken into account in assessing its significance. The first is that it appears in a section of Lord Goff’s speech where, having concluded at p 375 that English law should recognise that there was a general right to recover money paid under a mistake whether of fact or law, he was considering whether it would be appropriate to deve lop a defence of settled understanding of the law on the lines proposed by the Law Commission as a corollary to the newly developed right of recovery: p 381B-C. He was, in effect clearing the ground for a further examination of this point. Cases where taxes and other similar charges exacted ultra vires were recoverable as of right under the Woolwich principle could be left on one side because there was no need in those cases to invoke a mistake of law by the payer: p 381H. The phrase “taxes and other similar charges” lacks the precision that would be needed if it was intended to define the extent of an exception to the general right of recovery. But Lord Goff’s point was simply that there was no room in the case of an ultra vires demand for a defence that it was made on a settled understanding of the law. The only context in which a limit to recovery on that ground needed to be considered was where repayment of money was sought as having been paid under a mistake of law under the newly recognised common law principle.

47. In the Court of Appeal [2006] 2 WLR 103, 173-174, para 205 Jonathan Parker LJ said that the first of the two regimes which Lord Goff identified in this passage was a comprehensive and complete regime in relation to overpayments of tax made under a mistake of law, and that it was not limited to cases where the payment of tax was made pursuant to an unlawful demand – in other words that it was not limited to Woolwich cases. I do not think that this can be right. Not only does it read far more into the passage than the words used justify. It also fails to take account of the fact that in the Woolwich case there was no error of law by the taxpayer. So the House was not called upon to consider the effect of a mistake of law in that case at all. Lord Goff’s use of the phrase “or other similar charges” is perfectly intelligible if is understood as referring to the case of an ultra vires demand. All statutory charges which are the subject of an ultra vires demand fall easily within this category. It begs many questions if it was intended to identify a category that was to be excluded from the general common law right of recovery for payments made under a mistake: see, for example, Sir Jack Beatson’s comments in Chapter 9, Unlawful Statutes and Mistake of Law, p 174 - 175 in Burrows and Rodger (Eds), Mapping the Law (Oxford 2006).

48. It has to be acknowledged, of course, that at p 382C-D Lord Goff indicated that these cases were limited to private transactions, and that he repeated this point at p 382E-F when he said that the case he was dealing with was concerned with payments made under private transactions. But it can, I think, be inferred that the reason for this is to be found in his reference at p 381H-382A to the various statutory provisions which regulate the repayment of overpaid tax. This is why, when he came at p 382C-D to identify the first regime more precisely, he included in it not only those cases where the payment was recoverable under the Woolwich principle but also those cases which were the subject of statutory regimes regulating recovery. Here too it was unnecessary to consider a defence of common understanding, as it was open to the statutory regime which regulated recovery to deny relief where, for example, the return was made on the basis of or in accordance with prevailing practice: see, for example, the proviso to section 33(2) of TMA 1970. When he was describing these two separate and distinct regimes Lord Goff did not contemplate the possibility that there was a third category: cases concerned with the repayment of money paid under a mistake of law to a public authority which was not covered by any statutory regime regulating recovery and which, although recoverable as of right on the principle in Woolwich because it had been exacted by a demand ultra vires, was also within the scope of the newly articulated common law principle. It is into this third category that this case falls.

49. I think that it is safe to assume that if he had appreciated that there was this third category Lord Goff would have treated it in the same way as the second. In other words he would have recognised that, as the common law remedy was available, the question whether a settled understanding defence should be available was relevant here too. The element of public interest which is lacking in the case of private transactions would have to be taken into account in considering whether there was room for such a defence. But it would have been wholly inconsistent with the general principle which he had identified for Lord Goff to conclude that there was no cause of action on the ground of unjust enrichment at common law for payments made under a mistake of law in the case of the third category just because it was also within the scope of the Woolwich principle. I respectfully agree with Sir Jack Beatson’s comment in his chapter on Unlawful Statutes and Mistake of Law at p 173 that, if Lord Goff had thought that the general right of recovery did not apply to payments of taxes and general charges, he would surely have said so in his discussion of that general right.

(b) concurrent remedies

50. The question then is whether DMG must be denied a remedy on the ground that the payments were made under a mistake because a remedy under the Woolwich principle is available. Lord Goff treated the two categories which he identified in the debatable passage as providing separate and distinct remedies. This might be taken to suggest that, if a remedy was available to DMG by analogy with the Woolwich principle, it should not be allowed to pursue a remedy on the common law ground of unjust enrichment. But in his discussion at p 387 of the question whether in the context of void transactions failure of consideration should be allowed to trump mistake of law as a ground for recovery of benefits conferred in consequence of that mistake, he pointed out that an equally strong argument might perhaps be made in favour of mistake of law trumping failure of consideration. The same point could be made in this case. The Revenue argue that primacy should be given to a ground of recovery based on the Woolwich analogy because, if this is given, the six year limitation period will apply. DMG, on the other hand, wishes to take the benefit of section 32(1)(c) of the 1980 Act, which is why it suits it to base their claim on the general right to recover money paid under a mistake.

51. There is no obvious way of deciding which of these two approaches must be adopted if only one can be allowed. The question however is whether a claimant is under an obligation to select the remedy that will best suit his opponent. In his note on this case, Restitution in Respect of Mistakenly Paid Tax (2005) 121 LQR 540, 542, Professor Andrew Burrows said:

“The starting point for a principled analysis is that, in general terms now that this concurrent liability has been accepted, a claimant ought to be free to choose between causes of action and that it would be odd for one cause of action, offering an advantage to a claimant, to be knocked out by a wider cause of action which does not offer that advantage.”

It would indeed be odd, and I can think of no principle that could justify such a strange result. The answer to this point is to be found in an observation by Lord Goff in a case where the question was whether a contract legislated exclusively for the parties, with the result that a parallel duty of care was excluded by it. He said that there is no sound basis for a rule which automatically restricts the claimant to either a tortious or a contractual remedy and that there could be no objection to his taking advantage of the remedy which was most advantageous to him: Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 193. We are in a different field, but I think that his reasoning is just as compelling in this context: see his reference in Kleinwort Benson [1999] 2 AC 349, 387 at p 387 to the usual preference of English law to allow either of two alternative remedies to be available, leaving any possible conflict to be resolved by election at a late stage.

(c) the statutory regime

52. The issue here is whether DMG’s claim under the Kleinwort Benson principle is excluded on grounds of policy. The policy which the Revenue invoke is that, where there is a statutory regime for the recovery of payments made under a mistake, a common law claim cannot exist in parallel with it. The argument is that the statutory regime, of which section 33 of TMA 1970 provides the leading example, excludes recovery on the ground of mistake at common law whether the mistake is of fact or law, and whether or not the statutory regime applies to the payment that is in question. DMG, for its part, accepts that there can be no recovery at common law where the claim falls within the ambit of the statutory regime. But it submits, first, that section 33 has no application to this case and, secondly, that Parliament cannot be taken to have intended that restitution should be barred by the statutory regime where it does not provide a remedy because the payment was not made under an excessive assessment.

53. Mr Glick QC for the Revenue said that section 33 was an exhaustive provision which covered the whole field of recovery for payments made under a mistake by the taxpayer. It did so both in respect of the mistakes for which it provided expressly and also, by necessary implication, in respect of those situations for which Parliament had deliberately chosen not to legislate. I understood him to submit that ACT fell within section 33 because it was a form of corporation tax which is charged on profits of companies and is recoverable under an assessment. Although he accepted that it was possible to envisage a case where the mistake did not fall within the terms of section 33, he said that the gap if it did exist was at best a very narrow one.

54. The problem with fitting the payment of ACT into the regime provided for by section 33 lies in the way this tax was collected. The system that was laid down for its collection in para 1 of Schedule 13 to ICTA 1980 was for a return to be made for each of the company’s accounting periods of the franked payments made during that period which was to be accompanied by the amount of the ACT, if any, payable by it in respect of those payments. It was not tax charged under an assessment, which is what section 33(1) of TMA 1970 contemplates.

55. In support of his argument that, even if section 33 of TMA 1970 did not apply, Parliament had enacted a statutory scheme which was inconsistent with the common law remedy, Mr Glick relied on the judgment of your Lordships’ House in Marcic v Thames Water Utilities Ltd [2004] 2 AC 42. I do not think that that case is in point here. Mr Marcic’s claim in nuisance was held to be inconsistent with the statutory scheme. His argument was that Thames Water ought to have built new sewers to prevent flooding of his property. But, as Lord Nicholls of Birkenhead pointed out, this ignored the statutory limitations on the enforcement of sewerage undertakers’ drainage obligations: para 35. An important purpose of the statutory scheme was that individual householders should not be able to launch proceedings in respect of a failure to build sufficient sewers. That would supplant the regulatory role of the industry’s regulator, whose role was to decide whether to make an enforcement order when questions of flooding arose. Section 33 has none of the features of a statutory scheme of that kind.

56. For all these reasons I would hold that the general right to recover payments made under a mistake of law on the Kleinwort Benson principle extends to the payment of taxes made to the Revenue on the mistaken belief that they were due and payable, and that DMG is entitled to take advantage of section 32(1)(c) of the Limitation Act 1980 by basing its claim for restitution on that principle.

The mistake issue

57.       The availability of a cause of action under the Kleinwort Benson

principle is of no help to DMG unless it can show that it made the payments of ACT under a mistake. The Revenue maintain that it did not make the payments under any mistake. They say that the tax was due and payable when DMG paid it because it had not made a group income election in respect of the relevant dividends.

58. There is no doubt that the only way that a company resident in the United Kingdom could avoid liability under section 14(1) of ICTA 1988 to ACT on qualifying distributions made to its shareholders was by making an election jointly with the receiving company under section 247(1) of the Act, a group income election, that section 247(1) was to apply to the dividends received from the paying company. So long as a group income election was in force the election dividends, as section 247(1) described them, were excluded from section 14(1). But if no group income election was in force ACT was due and payable. So, if the correct approach is to look only at the system laid down by the statute, it is plain that because there was no election there was no mistake.

Other members of the House showed a similar disinclination to wide generalisation: see Lord Bingham of Cornhill at para 8, Lord Hoffmann at para 36 and Lord Mance at para 83. Commissioners of Customs & Excise v Barclays Bank plc shows that more than forty years on from Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, the true foundations of the law of tortious liability for negligent mis- statement are still open to debate.

157. By contrast the English law of unjust enrichment has in the space of a decade seen four very important developments, all informed by the learning of Lord Goff: Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 in 1991, Woolwich [1993] AC 70 in 1992, Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 in 1996, and Kleinwort Benson [1999] 2AC 349 in 1998. The change in the views of Professor Birks is a recent development (which sadly he could not pursue further) and it has not yet been fully considered by other legal scholars. There is, it seems to me, much to be said for a period of reappraisal.

158. Nevertheless I would add that my tentative inclination is to welcome any tendency of the English law of unjust enrichment to align itself more closely wi th Scottish law, and so to civilian roots. I see attractions in the suggestion made by Professor Birks in Unjust

Enrichment (2nd edition, p.116, under the heading ‘The Pyramid: a
Limited Reconciliation’):

“A pyramid can be constructed in which, at the base, the particular unjust factors such as mistake, pressure and undue influence become reasons why, higher up, there is no basis for the defendant’s acquisition, which is then the master reason why, higher up still, the enrichment is unjust and must be surrendered.”

I would be glad to see the law developing on those lines. The recognition of “no basis” as a single unifying principle would preserve what Lord Hope refers to as the purity of the principle on which unjust enrichment is founded, without in any way removing (as this case illustrates) the need for careful analysis of the content of particular “unjust factors” such as mistake.

LORD BROWN OF EATON-UNDER-HEYWOOD

My Lords,

159. DMG’s claim in these proceedings (issued on 18 October 2000) is for compensation in respect of three payments of ACT made respectively on 14 October 1993, 15 February 1995 and 14 January 1996. These payments could and would have been avoided had the UK tax regime not breached article 43 (formerly 52) of the EU Treaty by denying DMG (as a multinational rather than exclusively UK group) the right to make a group income election. So much, the majority of your Lordships would hold, was established by the ECJ’s decision in Hoechst on 8 March 2001. The claim is not for the capital sums paid: those were subsequently set off against the company’s liability for MCT. Rather it is for compensation for the loss of use of the monies prior to such setoffs, i.e. for having made accelerated payments.

160. The Revenue do not dispute DMG’s entitlement to such compensation in principle. On the contrary, they readily accept that the company has a perfectly good remedy, either in tort for breach of statutory duty or in restitution by analogy with the principle established in Woolwich—see Woolwich Equitable Buildings Society v Inland Revenue Commissioners [1993] AC 70. But under these causes of action DMG would be confined to a six year limitation period (i.e. six years from the date of the respective payments) and on this basis would fail in respect of the October 1993 payment (and fail too in respect of the later payments were the Revenue to succeed in their cross appeal on the pleading issue, contending as they do that such claims were only brought by later amendment rather than when the writ was first issued). That is why DMG assert their claim as one for restitution based on a mistake of law—precisely so as to benefit from section 32 (1)(c) of the Limitation Act 1980, just as the claimants succeeded in doing in the landmark case of Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349.

161. All this is fully and lucidly explained in the speech of my noble and learned friend, Lord Walker of Gestingthorpe, as too are the various issues which arise for decision on the appeal. With almost all of Lord Walker’s speech (and the speeches of my noble and learned friends, Lord Hoffmann and Lord Hope of Craighead) I find myself in full agreement and, in common with them, I too would allow DMG’s appeal and restore Park J’s order. On one issue, however, the “discovery” issue (linked in one respect, as it is, with the “mistake” issue), I have the misfortune to take a different view, indeed a view which puts me in a minority of one. As it happens, because of the inter-relationship of this issue with other issues arising on the appeal, my disagreement has in fact no effect whatsoever on the overall outcome of the proceedings. But it would not, I think, be right to ignore it entirely: the point could well be of decisive importance in other actions, perhaps indeed actions awaiting the outcome of this very appeal. Let me explain.

162. As I understand it, your Lordships have concluded, first, that DMG was acting under a mistake of law when making the three relevant payments of ACT (it is on this issue that my noble and learned friend, Lord Scott of Foscote dissents on the basis that DMG was in any event under a legal obligation to make the payments and so should not be regarded within the Kleinwort Benson principle as having made them under a mistake of law); and, secondly, that that mistake was not discovered until the decision of the ECJ in the Hoechst case was handed down on 8 March 2001. The contrary view which I take is that DMG ceased to be acting under any relevant mistake of law in July 1995 when they first became aware of the Hoechst proceedings and recognised that there was a serious legal challenge to the legality of the UK’s ACT regime under EC law. If I am correct in this view it would follow that DMG, although paying the October 1993 and February 1995 payments under a mistake of law, discovered that mistake in July 1995 so as to set time running in respect of those particular payments as from that date; and that the January 1996 payment was not made under a mistake of law at all. (It is because, however, as already stated, the claim was issued on 18 October 2000, within six years of July 1995, and because DMG have the benefit of undisputed alternative grounds of claim in respect of the January 1996 payment, that none of this matters given your Lordships’ rejection, with which I agree, of the Revenue’s cross appeal.)

163. Let me turn then to this narrow though potentially important issue

upon which I diffidently disagree with your Lordships. First I should
for convenience set out again section 32(1) of the 1980 Act:

“ … where in the case of any action for which a period of

limitation is prescribed by this Act, either—

(a)	the action is based upon the fraud of the defendant; or
(b)	any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or
(c)	the action is for relief from the consequences of a mistake;

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.”

164. It is, I acknowledge, difficult to articulate the precise touchstone by which to determine whether a payment ought properly to be held to have been made under a mistake of law (or, indeed, answering essentially the same question from a different standpoint, whether such a mistake should be held to have been discovered—or able with reasonable diligence to have been discovered). Section 32 itself affords little help on the question—unsurprisingly, perhaps, given that the provision (based as it was on section 26 of the Limitation Act 1939) was framed at a time when no plaintiff could have hoped to pray in aid a mistake of law.

165. For my part, however, I would hold that as soon as a paying party recognises that a worthwhile claim arises that he should not after all have made the payment and accordingly is entitled to recover it (or, as here, to compensation for the loss of its use), he has “discovered” the mistake within the meaning of section 32; and, by the same token, I would hold that if he makes any further payments thereafter, they are not to be regarded as payments made under a mistake of law.

166. Where, I would respectfully ask, is there any injustice in this? No one is suggesting, let me repeat, that the monies are not recoverable or that the payee should remain unjustly enriched. All that is required is that the payer does not sit upon what ex-hypothesi he recognises to be a worthwhile legal argument for more than six years. Provided he acts within that (surely ample) time, he can pursue his claim (whether in respect of past payments or, indeed, payments he may choose to continue making) under whatever may be the appropriate cause of action: restitution for mistake of law in respect of past payments made when he had no reason to question his liability to make them, total failure of consideration, or a claim based on the Woolwich principle.

167. Once a plaintiff recognises that he has a worthwhile case on the facts to pursue a claim in fraud or to extend the limitation period for a particular claim because of the defendant’s deliberate concealment of a fact relevant to his cause of action, time surely then starts to run against him under section 32: he could not successfully argue that time starts running only when the court eventually comes to reject the defendant’s denial of wrongdoing and to find fraud (or, as the case may be, deliberate concealment) established.

168. Nor do I find it easy to reconcile the approach taken by your Lordships with other provisions of the 1980 Act, most notably section 14A(9): “Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above.” (Section 14A(5) determines the starting date for reckoning the period of limitation based on the claimant’s date of knowledge.) As Lord Nicholls of Birkenhead recently observed in Haward v Fawcetts [2006] 1 WLR 682, 686F, para 12: “A claimant need not know he has a worthwhile cause of action.” On your Lordships’ view, however, such a claimant could well argue that he was labouring under a mistake of law so as to extend time under section 32(1).

169. Woolwich was decided on the explicit basis that the building society was in no way mistaken when making its payments under the disputed regulations—see particularly the speech of Lord Goff at p 173D and that of Lord Slynn at p 201A-B. Rather the payments were made because, as Lord Goff put it at p 171G-H:

“[The taxpayer] is faced with the revenue, armed with the coercive power of the state, including what is in practice a power to charge interest which is penal in its effect. In addition, being a reputable society which alone among building societies is challenging the lawfulness of the demand, it understandably fears damage to its reputation if it does not pay. So it decides to pay first, asserting that it will challenge the lawfulness of the demand in litigation.”

I can see no real distinction between that case and this (this case, that is, after July 1995). True, as Lord Goff observed (at p 171G), Woolwich was ‘convinced that the demand [was] unlawful’ whereas here Mr Thomason, DMG’s Head of Taxation, believed that the company was in law bound to make the payments (precisely, indeed, as Lord Scott would hold to be so). But I fail to see why the question whether monies are paid under a mistake of law should turn on the degree of conviction or optimism which the parties hold upon the legal issue dividing them. Were the claimants in Hoechst (who issued their proceedings against the Revenue in 1995) nonetheless to be regarded as having made all subsequent payments under a mistake of law? Surely not. Even DMG itself, it will have been noted, brought its claim in October 2000. Is it nevertheless to be said that their original mistake remained undiscovered until the ECJ’s actual decision in Hoechst some five months later?

170. In Kleinwort Benson, as I understand that case, nothing turned upon the particular state of mind of the payer as to whether the payments for which restitution was sought were made under a mistake. As Lord Hope noted (at p 403G), the only issue on that part of the case was whether the bank’s mistake was one of law. It was certainly not critical to the decision there that the mistake of law was assumed, at least by Lord Lloyd, to have been discovered only when the House of Lords finally held in Hazell v Hammersmith & Fulham LBC [1992] 2 AC 1 that the swap agreements were void. As Lord Hoffmann observed (at p 401F-H), the decision (in Kleinwort Benson) “leaves open what may be difficult evidential questions over whether a person making a payment has made a mistake or not. … There is room for a spectrum of states of mind between genuine belief in validity, founding a claim based on mistake, and a clear acceptance of the risk that they are not. But these questions are not presently before your Lordships.”

171. Lord Hope too left open for another day cases where payments are made in a state of doubt about the law. The Revenue on the present

appeal understandably place some reliance on what Lord Hope said at
p 410B-C:

“Cases where the payer was aware that there was an issue of law which was relevant but, being in doubt as to what the law was, paid without waiting to resolve that doubt may be left on one side. A state of doubt is different from that of mistake. A person who pays when in doubt takes the risk that he may be wrong—and that is so whether the issue is one of fact or one of law.”

172. On the present appeal, however, Lord Hope concludes his judgment on “the discovery issue” (paragraphs 63-71 of his speech) with the view that, when DMG paid the ACT, “[i]t was not then obvious that the payments might not be due.” I confess to some difficulty with that conclusion. Surely, when DMG learned in July 1995 that there was a serious legal challenge to the legality of the ACT regime, it must then have been obvious to them that these payments might not after all be due. Of course they could not be sure and of course nothing short of a final judgment from the ECJ would have persuaded the Revenue to accept any claim by DMG here for group income relief. But it does not seem to me to follow that DMG paid under a mistake of law—any more than Woolwich would be regarded as having paid under such a mistake simply because the Revenue in that case were insisting on the validity of the contested regulations.

173. I have the same difficulty with paragraph 144 of Lord Walker’s opinion. Again, I see no good reason why the Revenue’s tenacious defence of their position and their refusal to concede its unlawfulness means that DMG’s mistake must be treated as undiscovered prior to the Hoechst judgment. The passage quoted by Lord Walker from Lightman J’s judgment in First Roodhill Leasing Ltd v Gillingham Operating Company Ltd (5 July 2001) para 22, continues:

“For this purpose it cannot be necessary that the party knows of the mistake as a certainty. There are gradations of knowledge. It may well be sufficient to constitute the necessary discovery when the claimant has good reason to believe that a mistake has been made (consider Earl Beatty v IRC [1953] 1 WLR 1090) or has been given ‘a line’ on this question (see G L Baker v Medway [1958] 1 WLR 1216 at 1224).”

174. To much the same effect is Maurice Kay LJ’s judgment in
Brennan v Bolt Burdon [2004] EWCA Civ 1017; [2005] QB 303, 315:

“This [the plaintiff’s extreme difficulty in obtaining permission to appeal and ‘small chance’ of persuading the Court of Appeal], it seems to me, falls short of the unequivocal but mistaken view of the law which underlay the Kleinwort Benson case [1999] 2 AC 349. As Lord Hope observed, at p 410B, the House of Lords was not dealing with the case where there is doubt as to the law— ‘a state of doubt is different from that of mistake. An appeal might have been correctly perceived as an uphill struggle but not as an inherently insuperable one—as subsequent events were to prove.”

175. Lord Hoffmann suggests (at paragraph 26) that: “The real point is whether the person who made the payment took the risk that he might be wrong. If he did, then he cannot recover the money.” But my thesis is not that, if someone pays money knowing that he may not be under any liability to do so, he cannot recover it. Rather it is that he cannot recover it as money paid under a mistake of law so as to benefit from the longer limitation period available under section 32. Certainly he can recover the money provided only that he sues in time and has some other cause of action, such as total failure of consideration. Clearly the quiz contestant who, in doubt whether Haydn or Mozart wrote the eine kleine nachtmusik answers Haydn, made a mistake. Suppose, however, that, making that mistake, he had paid out money legally due only if Haydn had been the correct answer. To my mind he, no less than the quiz contestant, took the risk that he might be wrong: he could not recover his payment as money paid under a mistake of law (or fact) although, provided he sued within six years, he could well recover it on another basis.

176. The precise point at which a party may be said to be, or to cease being, under a mistake of law is, I acknowledge, by no means easy to formulate. Just when a party comes to recognise he has “a worthwhile claim” (the touchstone I have suggested in paragraph 163 above) will not always be obvious. Essentially, however, I am in broad agreement with Lightman J’s and Maurice Kay LJ’s approach in the cases mentioned above, as indeed I am with the views of the majority of the Court of Appeal on this issue in the present case—see Rix LJ’s judgment at para 262 and Buxton LJ’s judgment at paras 281-283.

177. For the reason already given, however, even if that view were

shared by a majority of this Committee, it would avail the Revenue
nothing. The appeal must in any event be allowed.