Bat Industries Plc & Ors v The Commissioners of Inland Revenue & Anor

For limitation under the Limitation Act 1980 section 32(1)(c), time starts when a claimant, exercising reasonable diligence, could recognise that a mistake of law gives rise to a worthwhile claim, or has sufficient confidence to begin the preliminaries to proceedings. The claimant need not know the final legal answer or expect to win. The inquiry is objective, but it is an evidence-based evaluation of what suitably qualified advisers would have known at the time, judged without hindsight. A later judicial decision may make a claim discoverable where its reasoning removes obstacles previously regarded as fatal. Appellate courts should respect the trial judge’s evaluation of historical and expert evidence unless plainly wrong.

This judgment concerned two appeals in the Franked Investment Income Group Litigation. The Revenue appealed against Richards J’s decision that the claimants could, with reasonable diligence, have discovered the relevant mistake of law on 6 June 2000, following the CJEU’s judgment in Verkooijen. FCE Bank cross-appealed, arguing that an ACT Challenge was not discoverable until the judgment, or at least the Advocate General’s Opinion, in Hoechst.

The claims sought restitution of corporation tax allegedly paid under a mistake of law arising from the treatment of dividends received from non-UK subsidiaries. The central issue was when time began to run under section 32(1)(c) of the Limitation Act 1980.

1. Disposition. Lady Justice Andrews delivered the leading judgment. Lord Justice Nugee and Lord Justice Snowden agreed. The Revenue’s appeal and FCE’s cross-appeal were both dismissed.
2. Applicable limitation test. The Court applied the guidance in [2020] UKSC 47. A mistake of law is discoverable when, exercising reasonable diligence, the claimant could recognise that the basis of the payment was legally questionable and that a worthwhile claim arose, or had sufficient confidence to begin the preliminaries to litigation. A worthwhile claim means one that is legally viable, not merely one worth investigating. The claimant need not know that the claim will succeed, or that the relevant court will accept the argument.
3. Evidence and reasonable diligence. The inquiry is objective, using the standard of a well-advised multinational with adequate but not unlimited resources and a reasonable sense of urgency. It remains an evidence-based and evaluative inquiry into what suitably qualified advisers would have known and advised at the relevant time. The court must assess the contemporary state of legal thinking and professional consensus without hindsight. The Judge was entitled to use an Appropriate Adviser with expertise in both UK tax and EU law and to find that initial advice would involve a high-level assessment before detailed litigation analysis.
4. Appellate restraint. The principles in Volpi v Volpi, Henderson v Foxworth Investments Ltd, Perry v Raleys Solicitors, Byers v Saudi National Bank and Griffiths v TUI (UK) Ltd required substantial deference to the Judge’s findings of fact and evaluation of expert evidence. The Revenue failed to show that the Judge’s conclusions were plainly wrong or rationally insupportable.
5. Application. Before July 1996, professional thinking treated comparability, double-taxation concerns and tax-system cohesion as substantial obstacles to both challenges. Verkooijen undermined those obstacles by rejecting the relevant comparability and cohesion arguments. That was sufficient to make both the DV Challenge and the ACT Challenge worthwhile on 6 June 2000. Andrews LJ considered that the second Advocate General’s Opinion in Verkooijen would have made the mistake discoverable in December 1999, but that difference did not affect the outcome. Hoechst provided an additional basis for rejecting FCE’s contention that the ACT Challenge was discoverable later.

1. Supreme Court. In [2020] UKSC 47, the Revenue’s appeal was allowed in part, the approach in Deutsche Morgan Grenfell Group plc v IRC was overruled, and the question of discoverability was remitted to the High Court.
2. High Court, Chancery Division. In [2024] EWHC 195 (Ch), Richards J held that the claimants could have discovered the mistake with reasonable diligence on 6 June 2000.
3. Court of Appeal (Civil Division). The Revenue’s appeal and FCE’s cross-appeal against that decision were dismissed.