Deutsche Morgan Grenfell Group Plc v Inland Revenue & Anor

A claim in restitution for money paid under a mistake of law may be brought against a Revenue authority. The fact that the payment was made as tax does not remove the common-law cause of action. Under section 32(1)(c) of the Limitation Act 1980, limitation begins when the claimant discovers the mistake, or could with reasonable diligence have discovered it. Knowledge that another taxpayer is challenging legislation does not itself establish discovery. ACT paid under the existing statutory scheme may nevertheless have been paid under a mistake where the true legal position would have enabled a group income election. The claims were therefore in time.

Deutsche Morgan Grenfell Group Plc claimed restitution of ACT paid on dividends to its German parent and an intermediate United Kingdom company. The payments produced a timing disadvantage because the statutory group income election was apparently unavailable where the parent was resident outside the United Kingdom.

Following Metallgesellschaft Ltd and others v Commissioners of Inland Revenue and Hoechst AG and another v Commissioners of Inland Revenue [2001] STC 452, the claimant contended that the domestic restriction was contrary to Community law. The Revenue relied on the six-year limitation period and argued that the claimant either had no restitutionary claim for tax paid under a mistake of law or had discovered any mistake when it learned of the challenge brought by Hoechst. The issues were whether the cause of action existed, whether the payments were made under a mistake, and when limitation began.

1. Claim succeeded in principle. English law recognises restitution for money paid under a mistake of law. The majority decision in Kleinwort Benson v Lincoln City Council [1999] 2 AC 349 was binding. Its reasoning did not create an absolute exclusion for tax payments. Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 also showed that restitutionary recovery of tax is not barred as a matter of principle.
2. The relevant mistake was that DMG did not realise that group income elections could be made with a non-United Kingdom parent under Community law. The mistake was not simply that ACT was legally unpaid when remitted. Under the domestic statutory machinery, ACT was payable unless and until an election was accepted. The later decision in Metallgesellschaft Ltd and others v Commissioners of Inland Revenue and Hoechst AG and another v Commissioners of Inland Revenue [2001] STC 452 established the legal position which would have enabled elections and avoided the payments.
3. Knowledge from mid-1995 that Hoechst was challenging the restriction did not amount to discovery of DMG’s mistake. It showed only that a possible argument existed and that the Revenue disputed it. The challenge did not establish that DMG could make valid elections, and an election would have been rejected under the domestic machinery while the issue remained unresolved.
4. Section 32(1)(c) of the Limitation Act 1980 therefore postponed limitation until the CJEC decision of 8 March 2001. The claims had already been commenced. The alternative pleading analysis also supported the result: the original particulars claimed relief for all relevant ACT payments, and later schedules supplied further detail rather than introducing new causes of action.
5. The court left open whether limitation might accrue progressively while the ACT produced the relevant timing disadvantage. Judgment was given for DMG.

First-instance decision. The judgment records that the claims formed part of a Group Litigation Order and that Pirelli Cable Holding NV and others v Commissioners of Inland Revenue [2003] STC 250 was an earlier test case, but no appeal from the present decision is stated.