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)

Tax paid under a mistake of law is recoverable at common law on the ground of unjust enrichment. The remedy is available alongside recovery of tax exacted unlawfully and is not excluded merely because a statutory repayment regime governs other categories of overpaid tax.

A claimant may choose the concurrent remedy most advantageous to it. An action to recover mistaken payments is an action for relief from the consequences of a mistake under section 32(1)(c) of the Limitation Act 1980. Where a later judicial decision operates retrospectively and first establishes that the payer's understanding of the law was wrong, the mistake may remain undiscoverable until that decision. Awareness that the law is under challenge does not necessarily establish discovery or an assumption of risk.

United Kingdom subsidiaries with parents resident elsewhere in the European Union had been denied the opportunity to make group income elections under section 247 of the Income and Corporation Taxes Act 1988. They consequently paid advance corporation tax before mainstream corporation tax became due. The Court of Justice subsequently held in Metallgesellschaft and Hoechst, [2001] Ch 620, that this discriminatory regime infringed the right of establishment.

Deutsche Morgan Grenfell sought compensation for loss of the use of advance corporation tax paid in 1993, 1995 and 1996. It relied on restitution for mistake of law so that section 32(1)(c) of the Limitation Act 1980 would postpone limitation until discovery of the mistake. Park J upheld the claim. The Court of Appeal, [2005] EWCA Civ 78, held that recovery of tax was confined to the Woolwich principle or statutory remedies.

The central issues were whether tax paid under a mistake of law was recoverable at common law, whether these payments were mistaken, when the mistake was discoverable, and whether later pleading amendments introduced new causes of action.

1. Appeal allowed by a majority; Revenue's cross-appeal dismissed. Lord Hoffmann, Lord Hope and Lord Walker held that the general right recognised in Kleinwort Benson, [1999] 2 AC 349, to recover money paid under a mistake of fact or law extends to tax. Lord Brown agreed on the availability of that cause of action and in the result. Lord Scott agreed that such a cause of action exists in principle but dissented on its application to these payments.

2. Per Lord Hoffmann, Lord Hope and Lord Walker, the Woolwich remedy for tax exacted unlawfully and the statutory remedy under section 33 of the Taxes Management Act 1970 did not form an exclusive regime. Section 33 concerned tax charged under an excessive assessment and did not apply to advance corporation tax paid without assessment. Nothing in its terms excluded a common-law claim outside its scope. A claimant may ordinarily choose between concurrent causes of action and use the remedy most advantageous to it.

3. Per Lord Hoffmann, Lord Hope and Lord Walker, the payments were caused by a mistake of law. The company believed that it could not make a group income election and consequently that advance corporation tax had to be paid. The election was machinery for obtaining the exemption. It was accepted that an election would have been made had the true law been known. Lord Scott dissented: he considered the tax legally due under a valid charging provision and regarded the proper remedy as compensation for discriminatory premature collection.

4. Per Lord Hoffmann, Lord Hope and Lord Walker, awareness that the statutory regime was being challenged did not establish that the company had discovered its mistake or assumed the risk. The later decision operated retrospectively, but the legal truth upon which the mistake depended could not with reasonable diligence be discovered before the Court of Justice gave judgment on 8 March 2001. Section 32(1)(c) of the Limitation Act 1980 therefore postponed limitation for all three payments until that date.

5. Lord Brown disagreed on discovery. He considered the mistake discovered in July 1995, when the company recognised a worthwhile legal challenge, and regarded the 1996 payment as made with knowledge of that challenge. This did not affect the result because proceedings began within six years of July 1995 and another cause of action covered the later payment.

6. Per Lord Walker, with the majority concurring, the amendments identifying further advance corporation tax payments supplied particulars of the existing claim. They did not introduce a new cause of action under section 35(5)(a) of the Limitation Act 1980. Park J's order was restored.

1. House of Lords: By [2006] UKHL 49, allowed Deutsche Morgan Grenfell's appeal by a majority, dismissed the Revenue's cross-appeal and restored Park J's order.

2. Court of Appeal: By [2005] EWCA Civ 78, reported at [2006] 2 WLR 103 and [2005] STC 329, allowed the Revenue's appeal on the cause-of-action issue. Its majority rejected the Revenue's pleading challenge.

3. High Court: Park J held that tax paid under a mistake of law was recoverable, that the three payments were mistaken, and that the mistake was not discovered until the Court of Justice's decision. His judgment was reported at [2003] 4 All ER 645 and [2003] STC 1017.