Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
THE CHANCELLOR OF THE HIGH COURT
Between :
ANGUS MONRO | Claimant |
- and - | |
THE COMMISSIONERS FOR HM REVENUE & CUSTOMS | Defendants |
Mr Michael Sherry (instructed by Reynolds Porter Chamberlain) for the Claimant
Mr Bruce Carr (instructed by HM Revenue & Customs) for the Defendants
Hearing dates: 23rd January 2007
Judgment
The Chancellor :
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.
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.
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.
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).
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.
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.
That section, so far as relevant and in force at the material time, provides:
“(1) If a person who has paid income tax or capital gains tax charged under an assessment (whether a self-assessment or otherwise) alleges that the assessment was excessive by reason of some error or mistake in a return, he may by notice in writing at any time not later than five years after the 31st January next following the year of assessment to which the return relates, make a claim to the Board for relief.
(2) On receiving the claim the Board shall inquire into the matter and shall, subject to the provisions of this section, give by way of repayment such relief in respect of the error or mistake as is reasonable and just:
(2A) No relief shall be given under this section in respect of –
(a) an error or mistake as to the basis on which the liability of the claimant ought to have been computed where the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when the return was made;
(b) an error or mistake in a claim which is included in the return.
(3) In determining the claim the Board shall have regard to all the relevant circumstances of the case, and in particular shall consider whether the granting of relief would result in the exclusion from charge to tax of any part of the profits of the claimant, and for this purpose the Board may take into consideration the liability of the claimant and assessments made on him in respect of chargeable periods other than that to which the claim relates.
(4) If any appeal is brought from the decision of the Board on the claim the Special Commissioners shall hear and determine the appeal in accordance with the principles to be followed by the Board in determining claims under this section; and neither the appellant nor the Board shall be entitled to appeal under section 56 of this Act against the determination of the Special Commissioners except on a point of law arising in connection with the computation of profits.
(5) In this section ‘profits’—
(a) in relation to income tax, means income, and
(b) in relation to capital gains tax, means chargeable gains,”
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.
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.
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 [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 but rejected by a majority of both the Court of Appeal and the House of Lords.
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. At page 169 Lord Goff of Chieveley pointed out that s.33 Taxes Management Act 1970 did not apply in that case because the regulation being void the assessment made under it was likewise void. At page 172 in relation to a submission that it was too late to recognise a restitutionary remedy he said:
“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 at page 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.”
Lords Browne-Wilkinson and Slynn of Hadley agreed with him. The former added at page 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 i.e. 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.”
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 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.
The next case, chronologically, is Marcic v Thames Water Utilities Ltd [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 (para 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.”
The decision at the heart of the argument in this action is Deutsche Morgan Grenfell Group plc v IRC [2006] 3 WLR 781, to which I shall refer as DMG. That case concerned the nature of the remedy available to a taxpayer who had paid advance corporation tax in circumstances which the European Court of Justice had determined in Metalgesellschaft Ltd v IRC and Hoechst v IRC [2001] Ch.620 to be contrary to Article 43 EU Treaty. It was common ground that s.33 Taxes Management Act 1970 did not apply because there had been no valid assessment. DMG commenced proceedings against the Inland Revenue and HM Attorney-General for the return of the 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 that all the payments were recoverable on the basis that they had been paid pursuant to a provision of UK Law declared by ECJ to be contrary to community law. The Court of Appeal concluded 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, 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.
Lord Hoffmann, in paragraph 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 Taxes Management Act 1970. The Inland Revenue contended that in each case time ran from the date of payment. Lord Hoffmann rejected (paragraph 13) the submission that there was a different common law regime for claims for repayment of tax and private transactions. In paragraphs 18 and 19 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 section 33 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 section 33 did not provide a remedy, must be taken to have intended that no remedy should exist. Mr Glick accepts that section 33 has no application to the present case because ACT was payable without any assessment, but nevertheless submits that section 33 excludes a remedy. In my opinion this goes much too far. Mr Glick advanced a similar argument in the Woolwich case, where section 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 section 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 section 33.”
Lord Hope of Craighead dealt with the same submissions under the heading “The Statutory Regime” in the following passages taken from paragraphs 52 to 56:
“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 section 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 section 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 section 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 section 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 section 33, he said that the gap if it did exist was at best a very narrow one.
54. [...]
55. In support of his argument that, even if section 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 [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: para 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 section 32(1)(c) of the Limitation Act 1980 by basing its claim for restitution on that principle.”
Lord Walker of Gestingthorpe dealt with these points in paragraph 135 where he said:
“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 Limited [2003] UKHL 66 ; [2004] 2 AC 42 , 56-58, paras 29-36 and Autologic Holdings plc v Inland Revenue Commissioners [2006] 1 AC 118 (which Mr Rabinowitz QC for DMG put forward as a procedural analogue to the present case). Where section 33 of the Taxes Management Act 1970 ("TMA") 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 [1993] AC 70, 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 section 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.”
Lord Brown of Eaton-under-Heywood (paragraph 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.
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] ICR 480, 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 struck out the claim and the Court of Appeal upheld his decision. The House of Lords dismissed Mr Johnson’s appeal on the ground that Part X 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.
In paragraph 2 Lord Nicholls of Birkenhead succinctly expressed this conclusion in these words:
“In principle the appellant'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 co-exist 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.”
Lord Hoffmann, with whom Lord Bingham of Cornhill agreed, dealt with this point in paragraphs 50 to 58. His conclusions were explained in paragraphs 54 to 58 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 Corporation [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.”
Lord Millett, with whom Lord Bingham of Cornhill also agreed, said (paragraph 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 co-existence 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.”
Against the background of those decisions I turn to the arguments of counsel on the two bases on which the case for Mr Monro is advanced, namely recovery of tax paid under a mistake of law and/or pursuant to an unlawful demand. I will, as counsel did, consider the claim based on a mistake of law first.
It is common ground that Mr Monro is and ever since his mistake was discovered has been unable to recover the admitted overpayment of £846,000 under any provision of the Taxes Management Act. An amendment under s.9ZA is long out of time. A claim under s.33 Taxes Management Act is precluded by s.33(2A). The issue is whether, in those circumstances, the restitutionary claim for recovery of money paid under a mistake of law which, as demonstrated by Woolwich, KBL and DMG, would otherwise exist is precluded by the existence and terms of the Taxes Management Act.
Counsel for Mr Monro submits that it is not. He points out that s.33 derives from s.24 Finance Act 1923 where it was confined in its operation to assessments made under Schedule D. That section contained a proviso in similar terms to s.33(2A). Counsel for Mr Monro points out that s.24 Finance Act 1923 has been re-enacted with amendments so as to extend its scope but reduce the period within which the claim for repayment is to be made on a number of occasions down to 1994 but all of them before the existence of a restitutionary claim for a mistake of law had been recognised. He contends that just as one precondition to the application of s.33 of a valid assessment did not exclude the common law remedy in DMG so the exclusion of claims arising from a mistaken self assessment made on the basis of the practice generally prevailing at the time it was made by s.33(2A) should not do so either.
Counsel for Mr Monro submits that the scheme for which the Taxes Management Act 1970 provides is not a scheme such as altogether to exclude a restitutionary remedy for tax paid by mistake as in Johnson. Such a conclusion would be contrary to the decision of the House of Lords in DMG. Nor is there any particular provision in it sufficient to exclude a restitutionary claim as in Marcic or comparable to s.80(7) VAT Act 1994 . He recognises that s.33(2A) is not expressed as a precondition to the application of s.33 as a whole but contends that this court should look at the substance of the matter and recognise that it has the same effect because, in the words of Lord Hope of Craighead in particular, s.33 does not in these circumstances provide a remedy.
Counsel for Mr Monro emphasises a number of features in support of his argument that s.33 should not be treated as excluding the common law remedy in cases such as this. He points out that in the case of a claim to loss relief s.42 applies. That section allows a claim to be made within the same period of five years but contains no exclusion for mistakes in computing losses arising from the practice generally prevailing at the time the computation was made. He points out that s.33(2) imports some element of discretion in that the relief to be given in cases to which the section does apply is to be that which is reasonable and just. S.33(3) requires the Board to consider the whole range of relevant circumstances. S.33(4) limits the appeals which may be made from decisions of the Board under that section. Thus, so he contends, section 33 cannot be regarded as imposing a scheme of general application such as to exclude the common law remedy in cases to which the section does not apply.
These submissions are disputed by counsel for HMRC. He submits that s.33 provides for what Lord Hoffmann described in DMG as a ‘qualified’ remedy. He accepts that the time limit for amendments to a self-assessment and the terms of s.33(2A) are restrictive when compared with the common law remedy but contends that HMRC need reasonable certainty and these restrictions or qualifications are what Parliament considered to be appropriate. He submits, by reference to the words of Lord Hope of Craighead in DMG, that s.33 does provide a remedy in all cases of mistake even if in cases such as this it does not lead to an award of a money judgment. He points out that, were it otherwise, s.33(2A), in any of the forms in which it existed since 1923, would not have excluded claims to recover tax paid under a mistake of fact in the computation of liability made in accordance with the practice generally prevailing at the time.
I have considerable sympathy for Mr Monro. HMRC admit that on 30th January 2001 he paid £846,000 more than he was liable for in relation to the capital gain he had made on the sale of 900,000 shares in Matalan plc on 1st May 1999. He claimed repayment on 31st January 2003, some six weeks after the decision of the Court of Appeal 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.
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.
Accordingly I turn to the alternative basis for the claim described as the recovery of tax paid pursuant to an unlawful demand. Counsel for Mr Monro contends that the decision of the Court of Appeal in Mansworth v Jelley [2003] STC 53 established that £846,000 of the sum of £2,108,782 paid by Mr Monro on 30th January 2001 as capital gains tax in respect of the sale of 900,000 shares in Matalan plc was not lawfully due from him. He submits that Woolwich established that, in principle, Mr Monro has a restitutionary remedy in respect of such payment irrespective of the reason why such sum was not lawfully due. In that connection he relies on the dictum of Lord Goff of Chieveley in Woolwich at page 177 that the principle that money paid to a public authority pursuant to an ultra vires demand is recoverable
“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 authority. 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.”
That proposition was accepted by Lord Browne-Wilkinson. At page 198 he said:
“In cases such as the present [payment of tax pursuant to a demand by a public officer] both the concept of want of consideration and payment under compulsion are in play. The money was demanded and paid for tax, yet no tax was due: there was a payment for no consideration. The money was demanded by the state from the citizen and the inequalities of the parties’ respective positions is manifest even in the case of a financial institution like Woolwich.”
Similarly at page 204 Lord Slynn of Hadley found it:
“quite unacceptable in principle that the common law should have no remedy for a taxpayer who has paid large sums or any sum of money to the revenue when those sums have been demanded pursuant to an invalid regulation....”
Later, at page 205, he added:
“This is not, however, a case where the demand was based on an erroneous interpretation of legislation by the revenue; my provisional view is that there is no distinction between such a case and a case like the present where the demand is based on an invalid regulation and is therefore ultra vires. That does not have to be decided in this case...”
This view of the law was accepted by the Court of Appeal in DMG, see [2006] 2 WLR 103 and was not in issue in the House of Lords, see per Lord Hoffmann at para 7. In that case, as counsel for Mr Monro points out, there was no specific demand from the Revenue only an obligation to make a return and payment of the tax shown thereon to be due. Counsel for Mr Monro submits that by parity of reasoning the obligation on Mr Monro to pay the tax shown to be due by his self-assessment return is to be regarded as a demand made by HMRC, that such demand was excessive and unlawful to the extent of £846,000 so that that sum is now repayable in circumstances outside those for which s.33 provides.
Counsel for HMRC accepts that in circumstances akin to those prevailing in Woolwich a restitutionary remedy exists. But, he submits, the demand must be ultra vires or unlawful. In this case there was nothing unlawful or ultra vires about the legislation requiring a tax payer to compute his capital gain and to pay the sum shown by his own self-assessment to be due. In those circumstances, he contends, the obligation to pay cannot be treated as equivalent to a demand by HMRC.
I do not think that the right of Mr Monro to recover the sum of £846,000 overpaid can depend on the label to be attached to the restitutionary remedy. S.33 Taxes Management Act 1970 applies in all cases where
“...a person who has paid...capital gains tax under an assessment....alleges that the assessment was excessive by reason of some error or mistake in a return...”
That is the situation in this case whether the cause of action on which Mr Monro seeks to rely is classified as recovery of money paid under a mistake of law or as money paid to a public officer pursuant to an unlawful demand. It must follow that however the cause of action is described if subsection (2A) is in point then no common law claim can lie. My conclusion in respect of the first description of the cause of action is as applicable to the second description. It follows that I reject this basis of the claim as well.
For all these reasons I dismiss this claim. Whether it is appropriate or just to preclude any recovery to a tax payer in respect of sums of tax overpaid in circumstances such as these unless a claim is made not later than 12 months after the date of payment I must leave to others. It is my function to apply the law as I understand it to be. It is ultimately the function of Parliament to determine if it should be altered.