BAT Industries PLC & Ors v Commissioners of Inland Revenue & Anor

For a claim for restitution of tax paid under a mistake of law, the limitation period under Limitation Act 1980, section 32(1)(c), begins when the claimant could, with reasonable diligence, have discovered the pleaded mistake. The test is objective and does not require certainty that the claim will succeed.

The court asks when a suitably advised claimant would have had sufficient confidence to begin the preliminaries to proceedings or would have discovered a worthwhile claim. The claimant bears the burden of proving that discovery could not reasonably have occurred earlier. Contemporaneous legal thinking and evidence are central; hindsight and detailed reconstruction of the eventual successful reasoning are unreliable guides.

The claimants were members of the FII Group Litigation Order and sought restitution of corporation tax and advance corporation tax paid under the mistaken belief that the UK tax regime for dividends received from overseas subsidiaries complied with EU law.

Earlier proceedings established that section 32(1)(c) of the Limitation Act 1980 applied. The Supreme Court in Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2020] UKSC 47 remitted the issue of when the claimants could, with reasonable diligence, have discovered their mistake. The common question concerned the dates of constructive discovery for the corporation tax and ACT challenges.

1. Applicable principles. The limitation period runs from the date on which the claimants could, with reasonable diligence, have discovered the pleaded mistake: that the relevant UK tax provisions were incompatible with the Treaty. The burden lay on the claimants to establish that they could not have discovered it earlier without exceptional measures. The standard was objective, assessed by reference to a well-advised multinational with adequate but not unlimited resources.
2. The enquiry was not when the claimants could have known that their pleaded case would succeed. It was when they would have had sufficient confidence to begin the preliminaries to proceedings, or would have discovered a worthwhile claim. The two formulations informed each other. The test concerned what the claimants could have discovered, not what they should have discovered.
3. Position in July 1996. An appropriate adviser would have required expertise in both UK dividend taxation and EU law. The professional consensus was that the challenged regime was not susceptible to a worthwhile challenge. The relevant situations were not then regarded as comparable, and the perceived cohesion of the UK tax system was thought to present a fundamental obstacle. There was no constructive discovery by 11 July 1996.
4. DV challenge. The CJEU’s judgment in Staatssecretaris van Financiën v Verkooijen (Case C-35/98) [2002] STC 654, given on 6 June 2000, dismantled central elements of that professional consensus. It did not establish the ultimate truth of the claim, since it concerned a different tax system and individual taxpayers, but it gave a well-advised multinational sufficient confidence to pursue a worthwhile DV challenge. The constructive-discovery date was therefore 6 June 2000.
5. ACT challenge. The same date applied to the ACT challenge. The claimants did not need to foresee the precise reasoning later adopted by the CJEU. The fact that ACT was characterised as corporation tax had already been determined by Neuberger J in proceedings concerning the reference in Metallgesellschaft Ltd v Inland Revenue Commissioners, and the limitation test did not require foresight of every successful argument.
6. The alternative arguments that discovery occurred only on the judgment in Proceedings brought by Manninen (Case C-319/02) [2005] Ch 237, publication of the FII GLO, or the judgment in Hoechst were rejected. Both challenges were constructively discovered on 6 June 2000.

1. High Court: Henderson J held that the limitation period commenced on 8 March 2001, following FII HC2.
2. Court of Appeal: In FII CA2 [2016] EWCA Civ 1180, the court held that time began on 12 December 2006, the date of the judgment in FII CJEU1.
3. Supreme Court: In FII SC2 [2020] UKSC 47, the court held by a majority that section 32(1)(c) applied and remitted the constructive-discovery issue to the High Court.
4. High Court: The present court determined that constructive discovery of both challenges occurred on 6 June 2000.