Deutsche Morgan Grenfell Group Plc (Respondents) v. Her Majesty's Commissioners of Inland Revenue and another (Appellants)
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)
 UKHL 49
LORD HOPE OF CRAIGHEAD
The cause of action issue
We can also see, from the way in which he dealt with the suggested defence of honest receipt in Kleinwort Benson  2 AC 349, pp 384-385, how determined he was to preserve the purity and simplicity of the principle which he had described earlier:
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.
(a) the debatable passage
(b) concurrent remedies
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  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  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
The mistake issue
The discovery issue
LORD SCOTT OF FOSCOTE
But, in the Court of Appeal, Jonathan Parker LJ disagreed. He said, at para 231
If the Lord Justice's analysis of the Hoechst judgment is correct, it must follow that his conclusion that DMG was under no legal obligation to pay ACT too is correct. The critical question is whether that conclusion is correct.
The Hoechst judgment
The ECJ gave to this question the answer "no". It did so because
At paragraph 54 the ECJ explained that
And, at paragraph 55, that
And, in paragraph 76, the ECJ answered the first question by declaring that it was
The reference by the ECJ in each cited passage to "the possibility" of making a group income election, a "possibility" that the tax regime denied to corporate groups with a non-resident parent company, identifies the element in the tax regime that the ECJ found to be inconsistent with European law. The ECJ did not hold that subjecting resident subsidiaries of non-resident companies to the obligation of paying ACT was contrary to European law. What was unlawful was the discriminatory nature of the group income election provisions which failed to give corporate groups with a non-resident parent company the same possibility of enabling resident subsidiaries to avoid the payment of ACT as was open to corporate groups with a resident parent company. The question is what effect this unlawful feature of the ACT tax regime should be held to have had on the obligation of subsidiaries, such as DMG, to pay ACT in respect of dividends paid to their non-resident parent companies. This is a question to which I must return.
The ECJ recorded that the Chancery Division had framed that question in two hypotheses -
In paragraph 81, however, the ECJ stressed that it was not for the ECJ but for the parties and the national law of the forum to specify the nature and basis of the remedy or remedies being sought. Community law required no more than that
and, to the same effect,
He then described three types of circumstance which might lead to the claim failing. The first of these was that the payor intended the payee to have the money in any event, whether the believed fact was true or false. The second was that
The third was that the payee had changed his position in good faith. There is, I would respectfully suggest, a fundamental difference between the first and the third of these types of circumstances on the one hand and the second of them on the other. The first and third involve circumstances which have had no causative effect on the payment of the money. In the first, the money would have been paid in any event and the third involves circumstances which have nothing at all to do with the reasons why the payer paid the money or with any misapprehensions under which the payer may have been labouring. Neither of these types of case invalidates Robert Goff J's general proposition that if a mistake of fact causes a payment to be made that would not have been paid but for the mistake, the payer will have a cause of action for its recovery. They are not true exceptions. The second, however, does invalidate that proposition. If a contract has been entered into that would not have been entered into but for a mistake, but the contract is then completed by a payment of the price for the goods or services that the payee has supplied, the payment cannot be recovered unless the contract can be set aside. The proposition seems such an obviously correct one that it may seem pointless to ask why it is that it is correct. But I think the question does need to be asked for the answer casts, in my opinion, valuable light on the nature of the restitutionary remedy for the recovery of money paid under a mistake.
DMG's cause of action and section 32 (1) (c) of the 1980 Act
If it is right, as I think it is, that when the ACT was paid by DMG the ACT was due, DMG's cause of action is an action for compensation for tort. It is not, in my opinion, an action for restitution based on the payment of money under a mistake. An allegation of a mistake but for which the ACT would not have been paid is not an essential ingredient in DMG's cause of action.
The other issues
LORD WALKER OF GESTINGTHORPE
In reaching that conclusion the ECJ rejected the argument (put forward by the United Kingdom and some other member states) that the difference in tax treatment was objectively justified by the differing circumstances of national and multinational groups, and in order to preserve the coherence of the United Kingdom's tax system.
The rule of national law alluded to was that upheld by this House in President of India v La Pintada Compania Navigacion SA  AC 104, mentioned in para 12 of the opinion of the Advocate General.
In rejecting this argument the ECJ invoked the principle of effectiveness (para 106):
It was therefore necessary for Park J to make findings of fact relevant to this issue, and he heard oral evidence from Mr Peter Thomason, DMG's Head of Taxation, who was cross-examined by Mr Glick. Mr Glick took your Lordships through quite a lot of his oral evidence but before coming to the judge's findings on the issue of mistake I should record the undisputed facts about DMG, the group of which it came to form part, and the relevant payments of ATC.
These figures have however emerged by a surprisingly laboured process. There has been more than one amendment of the particulars of claim. Further discussion of this point is best deferred until I come to the last issue in the appeal, the pleading point.
(1) The "cause of action" issue: does English law recognise a restitutionary claim for tax paid under a mistake of law?
(2) The "mistake" issue (arising if DMG succeeds on issue (1)): did DMG make the payments of ACT under a mistake of law?
(3) The "discovery" issue (arising if DMG succeeds on issues (1) and (2)): when did DMG discover (or could with reasonable diligence have discovered) its mistake?
(4) The "settled law" issue (arising if DMG succeeds on issues (1) to (3)): does English law recognise a defence of "settled law" to a claim for restitution of tax paid under a mistake of law?
(5) The "scope of section 32(1)(c)" issue (arising if DMG fails on issue (1), and raised for the first time in this House): can DMG bring itself within section 32(1)(c) even if mistake of law is not an essential element of its cause of action?
(6) The "pleading" issue (raised by the Revenue's cross-appeal and linked to the limitation issues): this is the point on section 35 of the Limitation Act 1980 already identified.
Woolwich and Kleinwort Benson
(1) It was decided in 1992 when the general rule barring recovery of money paid under a mistake of law still held the field.
(2) In any case there was no mistake on the part of the building society, which had from the first challenged the validity of the transitional provisions in the relevant regulations. It seems to have received confident professional advice and to have acted confidently on the advice. It paid the tax under protest, which was a reasonable thing to do since thousands of small investors might have been alarmed by the news that it was said to be in default.
(3) The claim (as originally formulated) was for the repayment of a principal sum of almost £57m with interest. After the issue of the writ the principal sum was repaid (with interest from the date of the writ). So only pre-writ interest was eventually at stake, but there had been a principal sum claimed to be due when the writ was issued.
(4) The majority (Lord Goff, Lord Browne-Wilkinson and Lord Slynn of Hadley) upheld the simple principle that tax paid in response to an unlawful demand could be recovered, regardless of compulsion, and that this result was not ousted (or "trumped") by any concurrent mistake of law (Lord Goff, at p 177 F-H, Lord Browne-Wilkinson, at p 198 C-H, agreeing with Lord Goff but not expressly mentioning mistake of law; Lord Slynn, at pp 204 H-205 A).
(5) The minority (Lord Keith of Kinkel and Lord Jauncey of Tullichettle) considered that there could be no recovery in the absence of compulsion or duress, and that there was no relevant distinction between payment of tax in response to a demand under an ultra vires regulation and payment in response to a demand under a misconstrued statute. If the statutory provisions for repayment of overpaid taxes were inadequate that was a matter for Parliament.
(6) The case had no European element at all, though Lord Goff did refer (at p 177 C-E) to the San Giorgio case  ECR 3593, remarking that it would be strange if the right of the citizen to recover overpaid charges were to be more restricted under domestic law than it is under European law.
(1) It was not about tax but about interest rate swaps.
(2) There were arguably concurrent restitutionary claims, that is a claim based on money paid under a void contract and (if and only if the House abrogated the long-standing bar on recovery of money paid under a mistake of law) a claim on that ground.
(3) The significance of section 32(1)(c) of the Limitation Act 1980 was clearly recognised; that was the whole point of the appellant bank seeking to overturn the rule barring recovery for mistake of law. The majority decided to overturn the rule despite explicitly acknowledging that an indefinitely extended limitation period might produce unsatisfactory results (Lord Goff at p 389 A-C; Lord Hoffmann, at p 401 D-F; Lord Hope of Craighead, at p 417 G-H). The minority also noted this point (Lord Browne-Wilkinson at p 359 H; Lord Lloyd of Berwick at p 390 A).
(4) The House divided as to whether a mistake of law included a mis-prediction of the result of litigation (in that case, of the outcome of Hazell v Hammersmith and Fulham London Borough Council  2 AC 1, decided by this House in 1991 after a challenge made in 1989 by a local authority auditor). This issue brought the House into the difficult area of the declaratory nature of judgments. The majority held that mistake of law should be broadly interpreted. I will not try to note all the relevant passages in their complex reasoning, but I note in particular Lord Goff at p 379 G; Lord Hoffmann at p 400 D-E and Lord Hope at p 411 C-D. The minority held that this was unrealistic and amounted to falsification of history (Lord Browne-Wilkinson at p 358 A-B and Lord Lloyd at p 394 A).
(5) "Settled law" was therefore for the minority not a defence to a prima facie restitutionary claim, but a reason why there was no claim at all (Lord Browne-Wilkinson at pp 360A-362G and Lord Lloyd at p 394 B-H). The majority discussed "settled law" as a defence, as had recently been proposed by the Law Commission in its Report (No 227, 1994) on "Restitution: Mistakes of Law and Ultra Vires Public Authority Receipts and Payments" ('the 1994 report') para 5. The majority rejected the proposed defence (Lord Goff at pp 381 B-383C; Lord Hoffmann at p 401 B-D; Lord Hope at pp 414A-415B). The passage in Lord Goff's speech which I have just mentioned has led to much discussion and I shall refer to it as the debatable passage.
(6) There was a further issue as to "closed swaps" which is not relevant to this appeal.
(7) The case had no European element at all.
The judgments below
Jonathan Parker LJ went on to a very detailed discussion of the debatable passage in Lord Goff's speech in Kleinwort Benson, and to a consideration of Park J's reasons for not giving that passage the significance which the Revenue sought to attach to it.
Rix LJ (para 262) agreed with Buxton LJ's observations.
The cause of action issue
The Law Commission took the same view in the 1994 Report (para 10 footnote 1). The claimant bank was allowed to put its case on mistake of law, rather than on payment under a void contract, precisely in order to rely on an extended limitation period under section 32(1)(c) of the Limitation Act 1980. None of the members of the Court of Appeal cited this passage from Lord Goff's speech or even, so far as I can see, paid any regard to it.
with the suggestion that this was somehow unfair. In Woolwich the building society was fortunate in having expert legal advice that the relevant regulation was invalid, and the resources and determination to take on the Revenue promptly. It did not need any extended limitation period. Many other taxpayers would not be in the same position.
The other passage, at p 387, is that referring to "the usual preference of English law to allow either of two alternative remedies" which I have already cited.
The mistake issue
The straightforward test of causation put forward by Robert Goff J (as he then was), after a full survey of authority, in Barclays Bank Limited v W J Simms Son & Cook (Southern) Limited  QB 677, has stood the test of time. DMG paid the ACT because it mistakenly thought that it had to. The fact that there was a procedural requirement for a GIE does not alter the substance of its mistake, since (as Park J expressly found, para 11) any attempt at making a GIE would undoubtedly have been rejected in this case.
It all depends on the facts. But in this case it is, in my opinion, clear that the judgment of the ECJ on 8 March 2001 was the decisive moment.
The "scope of section 32(1)(c)" issue
The pleading issue
The formula used in DMG's particulars of claim ("Such amounts include, but are not limited to, payments of ACT specified in the [First or Second] Schedule") was imprecise and unsatisfactory, but the defect could have been cured by a request for particulars.
The foundations of unjust enrichment
This can be contrasted with the well-known statement by Lord Goff in Woolwich  AC 70, 172,
The law of Scotland has, by contrast, closely followed the civilian model: see the Lord President (Rodger) in Shilliday v Smith  SC 725, 727-728 and generally Professor Robin Evans-Jones, Unjustified Enrichment: Vol.One, Enrichment by Deliberate Conferral: Condictio (2003).
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  AC 465, the true foundations of the law of tortious liability for negligent mis-statement are still open to debate.
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
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?