Monro v HM Revenue & Customs

This is an unusual case. Mr Monro has in error overpaid a very substantial amount of tax which he understandably wishes to recover. However, his claim for return of those monies at common law was dismissed by the Chancellor ([2007] STC 1182) because he could not satisfy the conditions for the available statutory remedy, being the specific statutory provisions for repayment of tax paid in error in s 33 of the Taxes Management Act 1970 (“TMA 1970”), and because in the judgment of the Chancellor no claim could be brought under the general law. The respondent, whom I shall call “HMRC”, accepts that in principle a claim would lie at common law for a sum including tax paid under a mistake of law, and that s 33 of the TMA 1970 has not expressly excluded such a claim. However, HMRC contends that to permit such a claim on the facts of this case would be inconsistent with the statutory scheme to be found in s 33.

I have set out s33 of the Taxes Management Act 1970 (“the TMA 1970”) in the appendix to this judgment. It is important to be familiar with the scheme of s 33 when considering the issue on this appeal. At the time when it was first enacted, it may have been thought to provide an enabling remedy on the grounds that the common law did not permit repayment of any money paid under a mistake of law. But that view of the common law was revealed to be an erroneous view of the law in Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349. It is one of the virtues of the common law that it continues to develop. As Cockburn CJ said in Wason v Walter (1868) LR 4 QB 73, 93:

“Whatever disadvantages attach to a system of unwritten law, and of these we are fully sensible, it has at least this advantage, that its elasticity enables those who administer it to adapt it to the varying conditions of society, and to the requirements and habits of the age in which we live, so as to avoid the inconsistencies and injustice which arise when the law is no longer in harmony with the wants and usages and interests of the generation to which it is immediately applied.”

Legislation is always enacted against the background of the common law. So there is always a risk while the legislation is in force the common law will change in some material way and with retrospective effect. The relationship between the common law and statute often gives rise to problems. The fact that Parliament was ignorant about the common law may for example throw light on the meaning of a provision (see, for example, Billson v Residential Apartments Ltd [1991] 3 All ER 265), but the court cannot adopt a different approach to the interpretation of a statute simply because the common law has developed since the statute was enacted or because Parliament may not have fully appreciated recent developments in the common law. The court cannot rewrite the scheme. The court has thus to take the words and structure of s 33 as they stand.

S 33 contains a clear scheme applying to error claims. It applies whenever there has been an error or mistake in a return which leads to the calculation of tax for self-assessment purposes in an excessive amount. There is no doubt but that s 33(1) taken on its own is satisfied in this case.

Subs (2) then provides that HMRC must inquire into the claim and then, unless precluded from doing so by some other provision in s 33, HMRC must give such relief in respect of the error as is reasonable and just. Subs (3) contains specific directions as to what HMRC should consider in coming to their conclusion on any claim for relief. These considerations appear to be directed to ensuring that the taxpayer making the claim is not unjustly enriched.

The critical provision in this case is subs (2A). It is a provision to which ss(2) is subject. Ss (2A) was inserted into section 33 by the Finance Act 1994 in place of a proviso which formerly appeared in subs (2). The relevant words of the previous proviso were the same as now appear in ss (2A) and a proviso in this form can be traced back to the Finance Act 1923. It originally applied only to income tax and surtax but was then extended to capital gains tax and corporation tax. Subs (2A) provides that if after inquiring into the matter pursuant to subs (2) the position is that the error or mistake was made on the basis or in accordance with the practice generally prevailing at the time when it was made HMRC may not grant any relief. The purpose of this provision is clear. It is to protect public finances. If there was no control over claims for repayment, there would always be the risk that a very substantial amount of tax would become repayable as a result of developments in case law possibly many years after it had been spent. That would create understandable difficulty.

Looking at s 33 as a whole, it is clear that it creates its own code for repayments to which s 33(1) applies. It is a parallel universe to the common law remedy. It thus does not rely on the general law for limitation of actions (see s 33(1)), or remedies (see s 33(2)) or appeals (see s 33(4)). In many respects, as Mr Bruce Carr, for HMRC, submits, the provisions of s 33 are more restrictive than those of the common law. Thus, s 33 applies only where there is an error or mistake in the return which has resulted in an assessment which is excessive. The limitation period of five years, starting on the 31 January in the year following the year of assessment, is less than that available for common law claims: see the Limitation Act 1980, including s 32 of that Act. The common law does not recognise a “settled understanding of the law defence” (see Kleinwort Benson and c.f. s 33 (2A)); and appeal lies to the special commissioners and thence to the High Court and this court on a point of law only (see s 33(4)). These differences may likewise be attributed to the public policy in conserving public finances and managing the risk thereto created by error claims.

There is, however, one provision which is conspicuous by its absence in s 33, and that is a provision which takes away common law rights. Thus, by contrast, s 80 (7) of the Value Added Tax Act 1994 provides that:

“(7)

Except as provided by this section, the Commissioners shall not be liable to repay an amount paid to them by way of VAT by virtue of the fact that it was not VAT due to them.”

Nonetheless, it is important to point out that it is a corollary, which Mr Bruce Carr, for HMRC, accepts, of the parallel universe that there would have been a remedy at common law for Mr Monro but for s 33. It is not HMRC’s case that the common law remedy would never have arisen. Parliament has therefore taken away a right which he would otherwise have. Pursuant to the court's duty under s 3 of the Human Rights Act 1998, s 33 has to be interpreted so far as possible so as to be Convention-compliant, that is, compliant with the European Convention on Human Rights (“the Convention”). In any event under domestic law principles rights can only be taken away by express language or necessary implication (see R v Home Secretary ex parte Simms [2000] 2 AC 115 at 131 per Lord Hoffmann). Mr Monro also has on his side the fact that in two recent decisions the House of Lords has found that common law causes of action lie in the field of tax notwithstanding the existence of statutory remedies: see Deutsche Morgan Grenfell Group plc v Inland Revenue Commissioners (referred to below as “DMG”) and Total Network SL v IRC [2008] UKHL 19.

I now turn to outline the factual background, the judgment of the Chancellor, counsels’ submissions and my conclusions.

I can take the background from [1] to [9] of the judgment of the Chancellor, omitting [7] which sets out s 33:

“(1)

In this action the claimant, Mr Monro, seeks judgment against the defendant, HMRC, for the sum of £846,000, interest under s.35A Supreme Court Act 1981 and costs. The nature of his claim is accurately summarised in the claim form issued on 5th April 2006 as a restitutionary claim for the repayment of tax paid by him pursuant to a mistake of law or as tax paid pursuant to an unlawful demand being tax collected which was not lawfully due. The pleadings, witness statement of the claimant, on which there has been no cross-examination, and the arguments addressed to me all show that there is no dispute as to the essential facts. The only question is whether those facts entitle Mr Monro to the relief that he seeks.

(2)

Mr Monro was the chief executive of Matalan plc. On 12th May 1998 he was granted for no consideration an option to acquire 1,357,230 shares in Matalan at an exercise price of zero. On 14th May 1998 he exercised the option and acquired that number of shares for nothing. Their market value then was £3,121,629 or £2.35 per share. On 1st May 1999 Mr Monro sold 900,000 shares in Matalan for £7,386,955. As the acquisition and the disposal took place in different years of assessment the acquisition was dealt with in Mr Monro’s self-assessment tax return for the year 1998/99 filed on or before 31st January 2000 and the disposal in his self-assessment tax return for the year 1999/2000 filed on or before 31st January 2001.

(3)

In his self-assessment tax return for the year 1998/99 Mr Monro declared a gain accruing on the exercise of the option and chargeable to tax under Schedule E pursuant to s.135 Taxes Act 1988 of £3,189,490.50. He duly paid the tax due thereon on or before 31st January 2000. The proportion of that gain attributable to the 900,000 shares sold on 1st May 1999 was £2,115,000.

(4)

In his self-assessment tax return for the year 1999/2000 Mr Monro declared a gain of £5,271,955 on which he paid tax of £2,108,782 on the due date of 31st January 2001. That gain was computed by deducting from the proceeds of sale (£7,386,955) the base cost attributable to the 900,000 shares sold (£2,115,000) as provided for by s.120 Taxation of Chargeable Gains Act 1992 s.120. In Mansworth v Jelley [2003] STC 53 the Court of Appeal concluded that such a computation was wrong in law. They decided that in computing the gain the taxpayer was entitled to deduct from the proceeds of sale not only the amount on which tax had been chargeable under s.135 but also the market value of the shares sold as at the date of their acquisition. Thus in the case of Mr Monro’s gain on the sale of the 900,000 shares in Matalan his gain should have been computed as follows:

Net Proceeds of sale £7,386,955

Less:

(a)

Amount chargeable to income tax (£2,115,000)

(b)

Base value (£2,115,000)

Chargeable Gain £3,156,955

Tax thereon @ 40% £1,262,782

Thus Mr Monro paid £846,000 more in tax than was properly due from him (£2,108,782 - £1,262,782 = £846,000).

(5)

It is common ground that the computation of his gain actually made by Mr Monro was in accordance with the practice then generally prevailing. Nevertheless it is, to my mind, of some significance that the argument which was upheld in Mansworth v Jelley [2003] STC 53 must have been raised at least within the year following the submission of Mr Monro’s tax return for the year 1999/2000 on 31st January 2001, if not earlier. That this is so appears from the dates of the various judgments. That of the Court of Appeal was delivered on 12th December 2002. The Court of Appeal thereby dismissed an appeal from the order of Lightman J made on 20th March 2002 who had himself dismissed the appeal of HMRC from the decision of the Special Commissioner dated 5th November 2001. The significance of this point arises from the fact that a tax-payer may only amend his return within one year of the filing date, s9ZA Taxes Management Act 1970.

(6)

Mr Monro’s accountants sought to amend Mr Monro’s return for the year 1999/2000 on 31st January 2003 so as to reduce the amount of the gain on the disposal of the 900,000 shares in Matalan to that properly chargeable to capital gains tax. In addition they sought repayment of £846,000 as tax overpaid by mistake pursuant to s.33 Taxes Management Act 1970.

(7)

…

(8)

By a letter dated 15th April 2003 the Inspector of Taxes refused both the applications made by Mr Monro’s accountants in their letter dated 31st January 2003. In respect of the request to amend the self-assessment return for the year 1999/2000 the Inspector refused it on the footing that that year was by then a “closed year” (s.9ZA Taxes Management Act 1970). In respect of the claim for relief under s.33 the Inspector refused it on the grounds that:

“The Court of Appeal decision in Mansworth v Jelley was given on 12th December 2002. Your client cannot therefore claim that there was an error or mistake in the 1999/2000 return because he made that return on the basis of the practice generally prevailing at the time. As the 2000 return was completed in accordance with the law as understood before Mansworth v Jelley the larger capital gain of £5,271,955 still stands. The capital gains tax paid on this gain cannot be repaid.”

The Inspector opened the formal enquiry that Schedule 1A(5) Taxes Management Act 1970 required. He maintained his opinion when closing it by letter dated 28th August 2003.

(9)

Initially Mr Monro was minded to appeal these decisions of the Inspector to the Special Commissioners as permitted by s.33(4) and so informed the Inspector by letter dated 16th September 2003. On 16th June 2004 Mr Monro’s accountants, no doubt mindful of the decision of Park J in Deutsche Morgan Grenfell Group plc v IRC [2003] STC 1017, claimed that Mr Monro had overpaid in consequence of a mistake of law and had a corresponding claim in restitution irrespective of the practice generally prevailing at the time the return was filed. By letters dated 11th November 2004 and 28th March 2006 that contention too was rejected by HMRC. In those circumstances Mr Monro had little alternative to issuing these proceedings in the form and at the time he did. The issues for my determination are whether Mr Monro is entitled to the relief he seeks on either of the bases on which he claims.”

In his illuminating judgment, the Chancellor analysed a number of recent decisions, namely Woolwich Equitable Building Society v IRC [1993] AC 70, Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349, Marcic v Thames Water Utilities Ltd [2004] 2 AC 42, Johnson v Unisys [2003] 1 AC 518 and Deutsche Morgan Grenfell Group PLC v IRC [2007] 1 AC 558. He held that Mr Munro’s claim fell within s 33(1). However, HMRC were precluded from giving any relief, because of the limitation in s 33(2A). The recognition of a common law remedy in the circumstances covered by s 33(1) would be inconsistent with that section, and accordingly the claim failed. The same conclusion would apply even if the claim were characterised as a claim for money paid pursuant to an unlawful demand. The Chancellor expressed sympathy for Mr Monro. He claimed repayment promptly after the decision of this court had shown the mistake of law underlying the practice generally prevailing at the time and on the basis of which he had overpaid his tax. The Chancellor continued:

“31.

Unfortunately for Mr Monro sympathy is not enough. It is plain that the circumstances of this case fall squarely within the conditions laid down by s.33(1). Thus the obligations imposed on the Board by s.33(2) arose. They duly inquired into the matter but their power to give relief is expressly subject to the provisions of the section. One of those provisions is that contained in s.33(2A). That subsection, as is admitted, precludes relief in circumstances such as those of this case. It would be inconsistent with s.33 to recognise a common law remedy in precisely the circumstances postulated by subsection (1) but free of the limitation contained in subsection (2A). None of the speeches in Johnson, Marcic or DMG suggest that such a conclusion would be permissible. Accordingly I reject the claim of Mr Monro in so far as it based on a restitutionary claim to recover tax paid under a mistake of law.”

Thus, in this paragraph, the Chancellor leaves open the possibility that there might be a claim at common law in circumstances where the limitations in s 33 do not apply. However, he clearly holds that no claim is possible in the circumstances of this case where HMRC would be prevented from granting any relief if a claim had been made under s 33.

S 33 has been considered by the House of Lords on more than one occasion: see DMG and Woolwich Equitable Building Society v Inland Revenue Commissioners, which is also referred to below. Those cases did not concern a case where the claim under s 33 was precluded because of ss(2A) but they provide valuable guidance in the resolution of this appeal.

the non-exclusive statutory regime argument

Mr Michael Sherry, for Mr Monro, submits that the Chancellor erred in law in that there was nothing in the structure of section 33 to suggest that the common law remedies were excluded. Moreover, properly read, s 33 did not even apply. It could only apply in a case to which s 33 (2A) did not apply. Ss (1) and (2A) had to be read together, and then it becomes clear that section 33 does not apply at all. Accordingly this was a case like DMG where the claim was outside s 33 and thus unaffected thereby. I will come to DMG below. Moreover, ss (2A) only applies to exclude claims “under this section”. That made it clear (a) that s 33 was not dealing comprehensively with all claims for recovery of tax paid under a mistake but only those which were brought under s 33; (b) that s 33 did not affect claims at common law. The words “under this section” were impliedly an acceptance that such claims could be brought. Brooke LJ in Eagerpath v Edwards [2001] STC 26 at [38] observed that it was anomalous that s 33 imposed a five-year limit on claims when under the common law as developed in Kleinwort time ran from the time that the claimant knew or ought to have known of his claim. If there is any ambiguity, it should be interpreted in favour of the taxpayer.

The argument of Mr Carr is a very simple one. He submits that in DMG the House of Lords held that the taxpayer had a common law right to recovery of tax paid under a mistake of law in accordance with the principles set out in Kleinwort Benson. The House rejected the argument that s 33 excluded any claim for recovery of unpaid tax on the grounds of mistake as a claim to repayment in that case could never have been made under s 33: see, for example, per Lord Hoffmann at [19]. Lord Hoffmann also held that it might well be inferred that Parliament intended to exclude any common law remedy which would or might have arisen on the same facts as fell within s 33.

Mr Carr relies on three further decisions of the House of Lords in Johnson v Unisys, Marcic v Thames Water Utilities Ltd and Autologic Holdings plc v IRC [2006] 1 AC 118. He also relies on the decision of this court in HMRC v Total Network SL [2007] 2 WLR 1156. Since the hearing of this appeal, the House of Lords has allowed an appeal against that decision. I refer to these cases below.

Mr Carr submits that s 33 is an exhaustive and exclusive regime. The original remedy for recovery for wrongly paid tax was developed by the common law to deal with the situation for which no remedy was provided by Parliament: see, for example, Woolwich. He submits that this case is distinguishable from DMG because the claim is within s 33. In Johnson, Mr Johnson had no effective remedy against the damage said to have been caused him by his dismissal as a result of the statutory limit on unfair dismissal claims. This limitation on his remedy did not, however, mean that the court could escape the restrictions imposed by Parliament.

I now turn to my conclusions on this issue. The critical question is whether a common law claim for recovery of money paid under a mistake of law could be brought notwithstanding what I have called the parallel universe in s 33. In my judgment, the Chancellor was correct. We have been taken to the cases which were cited to him and others. The ones that matter were all considered by the Chancellor. I do not think I could usefully add to his identification of the relevant passages in [10] to [23] of his judgment:

“[10] The arguments of counsel revolved round a number of recent decisions, mostly of the House of Lords. It is convenient therefore to consider them at this stage. The first is Woolwich Equitable Building Society v IRC [1992] STC 657, [1993] AC 70, to which I shall refer as Woolwich. In that case the building society made three payments to the Inland Revenue in respect of tax deducted from dividends and interest paid to its members without prejudice to its contention that the regulations under which those sums were demanded were ultra vires and void. The building society was successful in its contention and the regulations were, in due course, declared to be invalid on the grounds for which the building society contended. The Inland Revenue then repaid the sums paid with interest from the date of the declaration but refused to pay interest thereon from the earlier dates of payment on the grounds that during those periods it was under no legal obligation to repay the sums it had received. That contention was upheld by Nolan J (see [1989] STC 111, [1989] 1 WLR 137) but rejected by a majority of both the Court of Appeal (see [1991] STC 364, [1991] 3 WLR 790) and the House of Lords (see [1992] STC 657, [1993] AC 70).

[11] The majority in the House of Lords decided that interest was payable because the building society was, at the relevant time, entitled to a restitutionary remedy for recovery of the sums paid. Lord Goff of Chieveley pointed out (see [1992] STC 657 at 675, [1993] AC 70 at 169) that s 33 of the Taxes Management Act 1970 did not apply in that case because the regulation being void the assessment made under it was likewise void. In relation to a submission that it was too late to recognise a restitutionary remedy he said (see [1992] STC 657 at 677-678, [1993] AC 70 at 172):

'To that objection, however, there are two answers. The first is that the retention by the State of taxes unlawfully exacted is particularly obnoxious, because it is one of the most fundamental principles of our law—enshrined in a famous constitutional document, the Bill of Rights (1688)—that taxes should not be levied without the authority of Parliament; and full effect can only be given to that principle if the return of taxes exacted under an unlawful demand can be enforced as a matter of right.'

He concluded (see [1992] STC 657 at 681-682, [1993] AC 70 at 177):

'I would therefore hold that money paid by a citizen to a public authority in the form of taxes or other levies paid pursuant to an ultra vires demand by the authority is prima facie recoverable by the citizen as of right. As at present advised, I incline to the opinion that this principle should extend to embrace cases in which the tax or other levy has been wrongly exacted by the public authority not because the demand was ultra vires but for other reasons, for example because the authority has misconstrued a relevant statute or regulation. It is not, however, necessary to decide the point in the present case, and in any event cases of this kind are generally the subject of statutory regimes which legislate for the circumstances in which money so paid either must or may be repaid.'

[12] Lords Browne-Wilkinson and Slynn of Hadley agreed with him. The former added (see [1992] STC 657 at 697, [1993] AC 70 at 198):

'In their inception, these authorities [payments made under compulsion] were based on the fact that the payer and payee were not on an equal footing and it was this inequality which gave rise to the right to recovery. However, most of the cases which arose for decision were concerned with payments extracted ultra vires by persons who in virtue of their position could insist on the wrongful payment as a precondition to affording the payer his legal rights ie they were payments colore officii. In consequence, the courts came to limit the cases in which recovery of an ultra vires impost was allowed to cases where there had been an extraction colore officii. I can see no reason in principle to have restricted the original wide basis of recovery to this limited class of case. In my judgment, as a matter of principle the colore officii cases are merely examples of a wider principle viz that where the parties are on an unequal footing so that money is paid by way of tax or other impost in pursuance of a demand by some public officer, these moneys are recoverable since the citizen is, in practice, unable to resist the payment save at the risk of breaking the law or exposing himself to penalties or other disadvantages.'

[13] In Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349 (KBL) the House of Lords had to consider some of the consequences of the contracts effected in the operation of the system of interest rate swaps by various local authorities having been declared to be ultra vires and void. The issue was whether Kleinwort Benson Ltd was entitled to restitution of the amounts it had paid to various local authorities under interest rate swap agreements which at the time of payment it had believed to be valid. It claimed to be entitled to their return as moneys paid by mistake. The House of Lords, by a majority (Lords Browne-Wilkinson and Lloyd of Berwick dissenting), upheld such a claim. As that case did not involve an overpayment of tax and no direct reference was made to s 33 of the Taxes Management Act 1970 it is unnecessary to make any detailed reference to the speeches save to note that the majority accepted that a payment in accordance with what was then a settled understanding of the law might still be recoverable as a payment under a mistake of law.

[14] The next case, chronologically, is Marcic v Thames Water Utilities Ltd [2003] UKHL 66, [2004] 2 AC 42. In that case the plaintiff sued the defendant for damages in respect of damage to his property caused by escapes from the defendants' surface water sewers. As a sewerage undertaker the defendant was subject to a detailed regulatory scheme under which an independent regulator, subject to judicial review, was entitled and in some cases bound to enforce the statutory duties of an undertaker by means of enforcement orders. The relevant legislation provided that such an order was 'the only remed[y] for' such a contravention. The House of Lords concluded that the common law remedy was excluded by the statutory scheme. Lord Nicholls of Birkenhead, with whom the other members of the Appellate Committee agreed, said (at [35]):

'35 The difficulty I have with this line of argument is that it ignores the statutory limitations on the enforcement of sewerage undertakers' drainage obligations. Since sewerage undertakers have no control over the volume of water entering their sewerage systems it would be surprising if Parliament intended that whenever sewer flooding occurs, every householder whose property has been affected can sue the appointed sewerage undertaker for an order that the company build more sewers or pay damages. On the contrary, it is abundantly clear that one important purpose of the enforcement scheme in the 1991 Act is that individual householders should not be able to launch proceedings in respect of failure to build sufficient sewers. When flooding occurs the first enforcement step under the statute is that the director, as the regulator of the industry, will consider whether to make an enforcement order. He will look at the position of an individual householder but in the context of the wider considerations spelled out in the statute. Individual householders may bring proceedings in respect of inadequate drainage only when the undertaker has failed to comply with an enforcement order made by the Secretary of State or the director. The existence of a parallel common law right, whereby individual householders who suffer sewer flooding may themselves bring court proceedings when no enforcement order has been made, would set at nought the statutory scheme. It would effectively supplant the regulatory role the director was intended to discharge when questions of sewer flooding arise.'

[15] The decision at the heart of the argument in this action is DMG [2006] UKHL 49, [2007] STC 1. That case concerned the nature of the remedy available to a taxpayer who had paid advance corporation tax in circumstances which the Court of Justice of the European Communities (ECJ) had determined in Metallgesellschaft Ltd v IRC, Hoechst AG v IRC (Joined cases C-397/98 and C-410/98) [2001] STC 452, [2001] Ch 620 to be contrary to art 43 EC of the EU Treaty. It was common ground that s 33 of the Taxes Management Act 1970 did not apply because there had been no valid assessment. DMG commenced proceedings against the Inland Revenue and the Attorney General for the return of the advance corporation tax (ACT) paid in the period October 1993 to January 1996. After a series of amendments its cause of action was described as money paid under a mistake of law and/or as money paid pursuant to unlawful demands. In relation to a contention of the Inland Revenue that recovery of some of the earlier payments was precluded by the Limitation Act 1980 DMG replied, relying on s 32(1)(c), that the claim sought relief from the consequences of a mistake. Park J found (see [2003] STC 1017) that all the payments were recoverable on the basis that they had been paid pursuant to a provision of UK law declared by the ECJ to be contrary to Community law. The Court of Appeal concluded (see [2005] EWCA Civ 78, [2005] STC 329) that the earlier payments were statute-barred but that DMG was entitled to recover the later ones as money paid pursuant to an unlawful demand. Both parties appealed to the House of Lords. The House of Lords (see [2007] STC 1, [2006] 3 WLR 781), by a majority, allowed the appeal of DMG and dismissed the cross-appeal of the Inland Revenue on the basis that the common law afforded a restitutionary remedy to a taxpayer who wrongly paid tax under a mistake of law notwithstanding the existence of another concurrent remedy to which a shorter limitation period applied, namely the recovery of tax unlawfully demanded.

[16] Lord Hoffmann (at [9]) recorded an argument of counsel for the Inland Revenue to the effect that there were only two remedies for the recovery of tax not due, namely the common law remedy established in Woolwich for the recovery of tax unlawfully demanded and under and in accordance with the provisions of s 33 of the Taxes Management Act 1970. The Inland Revenue contended that in each case time ran from the date of payment. Lord Hoffmann (at [13]) rejected the submission that there was a different common law regime for claims for repayment of tax and private transactions. Lord Hoffmann said:

'[18] In my opinion, Lord Goff's speech in Kleinwort Benson does not deny the right to recover tax on the ground that it was paid by mistake. On the contrary, his discussion of a possible settled law defence necessarily entails that he thought that there was such a cause of action. And for the reasons I gave in Kleinwort Benson, I do not think that there is an exception for cases in which there is a settled view of the law.

[19] Mr Glick's alternative submission was that s 33 of TMA 1970 excluded any common law claim on the grounds of mistake. He said that Parliament, having provided a qualified remedy for one category of mistaken payments of tax (when “the assessment was excessive by reason of some error or mistake in a return”), must be taken to have dealt exhaustively with any kind of mistaken payment of tax and, so far as s 33 did not provide a remedy, must be taken to have intended that no remedy should exist. Mr Glick accepts that s 33 has no application to the present case because ACT was payable without any assessment, but nevertheless submits that s 33 excludes a remedy. In my opinion this goes much too far. Mr Glick advanced a similar argument in the Woolwich case, where s 33 did not apply because there had been no lawful assessment. The House of Lords rejected it. It is true that in Woolwich Mr Glick's argument was more ambitious, in that he was trying to use s 33 to exclude a remedy even when there had been no mistake of any kind. But the question is in the end one of construction. When a special or qualified statutory remedy is provided, it may well be inferred that Parliament intended to exclude any common law remedy which would or might have arisen on the same facts. That was the case in Marcic v Thames Water Utilities Ltd [2003] UKHL 66, [2004] 2 AC 42, upon which Mr Glick relied. But I see no reason to infer that Parliament intended to exclude a common law remedy in all cases of mistake (whether of fact or law) in which the Revenue was unjustly enriched but did not fall within s 33.'

[17] Lord Hope of Craighead dealt with the same submissions under the heading 'The statutory regime' in the following passages:

'[52] The issue here is whether DMG's claim under the Kleinwort Benson principle is excluded on grounds of policy. The policy which the Revenue invoke is that, where there is a statutory regime for the recovery of payments made under a mistake, a common law claim cannot exist in parallel with it. The argument is that the statutory regime, of which s 33 of TMA 1970 provides the leading example, excludes recovery on the ground of mistake at common law whether the mistake is of fact or law, and whether or not the statutory regime applies to the payment that is in question. DMG, for its part, accepts that there can be no recovery at common law where the claim falls within the ambit of the statutory regime. But it submits, first, that s 33 has no application to this case and, secondly, that Parliament cannot be taken to have intended that restitution should be barred by the statutory regime where it does not provide a remedy because the payment was not made under an excessive assessment.

[53] Mr Glick QC for the Revenue said that s 33 was an exhaustive provision which covered the whole field of recovery for payments made under a mistake by the taxpayer. It did so both in respect of the mistakes for which it provided expressly and also, by necessary implication, in respect of those situations for which Parliament had deliberately chosen not to legislate. I understood him to submit that ACT fell within s 33 because it was a form of corporation tax which is charged on profits of companies and is recoverable under an assessment. Although he accepted that it was possible to envisage a case where the mistake did not fall within the terms of s 33, he said that the gap if it did exist was at best a very narrow one …

[55] In support of his argument that, even if s 33 of TMA 1970 did not apply, Parliament had enacted a statutory scheme which was inconsistent with the common law remedy, Mr Glick relied on the judgment of your Lordships' House in Marcic v Thames Water Utilities Ltd [2003] UKHL 66, [2004] 2 AC 42. I do not think that that case is in point here. Mr Marcic's claim in nuisance was held to be inconsistent with the statutory scheme. His argument was that Thames Water ought to have built new sewers to prevent flooding of his property. But, as Lord Nicholls of Birkenhead pointed out, this ignored the statutory limitations on the enforcement of sewerage undertakers' drainage obligations ([2004] 2 AC 42 at [35]). An important purpose of the statutory scheme was that individual householders should not be able to launch proceedings in respect of a failure to build sufficient sewers. That would supplant the regulatory role of the industry's regulator, whose role was to decide whether to make an enforcement order when questions of flooding arose. Section 33 has none of the features of a statutory scheme of that kind.

[56] For all these reasons I would hold that the general right to recover payments made under a mistake of law on the Kleinwort Benson principle extends to the payment of taxes made to the Revenue on the mistaken belief that they were due and payable, and that DMG is entitled to take advantage of s 32(1)(c) of the Limitation Act 1980 by basing its claim for restitution on that principle.'

[18] Lord Walker of Gestingthorpe dealt with these points in para [135] where he said:

'[135] When Parliament enacts a special regime providing special rights and remedies, that regime may (but does not always) supersede and displace common law rights and remedies (or more general statutory rights and remedies). Whether it has that effect is a question of statutory construction: Marcic v Thames Water Utilities Ltd [2003] UKHL 66 at [29]–[36], [2004] 2 AC 42 at [29]–[36] and Re Claimants under Loss Relief Group Litigation Order [2005] UKHL 54, [2005] STC 1357; sub nom Autologic Holdings plc v IRC [2006] 1 AC 118 (which Mr Rabinowitz QC for DMG put forward as a procedural analogue to the present case). Where s 33 of the Taxes Management Act 1970 (“TMA 1970”) applies it does no doubt displace any common law remedy for tax paid under a mistake. But in Woolwich tax was demanded under a regulation which was void. There was therefore no valid assessment and the statutory regime was simply not engaged: see Lord Goff in Woolwich Equitable Building Society v IRC [1992] STC 657 at 675, [1993] AC 70 at 169. Similarly, the ECJ has decided in Hoechst that the ACT regime is unlawful under EU law so far as it discriminates between national and multi-national groups of companies. The Revenue accepts that neither s 33 of TMA (as it stood at the relevant time) nor any other statutory provision applies to the situation in which DMG finds itself. The gap in the statutory provisions cannot provide the Revenue with a defence, both because of Woolwich and, in the context of EU law, because of the principle of effectiveness. The appropriate remedy for DMG is, as the Revenue concedes, restitutionary in nature. …'

[19] Lord Brown of Eaton-under-Heywood (at para [161]) agreed with Lords Hoffmann, Hope of Craighead and Walker of Gestingthorpe. Lord Scott of Foscote agreed that English law 'does now recognise a restitutionary remedy for tax paid under a mistake of law', but differed from the majority as to what the mistake and its consequences were. In the event he made no reference to the statutory regime for recovery of tax not due.

[20] Before referring to the arguments for the parties in this action I should refer also to the decision of the House of Lords in Johnson v Unisys Ltd [2001] UKHL 13, [2003]1 AC 518, to which I shall refer as Johnson. This was relied on by counsel for HMRC, seemingly as something of an afterthought in that it was not included in the agreed bundle of authorities. In that case Mr Johnson, having already successfully made a claim to the Industrial Tribunal for unfair dismissal commenced proceedings for damages for wrongful dismissal. He relied on a term to be implied into his contract of employment to the effect that the employer would not, without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of trust and confidence between them. He alleged that the manner of his dismissal constituted a breach of that term and had led to a mental breakdown and an inability to work. The employer applied to strike out the claim as disclosing no reasonable cause of action. The judge (see [1999] ICR 809) struck out the claim and the Court of Appeal (see [1999] 1 All ER 854) upheld his decision. The House of Lords dismissed Mr Johnson's appeal on the ground that Pt X of the Employment Rights Act 1996 had provided him with a limited remedy for the conduct of which he complained so as necessarily to exclude any wider common law remedy.

[21] Lord Nicholls of Birkenhead succinctly expressed this conclusion in these words (at para [2]):

'2 … In principle the employee's argument has much to commend it … But there is an insuperable obstacle: the intervention of Parliament in the unfair dismissal legislation. Having heard full argument on the point, I am persuaded that a common law right embracing the manner in which an employee is dismissed cannot satisfactorily coexist with the statutory right not to be unfairly dismissed. A newly developed common law right of this nature, covering the same ground as the statutory right, would fly in the face of the limits Parliament has already prescribed on matters such as the classes of employees who have the benefit of the statutory right, the amount of compensation payable and the short time limits for making claims. It would also defeat the intention of Parliament that claims of this nature should be decided by specialist tribunals, not the ordinary courts of law …'

[22] Lord Hoffmann, with whom Lord Bingham of Cornhill agreed, dealt with this point in paras [50] to [58]. His conclusions were explained in these terms:

'54 My Lords, this statutory system for dealing with unfair dismissals was set up by Parliament to deal with the recognised deficiencies of the law as it stood at the time of Malloch v Aberdeen Corpn [1971] 1 WLR 1581. The remedy adopted by Parliament was not to build upon the common law by creating a statutory implied term that the power of dismissal should be exercised fairly or in good faith, leaving the courts to give a remedy on general principles of contractual damages. Instead, it set up an entirely new system outside the ordinary courts, with tribunals staffed by a majority of lay members, applying new statutory concepts and offering statutory remedies. Many of the new rules, such as the exclusion of certain classes of employees and the limit on the amount of the compensatory award, were not based upon any principle which it would have been open to the courts to apply. They were based upon policy and represented an attempt to balance fairness to employees against the general economic interests of the community. And I should imagine that Parliament also had in mind the practical difficulties I have mentioned about causation and proportionality which would arise if the remedy was unlimited. So Parliament adopted the practical solution of giving the tribunals a very broad jurisdiction to award what they considered just and equitable but subject to a limit on the amount.

55 In my opinion, all the matters of which Mr Johnson complains in these proceedings were within the jurisdiction of the industrial tribunal … The emphasis is upon the tribunal awarding such compensation as it thinks just and equitable. So I see no reason why in an appropriate case it should not include compensation for distress, humiliation, damage to reputation in the community or to family life.

56 Part X of the Employment Rights Act 1996 therefore gives a remedy for exactly the conduct of which Mr Johnson complains. But Parliament had restricted that remedy to a maximum of £11,000, whereas Mr Johnson wants to claim a good deal more. The question is whether the courts should develop the common law to give a parallel remedy which is not subject to any such limit.

57 My Lords, I do not think that it is a proper exercise of the judicial function of the House to take such a step …

58 … For the judiciary to construct a general common law remedy for unfair circumstances attending dismissal would be to go contrary to the evident intention of Parliament that there should be such a remedy but that it should be limited in application and extent.'

[23] Lord Millett, with whom Lord Bingham of Cornhill also agreed, said:

'80 … In other cases, where the common law would be giving a remedy in excess of the statutory limits or to excluded categories of employees, it would be inconsistent with the declared policy of Parliament. In all cases it would allow claims to be entertained by the ordinary courts when it was the policy of Parliament that they should be heard by specialist tribunals with members drawn from both sides of industry. And, even more importantly, the coexistence of two systems, overlapping but varying in matters of detail and heard by different tribunals, would be a recipe for chaos. All coherence in our employment laws would be lost.'”

In my judgment, the authorities which provide greatest assistance on the issues to be determined on this appeal are first, as to the general approach, an extract from [37] of the speech of Lord Hoffmann in Johnson and as to the specific application of the principle to s 33, [135] of the speech of Lord Walker in DMG, which is set out by the Chancellor. I would base my decision on these issues on those two passages. What Lord Hoffmann held so far as material in [37] of Johnson was this:

“.. judges, in developing the law, must have regard to the policies expressed by Parliament in legislation. Employment law requires the balancing of the interests of employers and employees, with proper regard not only to the individual dignity at work employees but also to the general economic interest. Subject to observance of fundamental human rights, the point at which the balance should be struck is a matter for democratic decision. The development of the common law by the judges plays a subsidiary role. Their traditional function is to adapt and to modernise the common law. But such developments must be consistent with legislative policy as expressed in statutes. The courts may proceed in harmony with Parliament but there should be no discord.”

As I have said, subsequent to the hearing in this case, the decision of this court in Total to which we were referred by Mr Carr has been reversed (by a majority) by the House of Lords. In that case the relevant issue was whether HMRC could bring a claim at common law in conspiracy against a company incorporated in Spain which was not a taxable person in order to recover damages in sums equivalent to amounts of VAT which had been lost as a result of missing trader fraud. There was an issue as to whether this claim was excluded because it was not one of the statutory remedies which were conferred on HMRC for the purpose of recovering VAT. The majority consisted of Lord Scott, Lord Walker and Lord Mance. Lord Scott considered that there was no reason why the statutory scheme should be thought to provide protection against tort claims for those who by fraudulent schemes succeed in extracting money from HMRC ([60]). Lord Walker pointed out that HMRC regularly pursued civil remedies, such as winding up petitions (see [105] to [108]). Lord Mance held that the critical question was whether the statutory scheme superseded and displaced the common law rights and remedies which HMRC would otherwise have ([130]) and he cited para. 135 of the speech of Lord Walker in DMG. He considered that statute must positively be shown to be inconsistent with the continuation of the ordinary common law remedy otherwise available and that this had to be shown as against a particular defendant ([130]). But the discussion of the circumstances in which a common law remedy is displaced by a statutory remedy was not analysed in greater depth and thus in my judgment this case is an illustration of, rather than a development of, the principles in the authorities so carefully considered by the Chancellor. In any event, in Total, different considerations arose because it was HMRC, and not the taxpayer, who were trying to bring a claim in tort. But the fundamental assumption of all the speeches was that in order to displace a common law remedy the statutory remedy had to be inconsistent with it. To that extent, at least, there was no departure from the principles in DMG.

In my judgment, the authorities give clear guidance that if Parliament creates a right which is inconsistent with a right given by the common law, the latter is displaced. By “inconsistent”, I mean that the statutory remedy has some restriction in it which reflects some policy rule of the statute which is a cardinal feature of the statute. In those circumstances, the likely implication of the statute, in the absence of contrary provision, is that the statutory remedy is an exclusive one.

Undoubtedly, Mr Monro paid money under mistake of law, and a remedy at common law in general exists in that situation. Such a right can, however, be excluded by express words or necessary implication. In this case, the implication arises because Parliament has created a specific remedy with a limitation to exclude payments made under generally accepted practice. That limitation would be defeated if the court permitted an action to be brought at common law. That principle applies even though the statute is a taxing statute which must be interpreted so as not to impose burdens on the taxpayer unfairly. I have already discussed the obvious purpose of subs (2A). It would make a nonsense of that purpose if it was possible to bring an action at common law for the recovery of money in circumstances where s 33(1) applies.

It is not correct to say, as Mr Sherry submits, that Mr Monro’s claim is outside section 33 altogether. It is within ss (1) and HMRC have a statutory obligation to consider it. It is not open to this court to rewrite the structure of s 33 and treat it as not covering his case.

Mr Sherry emphasised the words "under this section" in ss (2A). In my judgment, those words are against the appellant. They are indeed consistent with the intention by Parliament that section 33 should be an exclusive regime. They are not effective to displace the inconsistency to which the rest of ss(2A) gives rise.

It follows that the present claim cannot be brought. It also follows from the proposition of law which I have formulated above that my conclusion is not confined to a case where the claim leads to no relief because of s 33(2A). The same would in my judgment apply whenever a case which could have been brought under s 33 cannot succeed because of some restriction on such claims which reflects a policy rule of the statute and constitutes a important feature of it.

The Chancellor went on to hold that his conclusion on the inconsistency of the common law remedy with s 33 would apply also if the claim were reformulated as a claim for repayment of tax as a result of an ultra vires demand under the Woolwich principle. I agree with him that this reformulation of the claim would make no difference to the result.

The Convention issues

The Convention arguments were not before the Chancellor and so are not dealt with by him in his judgment.

On this appeal, Mr Sherry contends that the effect of the judgment below is to violate Mr Monro’s right of property consisting of his right to recover monies made under a mistake at common law. Article 1 of the first Protocol to the Convention (“A1P1”) provides:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

Any interference with property rights must be proportionate but, as Mr Sherry recognises, in the field of tax the jurisprudence of the Convention gives a large margin of discretion to the national authorities in the determination of what is proportionate. He submits that this principle does not apply here because no tax was due. In any event, on his submission, the state is in a better position to bear the loss. He submits that it is not proportionate to impose the burden on individuals.

Mr Carr submits that the taxation provisions of contracting states fall within the rule in the second paragraph of A1P1 and that this includes laws which the contracting state deems necessary to secure the payment of taxes (see generally National & Provincial Building Society v United Kingdom (1997) 25 EHHR 127 at [78] to [80]). He emphasises that under Convention jurisprudence a wide margin of appreciation is allowed to member states.

In any event, he submits that section 33 does not violate A1P1 because it provides for the recovery of excessive payments of tax within the limits of what the legislature determines is reasonable. Moreover, the taxpayer has the right of appeal. The state has a legitimate interest in ensuring finality of fiscal transactions. Because under s 33 the error must be generally prevailing, the individual is not left to shoulder the burden of the payment. To allow for repayment where there has been a generally prevailing practice would expose the state to a large number of claims and increase the risk of disruption to public finances, shifting the burden of taxation to other groups or leading to the reimposition of the same tax on the same group in a different manner.

I agree with Mr Carr's submissions. Legislation in relation to claims to recover payments made in error as to whether they are due as tax is subject to the same principles as the taxing legislation itself. Therefore, a wide margin of discretion must be allowed to national authorities in the determination of policy in relation to claims to recover tax. In this case, there is an obvious and rational policy explanation for the limitation in s 33(2A). I am therefore satisfied that there is no violation of A1P1.

There was a supplementary issue. The Court of Justice of the European Communities has held that the principle of effectiveness must be observed in relation to recovery tax under Community law. It would thus follow that such a right could not be taken away until a person had been given an adequate opportunity to pursue it (see generally Marks & Spencer v Commissioners of Customs and Excise [2002] STC 1036). That principle does not as such apply to purely domestic law claims, thus creating a difference between the person entitled to a claim under Community law and one under domestic law. Freedom from discrimination in relation to property rights is guaranteed by article 14 of the Convention. However, for the reasons given above, the difference is capable of justification and thus gives rise to no claim for a Convention violation.

In these circumstances, the duty of the court under section 3 of the Human Rights Act 1998 does not apply.

For the reasons given above I would dismiss this appeal.

In Deutsche Morgan Grenfell Group Plc v IRC [2007] AC 558 it was contended successfully by the taxpayer that it had made overpayments of advance corporation tax and was entitled in restitution to recover such overpayments from the Revenue as money paid by mistake. There was a concurrent remedy to which a shorter limitation period applied namely to recover tax unlawfully demanded, but the existence of that concurrent remedy did not prevent the taxpayer from relying on the cause of action which afforded it the longer limitation period.

I agree with both judgments.