Inland Revenue & Anor v Deutsche Morgan Grenfell Group Plc

Tax paid pursuant to an unlawful demand is recoverable under the Woolwich principle as of right. Where the demand is lawful, recovery is governed by the applicable statutory regime. A claimant cannot use the common-law mistake-of-law remedy recognised in Kleinwort Benson as an alternative route for recovering a tax payment. The payer’s state of mind is therefore immaterial to a Woolwich claim. Where a statement of case claims relief for payments within a general class and states that schedules are not exhaustive, later schedule amendments may particularise existing claims rather than add new causes of action.

The Commissioners of Inland Revenue and the Attorney-General appealed from Park J’s judgment on liability in favour of Deutsche Morgan Grenfell Group plc. The claim concerned compensation or restitution for the timing disadvantage caused by advance corporation tax payments made under the statutory group-income regime. The European Court of Justice had held that the regime contravened article 52 of the EC Treaty in Metallgesellschaft [2001] STC 452.

The appeal raised issues concerning the availability of a common-law mistake-of-law claim for tax payments, the nature and discovery of the alleged mistake, a settled-law defence, limitation, and whether amendments to schedules particularised existing claims or introduced new causes of action.

1. Disposition. The appeal was allowed in relation to the 1993 payment and dismissed in relation to the 1995 and 1996 payments. Buxton LJ agreed on the cause-of-action issue but dissented on the pleading issue.
2. Cause of action. The majority treated Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 and Kleinwort Benson v Lincoln City Council [1999] 2 AC 349 as establishing separate and distinct regimes. Tax or other charges exacted under an unlawful demand are recoverable at common law under the Woolwich principle. Otherwise, recovery of tax payments is governed by the relevant statutory regime. The mistake-of-law remedy developed in Kleinwort Benson for private transactions does not provide an alternative common-law cause of action for tax payments. The taxpayer’s mistake is immaterial where the claim is based on the unlawful demand.
3. Application. The European Court of Justice had held that the group-income regime infringed article 52 of the EC Treaty. The payments were therefore made pursuant to unlawful demands and fell within the Woolwich route. The six-year limitation period applied. The 1993 payment was statute-barred, but the claims concerning the 1995 and 1996 payments were brought in time because the original particulars claimed relief for all relevant payments and the schedules were expressly non-exhaustive.
4. Alternative matters. For completeness, Jonathan Parker LJ held that, if the Kleinwort Benson principle had applied, the mistake would have been the belief that ACT was payable, rather than merely a failure to appreciate that group-income elections could be made. He also agreed that the mistake was not discovered until the ECJ judgment. These conclusions were obiter because the cause-of-action issue was decisive. The court likewise treated recognition of a settled-law defence as a matter for Parliament.
5. Pleading and costs. The majority held that the schedule amendments supplied particulars of claims already pleaded. The respondent was ordered to pay two-thirds of the appellants’ costs both below and on appeal.

• Court of Appeal (Civil Division): Allowed the appeal concerning the 1993 payment and dismissed the appeal concerning the 1995 and 1996 payments.
• High Court: Park J entered judgment on liability for Deutsche Morgan Grenfell Group plc on 18 July 2003, holding that the claims were not statute-barred.