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On appeals from: [2010] EWCA Civ 103 and [2016] EWCA Civ 1180

The Supreme Court has unanimously allowed this appeal concerning the law of limitation.

This appeal arises in the course of long-running proceedings known as the Franked Investment Income (“FII”) Group Litigation. The FII Group Litigation brings together many claims concerning the way in which advance corporation tax and corporation tax used to be charged on dividends received by UK-resident companies from non-resident subsidiaries. The Respondents to this appeal are claimants within the FII Group Litigation whose cases have been selected to proceed as test claims on certain common issues (“the Test Claimants”). These issues are being determined in phases, with the courts’ decisions affecting not just the other claims within the FII Group Litigation, but potentially also a number of other sets of proceedings brought by corporate taxpayers against the Commissioners for Her Majesty’s Revenue and Customs (“HMRC”)

The Test Claimants’ case is that the differences between their tax treatment and that of wholly UK-resident groups of companies breached the EU Treaty provisions which guarantee freedom of establishment and free movement of capital. They seek repayment by HMRC of the tax wrongly paid, together with interest, dating back to the UK’s entry to the EU in 1973.

Restitutionary claims for the recovery of money must normally be brought within six years from the date on which the money was paid. As an exception to that general rule, section 32(1)(c) of the Limitation Act 1980 provides that, in respect of an “action for relief from the consequences of a mistake”, the limitation period only begins to run when the claimant “has discovered the … mistake … or could with reasonable diligence have discovered it.”

Before the Court of Appeal, the Test Claimants argued that, where a claimant is seeking to recover money paid under a mistake of law, the effect of section 32(1)(c) is to postpone the commencement of the limitation period until such time as the true state of the law is established by a judicial decision from which there lies no right of appeal. In their cases, the Test Claimants said that this was when, in 2006, the Court of Justice of the European Union decided that relevant aspects of the UK tax regime were incompatible with EU law. HMRC argued that time instead began to run in 2001, when the Court of Justice decided that other aspects of the UK tax regime breached EU law. The Court of Appeal found in favour of the Test Claimants on this issue.

On appeal to the Supreme Court, HMRC argued that section 32(1)(c) of the Limitation Act 1980 applies only to mistakes of fact and not to mistakes of law, or alternatively that the Test Claimants could reasonably have discovered their mistake more than six years before they issued their claims in 2003. On either approach, a proportion of the claims would be time-barred.

The Supreme Court unanimously allows the appeal, but for differing reasons.

The majority (Lord Reed, Lord Hodge, Lord Lloyd-Jones and Lord Hamblen) hold that section 32(1)(c) of the Limitation Act 1980 applies to claims for the restitution of money paid under a mistake of law, with time beginning to run when the claimant discovers or could with reasonable diligence have discovered their mistake in the sense of recognising that they have a worthwhile claim. It leaves the application of that test to the facts of this case for the High Court, after the parties have had an opportunity to amend their pleadings.

The minority (Lord Carnwath, Lord Briggs and Lord Sales) would have held that section 32(1)(c) has no application to mistakes of law.

For judgment, please see:

For press summary, please see:

For non-PDF version of judgment, please see:

 

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