1369

[2020] 3 WLR FII Group Test Claimants v HMRC (SC(E)

(SC(E)))

A Supreme Court

Test Claimants in the FII Group Litigation v Revenue and

Customs Commissioners (formerly Inland Revenue
Commissioners)

B Test Claimants in the FII Group Litigation and others v

Revenue and Customs Commissioners (formerly Inland
Revenue Commissioners)
[2020] UKSC 47
2020 Feb 18, 19, 20; Lord Reed PSC, Lord Hodge DPSC,
C Nov 20 Lord Lloyd-Jones, Lord Briggs, Lord Sales,
Lord Hamblen JJSC, Lord Carnwath

Limitation of action  Postponement of limitation period  Mistake  Claimants

claiming repayment of tax paid under mistake of law  Claimants contending
that running of limitation postponed until mistake discovered or discoverable
with reasonable diligence  Revenue conceding that postponement of limitation
D period available in actions for relief from consequences of mistake of law 
Whether revenue barred from withdrawing concession on appeal on grounds of
res judicata, estoppel or abuse of process  Whether postponement of limitation
period applying to mistakes of law as well as fact  Proper approach to date on
which claimant could with reasonable diligence have discovered mistake of
law  Limitation Act 1980 (c 58), s 32(1)(c)

The taxpayers brought claims against the revenue for the restitution of tax paid
E
by them under a mistake of law, the basis of the claims being that the tax regimes
pursuant to which the tax had been paid breached European Union law. Pursuant to
a group litigation order which was made in order to determine a number of common
or related questions of law that arose in similar cases, the taxpayers were chosen as
test claimants. Since the payments of tax in issue had been made over the 30 years
prior to the issue of the taxpayers claims, a large element of their claims would
normally have been time-barred under section 5 of the Limitation Act 19801.
F
Accordingly, the taxpayers relied on section 32(1)(c) of the 1980 Act, which applied
to an action for relief from the consequences of a mistake and postponed the
commencement of the limitation period until the claimant had discovered the
mistake or could with reasonable diligence have discovered it. Following a
reference from the trial judge, the Court of Justice of the European Union gave a
judgment in which it decided that the tax regimes in question were contrary to
G European Union law. Applying that decision, the judge allowed some but not all of
the claims. Both the taxpayers and the revenue appealed. Relying on two decisions
of the House of Lords, the taxpayers argued (i) that section 32(1)(c) applied to
mistakes of law as well as mistakes of fact and (ii) that when a mistake of law was
involved section 32(1)(c) postponed the commencement of the six-year limitation
period until the true state of the law had been established by a judicial decision from
which there was no right of appeal, which in the present case was when the Court of
H Justice had given judgment. The revenue conceded that section 32(1)(c) applied to
mistakes of law. Considering itself bound by the previous House of Lords decisions,
the Court of Appeal found in favour of the taxpayers. The revenue appealed. The
taxpayers argued, among other things, that the revenue were barred from raising the
1
Limitation Act 1980, s 32(1): see, post, para 142.

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argument that section 32(1)(c) did not apply to mistakes of law, on the grounds of res A
judicata, estoppel or abuse of process.
On the appeal
Held, (1) that the revenue were not barred from now raising the argument that
section 32(1)(c) of the Limitation Act 1980 did not apply to mistakes of law, whether
on the grounds of res judicata, estoppel or abuse of process; that, in particular, since
res judicata, or cause of action estoppel, operated only to prevent the raising of points
which were essential to the existence or non-existence of a cause of action it did not B
prevent the raising of points relating to a defence of limitation, which had no bearing
on the existence or non-existence of the cause of action in question; that, further, the
revenues challenge did not amount to an abuse of process given that (i) the group
litigation raised novel legal issues of unparalleled complexity, (ii) the group litigation
had been the subject of case management decisions determining the order in which
those issues were to be addressed and (iii) it was understandable why, in the rst
phase of litigation, the revenue had focused on arguments which, if successful, would
have made it unnecessary to mount the present wider challenge; and that, in the light C
of those factors, as well as the substantial value of the claims, the importance of the
issues to other claimants, both within and outside the group litigation, and the
potential to remedy any past prejudice, the revenue would be permitted to withdraw
their concession (post, paras 63, 69, 71, 76—82, 94—100).
Johnson v Gore Wood & Co [2002] 2 AC 1, HL(E) considered.
(2) (Lord Briggs and Lord Sales JJSC dissenting) that when section 32(1)(c) of the
1980 Act was enacted, it could only have applied to claims in respect of mistakes of D
fact, since those were the only mistakes which, at that time, had given rise to an
action . . . for relief from the consequences of a mistake; that, however, the
subsequent development in the law so as to allow claims to be brought for relief from
the consequences of a mistake of law should be addressed by bringing such claims
within the ambit of section 32(1)(c); that such a construction reected the ordinary
meaning of the language used in the provision and was consistent with its purpose,
namely to postpone the commencement of the limitation period in respect of a claim E
for relief from the consequences of a mistake where, as a result of the mistake, the
claimant could not reasonably have known of the circumstances giving rise to his
cause of action at the time when it accrued; that that approach best gave e›ect to
Parliaments intention to relieve claimants from the necessity of complying with a
time limit at a time when they could not reasonably be expected to do so, and did not
have unacceptable consequences for the legal certainty which the 1980 Act was
primarily designed to protect; and that, accordingly, section 32(1)(c) of the 1980 Act
F
applied to claims for the restitution of money paid under a mistake of law (post,
paras 219—222, 225—229, 242, 243).
Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349, HL(E) considered.
(3) Allowing the appeal, that section 32(1)(c) of the 1980 Act could not have been
intended to have the e›ect that the date of discoverability of a mistake of law was tied
to the date on which the truth as to whether the claimant had a well-founded cause
of action was established by a court of nal jurisdiction, since limitation periods
applied regardless of whether the substance of the claim was disputed and regardless G
of whether there was in truth a well-founded cause of action; that the purpose of
the postponement e›ected by section 32(1) was to ensure that the claimant was not
disadvantaged by reason of being unaware of the circumstances giving rise to his
cause of action as a result of fraud, concealment or mistake; that, where the
ingredients of the cause of action included his having made a mistake of law, that
purpose was achieved if time ran from the point in time when the claimant
discovered, or could with reasonable diligence have discovered, his mistake in the H
sense of recognising that a worthwhile claim had arisen; that that approach brought
section 32(1)(c) into line with section 32(1)(a), concerning fraud, and with other
analogous provisions of the 1980 Act, as well as the meaning given by the courts to
discovery in other statutory contexts and the courts interpretation of reasonable
diligence under section 32(1); that since the Court of Appeal had applied the

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A incorrect approach to discoverability in the present case, the revenues appeal would
be allowed; but that, since the Supreme Court was not in a position itself to
determine, on the basis of evidence, the point in time when the taxpayers could, with
reasonable diligence, have discovered their mistake, that question would be remitted
to the High Court to determine after the parties had had the opportunity to amend
their pleadings (post, paras 173—180, 183, 185—187, 191—193, 195—197, 199,
201—203, 209, 213, 214, 254, 255—257).
B Halford v Brookes [1991] 1 WLR 428, CA, Kleinwort Benson Ltd v Lincoln City
Council [1999] 2 AC 349, HL(E), Biggs v Sotnicks [2002] Lloyds Rep PN 331, CA,
Law Society v Sephton & Co [2004] PNLR 27, Haward v Fawcetts [2006] 1 WLR
682, HL(E), AB v Ministry of Defence [2013] 1 AC 78, SC(E) and Prudential
Assurance Co Ltd v Revenue and Customs Comrs [2019] AC 929, SC(E) considered.
Deutsche Morgan Grenfell Group plc v Inland Revenue Comrs [2007] 1 AC 558,
HL(E) departed from.
Decision of the Court of Appeal [2010] EWCA Civ 103; [2010] STC 1251
C
reversed in part.
Decision of the Court of Appeal [2016] EWCA Civ 1180; [2017] STC 696
reversed in part.

The following cases are referred to in the judgments:

AB v Ministry of Defence [2012] UKSC 9; [2013] 1 AC 78; [2012] 2 WLR 643;
D [2012] 3 All ER 673, SC(E)
Aldi Stores Ltd v WSP Group plc [2007] EWCA Civ 1260; [2008] 1 WLR 748, CA
Anglo-Scottish Beet Sugar Corpn Ltd v Spalding Urban District Council [1937] 2 KB
607; [1937] 3 All ER 335
Anns v Merton London Borough Council [1978] AC 728; [1977] 2 WLR 1024;
[1977] 2 All ER 492, HL(E)
Arnold v National Westminster Bank plc [1991] 2 AC 93; [1991] 2 WLR 1177;
[1991] 3 All ER 41, HL(E)
E
Aspect Contracts (Asbestos) Ltd v Higgins Construction plc [2015] UKSC 38; [2015]
1 WLR 2961; [2015] Bus LR 830; [2015] 4 All ER 482, SC(E)
Assistant Engineer (D1) Ajmer Vidyut Vitran Nigam Ltd v Rahamatullah Khan Alias
Rahamjulla [2020] INSC 188
Austin v Southwark London Borough Council [2010] UKSC 28; [2011] 1 AC 355;
[2010] 3 WLR 144; [2010] PTSR 1311; [2010] 4 All ER 16, SC(E)
Baker v Courage & Co [1910] 1 KB 56
F Banque Financire de la Cit v Parc (Battersea) Ltd [1999] 1 AC 221; [1998] 2 WLR
475; [1998] 1 All ER 737, HL(E)
Beatty (Earl) v Inland Revenue Comrs [1953] 1 WLR 1090; [1953] 2 All ER 758
Beauchamp (Earl) v Winn (1873) LR 6 HL 223, HL(E)
Bell v Lever Bros Ltd [1932] AC 161, HL(E)
Biggs v Sotnicks [2002] EWCA Civ 272; [2002] Lloyds Rep PN 331, CA
Bilbie v Lumley (1802) 2 East 469
G Brisbane City Council v Attorney General for Queensland [1979] AC 411; [1978]
3 WLR 299; [1978] 3 All ER 30, PC
British Workmans and General Insurance Co v Cunli›e (1902) 18 TLR 425
Brooksbank v Smith (1836) 2 Y & C Ex 58
Cartledge v E Jopling & Sons Ltd [1963] AC 758; [1963] 2 WLR 210; [1963] 1 All
ER 341, HL(E)
Cooper v Phibbs (1867) LR 2 HL 149, HL(I)
H Denys v Shuckburgh (1840) 4 Y & C Ex 42
Deutsche Morgan Grenfell Group plc v Inland Revenue Comrs [2003] EWHC 1779
(Ch); [2003] 4 All ER 645; [2003] STC 1017; [2005] EWCA Civ 78; [2006] Ch
243; [2006] 2 WLR 103; [2005] 3 All ER 1025; [2005] STC 329, CA; [2006]
UKHL 49; [2007] 1 AC 558; [2006] 3 WLR 781; [2007] 1 All ER 449; [2007]
STC 1, HL(E)

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Diplock, In re [1947] Ch 716; [1947] 1 All ER 522; [1948] Ch 465; [1948] 2 All ER A
318, CA
Farrell v Alexander [1977] AC 59; [1976] 3 WLR 145; [1976] 2 All ER 721, HL(E)
Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630; [1965] 2 WLR 1059;
[1965] 2 All ER 4, CA
Firth, Ex p; In re Cowburn (1882) 19 Ch D 419, CA
Fitzpatrick v Sterling Housing Association Ltd [2001] 1 AC 27; [1999] 3 WLR 1113;
[1999] 4 All ER 705, HL(E) B
Foakes v Beer (1884) 9 App Cas 605, HL(E)
Francovich v Italian Republic (Case C-479/93) EU:C:1995:372; [1995] ECR I-3843;
[1997] 2 BCLC 203, ECJ
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ
1407; [2003] QB 679; [2002] 3 WLR 1617; [2002] 4 All ER 689, CA
Grobbelaar v News Group Newspapers Ltd [2002] UKHL 40; [2002] 1 WLR 3024;
[2002] 4 All ER 732, HL(E)
Halford v Brookes [1991] 1 WLR 428; [1991] 3 All ER 559, CA C
Harrison v Kirk [1904] AC 1, HL(I)
Harse v Pearl Life Assurance Co [1904] 1 KB 558, CA
Haward v Fawcetts [2006] UKHL 9; [2006] 1 WLR 682; [2006] 3 All ER 497, HL(E)
Hazell v Hammersmith and Fulham London Borough Council [1992] 2 AC 1; [1991]
2 WLR 372; [1991] 1 All ER 545, HL(E)
Henderson v Henderson (1843) 3 Hare 100
Ho Kin Man v Comr of Police [2012] HKCFI 1064; [2013] 1 HKC 13 D
Horton v Sadler [2006] UKHL 27; [2007] 1 AC 307; [2006] 2 WLR 1346; [2006]
3 All ER 1177, HL(E)
Hoystead v Comr of Taxation [1926] AC 155, PC
Hoystead v Federal Taxation Comr (1921) 29 CLR 537
Investment Trust Companies v Revenue and Customs Comrs [2017] UKSC 29;
[2018] AC 275; [2017] 2 WLR 1200; [2017] 3 All ER 113; [2017] STC 985,
SC(E) E
James, Ex p; In re Condon (1874) LR 9 Ch App 609
Johnson v Gore Wood & Co [2002] 2 AC 1; [2001] 2 WLR 72; [2001] 1 All ER 481,
HL(E)
Johnson v Unisys Ltd [2001] UKHL 13; [2003] 1 AC 518; [2001] 2 WLR 1076;
[2001] ICR 480; [2001] 2 All ER 801, HL(E)
Jones v MBNA International Bank [2000] EWCA Civ 514, CA
Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349; [1998] 3 WLR 1095;
F
[1998] 4 All ER 513, HL(E)
Knox v Gye (1872) LR 5 HL 656, HL(E)
Law Society v Sephton & Co [2004] EWHC 544 (Ch); [2004] PNLR 27; [2004]
EWCA Civ 1627; [2005] QB 1013; [2005] 3 WLR 212, CA
Lehman Bros Australia Ltd v MacNamara [2020] EWCA Civ 321; [2020] 3 WLR
147, CA
Lenz v Finanzlandesdirektion fr Tirol (Case C-315/02) EU:C:2004:446; [2004]
ECR I-7063; [2004] 3 CMLR 13, ECJ G
Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; [1991] 3 WLR 10; [1992] 4 All ER
512, HL(E)
Littlewoods Ltd v Revenue and Customs Comrs [2017] UKSC 70; [2018] AC 869;
[2017] 3 WLR 1401; [2018] 1 All ER 83; [2017] STC 2413, SC(E)
Longford, The (1889) 14 PD 34, CA
MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24;
[2019] AC 119; [2018] 2 WLR 1603; [2018] 4 All ER 21, SC(E) H
Manninen, Proceedings brought by (Case C-319/02) EU:C:2004:484; [2005] Ch
236; [2005] 2 WLR 670; [2004] STC 1444; [2004] ECR I-7477, ECJ
Metallgesellschaft Ltd v Inland Revenue Comrs (Joined Cases C-397/98 and
C-410/98) EU:C:2001:134; [2001] Ch 620; [2001] 2 WLR 1497; [2001] STC
452; [2001] ECR I-1727, ECJ

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A Ministry of Health v Simpson [1951] AC 251; [1950] 2 All ER 1137, HL(E)

Molloy v Mutual Reserve Life Insurance Co (1906) 94 LT 756
Murphy v Brentwood District Council [1991] 1 AC 398; [1990] 3 WLR 414; [1990]
2 All ER 908, HL(E)
Notting Hill Finance Ltd v Sheikh [2019] EWCA Civ 1337; [2019] 4 WLR 146, CA
Paciocco v Australia and New Zealand Banking Group Ltd [2014] FCA 35; 309
ALR 249; [2015] FCAFC 50; 236 FCR 199; [2016] HCA 28; 90 ALJR 835
B Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400, CA
Peconic Industrial Development Ltd v Lau Kwok Fai [2009] HKCFA 17; [2009]
WTLR 999
Phillips v Royal London Mutual Assurance Co (1911) 105 LT 136
Phillips-Higgins v Harper [1954] 1 QB 411; [1954] 2 WLR 782; [1954] 2 All ER 51
Pinnels Case (1602) 5 Co Rep 117a
Pittalis v Grant [1989] QB 605; [1989] 3 WLR 139; [1989] 2 All ER 622, CA
Practice Statement (Judicial Precedent) [1966] 1 WLR 1234; [1966] 3 All ER 77,
C HL(E)
Pringle of Stichill (the Baronetcy of), In re [2016] UKPC 16; [2016] 1 WLR 2870;
[2017] 1 All ER 106, PC
Prudential Assurance Co Ltd v Revenue and Customs Comrs [2018] UKSC 39;
[2019] AC 929; [2018] 3 WLR 652; [2019] 1 All ER 308; [2018] STC 1657,
SC(E)
R v Ireland [1998] AC 147; [1997] 3 WLR 534; [1997] 4 All ER 225, HL(E)
D R v Knuller (Publishing, Printing and Promotions) Ltd [1973] AC 435; [1972]
3 WLR 143; [1972] 2 All ER 898, HL(E)
R v National Insurance Comr, Ex p Hudson [1972] AC 944; [1972] 2 WLR 210;
[1972] 1 All ER 145, HL(E)
R v Secretary of State for Transport, Ex p Factortame Ltd (No 2) [1991] 1 AC 603;
[1990] 3 WLR 818; [1991] 1 All ER 70, HL(E)
R v Secretary of State for Transport, Ex p Factortame Ltd (No 5) [2000] 1 AC 524;
E [1999] 3 WLR 1062; [1999] 4 All ER 906, HL(E)
R v Tower Hamlets London Borough Council, Ex p Chetnik Developments Ltd
[1988] AC 858; [1988] 2 WLR 654; [1988] 1 All ER 961, HL(E)
R (Elgizouli) v Secretary of State for the Home Department (Information Comr
intervening) [2020] UKSC 10; [2020] 2 WLR 857; [2020] 3 All ER 1, SC(E)
R (Quintavalle) v Secretary of State for Health [2003] UKHL 13; [2003] 2 AC 687;
[2003] 2 WLR 692; [2003] 2 All ER 113, HL(E)
Rees v Darlington Memorial Hospital NHS Trust [2003] UKHL 52; [2004] 1 AC
F
309; [2003] 3 WLR 1091; [2003] 4 All ER 987, HL(E)
Rogers v Ingham (1876) 3 Ch D 351, CA
Royal College of Nursing of the United Kingdom v Department of Health and Social
Security [1981] AC 800; [1981] 2 WLR 279; [1981] 1 All ER 545, HL(E)
Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v Inland Revenue Comrs [2007]
UKHL 34; [2008] AC 561; [2007] 3 WLR 354; [2008] Bus LR 49; [2007] 4 All
ER 657; [2007] STC 1559, HL(E)
G Siebe Gorman & Co Ltd v Barclays Bank Ltd [1979] 2 Lloyds Rep 142
Simmonds, Ex p; In re Carnac (1885) 16 QBD 308, CA
Singh v Dass [2019] EWCA Civ 360, CA
Spectrum Plus Ltd, In re [2005] UKHL 41; [2005] 2 AC 680; [2005] 3 WLR 58;
[2005] 4 All ER 209, HL(E)
Staatssecretaris van Financin v Verkooijen (Case C-35/98) EU:C:2000:294; [2002]
STC 654; [2000] ECR I-4071, ECJ
H Sta›ord v Sta›ord (1857) 1 De G & J 193
Tannu v Moosajee [2003] EWCA Civ 815, CA
Tasmania, The (1890) 15 App Cas 223, HL(E)
Test Claimants in the FII Group Litigation v Inland Revenue Comrs (Case C-446/04)
(Note) EU:C:2006:774; [2012] 2 AC 436; [2012] 2 WLR 1240; [2007] STC 326;
[2006] ECR I-11753, ECJ

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Test Claimants in the FII Group Litigation v Revenue and Customs Comrs (formerly A
Inland Revenue Comrs) [2008] EWHC 2893 (Ch); [2009] STC 254; [2010]
EWCA Civ 103; [2010] STC 1251, CA; [2012] UKSC 19; [2012] 2 AC 337;
[2012] 2 WLR 1149; [2012] Bus LR 1033; [2012] 3 All ER 909; [2012] STC
1362, SC(E); (Case C-362/12) EU:C:2013:834; [2014] AC 1161; [2014] 3 WLR
743; [2014] All ER (EC) 375; [2014] STC 638, ECJ
Test Claimants in the FII Group Litigation v Revenue and Customs Comrs (formerly
Inland Revenue Comrs) (No 3) (Case C-35/11) EU:C:2012:707; [2013] Ch 431; B
[2013] 2 WLR 1416; [2013] STC 612, ECJ
Thoday v Thoday [1964] P 181; [1964] 2 WLR 371; [1964] 1 All ER 341, CA
Tyler, In re; Ex p The O–cial Receiver [1907] 1 KB 865, CA
Victor Chandler International Ltd v Customs and Excise Comrs [2000] 1 WLR 1296;
[2000] 2 All ER 315, CA
Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd (formerly Contour Aerospace
Ltd) [2013] UKSC 46; [2014] AC 160; [2013] 3 WLR 299; [2013] 4 All ER 715,
C
SC(E)
Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1994]
4 All ER 890
Woolwich Equitable Building Society v Inland Revenue Comrs [1993] AC 70; [1992]
3 WLR 366; [1992] 3 All ER 737, HL(E)
Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581; [1975] 2 WLR
690, PC
D
The following additional cases were cited in argument:
Amministrazione delle Finanze dello Stato v San Giorgio SpA (Case 199/82)
EU:C:1983:318; [1983] ECR 3595, ECJ
Bachmann v Belgian State (Case C-204/90) EU:C:1992:35; [1992] ECR I-249;
[1994] STC 855, ECJ
Blake, In re [1932] 1 Ch 54
E
Brennan v Bolt Burdon [2004] EWCA Civ 1017; [2005] QB 303; [2004] 3 WLR
1321, CA
Claimants in Class 8 of the CFC and Dividend Group Litigation v Revenue and
Customs Comrs [2019] EWHC 338 (Ch); [2019] 1 WLR 5097; [2019] STC 828
Collins (Philip) Ltd v Davis [2000] 3 All ER 808
Dobbie v Medway Health Authority [1994] 1 WLR 1234; [1994] 4 All ER 450, CA
First Roodhill Leasing Ltd v Gillingham Operating Co Ltd [2001] NPC 109
Jazztel plc v Revenue and Customs Comrs [2017] EWHC 677 (Ch); [2017] 1 WLR F
3869; [2017] 4 All ER 470; [2017] STC 1422
Marks & Spencer plc v Customs and Excise Comrs (Case C-62/00) EU:C:2002:435;
[2003] QB 866; [2003] 2 WLR 665; [2002] STC 1036; [2002] ECR I-6325, ECJ
Marks & Spencer plc v Customs and Excise Comrs [2009] UKHL 8; [2009] 1 All ER
939; [2009] STC 452, HL(E)
Mason, In re [1928] Ch 385
Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120; [2002] 3 WLR 172; [2002] G
3 All ER 721, HL(E)
Mullarkey v Broad [2009] EWCA Civ 2, CA
Pepper v Hart [1993] AC 593; [1992] 3 WLR 1032; [1993] ICR 291; [1993] 1 All ER
42, HL(E)
Pirelli Cable Holding NV v Inland Revenue Comrs [2006] UKHL 4; [2006] 1 WLR
400; [2006] 2 All ER 81; [2006] STC 548, HL(E)
R v Secretary of State for the Home Department, Ex p Khawaja [1984] AC 74; H
[1983] 2 WLR 321; [1983] 1 All ER 765, HL(E)
Robinson, In re [1911] 1 Ch 502
Sinclair v Brougham [1914] AC 398, HL(E)
Test Claimants in the ACT Group Litigation (Classes 2 and 4) [2010] EWHC 359
(Ch); [2010] STC 1078

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A Test Claimants in the Thin Cap Group Litigation v Inland Revenue Comrs (Case
C-524/04) EU:C:2007:161; [2007] STC 906; [2007] ECR I-2107, ECJ; [2009]
EWHC 2908 (Ch); [2010] STC 301

APPEALS from the Court of Appeal

By a claim form dated 18 June 2003, since amended, members of
the British American Tobacco (BAT) group of companies (inter alios,
B BAT Industries plc, British American Tobacco (Investments) Ltd, British
American Tobacco (Holdings) Ltd and BAT 1998 Ltd) (collectively the BAT
claimants) brought claims against the Inland Revenue Commissioners (now
the Revenue and Customs Commissioners) seeking: (1) a declaration that, in
so far as they applied to the claimants, the advance corporation tax (ACT)
provisions of the Income and Corporation Taxes Act 1988, the foreign
C
income dividend provisions of the 1988 Act and section 18 (Schedule D,
Case V) of the 1988 Act were contrary to article 43 (freedom of
establishment) and article 56 (free movement of capital) of the EC Treaty,
and were therefore illegal; (2) restitution in respect of overpaid taxes;
(3) damages; and (4) interest. On 8 October 2003 Chief Master Winegarten
made a group litigation order (the Franked Investment Income (FII)
Group Litigation), since amended, under which the BAT claimants,
D together with members of the Aegis group of companies, were selected as
test claimants in relation to a number of issues set out in the GLO, including
Issue P: From what date does the limitation period commence?
On 30 October 2004 Park J referred to the Court of Justice of the European
Communities for a preliminary ruling questions on the compatibility of tax
treatments of the dividends with articles 43 and 56. By a judgment delivered
E on 12 December 2006 the Court of Justice answered those questions [2012]
2 AC 436 (FII CJEU 1).
By order of 5 July 2007, Rimer J directed that liability and
remedy/quantication issues be tried separately. The BAT claimants then
amended their particulars of claim by stating that the date they had
discovered their mistakes was the date when the Court of Justice gave its
judgment on 12 December 2006, and that they could not with reasonable
F diligence have discovered their mistakes any earlier than then, or
alternatively any earlier than 8 March 2001, when the Court of Justice gave
its decision in Metallgesellschaft Ltd v Inland Revenue Comrs (Joined Cases
C-397/98 and C-410/98) [2001] Ch 620 (Hoechst). On 21 December
2007 the revenue amended their defence, in relation to limitation, by
denying that the BAT claimants were entitled to rely on section 32(1)(c) of
G the 1980 Act, averring that any right to restitution which accrued more than
six years before the date of issue of the claim form was barred by the that
Act.
By judgment dated 27 November 2008 and order dated 12 December
2008, Henderson J [2009] STC 254 (FII HC 1), trying the liability issues
and applying the Court of Justices answers in FII CJEU 1, determined, inter
alia, that: (1) the claims for unlawfully levied ACT would as a matter of
H
English law fall within the proper scope of a mistake-based restitutionary
claim, which mistake continued to be operative at the time the payments
were made (the principle established in Kleinwort Benson Ltd v Lincoln City
Council [1999] 2 AC 349); (2) the cause of action for restitution of tax
unlawfully demanded under the principle established in Woolwich Equitable

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Building Society v Inland Revenue Comrs [1993] AC 70 did not provide a A

su–cient remedy under English law in order to satisfy the requirements of
EU law; (3) to the extent that claimants had paid unlawfully levied ACT
and/or corporation tax under Case V of Schedule D to the 1988 Act, such
ACT and/or corporation tax had been paid under a mistake; and (4) the
curtailment of the limitation period by, inter alia, section 320(1) of the
Finance Act 2004 was incompatible with EU law; consequently, those B
provisions fell to be disapplied in relation to EU law claims. Notably, the
judge did not address in his judgment the question of when the limitation
period began to runIssue P in the GLOand said nothing about the
reasoning in Kleinwort Benson or Deutsche Morgan Grenfell Group plc v
Inland Revenue Comrs [2007] 1 AC 558 relating to section 32(1)(c) of the
1980 Act. Henderson J, however, considered that a second reference to the
Court of Justice was necessary to clarify two issues. C
On the revenues appeal and the test claimants cross-appeal to the Court
of Appeal, it was common ground that section 32(1)(c) of the 1980 Act
applied in principle to the test claims for money paid under a mistake of law,
following the decisions of the House of Lords in Kleinwort Benson and
Deutsche Morgan Grenfell. By judgment dated 23 February 2010 and order
of 19 March 2010 the Court of Appeal (Arden, Stanley Burnton and D
Etherton LJJ) [2010] EWCA Civ 103; [2010] STC 1251 (FII CA 1)
reversed Henderson Js decision on points (2) and (4). The Court of Appeal
held that a further reference to the Court of Justice was required.
On 8 November 2010 the Supreme Court (Lord Hope of Craighead DPSC,
Lord Collins of Mapesbury and Lord Clarke of Stone-cum-Ebony JJSC) gave
permission to the test claimants to appeal on a number of the remedy issues,
E
including whether section 32(1)(c) of the 1980 Act applied to a claim for a
Woolwich restitution remedy. The Supreme Court also identied a further
liability issue on which a reference to the Court of Justice was required and
extended time for appealing as regards the remainder of the liability issues
until after the Court of Appeals decision following such reference.
On 20 December 2010 a High Court judge made a second reference to
the Court of Justice, seeking clarication of parts of its earlier judgment F
and incorporating the issues identied by Henderson J, the Court of
Appeal and the Supreme Court. By a judgment delivered on 13 November
2012 [2013] Ch 431 (FII CJEU 2) the Court of Justice explained its
rst judgment, resolving all but one of the referred questions in the test
claimants favour.
By judgment delivered on 23 May 2012, the Supreme Court (Lord G
Hope DPSC, Lord Walker of Gestingthorpe, Lord Clarke, Lord Dyson, Lord
Sumption, Lord Reed JJSC and Lord Brown of Eaton-under-Heywood)
[2012] UKSC 19; [2012] 2 AC 337 allowed the test claimants appeal in part,
holding that, in order for a claim to fall within the ambit of section 32(1)(c)
of the 1980 Act, a mistake had to constitute an essential element of the cause
of action, and that the provision did not therefore apply to a Woolwich
claim. The court was, however, divided as to the compatibility with EU law H
of the retroactive amendment to the limitation period introduced by
section 320(1) of the 2004 Act, and on 25 July 2012 it made a third reference
to the Court of Justice for a preliminary ruling on questions that only related
to the test claimants in the Aegis group of companies, not the BAT claimants.

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A By a judgment delivered on 12 December 2013 the Court of Justice answered

those questions [2014] AC 1161 (FII CJEU 3).
In the meantime, in May 2013, Henderson J ordered that the trial of the
BAT claims be resumed to determine all remaining issues of liability and
quantication. The parties agreed that one of the issues to be decided at the
trial was Issue 28: When did the claimants discover (or could with
B reasonable diligence have discovered) their mistake? Accordingly, in respect
of which payments and periods do the claimants have valid mistake claims?
By judgment dated 18 December 2014 and order dated 30 January 2015,
Henderson J [2014] EWHC 4302 (Ch); [2015] STC 1471 (FII HC 2)
answered Issue 28 by granting a declaration to the e›ect that: (a) the date
when the claimants had discovered (or could with reasonable diligence have
discovered) their mistake was 8 March 2001 when the Court of Justice
C delivered its judgment in Hoechst; and (b), since it was common ground that
on any view the BAT claimants had started their mistake claims within the
extended limitation period, all of the mistake claims of the BAT claimants
dating back to 1973 were in time.
By a judgment and order dated 24 November 2016 the Court of Appeal
(Sir Geo›rey Vos C, Underhill and David Richards LJJ) [2016] EWCA Civ
D 1180; [2017] STC 696 (FII CA 2) allowed the test claimants appeal on
Issue 28.
By notices of appeal dated 21 December 2016, 7 and 20 May 2019 and
with permission granted by the Supreme Court (Lord Reed DPSC, Lord
Carnwath and Lord Hodge JJSC) on 8 April 2019 and 27 June 2019 both
parties appealed against the Court of Appeal decisions FII CA 1 and FII CA
E 2. The issue before the Supreme Court, as stated in the statement of facts
and issues agreed by the parties, was when did the claimants discover (or
when could they with reasonable diligence have discovered) their mistake?
The facts are stated in the judgment of Lord Reed PSC, post, paras 3—9
and 18—55.

David Ewart QC, Elizabeth Wilson, Barbara Belgrano, Jennifer

F MacLeod and Frederick Wilmot-Smith (instructed by Solicitor, Revenue and
Customs) for the revenue.
Graham Aaronson QC and Daniel Margolin QC (instructed by Joseph
Hage Aaronson llp) for the taxpayers.

The court took time for consideration.

G
20 November 2020. The following judgments were handed down.

LORD REED PSC and LORD HODGE DPSC (with whom LORD LLOYD-
JONES and LORD HAMBLEN JJSC agreed)
1 This appeal concerns the correctness of two of the most important
decisions on the law of limitation of recent times: the decisions of the House
H of Lords in Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349
(Kleinwort Benson) and Deutsche Morgan Grenfell Group plc v Inland
Revenue Comrs [2007] 1 AC 558 (Deutsche Morgan Grenfell). It arises in
the course of long-running proceedings known as the Franked Investment
Income (FII) Group Litigation.

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2 In view of the length of this judgment, it may be helpful at the outset A

to explain how it is structured. Matters are dealt with in the following
order:
(1) General introduction (paras 3—17).
(2) The history of the proceedings (paras 18—56).
(3) Res judicata, estoppel and abuse of process (paras 57—101).
(4) The background to section 32(1)(c) of the Limitation Act 1980
B
(paras 102—140).
(5) The Limitation Act 1980 (paras 141—142).
(6) Kleinwort Benson (paras 143—164).
(7) Deutsche Morgan Grenfell (paras 165—171).
(8) Discussion of Deutsche Morgan Grenfell (paras 172—212).
(9) Deutsche Morgan Grenfell: summary (paras 213—214).
(10) Discussion of Kleinwort Benson (paras 215—241). C
(11) Kleinwort Benson: summary (para 242—243).
(12) The Practice Statement of 26 July 1966 (paras 244—253).
(13) Application to the present proceedings (paras 254—256).
(14) Conclusion (para 257).

General introduction
D
3 The FII Group Litigation was established by a group litigation order
(GLO) made on 8 October 2003 (the FII GLO). The claimants within
the FII GLO are companies which belong to groups which include UK-
resident companies and non-resident subsidiaries. The defendants are Her
Majestys Commissioners for Revenue and Customs (the revenue). The
purpose of the FII GLO is to determine a number of common or related
questions of law arising out of the tax treatment of dividends received by E
UK-resident companies from non-resident subsidiaries, as compared with
the treatment of dividends paid and received within wholly UK-resident
groups of companies. The provisions giving rise to those questions concern,
rst, the system of advance corporation tax (ACT) and, secondly, the
taxation of dividend income from non-resident sources under section 18
(Schedule D, Case V) of the Income and Corporation Taxes Act 1988 F
(ICTA) (the DV provisions). The relevant provisions of ICTA have since
been amended. ACT was abolished for distributions made on or after
5 April 1999, and the DV provisions were repealed for dividend income
received on or after 1 April 2009. But the problems created by their
existence in the past have not gone away.
4 Under the FII GLO, certain claims were selected as test claims, and the
remaining claims were stayed. The test claimants case is that the di›erences G
between their tax treatment and that of wholly UK-resident groups of
companies breached the provisions of article 43 (freedom of establishment)
and article 56 (free movement of capital) of the EC Treaty and their
predecessor articles. They seek the repayment of the tax so far as it was
unlawful under European Union (EU) law, dating back in some cases to
the accession of the UK to the EU in January 1973 and the introduction of
H
ACT in April of that year (expressions such as the EU and EU law will be
used in this judgment, anachronistically but conveniently, to include earlier
incarnations of what is now known as the EU). In the alternative, they seek
an award of damages under the principles of EU law established in
Francovich v Italian Republic (Case C-479/93) [1995] ECR I-3843, given

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A e›ect in our domestic law in R v Secretary of State for Transport,

Ex p Factortame Ltd (No 5) [2000] 1 AC 524.
5 The system of corporate taxation relating to dividends which
underlies the FII Group Litigation has also given rise to litigation managed
under a number of other GLOs, including the ACT GLO. Whereas the focus
of the ACT Group Litigation is on the UK legislation which prevented UK-
resident subsidiaries of foreign parents from making group income elections,
B
thereby obliging them to pay ACT when paying dividends to their foreign
parents, the focus of the FII Group Litigation is on UK-parented groups with
foreign subsidiaries, and on the tax treatment of dividends coming into the
UK from abroad. Although the present litigation is therefore concerned with
factual situations which are di›erent from those which have given rise to the
ACT Group Litigation, some of the most important legal questions are
C common to both sets of proceedings. The ACT Group Litigation followed
the decision of the Court of Justice of the European Union, as the court is
now known (the Court of Justice), in the Hoechst case (Metallgesellschaft
Ltd v Inland Revenue Comrs (Joined Cases C-397/98 and C-410/98) [2001]
Ch 620; [2001] ECR I-1727). The ACT Group Litigation includes the
decision in Deutsche Morgan Grenfell.
6 A number of other sets of proceedings have also raised issues which
D
arise in the FII Group Litigation. One is the Controlled Foreign Companies
(CFC) and Dividend Group Litigation, which also concerns claims that
the tax treatment of dividends paid by foreign subsidiaries to UK-resident
companies was incompatible with EU law. The principal di›erence from the
FII Group Litigation is that the CFC and Dividend Group Litigation includes
claims concerned with portfolio holdings of less than 10% of the shares of
E the relevant companies. Another is the Foreign Income Dividends (FID)
Group Litigation, which concerns claims by pension funds or life companies
that the absence of a tax credit in respect of foreign income dividends, in
contrast to domestic dividends, was contrary to EU law. Another is the
Stamp Taxes Group Litigation, which concerns claims that stamp taxes on
issues or transfers of chargeable securities to clearance or depositary services
are contrary to EU law. Other relevant proceedings include the Littlewoods
F
proceedings (Littlewoods Ltd v Revenue and Customs Comrs [2018] AC
869), which concern claims to restitution based on the payment of VAT
which was paid under a mistaken understanding of the relevant EU law.
7 Since the payments with which these various proceedings are
concerned go back, in most if not all cases, to the UKs entry into the EU in
1973, a central issue in the proceedings has been the limitation of actions.
G Restitutionary claims for the recovery of money are normally subject under
English law to a limitation period of six years from the date when the cause
of action accrued, on the basis that they are founded on simple contract
within the meaning of section 5 of the Limitation Act 1980 (the 1980 Act).
Francovich claims to damages are subject to the same time limit, on the basis
that they are founded on tort within the meaning of section 2 of that Act. Far
more than six years had passed between the date when much of the tax was
H
paid, and the right to its recovery therefore accrued, and the date when the
claims were brought. As a result, a large element of the claims, together with
interest on it over a period of decades, was potentially time-barred.
8 The only way around that problem was to rely on section 32(1)(c) of
the 1980 Act, which applies to an action for relief from the consequences of

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a mistake, and postpones the commencement of the limitation period until A

the plainti› has discovered the . . . mistake . . . or could with reasonable
diligence have discovered it. Section 32(1)(c) has therefore been central to
all these proceedings. They have all been based on the propositions that
(a) a restitutionary claim lies for the recovery of money, including tax, paid
under a mistake of law, (b) such a claim falls within the ambit of
section 32(1)(c), and (c) the e›ect of that provision is to postpone the
B
commencement of the limitation period in respect of such a claim until the
true state of the law is established by a judicial decision from which there lies
no right of appeal.
9 Each of these propositions was novel to English law. However, the
colossal amounts of money at stake in these proceedings have made it
worthwhile for every arguable point to be taken, not least points which might
a›ect the applicable limitation period. The result has been a very protracted C
series of related proceedings. During the many years since these various
proceedings were begun, the relevant principles of English law have been
undergoing development, largely driven by those proceedings themselves. It
may be helpful to note at this stage the principal milestones along the road,
beginning with two decisions of the House of Lords which preceded the
bringing of these claims, but set the scene for what followed.
D
10 In 1992 the House of Lords held that a taxpayer was entitled to
recover tax which was paid in response to an unlawful demand: Woolwich
Equitable Building Society v Inland Revenue Comrs [1993] AC 70
(Woolwich). In 1998 the House of Lords held that a claim for restitution
lay in respect of money paid under a mistake of law, and that such a claim
fell within the scope of section 32(1)(c) of the 1980 Act: Kleinwort Benson
[1999] 2 AC 349. On 8 March 2001, in the ACT Group Litigation, the E
Court of Justice issued its judgment in Hoechst [2001] Ch 620, establishing
the incompatibility with EU law of the UK tax treatment of dividends paid
by UK-resident subsidiaries to foreign parents. In July 2003, at a later stage
in the ACT Group Litigation, Park J gave judgment in Deutsche Morgan
Grenfell [2003] 4 All ER 645, holding that the principles established in
Kleinwort Benson applied to tax paid under a mistake of law, including tax
F
paid in ignorance of the fact that the legislation under which it was charged
was incompatible with EU law. In accordance with Kleinwort Benson, he
also held that the limitation period applicable to such claims was that laid
down by section 32(1) of the 1980 Act, namely six years from the date on
which the mistake was or could with reasonable diligence have been
discovered. That date, he held, was the date on which the Court of Justice
gave judgment in Hoechst, establishing the incompatibility of the legislation G
in question with EU law. On 8 September 2003 the Government announced
proposed legislation to exclude the application of section 32(1)(c) in respect
of all mistake claims made on or after that date which related to an inland
revenue taxation matter. Legislation to that e›ect was enacted in July 2004,
in the form of section 320 of the Finance Act 2004 (FA 2004). In February
2005 the Court of Appeal reversed Park Js decision in Deutsche Morgan
H
Grenfell [2006] Ch 243.
11 In October 2006 the House of Lords gave judgment in Deutsche
Morgan Grenfell [2007] 1 AC 558, reversing the judgment of the Court of
Appeal and restoring the decision of Park J. It also decided that the fact that
the taxpayer might have a concurrent ground of action under the Woolwich

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A principle, which was subject to a limitation period running from the date of
the payment, did not prevent it from pursuing its claim on the ground of
mistake. The consequence was that claims in the ACT Group Litigation
could be brought for the restitution of tax paid as far back as 1973, provided
that the claim had been issued prior to the deadline of 8 September 2003
imposed by section 320 of the FA 2004.
12 Following the decision of the House of Lords in Deutsche Morgan
B
Grenfell, the Government applied to the Court of Justice for the reopening of
the hearing of the rst reference in the FII Group Litigation so that it could
argue for a temporal restriction on the e›ect of the Court of Justices
judgment, which had not yet been handed down. On 6 December 2006 the
Court of Justice rejected the Governments application: Order (Case
C-446/04) EU:C:2006:761. On the same day, the Government announced
C proposed legislation excluding the application of section 32(1)(c) of the
1980 Act in respect of mistake claims made before 8 September 2003 and
relating to an inland revenue matter. A few days later, in the rst reference
in the FII Group Litigation, the Court of Justice held that the UK tax
treatment of dividends paid by foreign subsidiaries to UK-resident parents
was incompatible with EU law: Test Claimants in the FII Group Litigation v
Inland Revenue Comrs (Note) (Case C-446/04) [2012] 2 AC 436 (FII
D
(CJEU) 1).
13 In 2007, at a further stage of the ACT Group Litigation, the House of
Lords decided that compound interest was payable on the amounts
awarded, whether in damages or in restitution: Sempra Metals Ltd (formerly
Metallgesellschaft Ltd) v Inland Revenue Comrs [2008] AC 561. Taken
together with Deutsche Morgan Grenfell, this meant that interest could be
E compounded for a period stretching back to 1973. The day after judgment
was delivered in Sempra Metals, the legislation announced in December
2006 was enacted as section 107 of the Finance Act 2007 (FA 2007).
14 In 2012, in the FII Group Litigation, this court held that a Woolwich
claim could lie in the absence of a demand (ACT being self-assessed), but that,
in order for a claim to fall within the ambit of section 32(1)(c) of the 1980
Act, a mistake must constitute an essential element of the cause of action, and
F
not merely form part of the context: Test Claimants in the FII Group
Litigation v Revenue and Customs Comrs (formerly Inland Revenue Comrs)
[2012] 2 AC 337 (FII (SC) 1). The consequence was that section 32(1)(c)
did not apply to the Woolwich ground of restitution. The taxpayer could
however seek recovery of tax paid in ignorance of the fact that the legislation
under which it was charged was incompatible with EU law, on the basis that
G it had been paid under a mistake. The case was argued and decided on the
assumption that the decisions in Kleinwort Benson and Deutsche Morgan
Grenfell were correct. The court also held that section 107 of the FA 2007
was incompatible with EU law. The court referred to the Court of Justice the
question whether section 320 of the FA 2004 was also incompatible with EU
law in so far as it had retrospective e›ect. In 2013 the Court of Justice held
that it was: Test Claimants in the FII Group Litigation v Revenue and
H
Customs Comrs (formerly Inland Revenue Comrs) (Case C-362/12) [2014]
AC 1161 (FII (CJEU) 3).
15 These decisions represented a series of defeats for the revenue. In
more recent times, however, they enjoyed greater success. In 2017, in a test
case concerned with the restitution of VAT charged incompatibly with EU

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law, this court reined in the increasingly expansive approach to A

restitutionary claims which had followed the adoption of the theory of
unjust enrichment in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 and
Banque Financire de la Cit v Parc (Battersea) Ltd [1999] 1 AC 221: see
Investment Trust Companies v Revenue and Customs Comrs [2018] AC 275.
Later that year, in the Littlewoods proceedings [2018] AC 869, this court
held that common law claims to restitution of VAT, together with any right
B
to compound interest based on Sempra Metals, and the limitation regime
imposed by the 1980 Act, had been e›ectively excluded by the statutory
provisions governing the recovery of VAT. In 2018, in the CFC and Dividend
Group Litigation, this court held, having regard to Investment Trust
Companies, that Sempra Metals had been incorrectly decided in requiring
compound interest to be paid on restitutionary awards, and departed from
it: Prudential Assurance Co Ltd v Revenue and Customs Comrs [2019] AC C
929 (Prudential).
16 The principal question raised by the present appeal is whether, as the
revenue contend (drawing to a considerable extent on Dr Samuel Beswicks
articles, The Discoverability of Mistakes of Law [2019] LMCLQ 112, and
Discoverability Principles and the Laws Mistakes (2020) 136 LQR 139),
this court should now depart from the decision of the House of Lords in
Deutsche Morgan Grenfell [2007] 1 AC 558 in relation to section 32(1)(c) of D
the 1980 Act. The revenue were also granted permission to appeal on the
question whether the decision in Kleinwort Benson [1999] 2 AC 349, so far
as relating to limitation, was correct. Ultimately, we did not understand the
revenue to press that point, but the court received submissions upon it,
partly at its own request, in view of the bearing of the decision on that
subsequently taken in Deutsche Morgan Grenfell. E
17 Before considering the question whether the limitation issues in
those two cases were correctly decided, however, the court has rst to
consider whether, as the test claimants contend, the revenue are barred in the
light of the history of these proceedings, including their failure to raise that
question in FII (SC) 1, from now raising the question in these proceedings
against the test claimants (whatever impact it might have on the claims of
other claimants who are party to the FII GLO), because it is res judicata, or F
because of an estoppel, or because their doing so amounts to an abuse of
process.

The history of the proceedings

The test claims
18 These proceedings have a long history. That reects their exceptional G
complexity and novelty, and the need to make no fewer than three references
to the Court of Justice. What follows is not a complete account, but covers
the stages in the proceedings which are relevant to the present appeal.
19 The FII GLO was made on 8 October 2003, and has been repeatedly
amended since then. It dened the type of claims falling within the scope of
the GLO, identied the initial claimants, and provided a procedure enabling
H
further claimants to be added. It set out the common issues of fact or law
which arose for determination, without prejudice to the power of the High
Court to add to or vary them. It also laid down a procedure for selecting
claims to proceed as test cases and for amending, removing and adding to the
common issues. Claims not selected as test claims were stayed.

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A 20 The claim on behalf of various members of the British American

Tobacco (BAT) group was selected as a test claim in relation to a number
of issues set out in the GLO, including Issue P: From what date does the
limitation period commence? A claim by members of the Aegis group was
chosen as the test claim in relation to Issue Q, which concerned the e›ect of
section 320 of the FA 2004. As explained above, that provision disapplied
section 32(1)(c) of the 1980 Act in relation to claims relating to an inland
B
revenue taxation matter which were brought on or after 8 September 2003.
It did not apply to the BAT claim, which had been issued on 18 June 2003.
21 The BAT claim sought inter alia the restitution of tax payments made
between 1973 and the issue of the claim, with compound interest, on the
basis that the tax had been paid pursuant to a mistake of law or unlawful
demands. In its defence, the revenue pleaded inter alia that any right to
C restitution or damages which accrued more than six years before the claim
form was issued (i e prior to 18 June 1997) was barred by the 1980 Act.

The rst reference to the Court of Justice

22 On 28 June 2004 the trial of the BAT claim began, but it was
immediately apparent that a preliminary reference to the Court of Justice
would be needed on the numerous issues of EU law arising. Without
D
delivering a judgment, Park J directed that a reference be made. It included a
number of questions concerning the compatibility of domestic tax provisions
with EU law, and also questions concerning the classication under EU law of
the claims arising in consequence of any incompatibility.
23 On 12 December 2006 the Court of Justice gave its judgment on the
reference (FII (CJEU) 1 [2012] 2 AC 436). It said at para 184 that It is clear
E from case law that any less favourable treatment of foreign-sourced
dividends in comparison with nationally-sourced dividends must be regarded
as a restriction on the free movement of capital in so far as it is liable to make
the acquisition of holdings in companies established in other member states
less attractive. The cases cited as establishing that proposition were
Staatssecretaris van Financin v Verkooijen (Case C-35/98) [2000] ECR
I-4071, para 35 (Verkooijen); Lenz v Finanzlandesdirektion fr Tirol (Case
F C-315/02) [2004] ECR I-7063, para 21 (Lenz) and Proceedings brought by
Manninen (Case C-319/02) [2005] Ch 236, para 23 (Manninen). In the
absence of EU legislation, it was for the domestic legal system to lay down the
relevant procedural rules governing actions for safeguarding EU rights,
including the classication of claims, subject to the obligation of national
courts and tribunals to ensure that individuals should have an e›ective legal
G
remedy enabling them to obtain reimbursement of the tax unlawfully levied
on them and the amounts paid to the member state or withheld by it directly
against that tax.
24 In relation to the Francovich claims for compensation, and the
requirement that the breach of EU law by the member state must be
su–ciently serious before such a claim will lie, the Court of Justice stated:
215. . . . in a eld such as direct taxation, the consequences arising
H
from the freedoms of movement guaranteed by the Treaty have been only
gradually made clear, in particular by the principles identied by the
Court of Justice since delivering judgment in Commission of the
European Communities v French Republic (Case 270/83) [1986] ECR
273. Moreover, as regards the taxation of dividends received by resident

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companies from non-resident companies, it was only in [Verkooijen, A

Lenz, and Manninen] that the Court of Justice had the opportunity to
clarify the requirements arising from the freedoms of movement, in
particular as regards the free movement of capital.
216. Apart from cases to which Directive 90/435/EEC applied,
Community law gave no precise denition of the duty of a member state
to ensure that, as regards mechanisms for the prevention or mitigation of
B
the imposition of a series of charges to tax or economic double taxation,
dividends paid to residents by resident companies and those paid by
non-resident companies were treated in the same way. It follows that,
until delivery of the judgments in the Verkooijen, Lenz and Manninen
cases, the issue raised by the order for reference in the present case had
not yet been addressed as such in the case law of the Court of Justice.
C
Procedure following the rst reference
25 Following the judgment of the Court of Justice, Rimer J directed that
consecutive trials of the BAT and Aegis test claims should proceed. They
would try all GLO issues raised by the test claims, including liability for
restitution, save in so far as those issues concern causation or quantication
(para 12 of Rimer Js order). Directions were also given for the service of D
amended pleadings and for preparation for trial, including the agreement of
a list of questions to be decided by the court.
26 The BAT claimants amended their particulars of claim on
13 December 2007 so as to aver that they had made the ACT payments by
reason of their mistaken beliefs (i) that the ACT provisions were lawful and
enforceable, and/or (ii) that the claimants were lawfully obliged to make
those payments. A similar averment was also made in relation to the DV E
payments. The BAT claimants also set out detailed averments in support of
their reliance on section 32(1)(c) of the 1980 Act.
27 In relation to the ACT payments, the BAT claimants averred that
they discovered their mistakes when the Court of Justice gave its judgment in
FII (CJEU) 1 [2012] 2 AC 436 on 12 December 2006, and could not with
reasonable diligence have discovered their mistakes any earlier than then, or F
alternatively any earlier than 8 March 2001, when the Court of Justice gave
its decision in Hoechst [2001] Ch 620. In relation to the DV payments, they
averred that the fact that those payments were made by mistake depended
upon the nal determination of the issues in the proceedings, and could not
with reasonable diligence be known or discovered at any other time or in any
other way. In other words, although they were bringing a claim for the
repayment of the DV tax on the basis that it had been paid under a mistake, G
they submitted that they could not discover the mistake until the question
whether the DV provisions were enforceable had been determined by the
court in those proceedings. They also added averments explaining why, in
their submission, the application of section 107 of the FA 2007 to their claim
would be contrary to EU law. As part of their argument that section 107
should not be applied to their claim, they also averred that the revenue were
H
estopped from denying that section 32 of the 1980 Act applied to their claim,
stating that until 6 December 2006 at the earliest (the date when the revenue
announced their proposal that Parliament should enact what became
section 107 of the FA 2007), the parties had proceeded on the common
understanding that section 32 applied. Alternatively, they averred that, in

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A failing to propose that there be a separate issue within the GLO as to whether
section 32 applied to claims commenced before 8 September 2003 (i e claims
falling outside the ambit of section 320 of the FA 2004), the revenue
represented that section 32 applied to the BAT claim and others issued
before that date.
28 In response, the revenue amended their defence on 21 December
2007. In relation to limitation, they denied that the BAT claimants were
B
entitled to rely on section 32(1)(c) of the 1980 Act, and referred to
section 107 of the FA 2007. They averred that any right to restitution which
accrued more than six years before the date of issue of the claim form was
barred by the 1980 Act. They denied that the parties had proceeded on a
common understanding that section 32 applied to the BAT claim, averring
that the law in that regard was not fully claried until 25 October 2006 at
C the earliest (the date of the decision of the House of Lords in Deutsche
Morgan Grenfell [2007] 1 AC 558). In fact, they averred, it was their
explicit position at all times prior to that date, as advanced in Deutsche
Morgan Grenfell, that section 32 did not apply.
29 In the light of the amended claim and defences, Henderson J
amended Issue Q so as to include the e›ect of section 107 of the FA 2007 as
D well as section 320 of the FA 2004. Issue P remained unchanged. The BAT
claim became an additional test claim in relation to Issue Q so far as relating
to section 107 of the FA 2007, as well as remaining a test claim in relation to
other issues, including Issue P.

Henderson Js rst judgment

E 30 The trial proceeded over 13 days in July 2008, and Henderson Js
judgment was delivered in November of that year: Test Claimants in the FII
Group Litigation v Revenue and Customs Comrs (formerly Inland Revenue
Comrs) [2009] STC 254 (FII (HC) 1). The revenue were recorded as
arguing inter alia that the DV claims were excluded by the statutory
provisions for recovery of tax overpaid in section 33 of the Taxes
Management Act 1970, and that the ACT and DV payments had not in any
F event been made under any mistake of law.
31 Those arguments were rejected. Henderson J characterised the
mistake of law as a mistake as to the lawfulness of the ACT regime or the
Case V charge (para 262): a characterisation which was not strictly
accurate, since an incompatibility with EU law does not render a UK statute
unlawful under domestic law, but requires the court to disapply the
G incompatible provision to the extent which is necessary to comply with EU
law (R v Secretary of State for Transport, Ex p Factortame Ltd (No 2) [1991]
1 AC 603). The inaccuracy was however immaterial in the present context,
since a mistaken belief that the provisions were enforceable, and that the
claimants were therefore obliged to make the payments, would equally be a
relevant mistake of law for the purposes of a restitutionary claim based on
Kleinwort Benson and Deutsche Morgan Grenfell.
H
32 On the facts, the judge found that a mistake had been made.
In relation to the ACT claims, he was satised on the evidence that the
mistake was not obvious to anybody within the BAT group at the time
[when the payments were made], since everybody proceeded on the footing
that the tax in question was lawfully due and payable [2009] STC 254,

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para 267. The position in relation to the DV claims was said to be similar A
(para 275).
33 The evidence bearing on this point was discussed at a later point in
the judgment. At para 391, the judge said:
it is the evidence of the claimants own witnesses that they paid all of
the tax in dispute on the footing that they believed it to be lawfully due,
and had no reason to suspect the contrary before June 2000 at the earliest. B
So, for example, Mr Anthony Cohn, who was a Tax Manager with BAT
Holdings, said in his rst witness statement dated 13 May 2004: The rst
time we considered that the denial of [FII] treatment of foreign dividends
might be a breach of EC law was when we discussed internally the
Verkooijen judgment shortly after it was published on 6 June 2000.
Following this, we spent a considerable amount of time considering
C
our options and waiting to see how EC law would develop. Following
discussions with our tax advisers, PricewaterhouseCoopers and our
solicitors, Dorsey & Whitney in the spring and early summer of 2003, we
decided to issue the claim. 
Mr Hardman, who was the head of taxation at BAT Industries, conrmed
the accuracy of that evidence. The judge said that he saw no reason to doubt
D
it. He found that nobody within the BAT group questioned the lawfulness
of the relevant UK legislation at any time before June 2000 (when the
Verkooijen judgment was delivered), and that accordingly All the disputed
tax which was paid up to that date was paid in the rm belief that it was
lawfully due (para 393).
34 That evidence was consistent with other evidence adduced in relation
to the Francovich claim. In that regard, the judge noted the Report of the E
Committee of Independent Experts on Company Taxation (the Ruding
Committee), established by the European Commission in 1990 to evaluate
the need for greater harmonisation of tax. In its Report, published in 1992,
the Committee noted the adverse impact on overseas investment caused by
discriminatory taxation of dividends from prots earned in another member
state. There was, however, no suggestion that the discrimination was
F
contrary to EU law. The same was true of the rst draft of a paper by the
Adam Smith Institute entitled An Act Against TradeUK Tax Prejudice
Against Trading Abroad: The Problem of Surplus ACT and its Solution,
which was sent to Mr Etherington, the Head of Tax for the BAT Group, in
1989 by the Director of the Institute. Reference was also made to a number of
published articles on the subject by tax lawyers. The last of the articles,
published in 1998, was the only one to raise the question whether the G
di›erence in treatment constituted a violation of EU law (Sven-Olof Lodin,
The Imputation Systems and Cross-Border Dividendsthe need for new
solutions (1998) 7 EC Tax Review 229). The author concluded that there
was very little guidance to be found in earlier decisions of the Court of Justice,
and that the outcome of any challenge was di–cult to predict. The judge
commented that that assessment reected the uncertainty acknowledged by
H
the Court of Justice in the present proceedings, which continued at least
until the decision in Verkooijen in June 2000 (para 391). He concluded that,
prior to that date, there was admittedly discrimination between the way in
which UK tax law treated domestic dividends and foreign dividends, with
domestic dividends receiving the more favourable treatment, but whether

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A this form of discrimination involved a breach of articles 43 and 56 of the EC

Treaty remained unclear until the decision in Verkooijen (para 395).
35 In relation to limitation, the judge considered the e›ect of
section 320 of the FA 2004 and section 107 of the FA 2007, that is to say,
Issue Q in the GLO, and concluded that it was not open to the revenue to rely
on either provision as a defence to the test claims. The judge also identied a
number of issues on which a further reference to the Court of Justice was
B
necessary. None of those issues concerned limitation.
36 Henderson Js order, dated 12 December 2008, included a declaration
(Declaration 17) that To the extent that claimants paid unlawfully levied
ACT and/or corporation tax under Schedule D Case V, such ACT and/or
corporation tax was paid under a mistake. It also ordered (Order 1) that:

C
The following claims are successful in relation to the GLO issues
determined in the trial: (a) claims for repayment of corporation tax paid
on or after 1 January 1973 on dividends received from companies resident
in other EU member states; (b) claims for the repayment of surplus ACT
(including ACT purportedly utilised against unlawful corporation tax on
dividends under l(a)), or the time value of ACT utilised against lawful
corporation tax or ACT refunded under the FID [foreign income
D dividends] regime, paid on or after 1 January 1973, by claimants which
received dividend income from subsidiaries in other member states in so
far as the ACT would not have been payable if dividend income from
other EU member states had been treated as franked investment income;
(c) claims for the time value of ACT on third country FIDs paid on or after
1 July 1994 and refunded under the FID regime; (d) claims for the
E repayment of interest based on claims under l(a), (b) or (c).
The judge had not, however, addressed in his judgment the question of when
the limitation period began to runIssue P in the GLOand said nothing in
his judgment about the reasoning in Kleinwort Benson and Deutsche
Morgan Grenfell relating to section 32(1)(c) of the 1980 Act.

F The rst appeal to the Court of Appeal

37 Both the test claimants and the revenue appealed. It was common
ground in the appeal that section 32(1)(c) of the 1980 Act applied in
principle to the test claims for money paid under a mistake of law, following
the decisions of the House of Lords in Kleinwort Benson and Deutsche
Morgan Grenfell. The only point arising in relation to limitation was
G whether the application of section 32(1)(c) was precluded by section 320 of
the FA 2004 in relation to the Aegis claim, and by section 107 of the FA 2007
in relation to the BAT claim. The Court of Appeal concluded that EU law
did not preclude the application of either provision, since the claimants
continued to have Woolwich claims (subject to a six-year limitation period),
and those claims were su–cient to meet the requirements of EU law: [2010]
STC 1251 (FII (CA) 1). The court also directed that a further reference
H
should be made to the Court of Justice, in order to seek clarication of its
judgment in FII (CJEU) 1 [2012] 2 AC 436.
38 Accordingly, the order of the court, dated 19 March 2010, varied
Henderson Js Order 1 so as to exclude claims falling within the scope of the
issues to be referred to the Court of Justice. Order 4 was also varied so as to

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state that all claims made outside the applicable limitation periods were A
unsuccessful.

The rst appeal to the Supreme Court

39 In November 2010 this court granted both parties permission to
appeal on a number of issues, including the question whether the availability
of the Woolwich claims su–ced to meet the requirements of EU law. The B
second reference was then made to the Court of Justice, and it gave its ruling
in 2012: Test Claimants in the FII Group Litigation v Revenue and Customs
Comrs (formerly Inland Revenue Comrs) (No 3) (Case C-35/11) [2013] Ch
431 (FII (CJEU) 2).
40 In their submissions in the appeal to this court, the revenue accepted
that section 32(1)(c) of the 1980 Act applied to the test claimants claims for
C
restitution on the basis of mistake, subject to the e›ect of section 320 of the
FA 2004 and section 107 of the FA 2007. The argument in relation to
limitation was therefore concerned with the e›ect of those provisions, and
with the question whether section 32(1)(c) also applied to the Woolwich
claims, as the test claimants submitted. The judgments proceeded on the
same basis.
41 As explained earlier, the court held that, in order for a claim to fall D
within the ambit of section 32(1)(c) of the 1980 Act, a mistake must
constitute an essential element of the cause of action, and that the provision
did not therefore apply to a Woolwich claim: FII (SC) 1 [2012] 2 AC 337. In
so holding, the court upheld the earlier decision of Pearson J in Phillips-
Higgins v Harper [1954] 1 QB 411. As Lord Walker of Gestingthorpe JSC
pointed out at para 63, if that approach were to be departed from, there
E
would be no principled stopping-place for the expansion of the scope of
section 32(1)(c) until it overrode the common law rule that ignorance of the
existence of a cause of action does not prevent time from running. The
consequence would be that the leading case of Cartledge v E Jopling & Sons
Ltd [1963] AC 758 would be seen to have missed the point, and the limits
and rationale of sections 11 and 14A of the 1980 Act (which extend the
limitation period for actions of damages for personal injuries, and other F
actions of damages for negligence, respectively, until the facts constituting
the cause of action are known) would have to be revisited.
42 The court also held that section 107 of the FA 2007 was
incompatible with EU law, and referred two questions to the Court of
Justice, including a question concerning the compatibility with EU law of
section 320 of the FA 2004. The Court of Justice delivered its judgment
G
in December 2013: FII (CJEU) 3 [2014] AC 1161. In the light of that
judgment, this court held in April 2014 that neither section 320 of the FA
2004 nor section 107 of the FA 2007 could be applied to the test claims.

The quanti cation trial

43 In the meantime, in May 2013 Henderson J ordered that the trial of
H
the BAT claim be resumed to determine all remaining issues of liability and
quantication, apart from a few issues, not relating to limitation, which had
been referred to the Court of Justice. Henderson J laid down a timetable for
the amendment of the pleadings and the agreement of a list of issues to be
decided at the resumed trial.

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A 44 In their amended particulars of claim, the BAT claimants continued

to plead mistakes of law as set out at para 26 above, and those averments
were admitted by the revenue. In relation to limitation, the BAT claimants
averred:
18. As set out above, the claimants claim relief from the consequences
of mistakes within the meaning of section 32(1)(c) of the Limitation Act
B 1980 (section 32) and, in relation to their claims seeking such relief
whether in restitution or as damages or howsoever arising (mistake
claims), the claimants are entitled to rely on that provision.
18A. Accordingly, the six year period of limitation does not begin to
run until the claimants have discovered their mistake or could with
reasonable diligence have discovered it. In this regard:
(a) The claimants discovered their mistakes relating to the ACT
C
Payments when the ECJ gave its judgment on 12 December 2006. The
claimants could not with reasonable diligence have discovered these
mistakes any earlier than they did, alternatively any earlier than when the
ECJ gave its decision in Metallgesellschaft Ltd v Inland Revenue Comrs
and Hoechst AG v Inland Revenue Comrs (Joined Cases C-397/97 and
C-410/98) on 8 March 2001.
D (b) The claimants discovered their mistakes relating to the FID
enhancements when the ECJ gave its judgment on 12 December 2006.
The claimants could not with reasonable diligence have discovered these
mistakes any earlier than they did.
(c) The fact that the DV Corporation Tax Payments, to the extent of
their unlawfulness, and the payments connected with DV Corporation
Tax and identied in paragraphs 17B(a)(ii) above were made by mistake
E depends upon the nal determination of the issues in these proceedings.
In the premises, the claimants could not with reasonable diligence have
discovered these mistakes at any other time or in any other way.
18B. In the premises, the claimants mistake claims are not time
barred.
Following the decisions in FII (SC) 1 and FII (CJEU) 3, those paragraphs
F were admitted by the revenue.
45 Nevertheless, the revenue informed the BAT claimants that they
wished to argue at trial that the relevant date was not 12 December 2006
(the date of the judgment in FII (CJEU) 1 [2012] 2 AC 436) but 8 March
2001 (the date of the judgment in Hoechst [2001] Ch 620). Accordingly, the
parties agreed that one of the issues to be decided at the trial was Issue 28:
G When did the claimants discover (or could with reasonable diligence have
discovered) their mistake? Accordingly, in respect of which payments and
periods do the claimants have valid mistake claims?

Henderson Js second judgment

46 Following a 16-day trial, Henderson J delivered his judgment in
December 2014: Test Claimants in the FII Group Litigation v Revenue and
H
Customs Comrs (No 5) [2015] STC 1471 (FII (HC) 2). In relation to Issue
28, he noted that the question as to when the claimants could rst have
discovered their mistake had been left undecided in FII (HC) 1 [2009] STC
254, and that it was of no practical signicance to the BAT claimants, since
their claim form was issued on 18 June 2003. That date was within the

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relevant six-year period, whether that period began on 8 March 2001, as the A
revenue argued, on 25 October 2006 (the date of the judgment in Deutsche
Morgan Grenfell), as the judge was inclined to think, or on 12 December
2006, as the claimants argued. The issue might, however, be relevant to
other claims in the FII GLO.
47 He observed at para 454 that there was what might at rst sight
appear to be an insuperable logical di–culty in the claimants case on this B
issue: how could it be said that they neither had discovered, nor with
reasonable diligence could have discovered, their mistake until 12 December
2006, when they had already started the present action three and a half years
earlier? But, he said, that position necessarily followed from the courts
jurisprudence. By parity of reasoning with the decision of the House of
Lords in Deutsche Morgan Grenfell [2007] 1 AC 558, he considered that it
was strongly arguable that it was only when that judgment was delivered, on C
25 October 2006, that time began to run against the BAT claimants. That
judgment was pertinent, in his view, because it was the rst time an appellate
court had determined that a restitutionary claim lay for the recovery of tax
on the ground that it had been paid under a mistake of law. Although Park J
had decided the same point three years earlier, it was only the decision of the
House of Lords which achieved nality on the issue. However, in the light of D
the majority judgments in FII (SC) 1 [2012] 2 AC 337, particularly that of
Lord Walker JSC, he concluded that the date when the claimants discovered
(or could with reasonable diligence have discovered) their mistake was
8 March 2001, when the Court of Justice delivered its judgment in Hoechst
[2001] Ch 620.
48 In that regard, Henderson J referred to Lord Walker JSCs discussion
E
of legitimate expectations, in the course of which he had observed at [2012]
2 AC 337, para 103 that, until the Court of Justice issued its judgment in
Hoechst, there was no general appreciation that the UK corporation tax
regime was seriously open to challenge as infringing the Treaty, and had
stated at para 104 that, after the date of the judgment in Hoechst, a well
advised multi-national group based in the UK would have had good grounds
for supposing that it had a valid claim to recover ACT levied contrary to EU F
law, with at least a reasonable prospect that the running of time could be
postponed until then (but not subsequently).
49 It is relevant to note that, when the parties received the judgment in
draft, counsel for the claimants complained to the judge that, if the revenue
wished to argue Issue 28, they must apply to amend their pleadings, and
satisfy the court that such an amendment should be permitted. In response, G
counsel for the revenue noted that no pleading point had been taken until the
draft judgment was released, and stated that the revenue had not sought to
amend their pleadings in the test claim because the issue was of no
signicance in relation to that claim (i e the BAT claim). Both parties had,
however, recognised the signicance of the issue for other claims (which had
been stayed before being pleaded out), and had agreed that it should be
included in the list of issues to be decided at the trial. The judge rejected the H
complaint, noting that the point was included in the agreed list of issues, and
observing that the pleaded position as between the test claimants and the
revenue was not relevant to this issue, since both parties agreed that it made
no di›erence so far as they were concerned.

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A 50 In his order, dated 30 January 2015, Henderson J granted a

declaration (Declaration 24) in the following terms:
Issue 28 is answered as follows: A. The date when the claimants
discovered (or could with reasonable diligence have discovered) their
mistake is 8 March 2001 when the ECJ delivered its judgment in
Hoechst/Metallgesellschaft. B. It is common ground that on any view the
B BAT claimants started their mistake claims within the extended limitation
period. As a result, all of the mistake claims of the BAT claimants dating
back to 1973 are in time.
The test claimants were granted permission to appeal against Declaration
24A. There was no appeal against Declaration 24B.

C The second appeal to the Court of Appeal

51 In the course of the hearing before the Court of Appeal, in June
2016, counsel for the revenue observed that the central issue in all of the
cases concerned with claims for the restitution of money paid under a
mistake was whether section 32(1)(c) does apply to mistakes of law. He
also observed that this critical issue might be a matter for this court in the
D present proceedings. That appears to have been the rst indication, in the
papers before this court, that the decisions in Kleinwort Benson and
Deutsche Morgan Grenfell might be challenged. The hearing proceeded,
however, on the basis that the Court of Appeal was bound to follow the
decisions of the House of Lords, and the argument focused on the e›ect of
Deutsche Morgan Grenfell.
52 In November 2016 the Court of Appeal allowed the test claimants
E appeal on Issue 28: Test Claimants in the FII Group Litigation v Revenue
and Customs Comrs [2017] STC 696 (FII (CA) 2). Declaration 24A was
amended so as to read: The date when the claimants discovered (or could
with reasonable diligence have discovered) their mistake is 12 December
2006 [the date of the judgment in FII (CJEU) 1].
53 In their judgment, delivered in November 2016 the Court of Appeal
F
noted at paras 348—349 the position on the pleadings. After quoting
paras 18 and 18B of the amended particulars of claim (para 44 above), they
noted that the revenue had admitted those paragraphs, and observed that
That no doubt reected the fact that even on the basis of the fall-back
reasonable discoverability date of 8 March 2001 the BAT claimants claims
were comfortably in time since proceedings had been commenced in 2003.
As they noted, however, other claimants had not commenced proceedings
G until much later, and the revenue had made it plain that, although pleadings
had not been required in the cases of those claimants, it would be raising a
limitation defence in them. So it had been agreed that Issue 28 should be
determined.
54 In relation to that issue, the court noted at para 372 that they were
bound by the decision of the House of Lords in Deutsche Morgan Grenfell
[2007] 1 AC 558, which in their view established that in the case of a point
H
of law which is being actively disputed in current litigation the true position
is only discoverable, for the purpose of section 32(1)(c) of the 1980 Act,
when the point has been authoritatively determined by a nal court. An
authoritative determination of a related point by a nal court in earlier
proceedings would only start time to run, in their view, if it necessarily

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meant that the same conclusion would follow in the instant proceedings. A
The provisions in issue in Hoechst were not the same as those in issue in the
FII GLO, and it was not contended that the decision in Hoechst necessarily
meant that the latter provisions also infringed EU law. On that basis, the
court concluded that the limitation period began to run for the test claimants
only on the date when judgment was delivered in FII (CJEU) 1: that is to say,
12 December 2006, three and a half years after they had issued their claims.
B
The second appeal to the Supreme Court
55 Thereafter, the revenue sought permission to appeal to this court on
a multiplicity of grounds, including Issue 28, and invited the court to depart
from that decision in Deutsche Morgan Grenfell. That ground of appeal
was directed at the test claimants (i e the BAT claimants) as well as other
claimants. Further submissions were led following this courts decision in C
Prudential [2019] AC 929 (para 15 above), inviting the court also to depart
from the decision in Kleinwort Benson [1999] 2 AC 349 as to the scope of
section 32(1)(c) of the 1980 Act. Following an oral hearing, permission to
appeal on Issue 28 was granted, without prejudice to the test claimants
entitlement to argue that, even if the court were to hold that those decisions
should be departed from, that decision should not a›ect the outcome of the
D
present case, whether by reason of res judicata, issue estoppel, abuse of
process or otherwise. The court also directed that the appeal on Issue 28
should be heard in advance of the appeal and cross-appeal on all remaining
grounds. In the event, and partly at the invitation of the court, the
arguments at the hearing of the appeal involved a comprehensive
consideration of the decisions in Kleinwort Benson and Deutsche Morgan
Grenfell, so far as relating to limitation. E

The Finance (No 2) Act 2015

56 In 2015 Parliament again responded to restitution claims relating to
taxation in the Finance (No 2) Act 2015 (F(No 2)A 2015). In section 38 of
that Act Parliament introduced Part 8C of the Corporation Tax Act 2010,
which imposed a higher rate of Corporation Tax (45%) on the interest paid
F
on restitution claims for overpaid tax, if the interest was not simple interest
at a statutory rate. This measure, which counsel described as a windfall
tax, was Parliaments response to the large claims which were being made
against the Exchequer. In section 52 of F(No 2)A 2015 Parliament also
provided that the rates of interest payable on tax-related judgment debts
were those set out in tax legislation.
G
Res judicata, estoppel and abuse of process
57 Until June 2016 the revenue appear to have given no indication that
they might seek to challenge the decisions in Kleinwort Benson and
Deutsche Morgan Grenfell and argue that section 32(1)(c) does not apply to
mistakes of law: para 51 above. Issue 28 itself (para 45 above) assumes that
section 32(1)(c) does so apply, and in the courts below that issue was
H
directed to a debate on whether 8 March 2001 or 12 December 2006 is the
relevant date under that subsection for the start of the limitation period.
58 The emergence of the challenge to the decisions in both Kleinwort
Benson and Deutsche Morgan Grenfell in this court after such extensive and
costly legal proceedings has, unsurprisingly, caused the claimants to advance

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A a vigorous case in which they argue that the revenue cannot and, in any
event, should not be allowed to make this challenge. The claimants primary
position is that this court should dismiss the appeal in relation to Issue 28 on
the grounds of res judicata, estoppel and abuse of process. Alternatively,
they submit that the appeal should be limited to the identication of the
relevant date under section 32(1)(c), because the wider challenge would
contradict the revenues concessions in the courts below, would amount to
B
an abuse of process and would cause the claimants unfair prejudice. As a fall
back, the claimants argue that the court should decline to entertain the
appeal on Issue 28 in relation to the test claimants and the other claimants
whose claims were issued within six years of 8 March 2001, or order that its
determination does not apply to those claimants.
59 The rules or concepts of res judicata, estoppel, and abuse of process
C support the same legal policies, namely that there should be nality in
litigation and that a party should not be twice vexed in the same matter:
Johnson v Gore Wood & Co [2002] 2 AC 1, 31, per Lord Bingham of
Cornhill. Lord Bingham went on to state: This public interest is reinforced
by the current emphasis on e–ciency and economy in the conduct of
litigation, in the interests of the parties and the public as a whole. The other
members of the Committee, except Lord Millett who delivered a concurring
D speech, agreed in terms with Lord Bingham on this rationale. Similarly, in
Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd (formerly Contour
Aerospace Ltd) [2014] AC 160, para 55 Lord Neuberger of Abbotsbury PSC
stated:
The purpose of res judicata is not to punish a party for failing to take
a point, or for failing to take a point properly, any more than to punish a
E party because the court which tried its case may have gone wrong. It
is . . . to support the good administration of justice, in the public interest
in general and the parties interest in particular.
That common purpose does not alter the fact that each rule or concept has
its own rules, and each must be considered in turn.
60 The claimants in their pleadings on this appeal use the term res
F judicata not as a portmanteau term to describe the di›erent legal principles
of which Lord Sumption JSC spoke in Virgin Atlantic Airways Ltd, but
equate it with cause of action estoppel. Lord Sumption JSC in that case
(para 17) described cause of action estoppel thus: The rst principle is that
once a cause of action has been held to exist or not to exist, that outcome
may not be challenged by either party in subsequent proceedings.
G
(Emphasis added.) He stated that it is a form of estoppel precluding a party
from challenging the same cause of action in subsequent proceedings
(emphasis added).
61 In his exposition of the law in relation to res judicata, with which the
other Justices agreed, Lord Sumption JSC quoted the speech of Lord Keith
of Kinkel in Arnold v National Westminster Bank plc [1991] 2 AC 93
(Arnold), which described this estoppel in these terms (p 104D—E):
H
Cause of action estoppel arises where the cause of action in the later
proceedings is identical to that in the earlier proceedings, the latter having
been between the same parties or their privies and having involved the
same subject matter. In such a case the bar is absolute in relation to all
points decided unless fraud or collusion is alleged, such as to justify

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setting aside the earlier judgment. The discovery of new factual matter A
which could not have been found out by reasonable diligence for use in
the earlier proceedings does not, according to the law of England, permit
the latter to be re-opened . . . Cause of action estoppel extends also to
points which might have been but were not raised and decided in the
earlier proceedings for the purpose of establishing or negativing the
existence of a cause of action.
B
Lord Keith quoted from the judgment of Sir James Wigram V-C in
Henderson v Henderson (1843) 3 Hare 100, 114—115:
In trying this question, I believe I state the rule of the court correctly,
when I say, that where a given matter becomes the subject of litigation in,
and adjudication by, a court of competent jurisdiction, the court requires
the parties to that litigation to bring forward their whole case, and will C
not (except under special circumstances) permit the same parties to open
the same subject of litigation in respect of matter which might have been
brought forward as part of the subject in contest, but which was not
brought forward, only because they have, from negligence, inadvertence,
or even accident, omitted part of their case. The plea of res judicata
applies, except in special cases, not only to points upon which the court
was actually required by the parties to form an opinion and pronounce a D
judgment, but to every point which properly belonged to the subject of
litigation, and which the parties, exercising reasonable diligence, might
have brought forward at the time.
Lord Keith observed that this passage has frequently been treated as settled
law and referred to the advice of the Judicial Committee of the Privy Council
in two cases: Hoystead v Comr of Taxation [1926] AC 155 and Yat Tung E
Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581. He stated (p 105):
It will be seen that this passage appears to have opened the door
towards the possibility that cause of action estoppel may not apply in its
full rigour where the earlier decision did not in terms decide, because they
were not raised, points which might have been vital to the existence or
non-existence of a cause of action. (Emphasis added.) F

62 In Virgin Atlantic Airways Ltd [2014] AC 160, para 22, Lord

Sumption JSC stated that Arnold was authority for the following
propositions:
(1) Cause of action estoppel is absolute in relation to all points which
had to be and were decided in order to establish the existence or G
non-existence of a cause of action.
(2) Cause of action estoppel also bars the raising in subsequent
proceedings of points essential to the existence or non-existence of a cause
of action which were not decided because they were not raised in the
earlier proceedings, if they could with reasonable diligence and should in
all the circumstances have been raised. (Emphasis added.)
H
63 From these authorities it is clear that cause of action estoppel
operates only to prevent the raising of points which were essential to the
existence or non-existence of a cause of action. The claimants complaint in
short is that the revenue had conceded both in their pleadings and in
counsels submissions that section 32(1)(c) applied to mistakes of law and

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A that BAT (and by implication other claimants which had raised proceedings
within six years after 8 March 2001) faced no limitation defence. Those
concessions relate to the defence of limitation. The e›ect of limitation is to
render an otherwise valid claim unenforceable to the extent that the claim
relates to periods beyond the period of limitation. The concessions had and
have no bearing on the existence or non-existence of the cause of action
which is a claim for restitution based on the payment of tax which was paid
B
under a mistaken understanding of the relevant law. The revenue therefore
are not barred from their challenge by cause of action estoppel.
64 The second estoppel which we must consider is issue estoppel. This
expression, which appears to have been coined by Higgins J in the Australian
case of Hoystead v Federal Taxation Comr (1921) 29 CLR 537, 561 and
adopted by Diplock LJ in Thoday v Thoday [1964] P 181, 197—198,
C concerns the principle which Lord Sumption JSC in Virgin Atlantic Airways
Ltd, para 17 described as:
the principle that even where the cause of action is not the same in the
later action as it was in the earlier one, some issue which is necessarily
common to both was decided on the earlier occasion and is binding on the
parties.
D 65 In Thoday v Thoday [1964] P 181, 198, Diplock LJ observed that
issue estoppel was an extension of the public policy underlying cause of
action estoppel and described it in these terms:
There are many causes of action which can only be established by
proving that two or more conditions are fullled. Such causes of action
involve as many separate issues between the parties as there are conditions
E to be fullled by the plainti› in order to establish his cause of action; and
there may be cases where the fullment of an identical condition is a
requirement common to two or more di›erent causes of action. If in
litigation upon one such cause of action any of such separate issues as to
whether a particular condition has been fullled is determined by a court
of competent jurisdiction, either upon evidence or upon admission by a
F
party to the litigation, neither party can, in subsequent litigation between
one another upon any cause of action which depends upon the fullment
of the identical condition, assert that the condition was fullled if the court
has in the rst litigation determined that it was not, or deny that it was
fullled if the court in the rst litigation determined that it was.
66 In Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630,
G
642 Diplock LJ expressed the view that in an action in which certain
questions of fact or law are tried and determined before others and an
interlocutory judgment is given, the parties are bound by the determination
of that issue in subsequent proceedings in the same action and their only
remedy is to appeal the interlocutory judgment. He saw this as an example
of issue estoppel.
67 In Arnold [1991] 2 AC 93, 105 Lord Keith said that issue estoppel:
H
may arise where a particular issue forming a necessary ingredient in a
cause of action has been litigated and decided and in subsequent
proceedings between the same parties involving a di›erent cause of action
to which the same issue is relevant one of the parties seeks to re-open that
issue.

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He referred to the passage in Diplock LJs judgment in Thoday v Thoday A

which we have quoted above and, by reference to Diplock LJs judgment in
Fidelitas Shipping, observed that issue estoppel had been extended to cover
the case where in subsequent proceedings it is sought to raise a point which
might have been but was not raised in the earlier proceedings (p 106).
68 Lord Sumption JSC in Virgin Atlantic Airways, para 21, explained
Lord Keiths judgment in Arnold in relation to issue estoppel. In the case of
B
that estoppel it was in principle possible to challenge a previous decision on
an issue not only by taking a new point which could not reasonably have
been taken in the earlier proceedings but also (in contrast to cause of action
estoppel) to reargue in materially altered circumstances an old point which
had previously been rejected. In para 22 he stated that Arnold was
authority for the following proposition:
C
(3) Except in special circumstances where this would cause injustice,
issue estoppel bars the raising in subsequent proceedings of points which
(i) were not raised in the earlier proceedings or (ii) were raised but
unsuccessfully. If the relevant point was not raised, the bar will usually be
absolute if it could with reasonable diligence and should in all the
circumstances have been raised.
D
69 The claimants did not argue in their written case that there is an issue
estoppel, but Mr Daniel Margolin QC raised the possibility in his oral
submissions and we must address it. The answer to this challenge lies in the
terms of the GLO and the way in which the proceedings developed. The
question of limitation was raised in Issue P in the GLO (From what date
does the limitation period commence?) and the BAT claim was the test
claim in relation to that issue: para 20 above. Issue P was not argued or E
determined in Henderson Js rst judgment (FII (HC) 1 [2009] STC 254) or
in the appeals which arose out of that judgment. The only question relating
to a limitation defence which was decided in the rst trial was Issue Q, which
concerned the e›ect of section 320 of the FA 2004 and section 107 of the FA
2007: paras 29 and 35 above. This is unsurprising, as in the rst phase of the
litigation the revenues only limitation defence to BATs mistake of law
F
claims was its reliance on those statutory provisions to exclude the
application of section 32(1)(c). In the period leading up to the second trial
before Henderson J the BAT claimants asserted in their revised pleadings
that the mistake claims were not time barred, and the revenue admitted
those assertions: para 44 above. Notwithstanding that admission in relation
to the BAT claimants, the revenue wished to argue that the relevant date
under section 32(1)(c) was 8 March 2001 because that date would support a G
limitation defence in relation to some of the other claims. As a result, the
parties agreed that Issue 28 be decided at the second trial: para 45 above. It
would not have been possible for the revenue to argue at rst instance or in
the Court of Appeal that either Kleinwort Benson or Deutsche Morgan
Grenfell was wrongly decided. But until June 2016 the revenue gave no
indication and made no reservation that they might seek to advance such an
H
argument if the case were to return to the Supreme Court. With the benet
of hindsight, that is unquestionably unfortunate. But it does not give rise to
an issue estoppel in circumstances where Issue P had to be determined in the
second phase of the proceedings and the argument which the revenue now
wish to advance could be raised only in the Supreme Court.

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A 70 The claimants advance a closely related argument that this court has
no jurisdiction to address the challenge which the revenue now seek to
mount. This is because Henderson J in his second judgment (FII (HC) 2
[2015] STC 1471) made the declaration (Declaration 24) which we have set
out in para 50 above. That declaration answered Issue 28 by stating two
things. First, in Declaration 24A it stated that the date at which the BAT
claimants could have discovered their mistake was 8 March 2001. Secondly,
B
in Declaration 24B it stated: It is common ground that on any view the BAT
claimants started their mistake claims within the extended limitation period.
As a result, all of the mistake claims of the BAT claimants dating back to
1973 are in time. There was no appeal against Declaration 24B. The BAT
claimants now argue that by failing to appeal that declaration, the revenue
cannot raise the arguments which they wish to raise against them and the
C other claimants whose claims were issued within six years of 8 March 2001
because this court has no jurisdiction to consider a challenge to a court order
which has not been appealed.
71 We reject this argument. The failure to appeal the declaration in
question does not exclude the jurisdiction of this court. The declaration is
not a judicial determination but records an agreed position at that time.
Such an order is not readily the subject of an appeal. The issue to which the
D declaration of the common position gives rise is whether the revenue should
be allowed to depart from that common position by withdrawing their
concession at this late stage in the proceedings. That is a matter which we
address in paras 83—100 below.
72 The claimants alternative argument is that the revenue, by seeking
to extend Issue 28 into an argument that Kleinwort Benson and Deutsche
E Morgan Grenfell were wrongly decided, are guilty of an abuse of process.
The principle of abuse of process was rst formulated by Wigram V-C in
Henderson v Henderson 3 Hare 100 and more recently was analysed by the
House of Lords in Johnson v Gore Wood & Co [2002] 2 AC 1. In that case
Lord Bingham (at p 31B—E) stated:
The bringing of a claim or the raising of a defence in later proceedings
F
may, without more, amount to abuse if the court is satised (the onus
being on the party alleging abuse) that the claim or defence should have
been raised in the earlier proceedings if it was to be raised at all . . . It is,
however, wrong to hold that because a matter could have been raised in
earlier proceedings it should have been, so as to render the raising of it in
later proceedings necessarily abusive. That is to adopt too dogmatic an
approach to what should in my opinion be a broad, merits-based
G judgment which takes account of the public and private interests involved
and also takes account of all the facts of the case, focusing attention on
the crucial question whether, in all the circumstances, a party is misusing
or abusing the process of the court by seeking to raise before it the issue
which could have been raised before.
Lord Bingham then rejected the submission that the rule in Henderson v
H Henderson did not apply when an action had been settled by compromise.
He stated, pp 32—33:
An important purpose of the rule is to protect a defendant against the
harassment necessarily involved in repeated actions concerning the same
subject matter. A second action is not the less harassing because the

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defendant has been driven or thought it prudent to settle the rst; often, A
indeed, that outcome would make a second action the more harassing.
Lord Go› of Chieveley, Lord Cooke of Thorndon and Lord Hutton agreed
in terms with Lord Binghams analysis. Lord Milletts speech is consistent
with Lord Binghams analysis. He described the doctrine of res judicata as a
rule of substantive law and contrasted that with the Henderson v Henderson
doctrine which he described as a procedural rule based on the need to B
protect the process of the court from abuse and the defendant from
oppression [2002] 2 AC 1, 59D—E.
73 The abuse of process doctrine is not conned to the raising of
subsequent proceedings after the completion of an action but can apply to
separate stages within one litigation. See, for example, Tannu v Moosajee
[2003] EWCA Civ 815.
74 In Virgin Atlantic Airways Ltd [2014] AC 160 Lord Sumption JSC C
agreed with Lord Milletts analysis of the relationship between on the one
hand the estoppels which come within the law of res judicata and on the
other the abuse of process doctrine, stating (para 25):
Res judicata is a rule of substantive law, while abuse of process is a
concept which informs the exercise of the courts procedural powers. In
my view, they are distinct although overlapping legal principles with D
the common underlying purpose of limiting abusive and duplicative
litigation.
75 While the concept of abuse of process informs the exercise of the
courts procedural powers, it is not a question of the exercise by the court of
a discretion: Aldi Stores Ltd v WSP Group plc [2008] 1 WLR 748, para 16
per Thomas LJ, para 38 per Longmore LJ. If the court, on making the broad, E
merits-based judgment of which Lord Bingham spoke, concludes that a
claim, a defence, or an amendment of a claim or of a defence involves an
abuse of process or oppression of the opposing party, it must exclude that
claim, defence or amendment. A nding of abuse of process operates as a
bar. Thus, as Lord Wilberforce stated in delivering the judgment of the
Judicial Committee of the Privy Council in Brisbane City Council v Attorney F
General for Queensland [1979] AC 411, 425, the doctrine ought only to be
applied when the facts are such as to amount to an abuse: otherwise there is
a danger of a party being shut out from bringing forward a genuine subject
of litigation.
76 From these authorities it is clear that for the court to uphold a plea of
abuse of process as a bar to a claim or a defence it must be satised that the
party in question is misusing or abusing the process of the court by G
oppressing the other party by repeated challenges relating to the same
subject matter. It is not su–cient to establish abuse of process for a party to
show that a challenge could have been raised in a prior litigation or at an
earlier stage in the same proceedings. It must be shown both that the
challenge should have been raised on that earlier occasion and that the later
raising of the challenge is abusive.
H
77 Applying that test to the circumstances of this appeal, we are not
persuaded that it is an abuse of process for the revenue to challenge the
decisions of the House of Lords in Kleinwort Benson and Deutsche Morgan
Grenfell at this stage of the GLO proceedings. We have reached this view for
the following four reasons.

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A 78 First, the FII Group Litigation has involved novel and developing
legal claims raising legal issues of unparalleled complexity, causing the
claimants and the revenue to amend their pleadings in the light of
developments of both EU law and domestic law. Henderson J in FII
(HC) 2 [2015] STC 1471, para 468, correctly spoke of a complex and
evolving legal landscape. The claims were and are located at the interface
of two developing systems of law: see paras 9—15 above. In English law the
B
right to claim restitution for money paid under a mistake of law was rst
recognised only in 1998 and the courts, including this court, have been
dealing with the ramications of that decision since then. This is the
second occasion on which the FII claims have reached this court and the
claims have been materially a›ected by the judgment of the House of Lords
in Sempra Metals [2008] AC 561 and more recently by the judgments of
C this court in Littlewoods [2018] AC 869 and Prudential [2019] AC 929.
On the European plane, the Court of Justice rst recognised the
incompatibility of the UK corporation tax legislation with EU law in the
ACT Group Litigation in Hoechst [2001] Ch 620 in 2001, and the FII
claims have since then generated no less than three judgments in references
to the Court of Justice in 2006, 2012 and 2013. The claimants in the FII
Group Litigation, in the ACT Group litigation, and in similar actions
D
seeking the recovery of tax paid under a mistake of law, have been pursuing
their claims at the frontier of legal developments. This in part explains the
complexity of the legal proceedings, and why legal questions which are of
central importance to those claims have only recently been decided or have
not yet been determined. The question whether there has been an abuse of
process involves a broad merits-based judgment against this very unusual
E background.
79 Secondly, the FII Group Litigation has been the subject of case
management by the court, which has determined the order in which the
questions of legal principle which the parties had identied have been
addressed. In the rst phase of the litigation 20 issues were sent to trial for
determination by Henderson J. As Mr Margolin QC forcefully submitted, it
was intended at that stage of the litigation that the rst trial before
F
Henderson J would determine all GLO issues relating to the test claims,
including liability for restitution, except in so far as the issues concerned
causation or quantication of the claims. It is also clear that at that stage the
revenue did not dispute that section 32(1)(c) would have applied to the
mistake of law claims but for Parliaments intervention by enacting
section 320 of the FA 2004 and section 107 of the FA 2007 to exclude the
G operation of that section in relation to mistake claims relating to inland
revenue taxation matters. But Issue P (From what date does the limitation
period commence?) was not determined in the rst phase of the litigation,
because, as the parties then presented their cases, it made no di›erence to the
outcome of the BAT claims. The question raised by Issue P remained to be
addressed in a later phase of the litigation.
80 Thirdly, it is readily understandable why in the rst phase of the
H
litigation the revenue focused on the statutory provisions which Parliament
had enacted, namely section 320 of the FA 2004 and section 107 of the
FA 2007. Those provisions would have established in domestic law the
revenues limitation defence that all claims accruing more than six years
before the date of issue of the relevant claim forms were barred by the 1980

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Act, but the provisions were held to be incompatible with EU law in so far as A
they had retrospective e›ect. Had the revenue succeeded in establishing the
legal enforceability of those statutory responses to the legal developments,
they would not have needed to mount a challenge to Kleinwort Benson and
Deutsche Morgan Grenfell. In the context of these actions in a developing
area of law, we are satised that the revenues failure to raise the wider
questions relating to section 32(1)(c), while unfortunate, involved no B
culpability.
81 Fourthly, it is not disputed that until the rst phase of the FII Group
Litigation reached this court in 2012, the revenue could not have raised a
challenge to the decisions in Kleinwort Benson and Deutsche Morgan
Grenfell as only this court could review those judgments. The revenue did
not do so. Indeed, in response to a question from this court at that hearing,
their counsel disavowed any intention to do so in those proceedings. But, at C
that time, the revenues defence based on the statutory provisions enacted in
2004 and 2007 was still a live issue and Issue P had not been addressed.
With the benet of hindsight, it would have been better if the issue which the
revenue seek to raise in this hearing had been raised before this court in
2012, not least because the BAT claimants estimate that the limitation
defence, if successful, would exclude a very large proportion of the value of D
their claims. But we do not think that it can be said that in the circumstances
which prevailed in 2012 the revenue should have raised the wider issue then.
In the context of a very complex group litigation raising many novel
questions of law in which the court had left Issue P for a later phase, the
revenue did not act abusively in not mounting the wider challenge then.
82 There is therefore no bar arising from an estoppel, lack of
E
jurisdiction or the doctrine of abuse of process which prevents this court
from considering the revenues challenge to Kleinwort Benson and Deutsche
Morgan Grenfell.
83 There remains the di–cult question of the exercise of this courts
discretion in deciding whether to allow the revenue to advance the
arguments which they now seek to deploy. The claimants argue with no
little force that the revenue in the second phase of the FII Group Litigation F
never stated that they wished to reserve the right to mount a broader attack
in their limitation defence, which included a challenge to the Kleinwort
Benson and Deutsche Morgan Grenfell decisions. On the contrary, the
revenue admitted in the pleadings in the BAT test case that BATs mistake
claims were not time barred: para 44 above. Issue 28 in the second phase,
which we have set out in para 45 above, is su–ciently broad to support one G
of the arguments which the revenue have advanced in this court, namely that
a taxpayer could with reasonable diligence have discovered a mistake of law
at the date when the tax was mistakenly paid. But in the context of the
revenues admissions, which are reected in Henderson Js statement of
the common position of the parties in Declaration 24B (para 50 above), the
agreed focus of that issue was on the revenues argument that 8 March 2001,
H
which is the date on which the CJEU handed down the Hoechst judgment
[2001] Ch 620, was the relevant date under section 32(1)(c), as Henderson J
held in Declaration 24A.
84 The claimants also argue that they have su›ered very serious unfair
prejudice by the emergence of the challenge to the Kleinwort Benson and

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A Deutsche Morgan Grenfell decisions so late in these proceedings. We discuss

this in paras 91—100 below.
85 These are matters which the court must consider in the exercise of its
discretion, as the revenues broader challenge involves not only the
withdrawal of a concession and a pleaded admission as against the BAT
claimants, but also the raising of a new point of law on appeal. Several cases
illustrate the established approach of the courts to the exercise of this
B
discretion.
86 In Pittalis v Grant [1989] QB 605 the Court of Appeal addressed an
application by the landlord appellants to withdraw a legal concession made
at rst instance and to amend their grounds of appeal to argue for a di›erent
interpretation of a provision in the Rent Act 1977 from that which had been
argued at rst instance. The Court of Appeal allowed the application.
C Nourse LJ, who delivered the judgment of the court, stated the rule of
procedure which operates as a norm, by quoting from the judgment of Sir
George Jessel MR in Ex p Firth, In re Cowburn (1882) 19 Ch D 419, 429:
the rule is that, if a point was not taken before the tribunal which
hears the evidence, and evidence could have been adduced which by any
possibility would prevent the point from succeeding, it cannot be taken
D afterwards. You are bound to take the point in the rst instance, so as to
enable the other party to give evidence.
Nourse LJ stated that although the court has a discretion to refuse an
application to raise on appeal a pure question of law which had not been
raised at rst instance, the normal practice was to allow the legal point to be
taken where the court could be condent that the other party (i) had had an
E opportunity of meeting it, (ii) had not acted to his detriment by reason of the
earlier omission to take the point and (iii) could be adequately compensated
in costs: p 611C—F, per Nourse LJ.
87 In Jones v MBNA International Bank [2000] EWCA Civ 514 Peter
Gibson LJ (at para 38) summarised the practice of the Court of Appeal in
these terms:
F It is not in dispute that to withdraw a concession or take a point not
argued in the lower court requires the leave of this court. In general the
court expects each party to advance his whole case at the trial. In the
interests of fairness to the other party this court should be slow to allow
new points, which were available to be taken at the trial but were not
taken, to be advanced for the rst time in this court. That consideration is
the weightier if further evidence might have been adduced at the trial, had
G
the point been taken then, or if the decision on the point requires an
evaluation of all the evidence and could be a›ected by the impression
which the trial judge receives from seeing and hearing the witnesses.
Indeed it is hard to see how, if those circumstances obtained, this court,
having regard to the overriding objective of dealing with cases justly,
could allow that new point to be taken.
H
That summary, and particularly the reference to the di–culty of allowing a
new point to be taken if further evidence would have been adduced at the
trial, reects longstanding practice: see, for example, The Tasmania (1890)
15 App Cas 223, 225, per Lord Herschell; Ex p Firth, In re Cowburn, per Sir
George Jessel MR. As May LJ also made clear in his concurring judgment in

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Jones (para 52), the court has established a general procedural principle in A
the interests of e–ciency, expediency and cost and in the interest of
substantial justice in the particular case. There is no absolute bar against the
raising of a new point of law even if a ruling on a new point of law
necessitates the leading of further evidence, but, as the case law reveals, the
court will act with great caution.
88 In Grobbelaar v News Group Newspapers Ltd [2002] 1 WLR 3024,
B
the House of Lords had to interpret the verdict of a jury, and addressed an
application by the claimants counsel to withdraw a concession which he
had made in the Court of Appeal as to the inferences of fact to be taken from
the jurys award of damages for libel in favour of his client. He was allowed
to do so for reasons which are not material to this appeal, but in a passage on
which the test claimants rely, Lord Bingham stated (para 21): Only rarely,
and with extreme caution, will the House permit counsel to withdraw from a C
concession which has formed the basis of argument and judgment in the
Court of Appeal.
89 A similar note of appellate caution was sounded in Singh v Dass
[2019] EWCA Civ 360 in which a claimant sought to raise a new argument
under the 1980 Act which he had not advanced at rst instance. Haddon-
Cave LJ, who gave the judgment of the court, summarised the relevant
principles in these terms: D

16. First, an appellate court will be cautious about allowing a new

point to be raised on appeal that was not raised before the rst instance
court.
17. Second, an appellate court will not, generally, permit a new point
to be raised on appeal if that point is such that either (a) it would
necessitate new evidence or (b) had it been run below, it would have E
resulted in the trial being conducted di›erently with regards to the
evidence at the trial (Mullarkey v Broad [2009] EWCA Civ 2 at [30] and
[49]).
18. Third, even where the point might be considered a pure point of
law, the appellate court will only allow it to be raised if three criteria are
satised: (a) the other party has had adequate time to deal with the point; F
(b) the other party has not acted to his detriment on the faith of the earlier
omission to raise it; and (c) the other party can be adequately protected in
costs (R (Humphreys) v Parking and Tra–c Appeals Service [2017] RTR
22, para 29).
Haddon-Cave LJs second principle reects the judgment of the Court of
Appeal in Jones [2000] EWCA Civ 514 at [38] and [52], and his third G
principle is a paraphrase of what Nourse LJ stated in Pittalis v Grant [1989]
QB 605, 611.
90 In Notting Hill Finance Ltd v Sheikh [2019] 4 WLR 146 the Court of
Appeal, in a judgment delivered by Snowden J, stated that an appellate court
has a general discretion whether to allow a new point to be taken on appeal
(para 21) and considered and analysed the practice set out in Pittalis v Grant
and Singh v Dass (para 26): H

These authorities show that there is no general rule that a case needs
to be exceptional before a new point will be allowed to be taken on
appeal. Whilst an appellate court will always be cautious before allowing
a new point to be taken, the decision whether it is just to permit the new

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A point will depend upon an analysis of all the relevant factors. These will
include, in particular, the nature of the proceedings which have taken
place in the lower court, the nature of the new point, and any prejudice
that would be caused to the opposing party if the new point is allowed to
be taken.
The court then spoke of a spectrum of cases. At one end, where there had
B been a full trial involving live evidence and the new point might have
changed the course of the evidence or required further factual enquiry, there
was likely to be signicant prejudice to the opposing party and the policy
arguments in favour of nality would be likely to carry great weight. At the
other end, where the point to be taken was a pure point of law which could
be argued on the facts as found by the judge, the appeal court was far more
likely to permit the point to be taken, provided that the other party had had
C time to meet the new argument and had not su›ered any irremediable
prejudice in the meantime (paras 27 and 28).
91 The challenge which the revenue seek to advance has the potential to
a›ect the quantication of the claims very signicantly, and it is raised at a
late stage in a complex group litigation. It involves this court making a
ruling on a question of law. But the claimants argue that they have acted to
D their detriment and will su›er serious prejudice if the revenue were to be
allowed to widen Issue 28 into a challenge to the authority of Kleinwort
Benson and Deutsche Morgan Grenfell and were to succeed in that
challenge. Such an outcome would, as we discuss below, require the parties
to amend their pleadings and conduct a further trial on the quantication of
the test claimants claim.
92 Counsel argues that if the BAT claimants had known that the
E revenue might seek to withdraw their admission that the claims which
pre-dated 8 March 2007 were not time-barred, they would not have
appealed Henderson Js Declaration 24A (para 50 above) on behalf of the
eight claimants who were adversely a›ected by the decision that the relevant
date for the calculation of the limitation period was 8 March 2001.
Secondly, they submit that there was a clear demarcation in the phases
F
between liability and quantication and the question of limitation properly
belonged to the rst phase. Thirdly, the claimants would su›er enormous
prejudice if the revenues new case on limitation were to succeed, because
the test claimants had expended very substantial resources in the past six
years in litigating legal issues relating to the quantication of their claims in
the second phase of the Group Litigation and also in challenging the
windfall tax imposed by the F(No 2)A 2015. Counsel estimated that the
G claimants had incurred costs of about £9.8m, net of recovery through
awards of costs, on the FII Group Litigation and the windfall tax
challenge. Fourthly, if the revenue were to succeed, this might necessitate a
retrial of questions of quantication. The test claimants also assert that they
have been prejudiced because this court in its judgments in Littlewoods
[2018] AC 869 and Prudential [2019] AC 929, which have a materially
adverse e›ect on the quantication of their claims by excluding compound
H
interest on those claims, was inuenced by the disruption to public nances
which the application of section 32(1)(c) to claims for the repayment of tax
would entail.
93 We consider this challenge to be the most di–cult to determine of
the claimants preliminary challenges to the scope of this appeal. With

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hindsight, there is no doubt that it would have been better if the revenue at A
the start of the second phase of the FII Group Litigation had reserved their
right to mount the challenge which they seek to make in this court. It is
important that there be discipline in the conduct of actions which are the
subject of group litigation orders and it is important that there be nality in
the determination of issues raised in such actions. An appellate court, in the
interests of justice, will normally seek strenuously to avoid an outcome
B
which results in the parties, who have already gone to trial on the
quantication of a claim, having to amend their pleadings and to adduce
further evidence to apply its ruling on a new issue of law to the facts of their
case. In a normal litigation, the need for a retrial would be a strong and
normally determinative pointer against allowing a party to withdraw a
concession which had inuenced the way in which a litigation had been
conducted. C
94 There are nonetheless several factors which point in the other
direction which make it appropriate not to apply the normal rule. The court
is being asked to exercise a discretion not in an individual case but in the
context of a group litigation order, a procedural phenomenon which did not
exist when Lord Herschell wrote his speech in The Tasmania 15 App Cas
223. One must also have regard to the nature and subject matter of this
D
group litigation and the manner in which it has been conducted. It is not
suggested that the BAT claimants have not had time to deal with the legal
challenge. We do not accept that, as the FII Group Litigation progressed,
there was a complete demarcation between liability and quantum in the rst
and second phases: the BAT claimants accept that in the second phase, 19 of
the 29 issues related to quantication. The others did not. Issue P, which
became Issue 28, remained to be resolved and Issue 17 (namely whether the E
tax credits given to shareholders for ACT prevented the revenue from being
enriched) raised an issue of principle which could have had a material e›ect
on the quantication of the claims.
95 Because Kleinwort Benson and Deutsche Morgan Grenfell were
rulings by the House of Lords, the revenue could not have mounted the
challenge in the courts below in the second phase; the revenue could only
F
have given notice that such a challenge might be made. If such notice had
been given, how far would the BAT claimants have acted di›erently?
96 We are persuaded that Henderson Js Declaration 24A would have
been appealed. In the context of the FII Group Litigation, the starting date
of the six-year limitation period was of material importance to the claimants
who were prejudiced by Henderson Js determination. Any one of those
claimants could have applied for permission to appeal that declaration G
under CPR Part 19, rule 19.12(2). It is important to bear in mind the context
of this litigation in which this court is asked to make rulings on issues of legal
principle which will a›ect directly or indirectly other claimants besides the
BAT claimants, both within and outside the particular GLO. In that context,
the loss of the opportunity for the BAT claimants to secure a procedural
advantage to close o› the issue so far as it related to their claims and those
H
of the other 18 claimants who were not prejudiced by Henderson Js
determination by not appealing against Declaration 24A is a consideration
which carries only limited weight.
97 It is possible that the BAT claimants approach to the sequencing of
the issues in Phase 2 of the litigation, and in particular the quantication of

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A their claims, would have been di›erent. They might have wished the
challenge to Kleinwort Benson and Deutsche Morgan Grenfell to be
resolved before they expended time and money on quantication. But the
claimants in the FII GLO would still have substantial claims, which the
revenue estimate to be between £80m and £130m, if the limitation challenge
which the revenue now seek to pursue were to succeed; and they needed to
complete the litigation to establish those claims. Further, the BAT claimants
B
and the other claimants were prepared to incur the costs in relation to
quantication when there was no nal determination of issues such as Issue
17 and when the question whether there was an entitlement to compound
interest, which was determined adversely to their interest by this court in
Littlewoods and Prudential, had yet to be conclusively resolved. It is
therefore mere speculation on the information before this court for us to say
C what the claimants might have done if the revenue had reserved their
position on Kleinwort Benson and Deutsche Morgan Grenfell. Insofar as
the BAT claimants are able to persuade the court that they have su›ered
prejudice by incurring costs which they would not have incurred but for the
admission that there was no time bar defence in relation to the BAT
claimants and (by implication) the 18 other claimants who commenced
proceedings before 8 March 2007, it may be possible to provide a remedy by
D
revising the orders for costs which have been made in the proceedings or by
making a further order for costs.
98 We do not consider that the costs which the claimants have incurred
in their challenge to the windfall tax in the F(No 2)A 2015 are a relevant
consideration as that is a separate litigation relating to di›erent statutory
provisions. That legislation was enacted before several decisions which have
E materially a›ected the value of the claimants claims had been determined.
It predated this courts judgments in Littlewoods and Prudential, which
excluded claims for compound interest as a component of a claim for
restitution. We cannot know whether Parliament would have acted
di›erently in 2015 if the revenue had reserved a right to challenge the
Kleinwort Benson and Deutsche Morgan Grenfell decisions before this court
at a future date.
F
99 We also consider that the points which we have made in para 78
above in relation to the abuse of process claim are both relevant and of great
weight when considering the exercise of this discretion. The nature of the
claims, depending as they do on a developing area of law, means that it is
important that this court address the legal questions which the revenue wish
to raise. The size of the claims and their impact on the public purse are also
G relevant considerations, as it would be wrong to uphold such claims if they
are based on an incorrect understanding of the law. As we have said, even if
the revenues challenge to the application of section 32(1)(c) succeeds, the
claimants will have claims of substantial value. The legal question is also of
great importance to other claimants outside the FII Group Litigation,
including claimants in the litigations to which we have referred in paras 5—6
above, who also have claims of high value.
H
100 In the end, the task for the court is to make an evaluation of what
justice requires in the circumstances of this group litigation. We are
persuaded for the reasons set out above that we should allow the revenue to
withdraw their concession and to amend their pleadings to remove the
admission on which the test claimants found.

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101 The nal preliminary matter which we must consider is the test A
claimants application that, in the event that the court allows the revenue to
withdraw their concession and mount the challenge, the court should decline
to entertain the appeal in relation to the 19 claimants whose claims were
issued within six years after 8 March 2001 or, by analogy with CPR
rule 19.12, order that any judgment or order which it makes shall not be
binding on those claims. For the reasons which we have set out in
B
paras 94—100 above (other than the e›ect of the determination on claimants
outside the FII Group Litigation) and in particular that, if we were to hold
that either Kleinwort Benson or Deutsche Morgan Grenfell was wrongly
decided in relation to the interpretation of section 32(1)(c) of the 1980 Act,
those claims would to that extent be based on an incorrect understanding of
the law, we are not persuaded that the interests of justice require this court to
make such orders. C

The background to section 32(1)(c) of the Limitation Act 1980

102 The 1980 Act is a consolidation statute, designed to consolidate the
1939 Act and a number of subsequent enactments. Section 32(1), in
particular, is a re-enactment of section 26(b) of the Limitation Act 1939 (the
1939 Act), subject to a minor amendment which appears in section 32(1)(b).
D
Nevertheless, as its interpretation raises questions of substantial di–culty, it
is both permissible (Farrell v Alexander [1977] AC 59, 72—73) and necessary
to consider the previous law in some detail, as the House of Lords did in
Kleinwort Benson [1999] 2 AC 349 and as this court did in FII (SC) 1 [2012]
2 AC 337.

The law prior to the Limitation Act 1939 E

The common law
103 When considering the state of the law prior to the 1939 Act, in so
far as it related to action[s] for relief from the consequences of a mistake,
and the limitation period applicable to such actions, it is necessary to
distinguish between actions at law and claims for equitable relief. So far as
common law actions are concerned, there were a number of types of action F
which might be described as action[s] for relief from the consequences of a
mistake. But the mistake was invariably one of fact, rather than law. In
particular, it had been established for almost 200 years that no claim lay at
common law for the recovery of money paid under a mistake of law: see, for
example, Bilbie v Lumley (1802) 2 East 469. That was settled law in 1939,
and continued to be so until the decision in Kleinwort Benson.
104 As Atkinson J pointed out in Anglo-Scottish Beet Sugar Corpn Ltd G
v Spalding Urban District Council [1937] 2 KB 607, 615—616, in most cases
of payment by mistake the person paying has paid because of a mistake as to
his legal right or obligation, and whether the payment can be recovered or
not depends upon whether that mistake as to legal right is due to a mistake
of fact or a mistake of law. The distinction between these alternatives gave
rise to disputes in borderline cases, and was considered in a multitude of
H
authorities, in which ne distinctions were sometimes drawn.
105 There were a number of statutes concerned with limitation in
relation to common law actions. The most important for present purposes
was the Limitation Act 1623 (21 Jac 1, c 16), as amended by the
Administration of Justice Act 1705 (4 & 5 Anne c 16) and the Mercantile

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A Law Amendment Act 1856 (19 & 20 Vict c 97) (the 1623 Act). It imposed
time limits of 20 years on the bringing of real actions and six years, running
from the accrual of the cause of action, on the bringing of certain personal
actions, including trespass, trover, replevin, actions of account, action on the
case and actions of debt. It is apparent from the names of the forms of action
to which the statute applied, and from the fact that they were referred to as
actions, that the only proceedings barred were actions at law.
B
106 Actions on the case included actions of indebitatus assumpsit on a
count for money had and received, which was the relevant form of action for
restitution of money paid under a mistake. In such cases, the cause of action
accrued on the date of the payment: Baker v Courage & Co [1910] 1 KB 56.
The limitation period therefore began to run on that date.

C Equity
107 The position in equity is more complex. As Lord Walker JSC
observed in FII (SC) 1 [2012] 2 AC 337, para 62, the authorities are rather
short on clear exposition of the relevant principles of equity. It is also
necessary to bear in mind that cases which involved a mistake also often
involved other factors which formed the justication for equitable relief,
D such as fraud, misrepresentation or abuse of a duciary position. For present
purposes, in the light of the decision in FII (SC) 1, it is also necessary to
distinguish between cases where mistake was an essential element of the
claim for relief, and cases where it was not.
108 The law as it was understood in the 1930s is broadly summarised in
Snells Equity, 21st ed (1934), p 428:

E
Mistake may be on a matter either of law or of fact, and it is generally
said that whereas relief can be obtained against mistake of fact, no relief
can be given against mistake of law. Neither part of this proposition can,
however, be accepted without considerable qualication, for not every
mistake of fact is the subject of relief, and, on the other hand, relief is
sometimes granted even against mistake of law.

F
109 Snell listed four kinds of case in which equitable relief could be given
from the consequences of a mistake. First, mistake was accepted as being a
ground in some circumstances for refusing specic performance of a contract.
Secondly, mistake could in some circumstances justify the exercise of an
equitable jurisdiction to grant rescission of a contract (it is unnecessary to
consider in this appeal whether such a jurisdiction survived the decision in
Bell v Lever Bros Ltd [1932] AC 161: a question considered in Great Peace
G Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679). It is
relevant to note that in a leading case of common mistake where equity
intervened, a distinction was drawn between ignorance of the general law,
which could not justify rescission, and a mistake as to private rights of
ownership, which could, but was categorised as a mistake of fact: Cooper v
Phibbs (1867) LR 2 HL 149, 170 (where the plainti› contracted to purchase
property from the defendant which, unknown to either of them, the plainti›
H
already owned in equity). Thirdly, equity could provide relief where a
written contract failed to express correctly the parties antecedent agreement,
by providing the remedy of rectication. Fourthly, although it was a general
rule in equity, as at common law, that money paid under a mistake of law
could not be recovered, there were said to be certain exceptions.

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110 The general rule was stated in Snells discussion of mistake at A

pp 439—440: money paid under a mistake of law cannot be recovered, this
being perhaps the only type of relief where it can be regarded as absolutely
clearly established by way of general rule that ignorantia legis non excusat.
The authorities cited in support of that statement included Rogers v Ingham
(1876) 3 Ch D 351, which was a case of alleged overpayment by an executor
of one legatee at the expense of the other, as the result of an error in the B
construction of a will. The allegedly underpaid legatee sought to recover the
money from the recipient. As is explained at para 116 below, such cases
generally fall within the scope of a principle relating to the administration of
estates which enables recovery to be obtained, regardless of whether there
has been a mistake or not. However, the case fell outside the scope of that
principle, because the payment in question had been authorised by the
C
legatee who later sought to challenge it. Consequently, the only basis for
recovery was that the payment had been made under a mistake of law. It
was held that no claim lay either in equity or in law for recovery on that
basis. James LJ, whose every word on a question of equitable principle is
weighty (Ministry of Health v Simpson [1951] AC 251, 272), stated at
pp 355—356:
D
I have no doubt that there are some cases which have been relied on,
in which this court has not adhered strictly to the rule that a mistake in
law is not always incapable of being remedied in this court; but relief has
never been given in the case of a simple money demand by one person
against another, there being between those two persons no duciary
relation whatever, and no equity to supervene by reason of the conduct of
either of the parties. E

111 Snell mentioned a number of supposed exceptions to the general

rule. As Snell noted at p 440, the rst supposed exception, where the
mistake was as to foreign law, was merely apparent, since foreign law was
treated as a matter of fact. The second supposed exception was where
money was paid to an o–cer of the court, such as a trustee in bankruptcy,
F
under a mistake of law. It was held that the court could prevent its o–cer
from taking advantage of the mistake: see, for example, Ex p James; In re
Condon (1874) LR 9 Ch App 609 and Ex p Simmonds, In re Carnac (1885)
16 QBD 308. In these cases, however, the grant of relief was not based on
mistake, but on the courts jurisdiction to enforce high ethical standards on
the part of its o–cers.
112 Vaughan Williams LJ explained this in In re Tyler; Ex p The G
O–cial Receiver [1907] 1 KB 865. Referring to Ex p James, he said at p 869:
In that case the money had been paid under such a mistake of law that
it could not be recovered by any judicial process whatsoeverwhether in
law or equity. When James LJ says [in Ex p James at p 614] that the
trustee [in bankruptcy] has in his hands money which in equity belongs to
somebody else, he is not referring to an equity which is capable of forensic H
enforcement in a suit or action, but he is referring to a moral principle
which he describes when he says that the Court of Bankruptcy ought to be
as honest as other people. In Ex p Simmonds Lord Esher states exactly
the same principle [at p 312].

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A Buckley LJ said at p 873 that James LJ had referred to equity in Ex p James

in a popular sense, and not in the sense of money which in a court of equity
would belong to someone else. More recent authorities are to the same
e›ect: see, for example, Lehman Bros Australia Ltd v MacNamara [2020]
3 WLR 147.
113 The third supposed exception was where the mistake was induced
by fraud or by the breach of a duciary duty. The authorities cited by Snell
B
(British Workmans and General Insurance Co v Cunli›e (1902) 18 TLR
425, Harse v Pearl Life Assurance Co [1904] 1 KB 558 and Phillips v Royal
London Mutual Assurance Co (1911) 105 LT 136) were concerned with
claims for the return of premiums, brought by persons who had entered into
contracts of insurance which were illegal and void (for want of an insurable
interest) as a result of misrepresentations made by or on behalf of the
C insurance company. Where the misrepresentation was innocent, the money
was irrecoverable. Where the misrepresentations were fraudulent, relief was
granted, but on the basis of fraud, not mistake: see Harse at p 563, where Sir
Richard Collins MR indicated that relief might also be granted in cases
of duress or oppression, or where the defendant stood in a duciary
relationship towards the plainti›.
114 Accordingly, the authorities provide examples of equitable relief
D
being given where there had been mistakes of law as well as mistakes of fact.
However, Snell provides no example of a money claim for relief from the
consequences of a mistake of law, where the occurrence of the mistake was
an essential element of the claim. The judgments in cases such as Rogers v
Ingham and In re Tyler indicate that a money claim could not be brought on
that basis.
E 115 As was mentioned earlier, it is necessary in the light of FII (SC) 1 to
distinguish between cases where mistake is an essential ingredient of the
cause of action, and cases where there may have been a mistake but the claim
has another legal basis. There were by the 1930s a number of established
types of claim in equity which fell into the latter category, in addition to
those already mentioned. One was a claim for an account, based on a duty
to account arising from the relationship between the parties, but where the
F
claim might have been prompted by the discovery of a mistake. Another
example, although not a claim at all, was the correction of errors of account
between trustees and beneciaries: the courts would allow a trustee or
personal representative to deduct sums overpaid under a mistake of law
from future instalments due to the overpaid beneciary. On the other hand,
there does not appear to be any reported case where a trustee or personal
G representative recovered money paid under a mistake of law from the
recipient, and there are dicta to the e›ect that such a claim must fail because
of the general rule barring such recovery.
116 Another example of a claim which might be brought where a
mistake had occurred, but where the mistake was not the justication for the
grant of relief, was a claim brought where an executor administering the
estate of a deceased person paid out funds to someone other than the person
H
to whom they were properly due, and that person then sought to recover
them from the recipient. The remedy available to the person to whom the
money was legally due lay in the rst instance against the executor, but he
could also recover from the recipient any amount which he was unable to
recover from the executor. Such a claim was not, however based on mistake:

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it was, as the Court of Appeal said in In re Diplock [1948] Ch 465, 502, an A
equitable claim independent of a mistake of fact or of any mistake. It was
based, rather, on the fact that the payment had been made by the executor to
a person who was not entitled to it, in breach of the rights of the person to
whom it was legally due, as Lord Davey explained in Harrison v Kirk [1904]
AC 1, 7.
117 So far as limitation is concerned, there was not before 1833 any
B
statute which explicitly barred any suit in equity. In so far as the Court of
Chancery applied statutes of limitation, it did so by analogy, as explained
below. From 1833 onwards, however, a number of statutes were enacted
which imposed limitation periods on the bringing of particular types of suit
in equity. For example, the Real Property Limitation Acts of 1833 (3 &
4 Will 4, c 27) and 1874 (37 & 38 Vict c 57) introduced limitation periods in
respect of equitable proceedings to recover interests in land, and the Trustee C
Act 1888 (51 & 52 Vict c 59) established a limitation period for certain
claims against trustees. Many types of equitable proceedings remained
subject to no limitation period: for example, there was no provision
imposing a time limit on proceedings to rescind transactions induced by
undue inuence or innocent misrepresentation, and no time limit within
which proceedings for rectication must be brought. The statutes did not
D
modify the equitable doctrines of laches and acquiescence.
118 Where equity provided a remedy corresponding to a remedy at law,
and the latter was subject to a limitation period, the courts of equity (or after
the Judicature Acts, courts asked to give equitable relief) applied the statutes
of limitation by analogy, as Lord Westbury explained in Knox v Gye (1872)
LR 5 HL 656, 674—675:
E
Where a Court of Equity frames its remedy upon the basis of the
Common Law, and supplements the Common Law by extending the
remedy to parties who cannot have an action at Common Law, there
the Court of Equity acts in analogy to the statute; that is, it adopts the
statute as the rule of procedure regulating the remedy it a›ords.
119 The common law courts were bound to apply the statutes
F
according to their terms, but the Court of Chancery, when it applied them by
analogy, developed a principle that a defendant whose unconscionable
conduct had denied the plainti› the opportunity to sue in time should not in
conscience be permitted to plead the statute to defeat the plainti›s claim,
provided the claim was brought timeously once the plainti› discovered or
should have discovered the basis of his claim. Accordingly, where the
plainti›s claim in equity was founded on the fraud of the defendant, time G
did not begin to run against the plainti› until he discovered the fraud or had
a reasonable opportunity of discovering it.
120 This equitable rule received partial recognition in section 26 of the
Real Property Limitation Act 1833 (the lineal ancestor of section 26 of the
1939 Act and section 32 of the 1980 Act), under which the right to bring a
suit in equity for the recovery of land or rent of which the claimant or his
H
predecessors were deprived by concealed fraud was deemed to have accrued
at and not before the time at which such fraud shall or with reasonable
diligence might have been rst known or discovered.
121 In cases where the claim for equitable relief arose in circumstances
where the claimant had been unaware of the matter in question as the result

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A of a mistake, and where equity applied the statutes of limitation by analogy,

allowance was similarly made for the period before the mistake was or could
with reasonable diligence have been discovered. The point is illustrated by
the judgment of Alderson B in Denys v Shuckburgh (1840) 4 Y & C Ex 42,
where the prots of a mine had for many years been distributed between the
parties under a mistake as to their respective shares. When the mistake was
discovered, the plainti› led a bill for an account, and the question arose
B
whether more than six years prots could be recovered in equity. The
plainti› relied on Alderson Bs earlier judgment in Brooksbank v Smith
(1836) 2 Y & C Ex 58, where the court applied the 1623 Act by analogy but
held that time did not run until the mistake was discovered, since it was only
then that laches commenced. In Denys v Shuckburgh, on the other hand,
Alderson B explained at p 53 that the position was di›erent where the
C mistake could reasonably have been discovered earlier than it was:
But here, it seems to me that the plainti› had the means, with proper
diligence, of removing the misapprehension of fact under which I think he
did labour . . . and a court of equity, unless the mistake be clear, and the
party be without blame or neglect in not having discovered it earlier,
ought, in the exercise of a sound discretion, to adopt the rule given by the
D statute law as its guide.
122 In this context, a distinction was drawn between a mistake as to the
facts supporting a claim for equitable relief, and ignorance that known facts
gave rise to a claim. Knight Bruce LJ observed in Sta›ord v Sta›ord (1857)
1 De G & J 193, 202 that Generally, when the facts are known from which
a right arises, the right is presumed to be known. Similar observations were
E made by Sir Richard Collins MR in Molloy v Mutual Reserve Life Insurance
Co (1906) 94 LT 756, 761, in a judgment which is discussed at
paras 204—208 below.

The report of the Law Revision Committee

123 In 1934 the Law Revision Committee was invited to consider
F various aspects of the law of limitation, including the scope of the rules on
concealed fraud. The Committee reported in 1936 (Fifth Interim Report, on
Statutes of Limitation (Cmd 5334)), and its report formed the background
to the 1939 Act. The passages in the report which are relevant for present
purposes begin with the Committees explanation of the limitation of claims
for equitable remedies (para 13):
G Equitable claims are in some cases directly governed by a statute of
limitations, such as claims to land or rent charges. In other cases, such as
specic performance or rescission of contracts on the ground of innocent
misrepresentation, or setting aside gifts on the ground of undue inuence,
no period applies, but the plainti› must act promptly and may be
disqualied by laches. In other cases, where a remedy in equity
corresponds to a similar remedy in law, equity follows the analogy of the
H
statute which applies to the corresponding common law remedy (Knox v
Gye (1872) LR 5 HL 656), except that in applying equitable remedies to
cases of fraud or mistake, the period of limitation is not reckoned until
the fraud or mistake is or could, with reasonable diligence, have been
discovered.

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124 The concluding words in that passage described what the A

Committee later referred to as the equitable rule. As will be explained, it
was the Committees recommendation to extend that rule to common law
claims which resulted in the enactment of section 26 of the 1939 Act,
e›ectively re-enacted as section 32 of the 1980 Act.
125 In relation to cases of fraud, the Committee noted at para 22 the
problem that As a general rule it is no answer to a plea of the Statutes of
B
Limitation to say that the plainti› was unaware of the existence of his cause
of action until after the expiry of the statutory period. Exceptions to that
general rule included section 26 of the Real Property Limitation Act 1833,
and the equitable doctrine that a plainti› is not to be a›ected by the lapse of
time where his ignorance is due to the fraud of the defendant, and he has had
no reasonable opportunity of discovering such fraud before bringing his
action. It also noted that, following the Judicature Act 1873 (36 & 37 Vict C
c 66), there were inconsistent decisions as to whether the equitable doctrine
applied to actions in which a court of law would previously have had
exclusive jurisdiction. The Committee considered that the position should
be claried so as to prevent defendants from relying on a lapse of time which
was due to their fraudulent conduct. It also considered that exception
created by the equitable rule should be extended so as to apply not only
D
where a cause of action was founded on a concealed fraud, but also where a
cause of action unconnected with fraud was fraudulently concealed from the
plainti› or someone through whom he claimed.
126 The Committee then turned to cases of mistake, and stated at
para 23:
A somewhat similar position arises in cases where relief is sought
E
from the consequences of mistake, e g, when money is paid on property
transferred under a mistake. The equitable rule is that the time should
only run under the Statutes of Limitation from the time at which the
mistake was, or could with reasonable diligence have been, discovered.
At present this rule does not apply in cases which formerly fell within the
exclusive cognisance of a court of law (Baker v Courage [1910] 1 KB 56).
It only applies to cases which were formerly only actionable in a court of F
equity, or were within the concurrent jurisdiction of the two systems
(In re Mason [1928] Ch 385, and [1929] 1 Ch 1; In re Blake [1932] 1 Ch
52). It was held in Baker v Courage (supra) that the Judicature Acts had
not altered the common law rule.
This position appears to us as unsatisfactory as the position with
regard to the e›ect of concealed fraud, and accordingly we recommend
G
that in all cases when relief is sought from the consequences of a mistake,
the equitable rule should prevail and time should only run from the
moment when the mistake was discovered, or could with reasonable
diligence have been discovered. We desire to make it clear, however, that
the mere fact that a plainti› is ignorant of his rights is not to be a ground
for the extension of time. Our recommendation only extends to cases
when there is a right to relief from the consequences of a mistake. In such H
cases it appears to us to be wrong that the right should be defeated by the
operation of the Statutes of Limitation.
127 When, in that passage, the Committee stated that the mere fact
that a plainti› is ignorant of his rights is not to be a ground for the extension

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A of time, it did not have in mind a situation in which a mistake of law gave
rise to a cause of action falling within the scope of statutory limitation,
directly or by analogy: as we have explained, no such cause of action existed
at that time, and therefore the possibility of such a situation did not arise. It
was, as we understand it, rea–rming the principle stated in Sta›ord v
Sta›ord and Molloy 94 LT 756 (para 122 above) that, whereas allowance
could be made for a mistake where it formed one of the ingredients of a
B
cause of action, allowance could not be made, where the ingredients of a
cause of action were known, for ignorance that those circumstances gave
rise to a cause of action.
128 Accordingly, in relation to cases involving fraud or mistake, the
Committee recommended at para 37:
(18) that in all cases where a cause of action is founded on fraud
C
committed by the defendant or his agent, or where a cause of action is
fraudulently concealed by him or his agent, time should only run against
the plainti› from the time when he discovered the fraud or could with
reasonable diligence have discovered it (para 22);
(19) that in actions for relief in respect of mistake time should only
run from the date when the mistake was, or could with reasonable
D diligence have been, discovered (para 23).
It is to be noted that the recommendations in respect of fraud addressed
two situations: (a) where the cause of action was founded on fraud, and
(b) where a cause of action not founded on fraud was fraudulently
concealed. The recommendation in respect of mistake addressed only one
situation: where there was an action for relief in respect of mistake. In
E the light of the authorities as they stood at the time of the Report, this court
concluded in FII (SC) 1 [2012] 2 AC 337 that, as Lord Walker JSC stated at
para 59, in the cases where the period was or might have been extended
the mistake seems to have been an essential ingredient in the cause of
action.

The Limitation Act 1939

F
129 The 1939 Act gave e›ect to those recommendations, and also made
other changes to the law. Part I laid down periods of limitation for di›erent
classes of action, subject under section 1 to the provisions of Part II, which
provide for the extension of the periods of limitation in the case of disability,
acknowledgment, part payment, fraud and mistake. Section 2(1) laid
down a six-year limitation period, running from the date on which the cause
G of action accrued, for a number of categories of action, including
(a) actions founded on simple contract or on tort. Section 2(7) provided:
This section shall not apply to any claim for specic performance of a
contract or for an injunction or for other equitable relief, except in so far
as any provision thereof may be applied by the court by analogy in like
manner as the corresponding enactment repealed by this Act has
H heretofore been applied.
Other provisions of Part I laid down limitation periods for other types of
action, including actions in respect of a claim to the personal estate of a
deceased person, which were made subject to a 12-year limitation period
(section 20).

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130 In Part II, section 26 provided, so far as material: A

Where, in the case of any action for which a period of limitation is

prescribed by this Act, either (a) the action is based upon the fraud of
the defendant or his agent or of any person through whom he claims or
his agent, or (b) the right of action is concealed by the fraud of any such
person as aforesaid, or (c) the action is for relief from the consequences of
a mistake, the period of limitation shall not begin to run until the plainti› B
has discovered the fraud or the mistake, as the case may be, or could with
reasonable diligence have discovered it.
131 Part III contained general provisions. Section 29 preserved the
equitable jurisdiction to refuse relief on the ground of acquiescence or
otherwise. Section 34 repealed all relevant subsisting statutory provisions
for limitation. C

The e›ect of section 26 of the Limitation Act 1939

132 It is apparent from the opening words of section 26 of the 1939 Act
that it was concerned only with actions for which a period of limitation was
prescribed by the Act. Section 26(c), which applied where the action is for
relief from the consequences of a mistake, was therefore conned to actions D
meeting that description for which a period of limitation was prescribed by
the Act. It had to be construed in the light of section 2(7), and therefore
extended to claims for equitable relief for which a period prescribed in
section 2 applied by analogy, in the same way as the earlier statutes of
limitation (repealed by section 34) were previously applied.
133 It follows that section 26(c) applied to claims for the recovery of E
money paid under a mistake of fact. Actions at law of that kind had
previously fallen within the ambit of section 3 of the 1623 Act, and were
intended by Parliament to fall within the scope of section 2(1) of the 1939
Act, as the Court of Appeal held in In re Diplock [1948] Ch 465, 514.
Equivalent claims in equity (e g where the plainti› was not the person who
made the payment under a mistake) fell within the ambit of section 2(7).
However, section 26(c) was not understood to apply to actions for the F
recovery of money on the ground that it had been paid under a mistake of
law, since no action of that description, whether in law or in equity, was
recognised until long after the 1939 Act had been repealed.
134 The 1939 Act was considered in two cases which are relevant in the
present context. The rst was In re Diplock. The proceedings were brought
after executors distributed the residue of an estate in accordance with a G
provision in the will directing them to hold it in trust and divide it between
such charitable or benevolent objects as they might think t, without further
specication. The next of kin challenged the validity of the trust, and it was
held by the House of Lords to be void for uncertainty. More than six years
(but less than 12 years) after the distributions had been made, the next of kin
sought a declaration that the recipients of the money were liable to refund it
H
to them. The claims were made on two bases. The rst was a claim in
personam based on the right of an unpaid beneciary to recover money
wrongly paid to a stranger to the estate. The second was a claim in rem,
based on tracing the trust assets into the hands of the defendants. It is
unnecessary to consider the latter aspect.

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A 135 At rst instance, the judge failed to recognise that the personal
claims fell within the ambit of the principle relating to the wrongful
distribution of estates, and instead treated them as claims for money had and
received. On that basis, he held that no claim was available, either at law or
in equity, since the mistake was one of law: In re Diplock [1947] Ch 716.
The judges decision on that point was reversed on appeal [1948] Ch 465.
The Court of Appeal correctly held that an equitable claim lay against a
B
recipient who was paid more than he was entitled to receive under a will,
regardless of whether the overpayment was made under a mistake, either of
fact or of law. As discussed in para 116 above, the court explained that the
basis of equitable relief was not mistake, but the receipt of a share or interest
in the estate to which the recipient was not entitled, at the expense of the
person entitled to it. The primary claim lay however against the executors,
C and the equitable cause of action was therefore for recoupment of such
amounts as were irrecoverable from them.
136 The Court of Appeal further held that limitation was governed in
such a case by section 20 of the 1939 Act, and not by section 2(1) or (7).
Since section 20 laid down a 12-year period, it followed that the claims were
not time-barred. However, the court went on to consider, obiter, the
position if, contrary to their view, the claims fell within the scope of
D
section 2(7). On that hypothesis, the court considered that section 26(c)
would be relevant, on the basis that the claims sought relief from the
consequences of a mistake. This obiter dictum preceded the line of
authority, culminating in the decision in FII (SC) 1, which entailed that a
claim such as that in In re Diplock, for which a mistake was not an essential
ingredient of the cause of action, did not fall within the scope of section 26(c)
E of the 1939 Act or section 32(1)(c) of the 1980 Act.
137 The Court of Appeals decision was a–rmed by the House of
Lords: Ministry of Health v Simpson [1951] AC 251. In a speech with which
the other members of the Appellate Committee expressed agreement, Lord
Simonds emphasised at p 265 that the particular branch of the jurisdiction
of the Court of Chancery with which we are concerned relates to the
administration of assets of a deceased person. Lord Simonds next cited the
F
dictum of Lord Davey in Harrison v Kirk [1904] AC 1, which was
mentioned in para 116 above, and stated at p 266:
The importance of this statement is manifold. It explains the basis of
the jurisdiction, the evil to be avoided and its remedy: its clear implication
is that no such remedy existed at common law: it does not suggest that it is
relevant whether the wrong payment was made under error of law or of
G
fact: it is immaterial whether those who have been wrongly paid are
beneciaries under the will or next of kin, it is su–cient that they derive
title from the deceased. (Emphasis added.)
138 The argument that this jurisdiction was limited to payments made
under a mistake of fact, rather than law, was rejected by Lord Simonds at
pp 269—270, on the basis that the equitable doctrine was not based on the
H
existence of a mistake at all, but on the making of a wrongful payment. As
he said at p 270, a legatee does not plead his own mistake or his own
ignorance but, having exhausted his remedy against the executor who has
made the wrongful payment, seeks to recover money from him who has been
wrongfully paid. In relation to limitation, Lord Simonds agreed with the

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Court of Appeal that the claims were governed by section 20 of the 1939 A
Act. He added at p 277 that it was unnecessary to say anything about
section 26 by way of approval or disapproval of what fell from the Court of
Appeal. He observed that it was a section which presented many problems.
139 The other case from this period which should be noted is Phillips-
Higgins v Harper [1954] 1 QB 411, a decision of Pearson J. The plainti›
brought a claim for an account and payment of money due under a contract
B
over a period of 13 years. The defendant argued that as more than six years
had passed since the initial payments were due, it followed that the claim
was to that extent time-barred, under section 2(2)(a) and (7) of the 1939 Act.
In response, the plainti› relied on section 26(c), arguing that she had not
known that the money that had been paid to her was less than was due under
the contract, and was therefore seeking relief from the consequences of a
mistake. C
140 That argument was rejected by the judge. As he noted, section 26
dealt di›erently with fraud and mistake. In relation to fraud, provision was
made for two situations: rst, where (a) the action is based upon . . .
fraud, and secondly, where (b) the right of action is concealed by . . .
fraud. It followed that, in cases falling within (b), the action need not be
based upon fraud. In relation to mistake, on the other hand, provision was D
made for only one situation: where (c) the action is for relief from the
consequences of a mistake. In the judges view, that wording was carefully
chosen to indicate a class of action where a mistake has been made which has
had certain consequences and the plainti› seeks to be relieved from those
consequences (p 418). No provision was made for the situation where the
right of action was concealed by a mistake. In the instant case, the plainti›s
claim was to recover money due to her under a contract. The fact that she E
had been unaware of the right of action by reason of a mistake was
insu–cient to bring her within the ambit of section 26(c). The judge
expressed the opinion at p 419 that Probably provision (c) applies only
where the mistake is an essential ingredient of the cause of action. He
added (ibid) that it was no doubt intended to be a narrow provision,
because any wider provision would have opened too wide a door of escape F
from the general principle of limitation. That reasoning, subsequently
approved in FII (SC) 1, entailed that section 26(c) could not apply to a claim
of the kind considered in In re Diplock, since such a claim was not based on
mistake, as explained in paras 116 and 137—138 above.

The Limitation Act 1980

G
141 As previously mentioned, the 1980 Act is a consolidation statute,
designed to consolidate the 1939 Act and a number of subsequent enactments.
Section 5 lays down a six-year limitation period for actions founded on
simple contract. Like section 2 of the 1939 Act, it has been held to apply to
claims for the recovery of money on the ground that it was paid under
a mistake: Westdeutsche Landesbank Girozentrale v Islington London
H
Borough Council [1994] 4 All ER 890, 942—943; Aspect Contracts (Asbestos)
Ltd v Higgins Construction plc [2015] 1 WLR 2961, para 25.
142 Section 32(1) of the 1980 Act corresponds to section 26 of the 1939
Act, subject to the deletion (originally e›ected by the section 7 of the
Limitation Amendment Act 1980) of the reference to concealment by fraud

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A and the substitution in section 32(1)(b) of the concept of deliberate

concealment of relevant facts. It provides (so far as material):
Subject to subsection (3) below, where in the case of any action for
which a period of limitation is prescribed by this Act, either (a) the
action is based upon the fraud of the defendant; or (b) any fact relevant to
the plainti›s right of action has been deliberately concealed from him by
B the defendant; or (c) the action is for relief from the consequences of a
mistake; the period of limitation shall not begin to run until the plainti›
has discovered the fraud, concealment or mistake (as the case may be) or
could with reasonable diligence have discovered it.
In relation to equitable claims, section 36 corresponds to sections 2(7) and
29 of the 1939 Act (paras 129 and 131 above).
C
Kleinwort Benson
143 The case of Kleinwort Benson [1999] 2 AC 349 concerned claims
by a bank for the recovery of sums which it had paid to local authorities
under interest rate swap agreements which it had believed to be valid,
but which were subsequently held, initially by the Divisional Court and
D subsequently by the House of Lords, to be ultra vires and therefore void:
Hazell v Hammersmith and Fulham London Borough Council [1992] 2 AC
1. The bank then recovered, in a rst set of proceedings, such sums as had
been paid within the six years preceding the issue of its writ, on the ground
that there had been a failure of consideration. In a second set of proceedings,
the bank sought to recover the sums which had been paid more than six
E
years previously, by relying on section 32(1)(c) of the 1980 Act to postpone
the commencement of the limitation period. A preliminary issue arose as to
(1) whether the bank had a cause of action based on mistake, and (2) if so,
whether the bank could rely on section 32(1)(c).
144 There was no reasoned judgment at rst instance, the judge
concluding on issue (1) that he was compelled by authority to deny liability.
For the same reason, the leapfrog procedure was employed to bypass the
F Court of Appeal. Before the House of Lords, the bank sought rst to
establish that there was a cause of action to recover money paid under a
mistake of law, and that its claim could be brought on that basis, on the
footing that the payments had been made under the mistaken belief that the
contracts were legally valid. In response, the local authorities did not
attempt to defend the rule that money paid under a mistake of law was
G irrecoverable, but argued that recovery should not lie where a payment was
made in accordance with a settled understanding of the law which was later
changed by a judicial decision. The better course, it was argued, was to leave
the law to be altered by Parliament, particularly in view of the problems
arising in relation to the law of limitation. Since the Government had
accepted the Law Commissions recommendations on the issue, it would be
wrong for the courts to pre-empt legislative reform. In reply, the bank
H
accepted (as was noted at pp 362 and 391) that a payment made on the basis
of a settled understanding of the law would not be made under a mistake,
even if the law was later changed by a judicial decision, but argued that the
law on the issue in question had not been settled prior to the House of Lords
decision in Hazell.

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145 By a majority of three to two, the Appellate Committee accepted A

the banks argument, and went beyond it by holding that the right to recover
payments made under a mistake of law applied whether or not the basis on
which the payment was made was in accordance with settled law. Lord
Go›, in his nal speech before his retirement, focused on the retrospective
e›ect of judicial decisions. He accepted that the question whether a
payment was made under a mistake was determined as at the time when the
B
payment was made (Baker v Courage & Co [1910] 1 KB 56, 66), and
observed that when the judges state what the law is, their decisions . . .
have a retrospective e›ect (p 378). It was because of that retrospective
e›ect, he asserted, that it was plain (p 379) that a previous understanding
of the law which was overturned by a judicial decision was mistaken as at
the time when the payment was made. The cause of action for the recovery
of money paid under such a mistake of law therefore accrued on the date C
when the payment was made (p 386). That was so even though Lord Go›
disavowed the declaratory theory of judicial decision-making, with the
consequence that the previous understanding might be regarded as having
been correct as the law stood at the time of the payment: a situation which
Lord Ho›mann described as a deemed mistake. It is unnecessary for
present purposes to consider the merits of that reasoning. It was disputed by
D
Lord Browne-Wilkinson and Lord Lloyd of Berwick, and has been criticised
by a number of academic commentators (and approved by others), but is not
challenged in these proceedings.
146 On that basis, Lord Go› and the other members of the majority
rejected the argument that cases where the court departed from a previous
decision, or from a settled practice, should be distinguished from cases
where the court determined the law for the rst time. In each of those events, E
the courts decision had a retrospective e›ect: that was an inevitable
attribute of judicial decision-making (p 379). In each event, the e›ect of the
courts decision was to falsify the belief or assumption which had caused
the claimant to make the payment, and that was su–cient to create a
restitutionary claim based on mistake.
147 The next step in the banks argument was to establish that the cause
F
of action for the recovery of money paid under a mistake of law fell within
the scope of section 32(1)(c) of the 1980 Act. In that regard, counsel for the
bank relied on the obiter dicta of the Court of Appeal in In re Diplock [1948]
Ch 465, discussed at paras 136—138 above, and argued that, even if such a
claim would not have been recognised at the time when the provision was
enacted, it should be construed in accordance with the always speaking
principle of statutory interpretation (referring to R v Ireland [1998] AC G
147). On that basis, counsel argued that section 32(1)(c) extended to
mistakes of law once the law recognised such mistakes as giving rise to a
right of action. In response, counsel for the local authorities argued that
section 32(1) should be construed as at the moment of its enactment, when it
could only have applied to mistakes of fact. Furthermore, the language of
section 32(1) was not apt to apply to mistakes of law, since the law could
H
rarely be said to be objectively ascertainable, so as to be capable of being
discovered with reasonable diligence.
148 The majority of the Appellate Committee decided this issue in favour
of the bank, and the minority concurred, on the hypothesis (contrary to their
opinion) that there was an actionable mistake. The reasons the majority gave

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A for reaching that conclusion were brief and rested principally on what appears
to us, with respect, to have been an inaccurate understanding of the pre-1939
law. The statutory concept of discoverability was not discussed. The
proceedings had not reached the stage at which it was necessary to determine
when the mistake of law was discovered, or could with reasonable diligence
have been discovered, and only the two judges in the minority considered the
question.
B
149 Lord Go› did not refer to the banks argument based on the
always speaking principle, but briey addressed the local authorities
argument concerning the language of section 32(1), stating at pp 388—389:
In my opinion, however, this verbal argument founders on the fact
that the pre-existing equitable rule applied to all mistakes, whether they
were mistakes of fact or mistakes of law: see e g Earl Beauchamp v Winn
C
(1873) LR 6 HL 223, 232—235 and the dicta from In re Diplock to which
I have already referred [i e at pp 515—516].
By the pre-existing equitable rule, Lord Go› meant the rule stated in
para 23 of the Report of the Law Reform Commission, which he had
mentioned in his speech at p 388. Para 23 was cited at para 126 above. As
was explained at paras 118—124 above, the rule was of limited scope, and
D
applied where a remedy in equity corresponded to a similar remedy in law,
and the statutes of limitation were applied by analogy. Contrary to Lord
Go›s observation, the rule did not apply to all mistakes, whether of fact or
law. In particular, it did not apply to claims for the recovery of money on the
ground that it had been paid under a mistake of law, since no such claim
appears to have been recognised in equity any more than at law: see
E paras 110—116 above.
150 The rst of the authorities which Lord Go› cited, Earl Beauchamp
v Winn (1873) LR 6 HL 223, was a similar case to Cooper v Phibbs LR 2 HL
149, mentioned in para 109 above. It concerned a bill seeking the equitable
rescission of a contract for the exchange of property, on the ground of
common mistake as to the parties respective rights to the properties in
question. The principal issues were whether there had been a common
F
mistake, and if so, whether relief was barred either by the impossibility of
restitutio in integrum or on the ground that the appellant could readily have
discovered the true position before entering into the agreement, having the
relevant title deeds in his possession but having failed to read them.
151 The passage in the speech of Lord Chelmsford which Lord Go› cited
was concerned with three matters. The rst, as Lord Chelmsford put it
G at p 233, was the principle that where a party is put upon inquiry, and by
reasonable diligence he might have obtained knowledge of a fact of which he
remained in ignorance, Equity would not relieve him. The second, as it was
put at p 234, was the objection, that the mistake (if any) was one of law, and
that the rule Ignorantia juris neminem excusat applies. In that regard, Lord
Chelmsford followed Cooper v Phibbs in distinguishing between ignorance
of a well-known rule of law and ignorance of the true construction of a deed.
H
The third issue was the equitable doctrine of acquiescence. In the event, after
these objections had been considered and rejected, there was held to have
been no mistake. There was no discussion of the statutes of limitation, or of
the equitable rule mentioned by the Law Reform Committee, or of the
question whether it might have any application to mistakes of law.

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152 Lord Go› also cited the obiter dictum of the Court of Appeal in A
In re Diplock [1948] Ch 465. As was explained in para 136 above, that
dictum proceeded on the hypothesis that personal claims against the
wrongful recipient of property during the administration of an estate fell
within the scope of section 2(7) of the 1939 Act rather than section 20. The
Court of Appeal had already rejected that hypothesis, and the House of
Lords also rejected it, on appeal, in Ministry of Health v Simpson [1951] AC
B
251, as explained at para 138 above. Furthermore, since the right of action
with which In re Diplock was concerned was not based on a mistake, as
explained in paras 116 and 137—138 above, it followed from the decision in
Phillips-Higgins [1954] 1 QB 411, later endorsed in FII (SC) 1 [2012] 2 AC
337, that it could not fall within the ambit of section 26(c) of the 1939 Act,
or section 32(1)(c) of the 1980 Act: see paras 41 and 140 above.
153 Lord Go› did not discuss the local authorities argument that the C
law could rarely be said to be objectively ascertainable, so as to be capable of
being discovered with reasonable diligence. As the decision in Kleinwort v
Benson [1999] 2 AC 349 itself illustrates, points of law present a problem for
a test of discoverability, if discovery requires the ascertainment of the
truth. On the assumption that it did, the local authorities argued in
Kleinwort Benson that the test of discoverability could not be applied to
D
mistakes of law, and that they therefore fell outside the scope of section 32(1).
As will appear, the House of Lords, proceeding on the same assumption,
decided in Deutsche Morgan Grenfell that the truth could not be discovered
until it had been established by an authoritative judicial decision, and that
time could not therefore begin to run under section 32(1) until such a decision
had been taken. It will be necessary to consider at a later point whether
the underlying assumption, that the test of discoverability requires the E
ascertainment of the truth, is well-founded.
154 Before summarising his conclusions, Lord Go› stated at p 389:
I recognise that the e›ect of section 32(1)(c) is that the cause of action
in a case such as the present may be extended for an indenite period of
time. I realise that this consequence may not have been fully appreciated
at the time when this provision was enacted, and further that the F
recognition of the right at common law to recover money on the ground
that it was paid under a mistake of law may call for legislative reform to
provide for some time limit to the right of recovery in such cases. The
Law Commission may think it desirable, as a result of the decision in the
present case, to give consideration to this question; indeed they may think
it wise to do so as a matter of some urgency.
G
155 With great respect to an eminent judge, that statement suggests that
some important matters were insu–ciently considered. The fundamental
purpose of limitation statutes is to set a time limit for the bringing of claims.
As the Law Reform Committee stated at para 7 of its Report, the purpose of
the statutes [of limitation] goes further than the prevention of dilatoriness;
they aim at putting a certain end to litigation and at preventing the
H
resurrection of old claims, whether there has been delay or not. Lord Go›s
statement accepts that the result of the majoritys decision as to the e›ect of
section 32(1)(c) is that the cause of action in a case such as the present may
be extended for an indenite period of time. That is also a possibility in the
case of mistakes of fact, but it may be argued that the risk is potentially

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A higher, and the consequences potentially more serious, in the case of a

mistake of law arising retrospectively as a result of a judicial decision. Lord
Go›s statement that this consequence may not have been fully appreciated
at the time when this provision was enacted lays the responsibility at
Parliaments door. But the question which the Appellate Committee should
itself have considered was whether the result of its decision would be
B consistent with Parliaments intention in enacting the 1980 Act. It is the
duty of the court, in accordance with ordinary principles of statutory
construction, to favour an interpretation of legislation which gives e›ect to
its purpose rather than defeating it. Lord Go› did not, however, undertake
any analysis of section 32(1), and made no attempt to give it a purposive
interpretation. It will be necessary to return to this issue, after section 32(1)
has been examined in the light of the decision in Deutsche Morgan Grenfell.
C
156 Turning to the other majority judgments, Lord Ho›mann, like
Lord Go›, rejected the possibility of distinguishing in the law of restitution
between cases where a judicial decision changed a settled view of the law, or
settled what was previously an unsettled view, on the one hand, and cases
where the mistake of law lacked any retrospective element, on the other
hand. In Lord Ho›manns view, there was no basis in principle for drawing
D such a distinction.
157 In relation to limitation, Lord Ho›mann stated at p 401:
I accept that allowing recovery for mistake of law without
qualication, even taking into account the defence of change of position,
may be thought to tilt the balance too far against the public interest in the
security of transactions. The most obvious problem is the Limitation Act,
E which as presently drafted is inadequate to deal with the problem of
retrospective changes in law by judicial decision. But I think that any
measures to redress the balance must be a matter for the legislature. This
may suggest that your Lordships should leave the whole question of the
abrogation of the mistake of law rule to the legislature, so that the change
in the law and the necessary qualications can be introduced at the same
F time. There is obviously a strong argument for doing so, but I do not
think that it should prevail over the desirability of giving in this case what
your Lordships consider to be a just and principled decision.
Like Lord Go›, Lord Ho›mann therefore construed section 32(1) as
applying to claims for the recovery of money paid under a mistake of law,
despite considering that the Act was inadequate to deal with the resulting
G problems. If that was indeed the position, then the correct conclusion to
draw, consistently with the Appellate Committees constitutional duty to
give e›ect to Acts of Parliament, purposively construed, was that
section 32(1) did not apply to such claims. As Lord Ho›mann himself
observed in Johnson v Unisys Ltd [2003] 1 AC 518, para 37:
judges, in developing the law, must have regard to the policies
H expressed by Parliament in legislation . . . The development of the common
law by the judges plays a subsidiary role. Their traditional function is to
adapt and 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.

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158 Lord Hope of Craighead also rejected the possibility of A

distinguishing between di›erent kinds of mistake of law for the purposes of
the law of restitution, because of the di–culty of establishing a clear and
principled approach. He identied a number of situations in which there
might be said to be a mistake of law. The mistake might be caused by a
failure to take advice, by omitting to examine the available information, or
by misunderstanding the information which had been obtained. Or it might
B
be due to a failure to predict correctly how the court would determine issues
which were unresolved at the time of the payment, or to foresee that there
was an issue which would have to be resolved by the court. Within the latter
categories, there might be cases where the court overturned an established
line of authority, and cases where there was no previous decision on the
point. He concluded, at p 411, that it was preferable to avoid being drawn
into a discussion as to whether a particular decision changed the law or was C
merely declaratory, since It would not be possible to lay down any hard and
fast rules on this point.
159 In relation to limitation, Lord Hope observed at p 417 that the
word mistake appeared in section 32(1) without qualication, and that
there was nothing in the words used which restricted the application of the
subsection to mistakes of fact. More questionably, he added that the origin
D
of the section, in para 23 of the Report of the Law Revision Committee,
suggested that the absence of restriction was intentional. No other member
of the Appellate Committee supported that reading of the Report, and we
can nd no indication of such an intention in para 23 or elsewhere: see in
particular para 126 above.
160 Lord Hope also noted that in In re Diplock the Court of Appeal had
said that section 26(c) of the 1939 Act would operate to postpone the E
running of time in the case of an action to recover money paid under a
mistake of fact. He continued, at p 417:
But the distinction between mistake of fact and mistake of law as a
ground for recovery is not absolute. Relief is available where the mistake
of law relates to private rights: Earl Beauchamp v Winn, LR 6 HL 223.
Private agreements made under a mistake of law may be set aside, and F
relief will be given in respect of payments made under such agreements.
Other examples may be given where a cause of action for relief will be
available although the mistake was one of law. In R v Tower Hamlets
London Borough Council, Ex p Chetnik Developments Ltd [1988] AC
858, 874H—877C Lord Bridge of Harwich referred to a substantial line of
authority showing circumstances in which the court would not permit the
G
mistake of law rule to be invoked. These include payments made under
an error of law to or by a trustee in bankruptcy as an o–cer of the court:
Ex p James; In re Condon (1874) LR 9 Ch App 609. It is hard to see why
in those cases the equitable rule which allows for the postponement of the
limitation period should not apply, to the e›ect that time will not run
until the claimant knew of the mistake or ought with reasonable diligence
to have known of it. If the postponement can apply in these examples H
of mistake of law, I think that it ought to apply to mistakes of law
generally.
161 The authorities cited in that passage might be regarded as
illustrating the ne distinctions sometimes drawn between mistakes of fact

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A and of law, but they did not dissolve the distinction. They were not, in
particular, concerned with claims for the recovery of money on the basis
that it had been paid under a mistake of law. Nor were they concerned
with limitation. For the reasons explained at paras 150—151 above, Earl
Beauchamp v Winn does not in our opinion o›er any guidance in relation to
the application of section 32(1)(c) of the 1980 Act to claims of the kind with
which Kleinwort Benson was concerned. Cases concerned with the recovery
B
of payments made under an error of law to a trustee in bankruptcy as an
o–cer of the court, such as Ex p James LR 9 Ch App 609, also appear to us
to have no bearing on the point. As was explained in paras 111—112 above,
claims to recovery in cases of that kind were not based on mistake, and did
not question that both the legal and the equitable title had passed. The
case of R v Tower Hamlets London Borough Council, Ex p Chetnik
C Developments Ltd [1988] AC 858 also appears to us to o›er no assistance,
except in explaining the principle underlying the line of authority including
Ex p James. It was a case in public law, concerned with the exercise of a
statutory discretion to repay rates which had been paid in the absence of any
liability to pay.
162 In relation to the risk that the decision of the majority would result
in serious problems, Lord Hope stated at p 417:
D
The objection may be made that time may run on for a very long time
before a mistake of law could have been discovered with reasonable
diligence, especially where a judicial decision is needed to establish the
mistake. It may also be said that in some cases a mistake of law may have
a›ected a very large number of transactions, and that the potential for
uncertainty is very great. But I do not think that any concerns which may
E
exist on this ground provide a sound reason for declining to give e›ect to
the section according to its terms. The defence of change of position will
be available, and di–culties of proof are likely to increase with the
passage of time. I think that the risk of widespread injustice remains to be
demonstrated.
It will be necessary to return to the points made in that passage. Like Lord
F
Go›, Lord Hope considered (p 418) that any need for further restriction of
the limitation period was best considered by the Law Commission, evincing
a level of optimism about the Governments willingness to implement Law
Commission recommendations which has not been borne out by experience.
163 By contrast, Lord Browne-Wilkinson considered that, if the law
recognised claims for the recovery of money paid under a mistake of law,
G including claims arising retrospectively as the result of a judicial decision,
then the disruption of legal certainty resulting from the application of
section 32(1)(c) would be so great that the Appellate Committee ought not
to develop the law so as to recognise such claims. He observed at p 364 that:
On every occasion in which a higher court changed the law by judicial
decision, all those who had made payments on the basis that the old law
H was correct (however long ago such payments were made) would have six
years in which to bring a claim to recover money paid under a mistake of
law.
Since all the members of the Appellate Committee accepted that this position
could not be cured save by primary legislation altering the relevant

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limitation period, he concluded that the correct course would be for the A
House to indicate that an alteration in the law is desirable but leave it to the
Law Commission and Parliament to produce a satisfactory statutory change
in the law which, at one and the same time, both introduces the new cause of
action and also properly regulates the limitation period applicable to it.
Similar views were expressed by Lord Lloyd of Berwick (p 398).
164 The decision in Kleinwort Benson [1999] 2 AC 349 in relation to
B
section 32(1) does not stand or fall on the persuasiveness of the speeches. It
will be necessary to return at a later point in this judgment to the question as
to whether, on a proper understanding of section 32(1), the decision was
correct. First, however, it is necessary to consider the construction of
section 32(1), which was one of the matters examined in Deutsche Morgan
Grenfell.
C
Deutsche Morgan Grenfell
165 The case of Deutsche Morgan Grenfell [2007] 1 AC 558 concerned
legislation under which, where a company paid a dividend, it was liable to
pay ACT, calculated as a proportion of the dividend, which could later be set
o› against its liability to pay mainstream corporation tax on its prots. The
revenue thereby obtained early payment of the tax and, in cases where the D
ACT exceeded the mainstream corporation tax, the payment of tax which
would not otherwise have been due. Where, however, the dividend was paid
to a parent company, and both the company paying the dividend and its
parent were resident in the UK, a group income election could be made. The
result of such an election was that the subsidiary did not pay ACT, but
instead paid the appropriate amount of mainstream corporation tax when it
became due. Deutsche Morgan Grenfell (DMG) was a UK subsidiary of a E
German parent and was therefore unable to make an election. As a result, it
paid tax, in the form of ACT, earlier than it would have done if an election
had been possible. In Hoechst [2001] Ch 620 the Court of Justice held that
the legislation was incompatible with EU law in so far as it denied to the
subsidiaries of non-UK-resident parents the ability to make a group income
election. That decision endorsed the opinion of the Advocate General, F
promulgated six months earlier.
166 A month after the Advocate Generals opinion was promulgated,
and ve months before the decision of the Court of Justice, DMG began
proceedings to recover compensation for its early payment of the tax. Its
claim was based on the proposition that it paid the tax when it did under a
mistake of law, and was therefore entitled to restitution in accordance with
the principle established in Kleinwort Benson: a principle which, it argued, G
applied to payments of tax as it did to other payments, notwithstanding the
availability of a right to recover undue tax under the Woolwich principle.
On the other hand, the revenue argued that the reasoning in Kleinwort
Benson did not apply to payments of tax, and that the only common law
cause of action to recover tax was that based on the decision in Woolwich
[1993] AC 70. It is unnecessary for us to consider the Appellate Committees
H
decision on those questions, which is not in issue in the present appeal.
DMG also argued that the mistake was not discoverable until the decision in
Hoechst [2001] Ch 620 (although it had begun its action before then), and
that section 32(1) of the 1980 Act postponed the commencement of the
limitation period until then. In reply, the revenue argued that the mistake

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A was discovered when DMG learned in 1995, six years before the decision in
Hoechst, that the relevant provisions were the subject of serious legal
challenge in the Hoechst proceedings and might not be lawful.
167 DMGs arguments on that question were accepted by the House of
Lords, by a majority of three to two. In considering the application of
section 32(1)(c), Lord Ho›mann stated at para 31 that the reasonable
diligence proviso depended upon the true state of a›airs being there to be
B
discovered:
In this case, however, the true state of a›airs was not discoverable
until the Court of Justice pronounced its judgment. One might make
guesses or predictions, especially after the opinion of the Advocate
General. This gave DMG su–cient condence to issue proceedings. But
they could not have discovered the truth because the truth did not
C yet exist. In my opinion, therefore, the mistake was not reasonably
discoverable until after the judgment had been delivered.
168 This statement is based on a number of premises. One is that a
mistake of law is a mistake within the meaning of section 32(1)(c), as had
been held in Kleinwort Benson, and therefore falls within the ambit of the
discoverability test. It will be necessary to return to that point. Lord
D Ho›manns statement also assumes that discovery, within the meaning of
section 32(1), means the ascertainment of the truth, and that, as a
consequence of the abandonment of the declaratory theory, judicial
decisions which establish a point of law thereby bring the truth into
existence for the rst time. It will be necessary to examine those
assumptions in the context of the dissenting speech of Lord Brown of Eaton-
E under-Heywood.
169 Lord Hope emphasised at para 71 that DMGs claim was disputed
by the revenue until the matter was nally decided in DMGs favour by the
Court of Justice:
It is plain, as the judge recognised, that if DMG had submitted a claim
for group income relief under section 247(1) the revenue would have
F
pointed to the clear terms of the statute and rejected it. It has never been
suggested that they would have conceded in a question with DMG the
point which they were resisting so strongly in their litigation with
Hoechst . . . The issue, which was one of law, was not capable of being
resolved except by litigation. Until the determination was made the
mistake could not have been discovered in the sense referred to in
section 32(1) of the 1980 Act.
G
Although DMG had learned of Hoechsts challenge to the ACT regime in
1995, six years before the Court of Justice delivered its judgment, it was not
then obvious that the payments might not be due.
170 Lord Walker concurred, stating at para 144 that it was the
judgment of the Court of Justice in Hoechst that rst turned recognition of
the possibility of a mistake into knowledge that there had indeed been a
H mistake. Like Lord Hope, he emphasised that, until that judgment, the
revenue denied that DMG had a cause of action:
Perusal of the report in that case suggests that the United Kingdom
Government tenaciously defended the ACT regime on every available
ground. At no time before the judgment did the Government concede

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that the ACT regime was (in discriminating between national and multi- A
national groups) contrary to EU law and unlawful. It was the judgment
that rst turned recognition of the possibility of a mistake into knowledge
that there had indeed been a mistake.
Lord Walker added, however (ibid) that there may be cases where a
party may be held to have discovered a mistake without there being an
authoritative pronouncement directly on point on the facts of that case by a B
court, let alone an appellate court.
171 Lord Brown dissented, on the view that DMG discovered the
mistake, within the meaning of section 32, when it rst became aware of the
Hoechst proceedings. It will be necessary to return to Lord Browns speech.
Lord Scott of Foscote also dissented, on the view that DMGs cause of action
properly lay in tort, and therefore fell outside the ambit of section 32(1)(c) of
C
the 1980 Act.

Discussion of Deutsche Morgan Grenfell

172 We shall begin our discussion of the two decisions placed in
question in the present appeal by considering Deutsche Morgan Grenfell
[2007] 1 AC 558, on the hypothesis that the decision in Kleinwort Benson
[1999] 2 AC 349, that mistakes of law fall within the ambit of D
section 32(1)(c), was correct. We shall then consider Kleinwort Benson. We
approach the decisions in that order because it was only in Deutsche Morgan
Grenfell that the Appellate Committee considered how section 32(1)
operated in practice, in relation to discoverability, if mistakes of law fell
within its scope. It is best to consider that issue, in the light of the
contrasting views of the majority and of Lord Brown, before attempting to E
answer the question whether such mistakes do fall within the scope of the
provision, purposively construed.

1. A logical paradox
173 A paradox results from the approach adopted in Deutsche Morgan
Grenfell, most clearly articulated by Lord Ho›mann: a claimant can be
F
unable to discover the existence of his cause of action even after he has
brought his claim: he cannot discover it until his claim succeeds. The
paradox is well illustrated by the Court of Appeals decision in FII (CA) 2
[2017] STC 696, based on the application of Deutsche Morgan Grenfell. As
was explained in para 54 above, the court held that the decision in Deutsche
Morgan Grenfell established that in the case of a point of law which is
being actively disputed in current litigation the true position is only G
discoverable, for the purpose of section 32(1)(c) of the 1980 Act, when the
point has been authoritatively determined by a nal court. On that basis,
the court concluded that time began to run for the test claimants only on the
date when judgment was delivered in FII (CJEU) 1, three and a half years
after they had issued their claims. The paradox is particularly striking
because the test claimants were successful before the Court of Justice. Its
H
decision conrmed that they had been correct when they issued their claim
form in 2003, asserting that they had paid tax under a mistake of law. It was
the revenue who were mistaken. That result illustrates the illogicality
inherent in the reasoning in Deutsche Morgan Grenfell: the test claimants
were able to identify correctly a mistake of law for the purpose of pleading a

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A cause of action, while supposedly being unable to discover it for the purpose
of the limitation period applicable to that cause of action.
174 That illogicality results from a specic di›erence between Lord
Ho›manns approach to the accrual of a cause of action based on mistake,
on the one hand, and his approach to the limitation period applicable to that
cause of action, on the other hand. Where a payment has been made at time
T1 on the basis of the law as it stood at that time, and the law is subsequently
B
changed (as Lord Ho›mann would describe it) by a judicial decision taken at
time T2, Lord Ho›mann says that the e›ect of the decision at T2 is that the
law at T1 retrospectively becomes what it was decided to be at T2. The
consequence is that the payment at T1 is retrospectively deemed to have
been made under a mistake. A cause of action is therefore retrospectively
deemed to have accrued at T1. However, when it comes to limitation, a
C di›erent approach is adopted. The change in the law which is said to have
been brought about by the decision at T2 is treated as occurring at T2, and
therefore as being discoverable only at that time. Thus the mistake of law
which, for the purpose of the accrual of a cause of action, is deemed to have
occurred at T1, is simultaneously deemed not to have occurred at TI, but at
T2, for the purpose of the law governing the discoverability of the mistake.
It is because T2 occurs after the claim has been brought, and at the point
D
when it is nally decided, that the paradox arises, that the mistake which
forms the basis of the claim is not discoverable unless and until the claim
succeeds. It is for the same reason that there arises the equally paradoxical
result, that a limitation period applicable to the commencement of
proceedings cannot begin to run until the proceedings have been completed.
Paradoxical is indeed a generous term. One might say more candidly that
E this approach has consequences which are illogical and which frustrate the
purpose of the legislation.
175 One possible response, arguably consistent with the abandonment
of the declaratory theory, would be to argue that a deemed mistake is in
reality no mistake at all. That is not, however, being argued in the present
case. In any event, any attempt to draw a clear and principled distinction
between deemed and actual mistakes faces real di–culties. As Lord Hope,
F
in particular, indicated in his speech in Kleinwort Benson [1999] 2 AC 349,
determining whether a particular decision changed the law or was merely
declaratory would be a di–cult exercise, not merely evidentially, but at a
much deeper level. For example, when the House of Lords held in Murphy v
Brentwood District Council [1991] 1 AC 398 that the case of Anns v Merton
London Borough Council [1978] AC 728 had been wrongly decided (per
G Lord Keith of Kinkel at p 472), was the law changed, or was there a
non-ctional sense in which the law at the time of Anns was other than the
House of Lords had then declared it to be? Ultimately, the drawing of a line
between deemed and actual mistakes, and even the question whether such
a distinction can be drawn, depends on a theory of the nature of judicial
decision-making, and indeed of the nature of law. The resultant scope for
argument as to where the line should be drawn in any particular case would
H
undermine one of the basic objectives of limitation statutes, namely to
produce certainty as to the time limit for the bringing of a claim.
176 In any event, the issue raised by Lord Ho›manns reasoning is not
conned to deemed mistakes, or conditional on his rejection of the
declaratory theory. Judges cannot avoid having to decide at T2 what the law

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was at T1, and if their decision does not reect how the law was understood A
by the claimant at T1, then it will ordinarily be uncontroversial to say that the
claimant was mistaken at T1. The consequence, following the decision on
the law of restitution in Kleinwort Benson, is that a cause of action accrued at
T1 if a payment was made then on the basis of the mistaken understanding,
regardless of the date of T2. On the limitation side of the analysis, on the
other hand, the concept of discoverability is designed to protect claimants
B
who could not reasonably be expected to know of the existence of the
circumstances giving rise to their cause of action until sometime after it
accrued. It must therefore be concerned with discoverability in reality, at a
date which may be later than T1. It does not, however, follow that the
discoverability of a mistake of law, within the meaning of section 32(1),
must necessarily be tied to the date of a judicial decision, i e T2. The problems
identied in para 174 above suggest that tying discoverability to the date of C
a judicial decision is a mistake. It will be necessary to return to that point in
the context of Lord Browns dissenting speech in Deutsche Morgan Grenfell
[2007] 1 AC 558.

2. Judicial decisions and the development of the law

177 That thought is reinforced by other considerations. Section 32(1) D
applies where the claimant does not know and cannot reasonably be
expected to discover a mistake which forms an essential ingredient of his
cause of action. Its e›ect is that the limitation period commences not on the
date when the cause of action accrues, but on the date when the claimant
discovers, or could with reasonable diligence discover, the mistake in
question. The result of that postponement of the commencement date of the
limitation period is to postpone the deadline for the bringing of a claim, so E
that the time during which the claimant was disadvantaged by the mistake
does not count against him. Lord Ho›manns approach, whereby the
limitation period does not begin until the truth has been established by a
nal judicial decision, does not merely extend the limitation period to the
extent necessary to overcome the disadvantage arising from the mistake, but
has the remarkable consequence of excusing the claimant from the necessity F
of bringing a claim until he can be certain that it will succeed: indeed, until it
has in fact succeeded. This places the claimant in a case based on a mistake
of law in a uniquely privileged position, since other claimants are required to
bring their claims at a time when they have no such guarantee: the limitation
period runs alike for claims which fail as for claims which succeed.
178 If the limitation period can begin to run at a time when a claim is
uncertain of success, then, in addition to the logical problem discussed G
earlier, there is also a lack of realism in treating the date of a judicial decision
authoritatively establishing the true state of the law as the earliest date when
the claimant discovers, or could with reasonable diligence discover, the
mistake in question. In the rst place, the courts do not act on their own
initiative, but only when their jurisdiction is invoked: normally, by the
issuing of a claim. A point of law could often have been decided earlier, if a
H
claim had been brought at an earlier time. Secondly, thinking about the law
evolves over time. Developments in judicial thinking, in particular, do not
take place in a vacuum. Judgments are the culmination of an evolution of
opinion within a wider legal community, to which practitioners, universities,
legal journals and the judiciary all contribute. And it is not only judges who

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A are inuenced by that evolving body of opinion. Claimants and their

advisers respond to the same developments in their understanding of the
state of the law, and their decisions as to whether or not worthwhile
claims may exist. It is therefore possible to investigate how legal thinking on
a particular question (for example, in the present case, whether the UK
tax treatment of dividends received by UK-resident companies from
B
non-resident subsidiaries was compatible with EU law) developed over time,
and to ascertain, by means of evidence, the time by which a reasonably
diligent person in the position of the claimant (such as, in the present case, a
UK-based multi-national company) could have known of a previous mistake
of law, to the extent of knowing that there was a real possibility that such a
mistake had been made, and that a worthwhile claim could therefore be
made on that basis. This line of thought suggests that the focus of attention
C under section 32(1) of the 1980 Act should not be on judicial decisions, but
on the claimants ability to discover that he had a worthwhile claim.

3. Giving e›ect to the intention of Parliament

179 Finally, in relation to Lord Ho›manns reasoning, it is also, with
great respect, susceptible to the criticism that it pays insu–cient regard to
D the principle of statutory construction that legislation should be given a
purposive interpretation. If section 32(1) is interpreted in accordance with
Kleinwort Benson as applying to mistakes of law, and if those mistakes of
law are not considered to be discoverable within the meaning of the
provision until after a nal judgment has been delivered, as was held in
Deutsche Morgan Grenfell [2007] 1 AC 558, then the object of the
E limitation statute is defeated. That object is to set a time limit for the
bringing of claims. That object is frustrated if the limitation period does not
begin to run until the proceedings have been completed. It is true that the
limitation period so set will not be completely pointless in a situation where
other people have identical claims which are not being pursued in the same
proceedings, since time will begin to run for the bringing of those other
claims. But in more usual situations, where an individual claim is brought,
F or where multiple claims are brought together in a group litigation (as in
Deutsche Morgan Grenfell itself, which was a test case in the ACT Group
Litigation), this approach to limitation defeats Parliaments purpose in
enacting limitation periods. It is therefore a result which Parliament cannot
have intended when it enacted the 1980 Act.

G 4. Consistency with the treatment of fraud under section 32(1)

180 As we have explained, Lord Brown dissented in Deutsche Morgan
Grenfell [2007] 1 AC 558 on the view that DMG discovered the mistake,
within the meaning of section 32, when it rst became aware of the Hoechst
proceedings and recognised that there was a serious challenge to the legality
of the ACT regime under EU law. He stated at para 165:
H
I would hold that as soon as a paying party recognises that a
worthwhile claim arises that he should not after all have made the
payment and accordingly is entitled to recover it (or, as here, to
compensation for the loss of its use), he has discovered the mistake
within the meaning of section 32; and, by the same token, I would hold

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that if he makes any further payments thereafter, they are not to be A

regarded as payments made under a mistake of law.
Lord Brown thus challenged the fundamental assumption underlying the
approach adopted by the majority in Deutsche Morgan Grenfell: that
discovery, within the meaning of section 32(1), means the ascertainment
of the truth, and that a mistake of law is therefore only discoverable when
the point of law in question has been authoritatively decided by a nal court. B
On the approach which he adopted, a mistake is discovered when the
claimant recognises that a worthwhile claim arises.
181 Lord Brown noted that DMG had continued to make payments of
ACT after July 1995, when they learned that Hoechst had issued
proceedings, and that they had issued their own claim ve months prior to
the decision of the Court of Justice in Hoechst [2001] Ch 620. Referring to C
Lord Hopes statement that, when DMG paid the ACT, it was not then
obvious that the payments might not be due, Lord Brown commented at
para 172 that he had some di–culty with that conclusion:
Surely, when DMG learned in July 1995 that there was a serious legal
challenge to the legality of the ACT regime, it must then have been
obvious to them that these payments might not after all be due. Of course D
they could not be sure and of course nothing short of a nal judgment
from the European Court of Justice would have persuaded the revenue to
accept any claim by DMG here for group income relief. But it does not
seem to me to follow that DMG paid under a mistake of law.
182 In support of his views, Lord Brown pointed rst, at para 167, to
the parallel treatment in section 32 of fraud, deliberate concealment and E
mistake:
Once a plainti› recognises that he has a worthwhile case on the facts
to pursue a claim in fraud or to extend the limitation period for a
particular claim because of the defendants deliberate concealment of a
fact relevant to his cause of action, time surely then starts to run against
him under section 32: he could not successfully argue that time starts F
running only when the court eventually comes to reject the defendants
denial of wrongdoing and to nd fraud (or, as the case may be, deliberate
concealment) established.
183 The view expressed in that passage is supported by a number of
authorities concerned with the application of section 32(1) in cases of fraud.
The rst which might be mentioned is the judgment of Arden LJ, with which G
Aldous and Robert Walker LJJ agreed, in Biggs v Sotnicks [2002] Lloyds
Rep PN 331. In deciding when the appellants could with reasonable
diligence have discovered a fraud, for the purposes of section 32(1) of the
1980 Act, her Ladyship treated the relevant date as the correct date when
the appellants solicitors had su–cient information in their hands for the
purposes of this deceit claim (para 62), that is to say, the date when the
H
appellants were in a position to plead their own case (para 64). A similar
approach was adopted in Law Society v Sephton & Co [2004] PNLR 27,
para 44, where the court proceeded on the basis of the parties agreement
that a claimant did not discover a fraud until he had material su–cient to
enable him properly to plead it.

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A 184 Reference should also be made to the judgment of Lord Ho›mann

NPJ, with which the other members of the Hong Kong Court of Final Appeal
agreed, in Peconic Industrial Development Ltd v Lau Kwok Fai [2009]
WTLR 999. The case raised the question, under a legislative provision in the
same terms as section 32(1) of the 1980 Act, whether the claimants could
with reasonable diligence have discovered a fraud committed more than six
years before proceedings were issued. Lord Ho›mann stated at para 56:
B
In any case, it is not necessary that [the claimants] should have
known facts which put [the fraudsters] participation in the fraud beyond
all reasonable doubt. The purpose of the inquiry into whether [the
claimants] could with reasonable diligence have discovered his fraud is to
establish when they could reasonably have been expected to commence
proceedings. For that purpose, they needed only to know facts which
C
amounted to a prima facie case.
185 The approach adopted in those cases di›ers from that proposed by
Lord Brown only in its focus on the date when the claimant (or his lawyers)
had su–cient material properly to plead a claim in fraud. Lord Brown put
the matter di›erently in paras 165 and 167 of his judgment in Deutsche
Morgan Grenfell [2007] 1 AC 558, when he treated the mistake as being
D discovered as soon as the claimant recognises that a worthwhile claim
arises, or that he has a worthwhile case . . . to pursue a claim. It will be
necessary to return to this point. As will be explained, Lord Browns
approach is consistent with that adopted authoritatively in analogous
contexts where fraud was not in issue, and is also in accordance with
principle.
E 186 What is more important for present purposes, however, is that the
approach adopted in these cases of fraud, like that proposed by Lord Brown
for cases of mistake, treats the relevant date, for the purposes of the
commencement of the limitation period, not as the date when the claimant
knows or can establish the truth, but as the date when he can recognise that a
worthwhile claim arises, in Lord Browns formulation, or can plead a
statement of claim, in the formulation preferred in the fraud cases.
F
5. Consistency with other analogous provisions of the 1980 Act
187 Lord Brown also found support for his position in Deutsche
Morgan Grenfell in authorities concerned with the interpretation of other
provisions of the 1980 Act which postpone the commencement of the
limitation period until the claimant knows or could reasonably have known
G the facts forming the basis of his cause of action. That approach is applied,
for example, to actions for damages in respect of torts causing personal
injuries, by section 11 of the 1980 Act. Under section 11(4), read together
with section 14(1), the limitation period generally runs from the date on
which the cause of action accrued, or, if later, the date on which the person
injured had knowledge that the injury was signicant and was attributable to
the act or omission relied on, and knowledge of the identity of the defendant.
H
For these purposes, knowledge is dened as including knowledge which
he might reasonably have been expected to acquire (section 14(3)). The
language of these provisions di›ers from section 32(1) in that they refer to
having knowledge, rather than discovering. But that is on its face an
insubstantial di›erence, since discovery ordinarily refers to the acquisition of

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knowledge. And sections 11, 14 and 32 have the same rationale, namely that A
the limitation period should only run from the time when the claimant knows
or could reasonably have known of the existence of his cause of action.
Sections 11 and 14 are explicitly concerned with knowledge of the facts
forming the cause of action, and not with their legal consequences. But the
same is true of section 32(1), even in its application to mistakes of law. As is
explained below, the relevant fact that has to be discovered, in that context, is B
the fact that the claimant made a mistake, that being an essential ingredient of
his cause of action. A claimants ignorance of the legal consequences of the
facts forming his cause of action is not something with which section 32(1) is
concerned, as Lord Walker JSC made clear in FII (SC) 1 [2012] 2 AC 337,
para 63 (para 41 above). That is consistent with the intention of the Law
Revision Committee, as was explained at para 127 above.
188 Sections 11 and 14 were considered by this court in AB v Ministry C
of Defence [2013] 1 AC 78, where proceedings were begun by the claimants
at a time when they believed that their injuries had been caused by their
exposure to radiation by the defendant, but had no objective basis for their
belief. Their contention that they did not then have knowledge of the facts
forming the basis of their cause of action was rejected. The court held, by a
majority, that knowledge did not mean knowing for certain and beyond D
possibility of contradiction, but that mere suspicion was not enough; that in
order to amount to knowledge a belief had to be held with su–cient
condence to justify embarking on the preliminaries to issuing proceedings;
and that it was, therefore, a legal impossibility for a claimant to lack
knowledge for the purposes of section 14(1) at a time after he had issued his
claim.
E
189 In relation to the last of those points, Lord Wilson, Lord Walker,
Lord Brown and Lord Mance JJSC all made it clear that, in deciding whether
a claim was statute-barred, the court had to assume that, when the claimant
issued his claim, he had knowledge of the facts necessary to support his
pleaded cause of action. Lord Wilson JSC stated at para 6 that it was
heretical that a claimant could escape the requirement to assert his cause
of action for personal injuries within three years of its accrual by F
establishing that, even after his claim was brought, he remained in a state of
ignorance entirely inconsistent with it. Lord Walker JSC said at para 67
that he did not see how a claimant who had issued a claim form could be
heard to suggest that he did not, when it was issued, have the requisite
knowledge for the purposes of the 1980 Act. Lord Brown JSC said at
para 71 that once a claimant issues his claim, it is no longer open to him to G
say that he still lacks the knowledge necessary . . . to set time running. Lord
Mance JSC agreed, observing at para 84 that a claimant bringing
proceedings necessarily asserts that he or she has a properly arguable claim.
190 Considering more precisely the point in time at which a claimant
acquires knowledge for the purposes of sections 11(4) and 14(1) of the
1980 Act, the majority of the court in AB v Ministry of Defence endorsed the
test earlier approved by the House of Lords in relation to claims falling H
under section 14A (inserted by the Latent Damage Act 1986), which applies
to actions for damages for negligence, other than those involving personal
injuries. In Haward v Fawcetts [2006] 1 WLR 682, para 9, Lord Nicholls of
Birkenhead stated:

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A Lord Donaldson of Lymington MR gave valuable guidance in

Halford v Brookes [1991] 1 WLR 428, 443. He noted that knowledge
does not mean knowing for certain and beyond the possibility of
contradiction. It means knowing with su–cient condence to justify
embarking on the preliminaries to the issue of a writ, such as submitting a
claim to the proposed defendant, taking advice and collecting evidence:
Suspicion, particularly if it is vague and unsupported, will indeed not be
B
enough, but reasonable belief will normally su–ce. In other words, the
claimant must know enough for it to be reasonable to begin to investigate
further.
191 The formulation adopted in Halford v Brookes [1991] 1 WLR 428,
Haward v Fawcetts and AB v Ministry of Defence places the commencement
of the limitation period slightly earlier than the fraud cases discussed earlier.
C The relevant time is when the claimant knows with su–cient condence to
justify embarking on the preliminaries to the issue of a writ, rather than the
point in time when he could plead a statement of claim. This is not the
occasion on which to review the formulation used in the fraud cases, which
reects the special standards applicable to the pleading of fraud. The
formulation used in Halford v Brookes, Haward v Fawcetts and AB v
D Ministry of Defence is, however, consistent with the way in which the point
was expressed by Lord Brown in Deutsche Morgan Grenfell (para 180
above) and by Lord Walker JSC in FII (SC) 1 [2012] 2 AC 337 (para 48
above).
192 It is also consistent with principle. The limitation period normally
begins to run on the date when the cause of action accrues. It is not postponed
until the claimant has consulted a solicitor, carried out investigations, and is
E in a position to plead a statement of claim. For example, a pedestrian who is
knocked down and injured by a car while using a zebra crossing has a cause of
action against the driver, which accrues on the date of the accident. It will
take time before he can issue a claim: he will need to consult solicitors, and
counsel may have to be instructed to draft the claim. There may be many
matters which have to be investigated, and that may take time. And it may be
F
that his claim will fail in the end, if, for example, it is found that he suddenly
ran into the path of the car, or that the driver had a heart attack and lost
control of the vehicle. Nevertheless, the limitation period begins to run on
the date of the accident. It is not postponed until he has completed his
investigations, or until he knows that his claim is guaranteed to succeed.
193 The purpose of the postponement e›ected by section 32(1) is to
ensure that a claimant is not disadvantaged, so far as limitation is concerned,
G by reason of being unaware of the circumstances giving rise to his cause of
action as a result of fraud, concealment or mistake. That purpose is
achieved, where the ingredients of the cause of action include his having
made a mistake of law, if time runs from the point in time when he knows, or
could with reasonable diligence know, that he made such a mistake with
su–cient condence to justify embarking on the preliminaries to the issue of
a writ, such as submitting a claim to the proposed defendant, taking advice
H
and collecting evidence; or, as Lord Brown put it in Deutsche Morgan
Grenfell [2007] 1 AC 558, he discovers or could with reasonable diligence
discover his mistake in the sense of recognising that a worthwhile claim
arises. We do not believe that there is any di›erence of substance between
these formulations, each of which is helpful and casts light on the other.

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194 It is true that Haward v Fawcetts [2006] 1 WLR 682 and AB v A

Ministry of Defence [2013] 1 AC 78 were not concerned with section 32, but
with other provisions of the 1980 Act, expressed in di›erent language:
sections 14(3) and 14A(10) are concerned with knowledge which [the
claimant] might reasonably have been expected to acquire, whereas
section 32(1) is concerned with what he could with reasonable diligence
have discovered. It is also true that sections 14 and 14A explicitly provide
B
that knowledge that any acts or omissions did or did not, as a matter of law,
involve negligence, is irrelevant. They are, however, concerned with the
same problem as section 32(1), namely that a cause of action can accrue
before the claimant comes to know of it, and they address that problem in a
similar way, by postponing the commencement of the limitation period until
the claimant knew, actually or constructively, the facts on which the cause of
action is based. The close connection between sections 11, 14, 14A and 32 C
of the 1980 Act was made clear by Lord Walker JSCs reasoning in FII
(SC) 1, para 63 (para 41 above).
195 In those circumstances, it appears to us to be impossible to
reconcile the reasoning in Haward v Fawcetts and AB v Ministry of Defence
with that in Deutsche Morgan Grenfell and the cases which have followed it.
The former line of authority proceeds on the basis that the commencement
of the limitation period is postponed until the claimant knows, actually or D
constructively, the essential facts on which the cause of action is based, with
su–cient condence to justify embarking on the preliminaries to the issue of
a writ, such as submitting a claim to the proposed defendant, taking
advice and collecting evidence. The dissenting judgment of Lord Brown
in Deutsche Morgan Grenfell [2007] 1 AC 558 is consistent with that
approach: time does not begin to run until the claimant knows, actually or E
constructively, that he made a mistake (that being an essential ingredient of
the cause of action), to the standard that a worthwhile claim arises. The
latter line of authority, on the other hand, proceeds on the basis that the
limitation period does not run until a court has authoritatively established
that the claimants assertion that he made a mistake of law is true. Mistakes
of law are thus treated di›erently from mistakes of fact, and the di–cult and
much criticised distinction between the two remains of crucial importance. F
196 Furthermore, only the former line of authority is consistent with the
rationale of limitation periods. It is in the nature of litigation that facts and
law are commonly disputed. It is the function of courts to resolve those
disputes. Until the court has done so, the parties can, at best, have only a
reasonable belief that their assertions are correct. If a limitation period is to
serve its purpose, in xing a time within which claims must be brought, it G
can therefore only be concerned with beliefs, and not with the truth
established by judicial decisions, whether in the proceedings in question, or
in other proceedings. That is reected in Lord Donaldson MRs statement in
Halford v Brookes [1991] 1 WLR 428, endorsed by Lord Nicholls in
Haward v Fawcetts [2006] 1 WLR 682 and by Lord Wilson JSC in AB v
Ministry of Defence [2013] 1 AC 78, para 11, that reasonable belief will
normally su–ce. H

6. Consistency with discovery in another statutory context

197 Returning to Deutsche Morgan Grenfell [2007] 1 AC 558, Lord
Brown found further support for his argument in an authority concerned

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A with the meaning of discover in the context of tax legislation. The Income
Tax Act 1918 (and later tax statutes) contained a provision enabling
additional assessments to be issued where it was discovered that prots
chargeable to tax had been omitted from an initial assessment. In Earl
Beatty v Inland Revenue Comrs [1953] 1 WLR 1090, the assessments under
appeal were made under that provision, at a time when the Commissioners
had a strong suspicion that there had been an undeclared transfer of assets
B
by the appellant or his wife. It subsequently transpired that there had indeed
been undeclared transfers, not by the appellant or his wife, but by his brother
acting on his behalf. The assessments were challenged on the ground that
they were not based on a discovery within the meaning of the legislation,
since a suspicion, especially if inaccurate, did not amount to a discovery.
The argument was rejected, the judge observing at p 1095:
C
I think that the discovery need not be a complete and detailed or
accurate discovery and that when the Commissioners nd out, or think
that they have found out, the existence of an omission or other error it is
not necessary for them to have probed the matter to its depths or to dene
precisely the ground upon which they have made the assessments.
198 Like a claim form, an assessment is not a statement of established
D verities. It is a formal statement of a claim made by the Commissioners and
forms the basis of an inquiry into the facts in the event that it is challenged.
In those circumstances, the test of discovery could not sensibly require
that the truth had already been established. The same is true in the present
context.

E 7. Discovery and ascertainment of the truth

199 The approach adopted in the fraud cases discussed in
paras 180—186 above, and in the cases concerned with analogous provisions
of the 1980 Act, discussed in paras 187—196 above, is consistent with the
nature of a plea of limitation: it is legally distinct from the merits of the claim
in question, and is often conveniently dealt with as a preliminary issue. The
F
1980 Act proceeds on the basis that a cause of action has accrued, without
concerning itself with the question whether or not the action is well-
founded. Section 32(1)(a) applies where the action is based upon the fraud
of the defendant, and section 32(1)(c) applies where the action is for relief
from the consequences of a mistake. If the action runs its full course, it may
transpire that there was no fraud or mistake, indeed no cause of action at all.
But where, at the stage of an inquiry into the defendants plea that the action
G is time-barred, the claimant relies on section 32(1)(a) or (c), the question is
not whether there was in reality any fraud or mistake: that will not be
established unless and until the court issues a judgment on the merits of the
case. The question under section 32(1)(a) and (c) of the 1980 Act is whether,
upon the assumption that there was fraud or mistake, as identied by the
claimant in the way in which he pleads his case, it was discovered or could
with reasonable diligence have been discovered at such a time as would
H
render the claim time-barred.
200 One might compare the approach adopted to the issue of laches in
Earl Beauchamp v Winn LR 6 HL 223, where Lord Chelmsford stated
at p 233 that in considering this part of the case it has been assumed, for the
purpose of the argument, that the late Earl was under a mistake as to his

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interest . . . Mr Winn, upon this assumption, was also under a mistake . . . A

The case must be dealt with, therefore, as one of mutual mistake. Once the
issue of laches had been disposed of on that basis, the House of Lords went
on to hold that there had in fact been no mistake.
201 Hence the situation which may seem paradoxical, but sometimes
arises in practice (as, for example, in Law Society v Sephton & Co [2004]
PNLR 27), where in a trial on limitation the defendant disputes the
B
claimants assertion that he could not have known or discovered a fact
which, in relation to the merits of the claim, the defendant denies is a fact at
all. There is in reality no paradox, because at the stage of an inquiry into
limitation the existence of the cause of action, and therefore the truth of the
facts relied on by the claimant to establish it, is not the relevant issue. Put in
general terms, the question is not whether the claimant could have
established his cause of action more than six years (or whatever other C
limitation period might be relevant) before he issued his claim, but whether
he could have commenced proceedings more than six years before he issued
his claim. The existence of the constituents of the cause of actionsuch as
fraud or mistakeas veried facts is not the issue.
202 That point emerges clearly from the majority judgments in AB v
Ministry of Defence [2013] 1 AC 78. Lord Wilson JSC, for example, stated D
at para 2, in relation to section 11(4) of the 1980 Act:
The subsection refers, at (a), to the cause of action notwithstanding
that, if the action is to continue, it may well transpire that the claimant
has no cause of action. When the subsection turns, at (b), to the date of
knowledge (if later) and so requires the court to appraise the claimants
knowledge of the four facts specied in section 14(1), which relate to, E
although do not comprise all elements of, his cause of action, the
assumption that indeed he has a cause of action remains . . . In the
decision of the Court of Appeal in Halford v Brookes [1991] 1 WLR 428
the trial judge, Schiemann J, is quoted, at p 442H, as having referred to
the bizarre situation when a defendant asserts that the plainti› had
knowledge of a fact which the plainti› asserts as a fact but which the
F
defendant denies is a fact. The situation may indeed seem bizarre until
one remembers that, at the stage of an inquiry under section 11, the
exercise requires the existence of the fact to be assumed. Were the action
to continue, the defendant might well deny it; but he does not do so at that
stage.
It is for that reason that, contrary to the views seemingly held by Lord Hope
G
and Lord Walker in Deutsche Morgan Grenfell [2007] 1 AC 558 (paras 169
and 170 above), the fact that the defendant disputes an element of the cause
of action does not mean that the commencement of the limitation period is
postponed until that dispute has been resolved.

8. Reasonable diligence
H
203 That approach is also consistent with the well-established test for
determining whether, for the purposes of section 32(1), the claimant could
with reasonable diligence have discovered a fraud. Authoritative guidance
on that topic was given by Millett LJ in Paragon Finance plc v DB Thakerar
& Co [1999] 1 All ER 400, 418:

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A The question is not whether the plainti›s should have discovered the
fraud sooner; but whether they could with reasonable diligence have done
so. The burden of proof is on them. They must establish that they could
not have discovered the fraud without exceptional measures which they
could not reasonably have been expected to take. In this context the
length of the applicable period of limitation is irrelevant. In the course of
argument May LJ observed that reasonable diligence must be measured
B
against some standard, but that the six-year limitation period did not
provide the relevant standard. He suggested that the test was how a
person carrying on a business of the relevant kind would act if he had
adequate but not unlimited sta› and resources and were motivated by a
reasonable but not excessive sense of urgency. I respectfully agree.
Neuberger LJ added in Law Society v Sephton & Co [2005] QB 1013,
C
para 116, that it is inherent in section 32(1) that there must be an
assumption that the claimant desires to discover whether or not there has
been a fraud:
Not making any such assumption would rob the e›ect of the word
could, as emphasised by Millett LJ, of much of its signicance. Further,
the concept of reasonable diligence carries with it the notion of a desire
D
to know, and, indeed, to investigate.
The test explained in those dicta has nothing to do with judicial decisions
establishing disputed truths after trial. It is concerned with the steps which a
person in the position of the claimant could reasonably have been expected
to take before issuing a claim.
E
9. The pre-1939 equitable rule
204 The foregoing approach is also supported by the pre-1939 principle
of equity on which section 26 of the 1939 Act and section 32(1) of the 1980
Act were modelled. In that regard, the decision of the Court of Appeal in
Molloy v Mutual Reserve Life Insurance Co 94 LT 756 is particularly helpful.
The plainti› took out a life assurance policy after being told by the insurers
F
agent that, under the policy, the premiums would remain at a xed rate.
When the insurer later increased the premiums, the plainti› brought
proceedings in the County Court to recover the overpayments. The County
Court held, however, that the insurer was entitled under the policy to charge
the increased premiums. Several years later, another policy holder brought
similar proceedings in the High Court, in which he succeeded. That decision
G was overturned on appeal, but the Court of Appeal, and ultimately the House
of Lords, held that the contract should be rescinded, and the premiums
returned, on the ground of fraudulent misrepresentation. The plainti› (in the
Molloy case) was by then out of time to bring a common law claim for the
return of his premiums, but instead brought proceedings in equity for
rescission, an account of the premiums paid (as a consequence of the setting
aside of the contract), and payment of the amount found due on the account.
H
Since the claim to an account was subject by analogy to the statutory
limitation period, the plainti› sought to rely on the equitable principle
allowing for its extension in a case of fraud, and argued that he had been
unable to discover that he had a cause of action prior to the decision of the
House of Lords.

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205 That argument was accepted by Swinfen Eady J, who considered A

that time did not begin to run while the plainti› waited . . . to be fully
informed as to what his legal rights were, and [until] the position was
denitely and nally ascertained: p 759. The Court of Appeal (Sir Richard
Collins MR, Romer and Cozens-Hardy LJJ) disagreed.
206 Sir Richard Collins MR gave several reasons at p 761 for rejecting
the argument. First, he pointed out that the plainti› had known the facts
B
which were essential to his cause of action long before the House of Lords
gave its decision. The limitation period ran from the time when the plainti›
discovered the facts essential to his cause of action. It was immaterial that he
did not understand their legal signicance, or that it was only the decision of
the House of Lords as to the construction of the policy that put that element
of the cause of action beyond dispute:
First of all, it rather assumes that the point of time at which the C
Statute of Limitations is to run is not the time at which the plainti›
ascertains the facts, but the time when he put the true legal construction
upon them. Now, I dispute that. I do not think that the policy of the
Statute of Limitations is that it is not to begin to run until a person has
satised himself as to the exact legal inferences to be drawn from a
number of facts which he has perfectly ascertained. The policy of the D
Statute of Limitations is based on the old maxim, Expedit reipublica ut sit
nis litium. Therefore the object of it was really to put an end to actions
after a lapse of time . . . the plainti› knew the facts, and, knowing the
facts, even although he was not able from his education and attainments
to draw the proper legal inferences from them, the Statute of Limitations
was not prevented from running.
E
207 That is equally true in a situation where one of the facts essential to
the cause of action is that the claimant has made a mistake, whether of fact
or of law. The fact that he has made a mistake needs to be discoverable (in
the relevant sense) with reasonable diligence, but he does not need to know
that he is consequently entitled to bring a claim. As the Law Revision
Committee stated, the mere fact that a plainti› is ignorant of his rights is
not to be a ground for the extension of time (para 126 above). That is why, F
on the facts of Kleinwort Benson [1999] 2 AC 349, the relevant matter
which needed to be discoverable was that the swaps contracts were ultra
vires, as had been established in Hazell [1992] 2 AC 1, and not that a cause
of action lay for payments made under a mistake of law, as was established
in Kleinwort Benson itself. For the same reason, Henderson J was in error in
FII (HC) 2 [2015] STC 1471, in favouring the view (para 47 above) that it G
was only when the House of Lords gave judgment in Deutsche Morgan
Grenfell [2007] 1 AC 558 that time began to run against the BAT claimants,
since that was the rst time an appellate court had held that a restitutionary
claim lay for the recovery of tax on the ground that it had been paid under a
mistake of law. The relevant fact was that the belief that the tax was payable
had been mistaken; not that there was a right to restitution.
208 The second reason given by Sir Richard Collins MR in Molloy 94 H
LT 756, 761, for rejecting the plainti›s argument is also relevant to these
proceedings:
On that argument it would follow logically that the Statute of
Limitations had not begun to run until such time within six years as

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A anybody might, in any proceedings raising the same question, get a

decision from the House of Lords on the matter . . . he gives himself the
right of beginning to count the running of the Statute of Limitations from
the time when he ascertainsnot by the result of anything done by
himself at all, but by some chance proceedings taken by somebody else,
aliundewhat his true position is in point of law. Then, and not until
then, according to his contention, the Statute of Limitations begins to run.
B
I think that it would be quite against the policy of the Statute of
Limitations altogether to allow such considerations to come in.
One might contrast that reasoning with the decision of the majority in
Deutsche Morgan Grenfell [2007] 1 AC 558, according to which time did
not begin to run for DMG until Hoechst [2001] Ch 620 had established the
same point of law in a nal decision in other proceedings.
C
10. The practicality of the suggested approach
209 It remains to consider whether the test of discoverability suggested
at para 193 above, taken together with the standard of reasonable
diligence discussed at para 203, provides an approach to the application of
section 32(1) to mistakes of law which is likely to be reasonably practical
D and certain in its operation. To recap:
(1) As was explained, the suggested test of discoverability is that a
mistake of law is discoverable when the claimant knows, or could with
reasonable diligence know, that he made such a mistake with su–cient
condence to justify embarking on the preliminaries to the issue of a writ,
such as submitting a claim to the proposed defendant, taking advice and
collecting evidence; or, as Lord Brown put it in Deutsche Morgan Grenfell,
E he discovers or could with reasonable diligence discover his mistake in the
sense of recognising that a worthwhile claim arises. We do not believe that
there is any di›erence of substance between these formulations, each of
which is helpful and casts light on the other.
(2) The standard of reasonable diligence is how a person carrying on a
business of the relevant kind would act, on the assumption that he desired to
F know whether or not he had made a mistake, if he had adequate but not
unlimited sta› and resources and was motivated by a reasonable but not
excessive sense of urgency. The question is not whether the claimant should
have discovered the mistake sooner, but whether he could with reasonable
diligence have done so. The burden of proof is on the claimant. He must
establish on the balance of probabilities that he could not have discovered
the mistake without exceptional measures which he could not reasonably
G have been expected to take.
210 In practice, the application of that approach will depend on the
circumstances of the case. For example, in cases where the claimant has
made a payment on the basis of a mistaken understanding of the law which
has resulted from ignorance, the mistake will normally have been
discoverable immediately, by seeking legal advice. Section 32(1) only has
e›ect where a mistake could not have been discovered at the time of the
H
payment with the exercise of reasonable diligence. On the other hand,
where the payment was made in reliance on a precedent that was
subsequently overruled, or an understanding of the law that was later altered
by a judicial decision, the question will be whether the claim was brought
within the prescribed period beginning on the date when it was discoverable

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by the exercise of reasonable diligence that the basis of the payment was A
legally questionable, so as to give rise to a worthwhile claim to restitution.
Depending on the circumstances, it may be di–cult to identify a specic
date, but doubtful cases can be resolved by bearing in mind that the burden
of proof lies on the claimant to prove that his claim was brought within the
prescribed limitation period.
211 Clearly, where a payment was made in accordance with the law as
B
it was then understood to be, the point in time at which the claimant could,
with reasonable diligence, have discovered that the basis of the payment was
legally questionable, so as to give rise to a worthwhile claim to restitution,
will have to be established by evidence. The focus of that evidence is likely
to be upon developments in legal understanding within the relevant category
of claimants and their advisers, as explained in para 178 above. Thus, in the
circumstances of the present case, Lord Walker JSC referred in FII (SC) 1 C
[2012] 2 AC 337 (para 48 above) to there being a reasonable prospect that
the limitation period could be deferred until the time when a well advised
multi-national group based in the UK would have had good grounds for
supposing that it had a valid claim to recover ACT levied contrary to EU
law. This point is considered in greater detail in para 255 below. Evidence
in relation to matters of this kind may well include expert evidence
concerning the state of understanding of the law within the relevant D
categories of professional advisers during the relevant period.
212 It is true that this approach involves a more nuanced inquiry than a
mechanical test based on the date on which an authoritative appellate
judgment determined the point in issue. But it would be unduly pessimistic
to conclude at this stage that it will prove to be unworkable in practice, or
too uncertain in its operation to be acceptable. E

Deutsche Morgan Grenfell: summary

213 Taking stock of the discussion so far, the position can be
summarised as follows:
(1) Limitation periods set a time limit for issuing a claim, which normally
begins to run when the cause of action accrues. They apply whether the F
substance of the claim is disputed or not. They apply to claims regardless of
whether there is in truth a well-founded cause of action.
(2) Section 32(1) of the 1980 Act postpones the running of time beyond
the date when the cause of action accrues, in cases where the claimant
cannot reasonably be expected to know at that time the circumstances giving
rise to the cause of action, by reason of fraud, concealment or mistake. Its
e›ect is that the limitation period commences not on the date when the cause G
of action accrues, but on the date when the claimant discovers, or could with
reasonable diligence discover, the fraud, concealment or mistake.
(3) Consistently with (1) above, section 32(1) cannot be intended to
postpone the commencement of the limitation period until the claimant
discovers, or could discover, that his claim is certain to succeed.
(4) Consistently with (1) above, section 32(1) cannot be intended to
H
postpone the commencement of the limitation period until the proceedings
have been completed.
(5) In tying the date of discoverability of a mistake of law in
section 32(1) to the date when the truth as to whether the claimant has a
well-founded cause of action is established by a judicial decision, the

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A decision in Deutsche Morgan Grenfell [2007] 1 AC 558 contravenes

(3) above, and is therefore inconsistent also with (1) above.
(6) In tying the date of discoverability to the date of a judicial decision,
with the consequence that the limitation period for issuing a claim may not
begin to run until the proceedings have been completed, the decision in
Deutsche Morgan Grenfell also contravenes (4) above, and is for that reason
also inconsistent with (1) above.
B
(7) Tying the date of discoverability to the date of a decision by a court of
nal jurisdiction, as the House of Lords appear to have done in Deutsche
Morgan Grenfell, and as the Court of Appeal held in FII (CA) 2, compounds
the mistake (para 54 above).
(8) In tying the date of the discoverability of a mistake of law to the date
of a judicial decision which establishes that a mistake was made, the decision
C in Deutsche Morgan Grenfell also has the illogical consequence that
mistakes are not discoverable by a claimant until after he has issued a claim
on the basis of the mistake: (paras 173—174 above).
(9) The decision in Deutsche Morgan Grenfell therefore frustrates
Parliaments intention in enacting section 32(1) (para 179 above).
(10) The decision in Deutsche Morgan Grenfell is also inconsistent with
authorities concerned with section 32(1) in relation to fraud (paras 180—186
D
above).
(11) The decision in Deutsche Morgan Grenfell is also inconsistent with
authorities at the highest level concerned with analogous provisions of the
1980 Act (paras 187—196 above).
(12) The decision in Deutsche Morgan Grenfell is also inconsistent with
the meaning given by the courts to discovery in another statutory context
E (paras 197—198 above).
(13) The purpose of the postponement e›ected by section 32(1) is to
ensure that the claimant is not disadvantaged, so far as limitation is
concerned, by reason of being unaware of the circumstances giving rise to his
cause of action as a result of fraud, concealment or mistake. That purpose is
achieved, where the ingredients of the cause of action include his having
made a mistake of law, if time runs from the point in time when he knows, or
F
could with reasonable diligence know, that he made such a mistake with
su–cient condence to justify embarking on the preliminaries to the issue of
a writ, such as submitting a claim to the proposed defendant, taking advice
and collecting evidence; or, as Lord Brown put it in Deutsche Morgan
Grenfell, he discovers or could with reasonable diligence discover his
mistake in the sense of recognising that a worthwhile claim arises (paras 193
G and 209).
(14) By tying the concept of discovery to the ascertainment of the truth,
the decision in Deutsche Morgan Grenfell contradicts the principle that
limitation periods apply to claims regardless of whether they are ill- or well-
founded. The claimant cannot be required to have ascertained the truth, in
order for a limitation period to apply. Consistently with authorities
concerned with analogous provisions of the 1980 Act, a reasonable belief
H
will normally su–ce (para 196).
(15) Tying the concept of discovery to the ascertainment of the truth is
also inconsistent with the nature of a plea of limitation. The question under
section 32(1) is not whether there was in reality any fraud, concealment or
mistake as the claimant has pleaded, but whether, upon the assumption that

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there was, it was discovered, or could with reasonable diligence have been A
discovered, at such a time as would render the proceedings time-barred. The
existence of a mistake as a veried fact is not the issue (paras 199—202).
(16) Authorities concerned with the meaning of reasonable diligence in
section 32(1) also indicate that it is concerned with the steps which a person
could reasonably be expected to take before issuing a claim (para 203
above). The standard of reasonable diligence is how a person carrying on a B
business of the relevant kind would act, on the assumption that he desired to
know whether or not he had made a mistake, if he had adequate but not
unlimited sta› and resources and was motivated by a reasonable but not
excessive sense of urgency. The question is not whether the claimant should
have discovered the mistake sooner, but whether he could with reasonable
diligence have done so. The burden of proof is on the claimant. He must
establish on the balance of probabilities that he could not have discovered C
the mistake without exceptional measures which he could not reasonably
have been expected to take (para 209).
(17) Authorities concerned with the pre-1939 equitable rule on which
section 32(1) is based also support the view that the limitation period runs
from the time when the claimant discovers the facts essential to his cause of
action, and not from the date of a judicial decision supportive of his claim D
(paras 204—208 above).
(18) In adopting a di›erent approach to the discoverability of mistakes of
law from that which applies to mistakes of fact, the decision in Deutsche
Morgan Grenfell perpetuates the problem of distinguishing between the
two, contrary to the intended e›ect of the decision in Kleinwort Benson
(para 195 above).
214 It follows, for all these reasons, that even if it is accepted that E
Kleinwort Benson was correctly decided, Deutsche Morgan Grenfell [2007]
1 AC 558, so far as it concerned limitation, was not.

Discussion of Kleinwort Benson

215 We have not yet considered a more fundamental issue: the
argument that an action for the recovery of money paid under a mistake of F
law, unlike an action for the recovery of money paid under a mistake of fact,
is not an action . . . for relief from the consequences of a mistake within
the meaning of section 32(1)(c), and therefore falls outside the ambit of the
discoverability test. This argument challenges the correctness of the decision
in Kleinwort Benson [1999] 2 AC 349, so far as it related to limitation.
216 As we have explained, at the time when section 26(c) of the 1939 G
Act was enacted, and equally at the time when section 32(1)(c) of the 1980
Act was enacted, the only recognised actions for which a period of limitation
was prescribed, and which tted the description of an action . . . for relief
from the consequences of a mistake, were common law actions based on
mistakes of fact, such as actions for the recovery of money paid under a
mistake of fact, and analogous equitable claims also based on mistakes of
H
fact. In our opinion, that is the e›ect of the pre-1939 authorities,
notwithstanding the contrary views expressed in Kleinwort v Benson and
discussed at paras 149—152 and 159—161 above. Although there were some
recognised forms of equitable relief from the consequences of mistakes of
law, such as rectication, they were not subject to statutory limitation either

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A directly or by analogy prior to 1939; and that position was preserved by the
1939 and 1980 Acts: see paras 117—118, 123, 129, 131 and 142 above.
217 When the House of Lords recognised in Kleinwort Benson the
existence of an action for the recovery of money paid under a mistake of law,
it recognised another action which tted the description of an action . . .
for relief from the consequences of a mistake, if those words are construed
according to their ordinary meaning. The question nevertheless arises
B
whether that construction is in accordance with the purpose of the
provision.
218 It is debatable, but ultimately does not matter, whether this
question should be approached by focusing specically on the always
speaking principle, as counsel for the bank did in Kleinwort Benson. That
somewhat vague expression is commonly used in connection with statutory
C terms which change in their connotations over time, such as family
(Fitzpatrick v Sterling Housing Association Ltd [2001] 1 AC 27). The case
of R v Ireland [1998] AC 147, cited by counsel in Kleinwort Benson [1999]
2 AC 349, was of a similar kind. The question was whether the words
bodily harm, in the O›ences against the Person Act 1861 (24 & 25 Vict
c 100), should be interpreted in the light of contemporary knowledge as
applying to psychiatric injury. The always speaking principle is also
D
invoked where the question arises whether a statutory expression should be
interpreted as including a novel invention or activity which does not
naturally fall within its meaning, and was not envisaged at the time of its
enactment, but which may nevertheless fall within the scope of its original
intention. Examples of the latter kind of case include Victor Chandler
International Ltd v Customs and Excise Comrs [2000] 1 WLR 1296, which
E concerned the question whether a teletext fell within the scope of the
statutory term document, and R (Quintavalle) v Secretary of State for
Health [2003] 2 AC 687, which concerned the question whether an embryo
created by the novel technique of cloning, rather than by the traditional
method of fertilisation, fell within the scope of the statutory expression
embryo where fertilisation is complete. Another well-known example is
the case of Royal College of Nursing of the United Kingdom v Department
F
of Health and Social Security [1981] AC 800, where the question was
whether the statutory expression a pregnancy . . . terminated by a
registered medical practitioner should be interpreted as including a novel
technique of termination which was carried out by a nurse acting on the
instructions of a medical practitioner.
219 The question in the present case is not of precisely the same kind.
G The cause of action recognised in Kleinwort Benson undoubtedly falls
within the scope of the language used in section 32(1)(c), if that language is
given its ordinary meaning. A mistake of law was understood to be a
mistake in 1939, and in 1980, just as much as it is today. Nevertheless, the
decision taken in Kleinwort Benson to recognise a cause of action for the
recovery of money paid under a mistake of law could not have been foreseen
in 1939 or 1980. The question therefore arises whether section 32(1)(c)
H
applies to those unforeseen circumstances: a question which ultimately boils
down to the same issue as arises when considering the always speaking
principle, and indeed in all cases concerned with statutory interpretation:
what is the construction of the provision which best gives e›ect to the policy
of the statute as enacted?

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220 A number of points can be made in support of a construction which A

would accommodate mistakes of law. First, and most importantly, the
purpose of section 32(1)(c) is to postpone the commencement of the limitation
period in respect of a claim for relief from the consequences of a mistake
where, as a result of the mistake, the claimant could not reasonably have
known of the circumstances giving rise to his cause of action at the time when
it accrued. The e›ect of section 32(1)(c) is that the time when the claimant
B
could not reasonably have known about those circumstances does not count
towards the limitation period. Those were also the rationale and e›ect of the
equitable rule applicable prior to 1939, and of the recommendation made in
the Report of the Law Reform Committee. The equitable rule did not apply
where the claimant had been aware of all the relevant circumstances at the
time when his cause of action accrued and had merely been ignorant that
those circumstances gave rise to a cause of action: see para 122 above. That C
aspect was also reected in the Committees Report: see paras 126 and 127
above.
221 As we have explained, when section 32(1) was enacted, it could
only have applied to claims in respect of mistakes of fact, since those were
the only mistakes which gave rise to an action . . . for relief from the
consequences of a mistake. However, the law subsequently developed in
D
Kleinwort Benson so as to allow claims to be brought for relief from the
consequences of mistakes of law. That development has to be addressed in
the law of limitation in a way which is consistent with the legislative policy
of the 1980 Act and avoids discord in the law, as Lord Ho›mann explained
in Johnson v Unisys [2003] 1 AC 518 (para 157 above). In principle, it is
consistent with the purpose of section 32(1)(c) for it to apply to claims
brought on that basis. The rationale of section 32(1)to postpone the E
commencement of the limitation period in respect of a claim for relief from
the consequences of a mistake where, as a result of the mistake, the claimant
could not reasonably have known of the circumstances giving rise to his
cause of action at the time when it accruedapplies with equal force to a
mistake of law as to a mistake of fact. To construe the provision in a sense
which excluded such claims would not be consistent with Parliaments
F
intention to relieve claimants from the necessity of complying with the time
bar which would apply in the absence of section 32(1), at a time when they
could not reasonably be expected to do so. Nor would such a construction
reect the ordinary meaning of the language which Parliament used: a
mistake of law is, and always was, a mistake in the ordinary sense of the
word.
222 For similar reasons, it would not be consistent with the intention of G
Parliament to exclude deemed mistakes from the ambit of section 32(1)(c),
even assuming (contrary to the conclusion reached at paras 175—176 above)
that a principled and workable distinction could be drawn between
deemed and actual mistakes. There would, in the rst place, be no
warrant in the language of the provision for drawing such a distinction; and
the court cannot e›ectively amend the legislation under the guise of
H
interpretation. Furthermore, to draw such a distinction would undermine
the purpose of the provision: a provision which, as explained earlier, has its
origins in equity. The person who has made a deemed mistake is no less
deserving of an extension of the time permitted for bringing a claim, until he
could have discovered his mistake, than a person who has made a mistake in

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A circumstances where, on any view, the law has remained unchanged. In the
latter situation, the person could at least have discovered his mistake at the
time if he had consulted a lawyer.
223 It is also relevant to note that there is some authority in other
jurisdictions accepting that provisions equivalent to section 32(1)(c) apply to
restitutionary claims based on mistakes of law. The question arose in an
Australian case in relation to section 27(c) of the Limitation of Actions Act
B
(Vic), which is materially identical to section 26(c) of the 1939 Act and
section 32(1)(c) of the 1980 Act. In the case of Paciocco v Australia and
New Zealand Banking Group Ltd (2014) 309 ALR 249, Gordon J held at
para 365 that the concept of a mistake, within the meaning of section 27(c),
included a mistake of law. On appeal, the Full Court expressed their
agreement with that conclusion, obiter: (2015) 236 FCR 199, paras 192,
C 396 and 398. In particular, Besanko J considered the question whether the
provision should be construed as what is sometimes termed a xed time
provision, which must be construed in the sense in which it would have been
applied at the time of its enactment, or as a provision which is always
speaking and can be given an ambulatory construction. He concluded that
the latter view was to be preferred. On a further appeal to the High Court of
Australia, only Nettle J considered the point, again obiter, and agreed with
D
the views expressed in the courts below: (2016) 90 ALJR 835, para 374.
224 Although the point does not appear to have been specically
considered elsewhere, that conclusion is consistent with the application, in
a number of other jurisdictions, of provisions materially identical to
section 32(1)(c) of the 1980 Act to claims based on a mistake of law. That
can be seen, for example, in the Hong Kong case of Ho Kin Man v Comr of
E Police [2013] 1 HKC 13, and in a number of decisions of the Supreme Court
of India, including Assistant Engineer (D1) Ajmer Vidyut Vitran Nigam Ltd
v Rahamatullah Khan Alias Rahamjulla [2020] INSC 188.
225 Nevertheless, it is necessary to consider whether construing
section 32(1)(c) in that way would have other consequences which would be
contrary to Parliaments intention. As we have explained, the reasoning in
Deutsche Morgan Grenfell [2007] 1 AC 558 would indeed have that e›ect,
F
since the mistake of law was, according to that reasoning, undiscoverable
until it had been established by an authoritative judicial decision, which
might not occur until the proceedings in question had been completed: a
result which defeats the object of limitation. That is not, however, the e›ect
of section 32(1)(c) if it is construed in accordance with the test proposed
in Deutsche Morgan Grenfell by Lord Brown, and consistently with the
G approach established in Haward v Fawcetts [2006] 1 WLR 682, AB v
Ministry of Defence [2013] 1 AC 78 and Paragon Finance [1999] 1 All ER
400.
226 Even so, there are a number of arguments which need to be
considered: notably, that to construe section 32(1)(c) as applying to mistakes
of law would be destructive of legal certainty, and therefore contrary to
the policy of Parliament; that previous decisions have indicated that
H
section 32(1) should be restrictively construed; and that to treat mistakes of
law as falling within the scope of section 32(1)(c) would undermine this
courts ability to reverse decisions of the Court of Appeal and to depart from
its own decisions in accordance with Practice Statement (Judicial Precedent)
[1966] 1 WLR 1234.

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227 In relation to legal certainty, Lord Go› was correct in stating in A

Kleinwort Benson [1999] 2 AC 349, 389 that the cause of action in a case
such as the present may be extended for an indenite period of time; and
Lord Hope was right to acknowledge at p 417 that The objection may be
made that time may run on for a very long time before a mistake of law
could have been discovered, and that It may also be said that in some cases
a mistake of law may have a›ected a very large number of transactions, and
B
that the potential for uncertainty is very great. In that regard, it is relevant
to note that mistakes of law di›er from mistakes of fact in that the facts are
xed at the relevant point in time, even if they may remain undiscovered
until much later, whereas the law can be altered from time to time by judicial
decisions. For these reasons, it can be argued with force that to apply
section 32(1)(c) to mistakes of law undermines the basic purpose of
limitation statutes, namely putting a certain end to litigation and . . . C
preventing the resurrection of old claims, as the Law Reform Committee
stated at para 7 of its Report.
228 A number of points can be made in response. First, section 32(1)(c),
like the equitable rule which preceded it, necessarily qualies the certainty
otherwise provided by limitation periods. It means that the 1980 Act does
not pursue an unqualied goal of barring stale claims: its pursuit of that
D
objective is tempered by an acceptance that it would be unfair for time to run
against a claimant before he could reasonably be aware of the circumstances
giving rise to his right of action. Even as it applies to mistakes of fact,
section 32(1)(c) (like sections 14 and 14A) has the consequence that the cause
of action may be extended for an indenite period of time. The point can be
illustrated by the facts of In re the Baronetcy of Pringle of Stichill [2016]
1 WLR 2870, where DNA evidence established in 2016 that a person born in E
1903 had wrongly succeeded to a title in 1919, with the e›ect of impugning
the title inherited by successive generations of his descendants. The position
would have been the same if he had been born centuries earlier.
229 Secondly, the uncertainty which is liable to result from the
application of section 32(1)(c) to mistakes of law should not be exaggerated.
In most cases where a mistake of law is made, the application of
F
section 32(1)(c) will not produce disruptive consequences. That is because
the mistake will normally have been discoverable at the time of the
transaction in question by the exercise of reasonable diligence, by obtaining
legal advice. The commencement of the limitation period will not,
therefore, be postponed. Cases where advice as to the correct state of the
law was not reasonably available at the time of the transaction, and where a
right to restitution might in principle be available, are likely to be unusual. G
One example is the class of cases where the mistake of law is the
retrospective result of a judicial decision which upsets an established rule of
law on the basis of which payments have been made: what Lord Ho›mann
described as a deemed mistake. Cases of that kind should, however, be
highly unusual, as courts do not often overturn established rules of law, and
in considering whether to do so they attach particular importance to the
H
security of settled transactions. The present proceedings, and the other
proceedings mentioned in paras 5 and 6 above, are not however concerned
with deemed mistakes but with actual mistakes arising from a unique set of
circumstances: the UKs entry into the EU, with supranational laws which
had to be given priority over domestic statutes, resulting in the gradual

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A application of the EU principles of freedom of establishment and free

movement of capital in the eld of taxation, and the eventual realisation
that UK tax legislation might be incompatible with those principles. Such
circumstances are of a wholly exceptional nature.
230 Thirdly, to the extent that this objection to the result of Kleinwort
Benson is based on policies attributed to Parliament, we would refer to the
discussion of the intention of Parliament at paras 219—222 above.
B
Furthermore, it is reasonable, 22 years after the decision in Kleinwort
Benson [1999] 2 AC 349, to note that Parliament has evinced no concern
about its consequences, except in relation to tax. Recommendations for
reform were made by the Law Commission in a Report published almost 20
years ago (Limitation of Actions (2001) (Law Com No 270), HC 23), and
were accepted in principle by the Government in 2002 (Hansard, HL Deb,
C 16 July 2002, col 127 WA), but in 2009 the Government announced that
reform of the law of limitation would not after all be taken forward
(Hansard, HC Deb, 19 November 2009, col 13 WS).
231 In relation to tax, the legislative measures introduced in section 320
of the FA 2004 have succeeded in protecting public revenues prospectively
with e›ect from 8 September 2003. In relation to tax levied before that date,
Parliament acted to mitigate the impact on public revenues in the F(No 2)A
D
2015 (para 56 above). That impact was further reduced, dramatically, by
the decision in Prudential [2019] AC 929, and will be reduced further if this
court departs from Deutsche Morgan Grenfell and adopts instead the
interpretation of section 32(1) which was explained in para 209 above.
232 With the exception of claims in relation to tax that was unlawful
under EU law, there has been no noticeable surge of claims for restitution of
E money paid under mistakes of law. Were such claims to be made after a long
lapse of time, the defence of change of position might well be available, as it
has been held to be in the present proceedings (FII (CA) 1 [2010] STC 1251),
albeit not made out on the facts because of the absence of a clear relationship
between tax receipts and public expenditure (FII (CA) 2 [2017] STC 696).
233 Another argument for holding that section 32(1) should not be
interpreted as applying to mistakes of law is that the courts have made clear
F
the risks involved in giving the provision a broad interpretation, in Phillips-
Higgins [1954] 1 QB 411 and FII (SC) 1 [2012] 2 AC 337: see paras 41 and
139 above. In those cases, however, what was being rejected was an attempt
to extend section 32(1)(c) to cases where mistake was not an essential
ingredient of the cause of action, but where the claimant had merely been
ignorant that he had a cause of action: an extension which is not being
G suggested in this judgment, and which would be inconsistent with the Law
Reform Committees intention that the mere fact that a plainti› is ignorant
of his rights is not to be a ground for the extension of time (para 126
above).
234 That is not, however, a reason for excluding from the scope of
section 32(1) cases where a mistake of law is an essential ingredient of the
cause of action. That is because, in such cases, ignorance that he made a
H
mistake renders the claimant unaware of one of the facts giving rise to his
cause of action, just as a claimant who is ignorant that he made a mistake of
fact is unaware of one of the facts giving rise to a cause of action based on a
mistake of fact. In neither case is the limitation period postponed merely
because the claimant is ignorant of his rights. Were matters otherwise, FII

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(SC) 1 could hardly have been decided as it was, since the claim based on A
Kleinwort Benson [1999] 2 AC 349 would then have been struck at just as
much as the claim based on Woolwich [1993] AC 70.
235 A closely related argument is that discoverability is concerned with
the facts which are essential to a cause of action, and not with their legal
consequences. The principle is well illustrated by Knight Bruce LJs
statement in Sta›ord v Sta›ord 1 De G & J 193, 202 that Generally, when
B
the facts are known from which a right arises, the right is presumed to be
known, and by Sir Richard Collins MRs judgment in Molloy 94 LT 756
(para 206 above). As we have explained, the reforms recommended by the
Law Revision Committee were not intended to impinge upon that principle.
The principle is reected in the terms of sections 14(1)(d) and 14A(9) of the
1980 Act, which specically provide that knowledge that the relevant acts
or omissions involved negligence or other breaches of duty is irrelevant. C
Although Parliament did not set out a corresponding provision in
section 32(1), the same principle nevertheless permeates section 32(1) just as
much as it does the remainder of the 1980 Act. It might be argued, on that
basis, that mistakes of law fall outside the ambit of section 32(1)(c).
236 The cause of action created by Kleinwort Benson depends on the
claimant having had a mistaken understanding of the law at the time when
D
the payment was made, and on a causal relationship between that mistaken
understanding and the making of the payment. Those are the relevant facts,
as discussed in para 207 above. Once those facts are or could with
reasonable diligence be discovered, the limitation period begins to run. It is
not postponed because the claimant, with actual or constructive knowledge
of those facts, is ignorant that they give rise to an entitlement to restitution.
237 In those circumstances, to treat the cause of action recognised in E
Kleinwort Benson as falling within the scope of section 32(1) involves no
breach of the general principle that when the facts are known from which a
right arises, the right is presumed to be known. Nor, recalling Sir Richard
Collins MRs judgment in Molloy, is there any inconsistency with his
statement that:
I do not think that the policy of the Statute of Limitations is that it is F
not to begin to run until a person has satised himself as to the exact legal
inferences to be drawn from a number of facts which he has perfectly
ascertained.
Nor is there any contradiction of the Law Revision Committees statement
that the mere fact that a plainti› is ignorant of his rights is not to be a
ground for the extension of time. The limitation period is not postponed G
until the claimant has discovered his rights. It is postponed until he has
discovered (or could with reasonable diligence have discovered) that he
made a payment at some point in the past because of a mistaken
understanding of the law as it then stood.
238 A further argument is that to treat mistakes of law as falling within
the scope of section 32(1)(c) would undermine this courts ability to reverse
H
decisions of the Court of Appeal or to depart from its own decisions in
accordance with the 1966 Practice Statement [1966] 1 WLR 1234, since to
do so might trigger widespread liabilities under the law of restitution. The
rst point to be made in response is that Parliament cannot have had the
Practice Statement in mind in 1939. Nor can it bear on the interpretation of

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A a 1939 provision which is re-enacted in a consolidation statute in 1980,

since no change in meaning is taken to have been intended. The Practice
Statement has to be operated within a framework established by statute,
including the 1939 and 1980 Acts, rather than the Practice Statement
a›ording guidance as to how those statutes should be interpreted.
239 Secondly, as we have indicated, courts, including this court, do not
often overturn settled rules of law, and in considering whether to do so they
B
attach particular importance to the security of settled transactions. The
decisions in Kleinwort Benson [1999] 2 AC 349 and Sempra Metals [2008]
AC 561 were exceptional in their readiness to overturn centuries of
authority, as the House of Lords enthusiastically adopted the theory of
unjust enrichment. Those decisions were criticised by this court in
Prudential [2019] AC 929 at para 63 because of their disregard of the need
C for judicial development of the law to be justiable by reference to existing
legal principles. Normally, as was stated in a recent judgment of this court,
In order to preserve legal certainty, judicial developments of the common
law must . . . be based on established principles, building on them
incrementally rather than making the more dramatic changes which are the
prerogative of the legislature: R (Elgizouli) v Secretary of State for the
Home Department (Information Comr intervening) [2020] 2 WLR 857,
D
para 170. Considering the Practice Statement in particular, it states
specically that the court will bear in mind the danger of disturbing
retrospectively the basis on which contracts, settlements of property, and
scal arrangements have been entered into. This court, like the House of
Lords before it, has followed that practice.
240 Thirdly, the potential problem which concerned the minority
E in Kleinwort Benson is signicantly alleviated if the approach to
discoverability which was adopted in Deutsche Morgan Grenfell is departed
from, as suggested above. For example, Lord Browne-Wilkinson posited
at p 358 a case where the law was established by a decision of the Court of
Appeal in 1930. In 1990 the claimant made a payment which was only due
if the Court of Appeal decision was good law. In 1997 the House of Lords
overruled the decision of the Court of Appeal. Lord Browne-Wilkinson
F
commented at p 359:
at that date [the date of the payment] there could be no question of
any mistake. It would not have been possible to issue a writ claiming
restitution on the grounds of mistake of law until the 1997 decision had
overruled the 1930 Court of Appeal decision. Therefore a payment
which, when made, and for several years thereafter, was entirely valid
G
and irrecoverable would subsequently become recoverable. This result
would be subversive of the great public interest in the security of receipts
and the closure of transactions.
Applying the approach to discoverability discussed above, however, it does
not follow from the fact that the Court of Appeal decision was overruled in
1997 that it was only then that a writ could have been issued claiming
H
restitution. The proceedings before the House of Lords, in which the
decision of the Court of Appeal was challenged, must themselves have been
commenced by issuing a writ some years earlier. Why could Lord Browne-
Wilkinsons hypothetical claimant not have done the same? It does not
follow from the fact that the House of Lords reached its decision in 1997

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that the hypothetical claimant could not have discovered his mistake before A
then.
241 Furthermore, as was explained at para 232 above, in considering
whether the overturning of a precedent might result in restitutionary claims
going back for long periods of time, it is necessary to bear in mind the
defence of change of position. The circumstances which led to the rejection
of that defence in the present casethe absence of any demonstrable
B
connection between the tax paid and public expenditurewere unusual. In
the event, such claims have not been a notable feature of the period since
Kleinwort Benson was decided.

Kleinwort Benson: summary

242 Taking stock of the discussion of Kleinwort Benson [1999] 2 AC
349, the position can be summarised as follows: C
(1) The decision in Kleinwort Benson, that claims for the restitution of
money paid under a mistake of law fall within the ambit of section 32(1)(c)
of the 1980 Act, was not supported by convincing reasoning (paras 148—161
above).
(2) When section 32(1)(c) was enacted, it was not contemplated that it
might extend to actions for the restitution of money paid under a mistake of D
law: no such action was recognised at that time.
(3) Nevertheless, giving the words used in section 32(1)(c) their ordinary
meaning, they include such actions. That is not, however, conclusive. The
provision has to be construed consistently with its purpose.
(4) The purpose of section 32(1)(c) is to postpone the commencement of
the limitation period in respect of a claim for relief from the consequences
of a mistake where, as a result of the mistake, the claimant could not E
reasonably have known of the circumstances giving rise to his cause of
action at the time when it accrued (para 220 above).
(5) If, after the enactment of section 32(1)(c), the law developed so as to
allow actions to be brought for relief from the consequences of a mistake of
law, then in principle it would be consistent with that purpose for
section 32(1)(c) to apply to such claims. To construe the provision in a sense F
which excluded such claims would not be consistent with Parliaments
intention to relieve claimants from the necessity of complying with the time
bar which would apply in the absence of section 32(1), at a time when they
could not reasonably be expected to do so (para 221 above).
(6) That argument applies equally to deemed mistakes of law as to
actual mistakes, even assuming that a principled and workable distinction
can be drawn between the two (para 222 above). G
(7) The construction of section 32(1)(c) as applying to mistakes of law as
well as of fact also gains some support from the case law of other
jurisdictions (paras 223—224 above).
(8) On the other hand, it can be argued that such a construction of
section 32(1)(c) undermines the primary policy of the 1980 Act as a whole,
namely to put a certain end to litigation (para 227 above).
H
(9) A number of points can be made in answer to that argument:
(i) Section 32(1)(c) necessarily qualies the certainty otherwise provided by
limitation periods, in recognition of the unfairness of allowing time to run
against a claimant before he could reasonably be aware of the circumstances
giving rise to his right of action (para 228 above). (ii) Nevertheless, in most

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A cases where a mistake of law is made, the application of section 32(1)(c) will
not produce disruptive consequences. The correct state of the law is
normally ascertainable at the time of a transaction. Cases where it is not,
and where a right to restitution might in principle be available, are likely to
be unusual. In particular, cases where the courts upset an established rule of
law with retrospective e›ect, so as to a›ect settled transactions, should
be highly unusual. The present proceedings arise from a unique set of
B
circumstances (para 229 above). (iii) The policy consequences have not
prompted legislation, except in relation to tax. On the contrary, the
Government has declined to implement reforms recommended by the Law
Commission (para 230 above). (iv) In relation to tax, the consequences of
Kleinwort Benson have been addressed by Parliament, and have also been
mitigated by subsequent judicial decisions. They will be mitigated further if
C this court departs from Deutsche Morgan Grenfell (para 231 above).
(v) Other than in relation to tax, the decision in Kleinwort Benson has not
resulted in a surge of stale claims. Were such claims to be made, a defence of
change of position might well be available (para 232 above).
(10) It can also be argued that section 32(1)(c) should be restrictively
construed, consistently with dicta in Phillips-Higgins and FII (SC) 1.
However, those cases were concerned with attempts to extend
D
section 32(1)(c) to cases where mistake was not an essential ingredient of the
cause of action, but where the claimant had merely been ignorant that he
had a cause of action. Claims for the restitution of money paid under a
mistake of law do not fall into that category. On the contrary, such a claim
was regarded as unobjectionable in FII (SC) 1 (para 233—234 above).
(11) It can also be argued that to apply section 32(1)(c) to claims for
E restitution of money paid under a mistake of law contravenes the principle
that ignorance of the law is not a ground for the extension of the limitation
period. However, that is a mistaken view. The commencement of the
limitation period is postponed while the claimant is unaware of the fact that
he had a defective understanding of the law at the time when he made the
payment. It is not postponed because he is ignorant that, in those
circumstances, he has a right to restitution (paras 234—237 above).
F
(12) It can also be argued that to treat mistakes of law as falling within the
scope of section 32(1)(c) would undermine this courts ability to reverse
decisions of the Court of Appeal or to depart from its own decisions. The
force of that argument appears to us to be diminished, however, when
regard is had (a) to the importance which this court attaches in any event to
legal certainty and to the security of settled transactions, (b) to the
G signicance of adopting the approach to discoverability discussed above,
and (c) to the importance of the defence of change of position
(paras 239—241 above).
(13) The claimant seeking restitution of money paid under a mistake of
law does not, therefore, come within the scope of section 32(1) because he is
unaware of his rights. He comes within it where, and during the period that,
he is unaware that his understanding of the law at some point in the past was
H
defective (the mistake in question being one which forms an essential
element of a cause of action). He ceases to come within it at the point when
he knows, or could with reasonable diligence know, that he made such a
mistake with su–cient condence to justify embarking on the preliminaries
to the issue of a writ, such as submitting a claim to the proposed defendant,

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taking advice and collecting evidence; or, as Lord Brown put it in Deutsche A
Morgan Grenfell, he discovers or could with reasonable diligence discover
his mistake in the sense of recognising that a worthwhile claim arises.
243 For these reasons, although there is undeniable force in the
argument that section 32(1)(c) should be construed as being conned to
mistakes of fact, the balance of the arguments in our view favours giving the
language of section 32(1)(c) its ordinary meaning, so that it is applicable
B
also to actions for relief from the consequences of a mistake of law. That
approach to the construction of the provision best gives e›ect to
Parliaments intention to relieve claimants from the necessity of complying
with a time limit at a time when they cannot reasonably be expected to do so,
and does not have unacceptable consequences for the legal certainty which
the 1980 Act is primarily designed to protect. That is only so, however, if
the court departs from the reasoning in Deutsche Morgan Grenfell [2007] C
1 AC 558, since that reasoning would defeat Parliaments intention. On that
basis, we consider that this court should adhere to the decision in Kleinwort
Benson, so far as relating to limitation.

The Practice Statement of 26 July 1966

244 We must also give due weight to the importance of maintaining D
legal certainty by the preservation of precedent. The use of precedent, as the
1966 Practice Statement [1966] 1 WLR 1234 acknowledges, is an
indispensable foundation upon which judges decide what the law is and
apply the law in individual cases. It is, in Lord Go›s words in Kleinwort
Benson [1999] 2 AC 349, 378, the cement of legal principle providing
stability to the common law. As is well known, this court has held that the
Practice Statement has e›ect as much as it did before the Appellate E
Committee in the House of Lords: Austin v Southwark London Borough
Council [2011] 1 AC 355, para 25, per Lord Hope DPSC. It is necessary
therefore to consider with care whether it is appropriate for this court to
depart from prior decisions of the House of Lords.
245 It is unquestionable that there is a general public interest in
certainty in the law. It is not a su–cient basis for this court to reverse a F
previous decision which it or the House of Lords has made that this court
considers that a previous decision was wrong. As Lord Reid stated in R v
Knuller (Publishing, Printing and Promotions) Ltd [1973] AC 435, 455, In
the general interest of certainty in the law we must be sure that there is some
very good reason before we so act.
246 Lord Reid explained his understanding of the rationale of the
Practice Statement in R v National Insurance Comr, Ex p Hudson [1972] G
AC 944, 966 when he stated that there were a number of reported decisions
which were impeding the proper development of the law or which led to
results which were unjust or contrary to public policy. Some situations, such
as a fundamental change in circumstances, or where a decision has resulted
in unforeseen serious injustice, have been recognised as permitting a
departure from precedent: Rees v Darlington Memorial Hospital NHS Trust
H
[2004] 1 AC 309, para 31, per Lord Steyn. In Horton v Sadler [2007] 1 AC
307, para 29, Lord Bingham considered that too rigid adherence to
precedent might cause injustice in a particular case and unduly restrict the
development of the law. But, in the same paragraph, he acknowledged that
the power had been exercised rarely and sparingly.

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A 247 In view of this well-established approach to precedent, would it be

right for this court to depart from Kleinwort Benson or Deutsche Morgan
Grenfell in relation to the law of limitation on this appeal?
248 Kleinwort Benson e›ected a radical change in the law of restitution
by opening up claims for the recovery of money paid under a mistake of law.
By applying section 32(1)(c) of the 1980 Act to such claims it created the
potential that a cause of action may be extended for an indenite period of
B
time and thereby undermine security of transactions, as each of the majority,
Lord Go›, Lord Ho›mann and Lord Hope, expressly recognised
(paras 154, 157 and 162 above). The minority, Lord Browne-Wilkinson and
Lord Lloyd, saw this potential as a basis for leaving the proposed change of
law to Parliament (para 163 above). But there has been little evidence of any
surge of claims for restitution of money paid under mistakes of law. The
C most signicant claims have been in the eld of taxation, such as the various
group litigations which we have mentioned in paras 5 and 6 above. Those
challenges have exposed the Exchequer to claims which go back many years
and involve very large sums of money. But Parliament has intervened, as we
have explained, by enacting section 320 of the FA 2004 which, while
ine›ective to undermine claims under EU law retrospectively, has protected
public revenues prospectively with e›ect from 8 September 2003 (paras 10
D
and 14 above). There is therefore no apparent danger of similarly large
claims arising in future in the eld of taxation which have the potential to
disrupt the scal planning of the executive.
249 In paras 242 and 243 above, we have summarised our position in
relation to Kleinwort Benson. The considerations stated there and those in
para 248 above suggest to us that preserving the authority of Kleinwort
E Benson would not be contrary to principle or give rise to serious uncertainty
in the law. Upholding Kleinwort Benson would be unlikely to give rise to
serious injustice in individual cases in the future, and it would not impede
the proper development of the law.
250 On the other hand, from our discussion which we have summarised
in para 213 above, it is clear that the decision in Deutsche Morgan Grenfell
[2007] 1 AC 558 on the question of discoverability in section 32(1)(c) has
F
very unfortunate consequences. Several matters are of particular relevance
to the application of the Practice Statement [1966] 1 WLR 1234. The
decision defeats the purpose of limitation, and in so doing appears to be
contrary to the intention of Parliament in enacting the 1939 and 1980 Acts.
It creates incoherence in interpretation both within section 32(1) and
between that section and analogous provisions of the 1980 Act. It creates
G the legal paradox to which we have referred (paras 173—174 above). It also
perpetuates the problem of distinguishing between matters of fact and
matters of law, a result which, as we have discussed, is contrary to the
intended e›ect of Kleinwort Benson [1999] 2 AC 349. In so doing, it
impedes the coherent development of the law.
251 It is necessary to balance against those considerations the
possibility that a departure from Deutsche Morgan Grenfell, in relation to
H
discoverability, will itself result in some claims to restitution. Such claims
may be made on the basis that payments have been made under a mistake of
law, because the claims for restitution, which that decision supported and
which led to those payments, were, on a proper understanding of the
law, already subject to a limitation defence on the interpretation of

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section 32(1)(c) which we favour. That would be unfortunate. But we A

would not expect the number of claims to be signicant for two reasons.
First, there has not been a surge of claims for restitution of money paid under
mistakes of law, following the Kleinwort Benson decision, outside the tax
litigation to which we have referred. Secondly, the recipients of such
payments made in restitution may have a defence of change of position if the
payer, such as the revenue, were to seek to recover them. We are not
B
persuaded that the possibility of such claims should deter us from departing
from Deutsche Morgan Grenfell in relation to discoverability if that is the
only way in which to promote coherence in the law of limitation.
252 When the Appellate Committee determined the appeal in Deutsche
Morgan Grenfell [2007] 1 AC 558 in 2006, Lord Hope (para 68) suggested
that the legislature could intervene to stop time running indenitely in all
mistake cases, if there was a problem. There was then some prospect that C
Parliament would consider a reform of the law of limitation of actions. As
we have explained (para 230 above), the Government initially accepted the
Law Commissions recommendations to reform the law of limitation and
proposed to legislate, but by 2009 it had announced that it would not take
forward those reforms. There is therefore now no prospect that Parliament
will enact a legislative solution to remove the anomalies which the Deutsche
Morgan Grenfell judgment has created. D
253 In these circumstances, we are persuaded that this is an appropriate
case in which to depart from the decision in Deutsche Morgan Grenfell in
relation to discoverability in section 32(1)(c) of the 1980 Act.

Application to the present proceedings

254 This appeal is brought against the decision of the Court of Appeal E
in FII (CA) 2 [2017] STC 696, and this judgment is concerned with the
appeal only in so far as it relates to Issue 28: the issue of limitation. As was
explained at para 54 above, the decision of the Court of Appeal on Issue 28
was based on the application of the approach established in Deutsche
Morgan Grenfell. For the reasons we have explained, that approach cannot
be upheld, and the appeal on Issue 28 must therefore be allowed. F
255 This court cannot, however, determine in the abstract the point in
time when the test claimants could with reasonable diligence have
discovered, to the standard of knowing that they had a worthwhile claim,
that they had paid tax under a mistaken understanding that they were liable
to do so. That depends on an examination of the evidence. As we have
explained, EU law, in relation to tax regimes which discriminated between
companies based in one member state and companies based in another, G
developed through a series of judgments of the Court of Justice, including
Verkooijen [2000] ECR I-4071, Lenz [2004] ECR I-7063 and Manninen
[2005] Ch 236, discussed at paras 24 and 33—34 above, Hoechst [2001] Ch
620 and FII (CJEU) 1 [2012] 2 AC 436. Each of those judgments was itself
the result of a claim made some years earlier. In Hoechst, for example, the
claim was led in 1995, 11 years before the judgment of the Court of Justice.
H
DMG was aware of the claim almost immediately, and it was for that reason
that, in Deutsche Morgan Grenfell, Lord Brown considered that time began
running for DMG in July 1995. But the date when the claimant became
aware of another claim, and appreciated its potential implications for its
own situation, is not conclusive, if a claimant acting with reasonable

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A diligence could have discovered that it had a worthwhile claim at an earlier

time. Equally, the answer to the question arising under section 32(1) does
not depend upon the characteristics of the particular claimant: whether, for
example, it was inclined to await further developments, and to allow other
taxpayers to make the running. The standard is could, as Millett LJ
emphasised in Paragon Finance [1999] 1 All ER 400 (para 203 above). And
the test is objective, as Millett LJ explained in the same passage of his
B
judgment, and as Lord Walker JSC made clear in FII (SC) 1 [2012] 2 AC 337,
when he referred (para 48 above) to the time when a well advised multi-
national group based in the UK would have had good grounds for supposing
that it had a valid claim to recover ACT levied contrary to EU law.
256 In the circumstances of the present proceedings, if the date of
commencement of the limitation period requires to be judicially determined,
C that matter will have to be decided by the High Court, after the parties have
had an opportunity to amend their pleadings.

Conclusion
257 We would allow the appeal on Issue 28 and would make an order
remitting that issue to the High Court to allow the parties to amend their
D pleadings on discoverability of the mistake and to determine the date of
commencement of the limitation period.

LORD BRIGGS and LORD SALES JJSC (dissenting) (with whom LORD
CARNWATH agreed)
258 In large measure we agree with the judgment of Lord Reed PSC and
E Lord Hodge DPSC, which sets out the issues and explains this litigation and
the course of the previous litigation in this area with such admirable clarity.
The issue on which we nd ourselves in respectful disagreement is whether
this court should overrule Kleinwort Benson Ltd v Lincoln City Council
[1999] 2 AC 349 as regards the interpretation of section 32(1)(c) of the
Limitation Act 1980 and hold that it does not apply in relation to payments
made on the basis of a mistake of law. In our view, we should do so.
F 259 In outline, we have reached that view for three main reasons. First,
we are convinced that the House of Lords was plainly wrong in Kleinwort
Benson to interpret section 32(1)(c) as extending to mistakes of law.
Secondly, we do not consider that the large inroads upon the overall purpose
of the Limitation Act in undermining legal certainty in relation to settled
transactions, recognised by all their lordships in that case, are su–ciently
G addressed by the limited departure from Deutsche Morgan Grenfell Group
plc v Inland Revenue Comrs [2007] 1 AC 558 which the majority propose.
The outcome will, we fear, place a serious brake upon judicial modernisation
of the common law which we are sure Parliament cannot have intended. This
issue has to be confronted in this court, because the hopes of their lordships
in Kleinwort Benson that Parliament would legislate to deal with the
problem have not been fullled. Thirdly, we have serious reservations about
H
whether the test proposed by the majority, based upon Lord Brown of Eaton-
under-Heywoods dissenting speech in Deutsche Morgan Grenfell, will
prove to be workable in practice. It is not in our view plausible to infer that
Parliament intended that section 32(1)(c) should be read as being subject to
such a test.

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260 Although the 1980 Act is a consolidation statute, in construing A

section 32(1)(c) the House of Lords in Kleinwort Benson and this court in
Test Claimants in the FII Group Litigation v Revenue and Customs Comrs
(formerly Inland Revenue Comrs) [2012] 2 AC 337 (FII (SC) 1) found it
necessary to look at the background and intended e›ect of the predecessor
provision in the Limitation Act 1939, section 26(c). As was made clear in
Farrell v Alexander [1977] AC 59, where there is signicant doubt about the
B
meaning and e›ect of a provision in a consolidation statute it is appropriate
to investigate the meaning and e›ect of the earlier legislation from which it is
derived.
261 Lord Reed PSC and Lord Hodge DPSC set out the law as regards
limitation of actions as it stood prior to 1939 at paras 103—122 above. In
summary, statute set out periods of limitation for claims arising at common
law while generally equity applied the doctrines of laches (which included C
reference to statutory limitation periods in relation to equitable claims
which were analogous to claims at law) and acquiescence. For the purposes
of those doctrines, in certain circumstances time did not run where a
claimant was labouring under a mistake until the mistake was discovered, or
could with reasonable diligence have been discovered. A claim would arise
at common law where money was paid to another by reason of a mistake of
D
fact by way of an action for money had and received, which had historically
been vindicated using the old form of action known as indebitatus
assumpsit. The time limit for bringing such a claim was six years from the
date of the payment: Baker v Courage & Co [1910] 1 KB 56. It had been
established by the case of Bilbie v Lumley (1802) 2 East 469 that this form of
action was not available, and hence this type of claim did not arise, to claim
back money paid under a mistake of law. By 1939 this was a well- E
established rule of law. On the other hand, equity never provided relief in
relation to money paid away by reason of a simple mistake, whether of law
or fact, without more. Equity granted relief to vindicate certain underlying
property rights, or rights arising under a trust or in relation to the execution
of a will. Mistake, including in some cases a mistake of law, was just a
relevant factor to be taken into account in deciding whether equity would
F
intervene to vindicate those rights in a particular case.
262 As Lord Reed PSC and Lord Hodge DPSC observe (para 119), in
cases of fraud the equitable rule was that time would not run by analogy
with statute until the claimant could with reasonable diligence have
discovered the fraud, since it would be unconscionable for a defendant in
such a case to rely on the statute to defeat the claim. Clearly, that reasoning
does not apply in a case where a claimant labours under a mistake which the G
defendant has done nothing to induce. But in Brooksbank v Smith (1836)
2 Y & C Ex 58 Alderson B expressed the view that the rule in cases of fraud
should apply in cases of mistake as well, without explaining why.
263 In 1936 the Law Revision Committee (the LR Committee)
produced its Fifth Interim Report on the law of limitation: see
paras 123—128 above. Its recommendations were enacted in the 1939 Act.
H
The LR Committee rejected the idea of a general power of extension of
limitation periods, on the grounds that it might be impossible to predict how
such a power would be exercised, in which case the fundamental benet
conferred by statutes of limitation, namely the elimination of uncertainty,
would be prejudiced (para 7). At para 13 the LR Committee recommended

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A leaving the equitable doctrines of laches and acquiescence in place. At

paras 22 and 23 the LR Committee examined the merits of applying
equitable principles to common law claims; in doing so, it discussed fraud
claims and mistake claims separately. The inference from the way in which
the LR Committee separated its discussion of fraud and mistake for common
law claims is that it recognised that the equities between the parties and the
policy issues arising in the two cases are very di›erent. In FII (SC) 1
B
Lord Walker of Gestingthorpe JSC (para 63) and Lord Sumption JSC
(paras 183—185) explain the contrasting policy issues and the risks of
uncertainty attendant on an over-broad extension of limitation periods in
cases of mistake as distinct from fraud.
264 At para 22 the LR Committee recommended adopting the equitable
rule regarding extension of time for the purposes of common law claims
C based on fraud. It identied two ways in which fraud might have an impact
(Either the cause of action may spring from the fraud of the defendant or
else the existence of a cause of action untainted in its origin by fraud may
have been concealed from the plainti› by the fraudulent conduct of the
defendant) and observed, It is obviously unjust that a defendant should be
permitted to rely upon a lapse of time created by his own misconduct. Its
recommendation was that time should not start to run in either case until
D
the fraud was or could with reasonable diligence be discovered. This
recommendation was followed in section 26(a) and (b) of the 1939 Act (re-
enacted as section 32(1)(a) and (b) of the 1980 Act), reecting the two ways
in which fraud could operate, respectively: see FII (SC) 1, paras 179—180
(Lord Sumption JSC). The equities are, of course, entirely di›erent in cases
of ordinary mistake where the defendant has done nothing unconscionable
E to create the delay before the claimant seeks to litigate.
265 At para 23 the LR Committee recommended adopting the equitable
rule regarding extension of time in relation to the common law action
for relief from the consequences of a mistake. This recommendation was
carried into the 1939 Act at section 26(c). As explained in FII (SC) 1, at
paras 42—63 (Lord Walker JSC) and paras 177—185 (Lord Sumption JSC),
the LR Committees recommendation was limited to cases where the
F
mistake itself gave rise to a cause of action. Given the established state of the
law in 1936, this meant that the recommendation was conned to cases
where a payment was made by reason of a mistake of fact. As Pearson J said
in the leading case on the ambit of section 26(c), No doubt it was intended
to be a narrow provision, because any wider provision would have opened
too wide a door of escape from the general principle of limitation (Phillips-
G Higgins v Harper [1954] 1 QB 411, 419, cited with approval by Lord
Sumption JSC in FII (SC) 1, para 183). The LR Committee did not
recommend any change in the substantive law regarding claims at common
law based on mistake and did not make any recommendation which
addressed the very di›erent policy issues which would arise in respect of a
claim to recover a payment based on a mistake of law. That such a claim
might be recognised was something entirely outside its contemplation.
H
Further, the LR Committee was at pains to state that the mere fact that a
plainti› is ignorant of his rights is not to be a ground for the extension of
time. Our recommendation only extends to cases when there is a right to
relief from the consequences of a mistake. A mistake of law occurs where a
claimant is ignorant of his rights. The only right to relief from the

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consequences of a mistake which was in the contemplation of the LR A

Committee was where there was a mistake of fact. It was fundamental to the
approach of the LR Committee that it regarded the need to protect past
payments from claims for repayment many years later by persons alleging
ignorance of their rights as being satised by the absence of any cause of
action, either in law or in equity, for repayment on the ground of mistake of
law. In terms of the policy issues which arise, we consider that no sensible
B
distinction can realistically be drawn between ignorance of the right to
restitution on the ground of mistake of law and ignorance of the underlying
rights which constitutes the mistake of law on which that right depends:
cf para 220 above. Accordingly, with respect, we do not agree that cases of
mistake of fact and cases of mistake of law can be equiparated (see para 236
above) so far as concerns the policy and e›ect of either the equitable rule or
the recommendation of the LR Committee. C
266 It follows that, where, implementing the recommendation of the
LR Committee, section 26(c) was enacted referring to an action for relief
from the consequences of a mistake, Parliament meant by that phrase an
action for relief from the consequences of a mistake of fact: see para 133
above. In neither the 1939 Act nor the 1980 Act, when section 26(c) was
re-enacted as section 32(1)(c), did Parliament attempt to address the distinct
D
policy issues regarding limitation which arise when a claim is recognised for
recovery of money paid under a mistake of law, as happened in Kleinwort
Benson [1999] 2 AC 349.
267 With that change in the law, the question arose for the rst time
whether the phrase action for relief from the consequences of a mistake in
section 26(c) of the 1939 Act and section 32(1)(c) of the 1980 Act covered
not only claims for recovery based on mistake of fact but also claims based E
on mistake of law. The Appellate Committee in Kleinwort Benson held that
it did, but proceeded on a mistaken understanding as to the state of the law
prior to the enactment of the 1939 Act: paras 148—163 above. The only
substantive reasoning in support of construing section 32(1)(c) as extending
to claims for recovery of money paid under a mistake of law was by Lord
Go› and Lord Hope of Craighead. It is a remarkable feature of the case that
F
the reasoning of all members of the Appellate Committee implicitly
recognised that the e›ect of reading section 32(1)(c) as including claims
for recovery based on mistake of law as well as mistake of fact would
dramatically undermine the intention of Parliament in the 1939 Act and the
1980 Act to set out clear and readily applicable periods of limitation.
268 We consider that the House of Lords erred in Kleinwort Benson
in giving section 32(1)(c) this interpretation. Lord Reed PSC and Lord G
Hodge DPSC question whether it is appropriate to consider this issue
through the prism of the doctrine that statutes are to be taken to be always
speaking. We think that it is helpful and appropriate to do so but, as they
observe, nothing really turns on this.
269 The guidance regarding the ambit of the always speaking
doctrine is in fact concerned with the fundamental underlying issue of
H
whether Parliament can be taken to have intended by a statutory provision
passed at one point in time, using language directed to the circumstances at
that time, to cover a new set of circumstances which has come into existence
since then. As we understand it, Lord Reed PSC and Lord Hodge DPSC
agree that this is the fundamental issue raised by the decision in Kleinwort

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A Benson regarding the application of section 32(1)(c): see paras 155 and 157
above. The issue of how broadly one should construe the language of the
statutory provision to cover new matters arising after its enactment
necessarily involves consideration of what inferences can be drawn from the
language used and the circumstances of the enactment as to Parliaments
policy intention in promulgating the provision. If the inference can be
drawn that Parliaments policy intention was broad and the new matters are
B
aligned with that broad intention and are covered by it, a court will be
justied in concluding that the provision applies; conversely, if there is not
su–cient congruence between the policy issues raised by the new matters
and Parliaments intention as expressed when it enacted the provision, the
provision does not apply. Since the case law on the always speaking
doctrine addresses this question, we will make reference to it. In our view,
C the question to be posed is whether the phrase using the term mistake in
section 26(c) of the 1939 Act (and re-enacted in section 32(1)(c) of the 1980
Act), where in the legal context in 1939 and 1980 the word could only refer
to a mistake of fact, should in the light of the change in legal doctrine made
in Kleinwort Benson now be taken to include also a mistake of law.
270 The ambit of the always speaking doctrine was explained by
Lord Wilberforce in Royal College of Nursing of the United Kingdom v
D
Department of Health and Social Security [1981] AC 800, 822:
In interpreting an Act of Parliament it is proper, and indeed necessary,
to have regard to the state of a›airs existing, and known by Parliament to
be existing, at the time. It is a fair presumption that Parliaments policy or
intention is directed to that state of a›airs. Leaving aside cases of
omission by inadvertence, this being not such a case, when a new state of
E
a›airs, or a fresh set of facts bearing on policy, comes into existence, the
courts have to consider whether they fall within the Parliamentary
intention. They may be held to do so, if they fall within the same genus of
facts as those to which the expressed policy has been formulated. They
may also be held to do so if there can be detected a clear purpose in the
legislation which can only be fullled if the extension is made. How
F liberally these principles may be applied must depend upon the nature of
the enactment, and the strictness or otherwise of the words in which it has
been expressed. The courts should be less willing to extend expressed
meanings if it is clear that the Act in question was designed to be
restrictive or circumscribed in its operation rather than liberal or
permissive. They will be much less willing to do so where the subject
matter is di›erent in kind or dimension from that for which the legislation
G
was passed. In any event there is one course which the courts cannot take,
under the law of this country; they cannot ll gaps; they cannot by asking
the question What would Parliament have done in this current casenot
being one in contemplationif the facts had been before it? attempt
themselves to supply the answer, if the answer is not to be found in the
terms of the Act itself.
H
See also R (Quintavalle) v Secretary of State for Health [2003] 2 AC 687. In
certain contexts it may be improper to give an extended interpretation to a
word or phrase to treat it as applying to something outside Parliaments
contemplation at the time of enactment. As Lord Steyn pointed out in R v
Ireland [1998] AC 147, 158 with reference to The Longford (1889) 14 PD

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34, Statutes dealing with a particular grievance or problem may sometimes A

require to be historically interpreted.
271 As read in light of the LR Committees Report on limitation periods
on which the 1939 Act was based, the Act had two features which are
relevant for present purposes. First, as a matter of general policy, in
the interests of predictability, certainty and security of transactions, it
re-enacted the previous six-year time limit for actions at common law for the
B
recovery of money paid under a mistake. This was a continuation of the
established policy of the Statute of Limitations of 1623 to promote nality,
certainty and security of receipt of money, as emphasised by Sir Richard
Collins MR in Molloy v Mutual Reserve Life Insurance Co (1906) 94 LT
756, 761 (see para 206 above). It also represents the principal policy to
which e›ect was given in the 1939 Act, in light of which any derogation falls
to be interpreted on a restrictive basis: see paras 263—266 above. It was in C
line with the general policy of the 1939 Act to enact and regulate limitation
periods on a comprehensive and coherent basis. This policy objective was
recognised in In re Diplock [1948] Ch 465, 514, where the Court of Appeal
noted that the wording of section 2(1)(a) of the 1939 Act, which enacts a six
year limitation period for claims in contract, was not entirely apt to cover
claims in quasi-contract to recover money paid under a mistake (or in unjust
D
enrichment, as it would be categorised today), but nonetheless concluded
that it should be so interpreted. In other words, the court considered that the
policy of the 1939 Act to introduce certainty in relation to limitation was so
strong that such claims were to be treated as falling within the scope of this
provision.
272 Secondly, section 26(c) of the 1939 Act was directed to addressing a
very specic issue, i e modifying the ruling in Baker v Courage & Co [1910] E
1 KB 56 regarding the time limit for an action at law to claim recovery of
money paid under a mistake of fact, but on a narrow basis. The restriction
of that common law action to recovery of money paid under a mistake of
fact was well established in 1939; there was no equivalent claim in equity;
and there was no call at the time for the ambit of the common law action to
be expanded to cover recovery of money paid under a mistake of law. Even
F
in equity, the courts were at pains to emphasise the di›erence between the
sort of error of law which might be relevant to a claim for equitable relief
(i e error of law as to private rights, where the analogy with mistake of fact
was very close: see Cooper v Phibbs (1867) LR 2 HL 149, 170, per Lord
Westbury; Earl Beauchamp v Winn (1873) LR 6 HL 223, 234, per Lord
Chelmsford; and Ministry of Health v Simpson [1951] AC 251, 268—270),
and error regarding general law. At para 23 of its Report, the LR Committee G
made it clear that it was not recommending that limitation should be
extended where a party had made a mistake about his rights. Therefore, it
was not in Parliaments contemplation that the common law could be
changed in the direction taken in Kleinwort Benson [1999] 2 AC 349.
273 Moreover, the policy issues which would arise in relation to
limitation if section 26(c) applied in respect of recovery of money paid
H
under a mistake of law are of a wholly di›erent scale and character from
those which were confronted and debated by the LR Committee in its
Report, focused as it was on the existing common law claim for recovery of
money paid under a mistake of fact. The speeches in Kleinwort Benson
itself make the di›erence plain. It ows from the process by which the

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A common law develops and changes over time while at the same time
adhering to a declaratory theory of the law according to which decisions
have retrospective e›ect (see in particular pp 377—379 and 381—382, per
Lord Go›).
274 In our view, the House of Lords in Kleinwort Benson, by changing
the law to bring a new type of legal claim into existence, created a new state
of a›airs which did not fall within the intention or purpose of Parliament in
B
enacting section 26(c) of the 1939 Act.
(i) The new state of a›airs did not fall within the same genus of facts as
those by reference to which the expressed policy had been formulated.
Mistake of law is something very di›erent from mistake of fact. Mistake of
law is a concept liable to change over time as the common law develops and
changes, and to do so with retrospective e›ect, thereby wholly undermining
C the central policy of the 1939 Act and other Limitation Acts of achieving
certainty after a xed period of time. By contrast, mistake of fact is
something xed in time by reference to the facts which really were in
existence at the time when the cause of action arose. As Lord Lloyd of
Berwick put it in Kleinwort Benson, p 393, Facts are immutable, law is
not. The scale of disruption to the central policy of the Limitation Acts is
completely di›erent in the two cases.
D
(ii) It is not possible to detect a clear purpose in the legislation which can
only be fullled if the extension is made. On the contrary, interpreting
mistake in the phrase the action is for relief from the consequences of a
mistake as it applies to the common law action for recovery of money paid
under a mistake to cover a mistake of law as well as a mistake of fact would
defeat the clear primary purpose of the legislation, to produce certain time
E limits within which claims may be brought. It would also undermine the
policy intention expressed in para 23 of the LR Committees Report that
time should not be extended in cases of ignorance of rights.
(iii) The nature of the 1939 Act, to produce a comprehensive and e›ective
limitation regime, as its principal policy, and the narrow and precise
phraseology employed in section 26(c) (see paras 265—266 above), are both
strong indications that the word mistake cannot, on a purposive
F
construction, be construed to apply to a common law claim for recovery of
money paid under a mistake of law. It is clear that this particular provision
was designed to be restrictive and circumscribed in its operation rather than
liberal or permissive, and much more circumscribed than the equitable
doctrine of laches, which did not depend upon the claim in equity being
founded upon mistake, in the sense of it being an integral part of the cause of
G action. Further, the language in section 26(c) of the 1939 Act and
section 32(1)(c) of the 1980 Act of a mistake being discovered, or
discovered with reasonable diligence, in the context of a common law
claim, is not apt to cover a mistake of law of a general kind, to which the
common law claim now extends, pursuant to Kleinwort Benson. That is
also true in relation to mistake of law in equity, where the emphasis was
always on the analogy between mistake as to private rights and mistake of
H
fact. Contrary to the observation of Lord Go› in Kleinwort Benson [1999]
2 AC 349, 388H—389A, the pre-existing equitable rule did not apply to all
mistakes, whether of fact or law. Equity was more nuanced than that, and it
did not include a claim for simple recovery of money paid under a mistake of
law: see Rogers v Ingham (1876) 3 Ch D 351, 355, per James LJ.

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(iv) The subject matter, an action at common law for money paid under a A
mistake of law, is di›erent in kind and in the dimension of its implications
from that for which the legislative provision was passed, to cover an action
at common law for money paid under a mistake of fact. The debate
regarding the merits of a change in the substantive law to allow recovery for
mistake of law, reviewed in Kleinwort Benson, itself reveals the di›erent
issues of principle which arise in the two cases: see [1999] 2 AC 349,
B
371E—372A, per Lord Go›:
as the majority judgments in Brisbane v Dacres [5 Taunt 143] show,
the rule [in Bilbie v Lumley] was perceived, after due deliberation, to rest
on sound legal policy . . . the di–culties now faced in formulating
satisfactory limits to a right to recover money paid under a mistake of law
reveal that there was more sense in the rule than its more strident critics
C
have been prepared to admit.
275 Lord Reed PSC and Lord Hodge DPSC have explained how Lord
Go› and Lord Hope misunderstood the legal position as it existed when
Parliament legislated in 1939. This had the e›ect that their reasoning in
Kleinwort Benson regarding the interpretation of section 26(c) in relation to
the new claim to recover money paid under a mistake of law was awed,
D
because they did not properly understand the limited object which
Parliament sought to achieve in 1939 in enacting that provision: see
para 272 above. Kleinwort Benson provides no other basis for applying
section 26(c) of the 1939 Act and then section 32(1)(c) of the 1980 Act to
mistakes of law. This aw was compounded by their failure to appreciate
that the major degree of uncertainty in the law which would be introduced
by interpreting section 32(1)(c) of the 1980 Act and its predecessor E
section 26(c) of the 1939 Act as covering the new type of claim, which all
members of the Appellate Committee identied would be the consequence,
showed that such an interpretation was completely at odds with the policy
and intent of both statutes. This latter point deserves emphasis.
276 In Kleinwort Benson [1999] 2 AC 349, Lord Browne-Wilkinson
considered (p 364) that, on the footing that Lord Go› was correct in holding
F
that section 32(1)(c) of the 1980 Act applies to actions for recovery of money
paid under a mistake of law, the disruption to settled entitlements every time
the law was changed or developed by judicial decision would be so great that
the House of Lords ought not to make the change to the substantive law
which the majority decided upon, to allow recovery of money paid under a
mistake of law. He took that view even though he thought that would be a
desirable reform of substantive law. As he said, the consequence would be G
that On every occasion in which a higher court changed the law by judicial
decision, all those who had made payments on the basis that the old law was
correct (however long ago such payments were made) would have six years
in which to bring a claim to recover money paid under a mistake of law; as
a result, in his judgment the correct course would be for the House to
indicate that an alteration in the law is desirable but leave it to the Law
H
Commission and Parliament to produce a satisfactory statutory change in
the law which, at one and the same time, both introduces the new cause of
action and also properly regulates the limitation period applicable to it.
277 In other words, Lord Browne-Wilkinson recognised that the change
in the substantive law, if the limitation position was as stated by Lord Go›,

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A would be massively disruptive of settled transactions and would unduly

undermine security of receipt of money on a very wide scale. Lord Lloyd
agreed with him. He emphasised the intense uncertainty which would
follow from the conclusion of the majority in the case to change the
substantive law, with transactions unsettled and liable to be reopened, a
consequence which he viewed with alarm: pp 397—398. In our view,
however, the logical conclusion should have been that the change in the
B
substantive law was of such a character as fell outside the policy and intent
of the 1939 Act and the 1980 Act and outside the meaning of section 26(c)
and section 32(1)(c) respectively, on a purposive, always speaking,
construction.
278 Lord Reed PSC and Lord Hodge DPSC challenge Lord Browne-
Wilkinsons reasoning on this point, on the footing that if their view that
C section 32(1)(c) is subject to a test of the discoverability of a mistake of law is
accepted, the extent of disruption contemplated by him is reduced: para 240
above. But if, as we think, that test cannot plausibly be said to be part of the
meaning which Parliament intended section 32(1)(c) to have, we fear that
their challenge is misplaced. Indeed, it is in our view revealing that such an
interpretation of section 32(1)(c) did not occur to any member of the
Appellate Committee, who were addressing the meaning of the provision for
D
the rst time and without any preconceptions. In any event, it does not seem
to us that their proposed reading of section 32(1)(c) does adequately deal
with the points made by Lord Browne-Wilkinson and Lord Lloyd. Clearly,
there may be many cases where there is a long period of time, far exceeding
the usual six year limitation period, between a payment being made on the
basis of some settled common law rule and some later development in legal
E opinion which calls that rule into question to the threshold standard of
discoverability which Lord Reed PSC and Lord Hodge DPSC endorse. We
consider that Lord Browne-Wilkinsons point remains a good one. In our
view, to apply section 32(1)(c) to payments made under mistake of law
would give rise to levels of uncertainty which conict with the policy
objective stated by the LR Committee (see para 7 of its Report) and the
underlying policy of the 1939 Act and the 1980 Act as limitation statutes,
F
and could not have been regarded by Parliament as acceptable.
279 Lord Go› made the statement set out at para 154 above in which
he recognised that great uncertainty in the law would arise from the
application of section 32(1)(c) to claims for recovery of money paid under a
mistake of law. We agree with the criticism of this passage by Lord
Reed PSC and Lord Hodge DPSC at para 155. With respect to Lord Go›, he
G omitted to consider the question of the application of section 32(1)(c) in
terms of the object of the 1980 Act and to adopt a purposive construction in
the light of that. In our view, if that had been done, he would have been
constrained to accept that the points he himself made showed that to treat
that provision as applicable would clearly undermine the policy of the 1980
Act, with the result that section 32(1)(c) could not bear the interpretation he
sought to place on it. As he said, the dramatic consequences produced by a
H
combination of the recognition of the new cause of action in Kleinwort
Benson and an extended interpretation of section 32(1)(c) had not been
appreciated at the time of the enactment (indeed, they were completely
outside what was in Parliaments contemplation when it passed both the
1939 Act and the 1980 Act), and were of such a profound character as to

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call for legislative reform to provide for some time limit, as opposed to (in A
practice) a wholly indenite limit. But this serves only to emphasise that his
proposed reading of that provision was contrary to the policy of the
enactments.
280 Lord Ho›mann made similar points at p 401, in the passage set out
at para 157 above. He noted that the combination of the change in
substantive law to allow claims for recovery of payments made under a
B
mistake of law and the application of section 32(1)(c) might be said to go too
far in undermining security of transactions, and observed in that regard that
The most obvious problem is the Limitation Act, which as presently drafted
is inadequate to deal with the problem of retrospective changes in law by
judicial decision. We agree with the comment about this by Lord Reed PSC
and Lord Hodge DPSC at para 157.
281 Thus, faced with the same dilemma as Lord Browne-Wilkinson, C
Lord Ho›mann favoured changing the law on recovery of payments made
under a mistake of law, notwithstanding that he recognised that the
Limitation Act was inadequate to deal with retrospective changes of the law
by judicial decision. But in our view this was a false dilemma. The proper
conclusion to be drawn from this assessment was that section 32(1)(c)
should not be construed to cover the new form of claim. It clearly fell
D
outside the policy of the Act in relation to that provision, which was
addressed specically to claims for recovery of payments made under
mistake of fact. Construing the provision as referring only to such claims,
and not claims for recovery of money paid under mistake of law, would
serve to maintain a proper balance of the public interest in the security of
transactions, which would be assured after a limitation period of six years
from the date of payment. E
282 Lord Hope indicated (p 417) that he thought the LR Committee
intended the word mistake to extend to all mistakes of law, but this is not
correct: see para 159 above. A proper reading of the Report leads to the
opposite conclusion. Later in his speech (pp 417—418) he made the statement
set out at para 162 above. Although he accepted that time may run on for a
very long time before a mistake of law could have been discovered with
F
reasonable diligence and there was potential for uncertainty, in his view this
was a problem for the legislature to resolve. He observed that the problem
did not arise under the statutory limitation regime for Scotland, since the
relevant prescriptive period of ve years could be extended only where the
creditor was induced to refrain from making a claim by fraud or error
induced by the debtors words or conduct or was under a legal disability.
283 Similar points may be made about this part of Lord Hopes G
reasoning as in relation to Lord Go›s speech. In our view, Lord Hopes
own account indicates why his interpretation of section 32(1)(c) is contrary
to the policy of the 1980 Act, read as a whole and also specically in relation
to the provision itself. As he acknowledged, his interpretation of the
provision creates very long periods before limitation could apply (and, of
course, since there will be new judicial decisions in future, any of which
H
might e›ect a relevant change in the law, any limitation period which
appears to be closed could always be reopened to run again). The potential
for uncertainty thereby created was indeed very great. The conclusion
from this ought to be that mistake of law as a ground of recovery of money
paid, in an action at common law, was never contemplated by Parliament to

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A be capable of falling within section 32(1)(c) and that a purposive

interpretation of that provision, in its statutory context, means that it cannot
be construed in that way. The comparison with the position in Scotland
underlines this point, for it is di–cult to see why Parliament would have
wished to produce such a radical di›erence of limitation outcome in the two
jurisdictions in relation to a cause of action of a character which is equally
viable and capable of vindication on both sides of the border (unlike purely
B
equitable claims in English law).
284 Moreover, in our view, when the context of the 1939 Act and the
1980 Act as limitation statutes designed to produce reasonably determinate
limits for the bringing of claims and the specic purpose of section 26(c) of
the 1939 Act and section 32(1)(c) of the 1980 Act are brought into account,
the argument based on the language of those provisions and the use of the
C word discovered, although dismissed by Lord Go›, acquires particular
force as indicating that the provisions were not intended to apply to cases of
payment under mistake of law. It can readily be seen that the language
of discovery is apt in the context of a limitation statute when speaking of
discovery of a mistake of fact. It is far more di–cult to square it with a
deemed mistake of law produced by the retrospective e›ect of a later judicial
decision. This is indeed what led to the conundrums debated in Deutsche
D
Morgan Grenfell [2007] 1 AC 558 and then again in the judgment of Lord
Reed PSC and Lord Hodge DPSC.
285 In our judgment, therefore, there was a clear misstep by the House
of Lords in Kleinwort Benson [1999] 2 AC 349 when it construed
section 32(1)(c) as it did. In our view, the decision that section 32(1)(c)
applies to common law claims based upon mistake of law was wrong, as a
E matter of construction of the provision. This is where, with respect, we part
company with Lord Reed PSC and Lord Hodge DPSC.
286 In the next part of their judgment (paras 165 and following) they
consider the decision of the House of Lords in Deutsche Morgan Grenfell.
Since no one in that case raised the issue of whether the House of Lords in
Kleinwort Benson was right to construe section 32(1)(c) as applying to
payments under a mistake of law, the members of the Appellate Committee
F
all proceeded on the footing that it did so apply. The question therefore was
when such a mistake, as produced by the retrospective e›ect of a court
decision delivered after the payment was made, could be regarded as being
capable of discovery for the purposes of the section. The majority view in
Deutsche Morgan Grenfell was that the mistake could only be discovered
when the later court decision was made. Lord Brown dissented, saying that
G the possibility of a mistake (i e the possibility of the reversal of the rule of law
on the basis of which the claimant made a payment) would be capable of
being identied before the reversal by the later court decision actually
occurred and it was from when it could be discovered that the prospect of
this occurring was su–ciently developed that the limitation period would
run. Upon reconsideration of this point, Lord Reed PSC and Lord
Hodge DPSC prefer the solution proposed by Lord Brown. They conclude
H
that this reects the proper interpretation of section 32(1)(c) on a purposive
approach in line with Parliaments intention in enacting section 26(c) of the
1939 Act. That is to say, section 32(1)(c) does apply to claims for recovery
of payments made under a mistake of law, but on the basis that where the
mistake arises from the retrospective e›ect of a later court decision the

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mistake is to be taken to have been capable of discovery when the prospect A

that the law would be changed was su–ciently well developed. In this way,
Lord Reed PSC and Lord Hodge DPSC seek to develop a new argument, not
set out in Kleinwort Benson, why the word mistake in the critical phrase in
section 26(c) of the 1939 Act and section 32(1)(c) of the 1980 Act should be
interpreted to cover claims based on mistake of law as well those based on
mistake of fact, albeit that was the only type of claim to which these
B
provisions were directed when enacted.
287 We do not agree that this is the correct interpretation of
section 26(c) of the 1939 Act and section 32(1)(c) of the 1980 Act.
Ingenious though the reasoning is to square the concept of discoverability of
a mistake with the e›ect produced by the retrospective e›ect of a change in
the law, in our opinion it still produces a result which is seriously at odds
with the policy and intent of those provisions. Further, it seems to us, with C
respect, that the argument presented in support of this interpretation (see
para 236(3) above) is excessively linguistic. The ordinary meaning of words,
to which Lord Reed PSC and Lord Hodge DPSC make appeal, is an
inadequate tool for this process of construction, when the words in question
cannot possibly have had the meaning now contended for when enacted.
Instead, as set out above, the focus should be on purposive construction of
D
the provision, arrived at in light of consideration of the policy of the
limitation statutes in which it appeared and the object Parliament sought to
pursue in enacting the particular provision in that context.
288 Although in Kleinwort Benson [1999] 2 AC 349 the House of
Lords decided that for the purposes of the law of unjust enrichment there
was no su–cient di›erence between mistake of fact and mistake of law to
justify distinguishing them as the basis for recovery of money paid, that was E
a matter of judicial policy in the development of the common law. It did not
reect any legislative policy adopted by or attributable to Parliament relating
to the Limitation Acts. When Parliament enacted section 26(c) of the 1939
Act and section 32(1)(c) of the 1980 Act it addressed the law as it stood at
the time, in which the only cases in which recovery was possible was where
the payment had been made on the basis of a mistake of fact. Parliament has
F
never addressed the distinct and di–cult policy issues which arise in the
context of these provisions when one moves from recovery in the case of
mistake of fact to recovery in the case of mistake of law, and in our view it is
not possible to assume that its policy in enacting those provisions covered
the latter type of case.
289 There are three striking features of the latter class of case to which,
in our view, Lord Reed PSC and Lord Hodge DPSC do not give su–cient G
weight. First, any application of section 32(1)(c) to mistakes of law which
include judicial rewriting of the law is bound to risk opening up very old
claims indeed. This was not possible prior to Kleinwort Benson, because the
claim would have had to have been based on mistake of fact.
290 Although section 32(1)(c) involves some departure from a clear and
certain limitation cut-o› of six years in that sort of case, this is a very modest
H
extension the potential for application of which is likely to narrow
considerably as time goes by and the underlying true facts come to light. The
opposite is true in the case of mistakes of law identied by retrospective
application of later judicial decisions which change the law. Particularly in
the eld of the common law, the scope for the law to be changed by judicial

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A decision increases as time goes by and the law is perceived as no longer

reecting social values or legal policy, a gradual head of steam builds up
among judges and commentators calling for it to be changed and then the
courts eventually respond. No purposive interpretation of section 26(c) of
the 1939 Act and section 32(1)(c) of the 1980 Act or application of the
always speaking doctrine could lead to the conclusion that Parliament
intended, by a new provision in a Limitation Act, to open up such stale
B
claims.
291 One example serves to illustrate the point. In 2018, in MWB
Business Exchange Centres Ltd v Rock Advertising Ltd [2019] AC 119, this
court was asked to depart from the much-criticised decision of the House of
Lords in Foakes v Beer (1884) 9 App Cas 605. The doctrine from which the
court was asked to depart had only reluctantly been a–rmed out of loyalty
C to the Court of Appeal in Pinnels Case (1602) 5 Co Rep 117a. If the court
had departed from Foakes v Beer, this would have undermined settled
payments made for over 130 years, or 416 years if Pinnels Case had also
been overruled. But claimants for repayment (or their estates if individuals)
would have had until 2024 to bring their claims, with no limitation defence
to impede them. In Kleinwort Benson [1999] 2 AC 349 Lord Lloyd gave a
number of other examples (p 393). The decision in that case to depart from
D
the rule of law laid down in 1802 in Bilbie v Lumley is itself a further
example.
292 Lord Reed PSC and Lord Hodge DPSC seek to meet this point by
saying that mistakes of fact might emerge after a long period of time, and
give the example (at para 228) of In re the Baronetcy of Pringle of Stichill
[2016] 1 WLR 2870. It was not a case about a common law claim in mistake
E nor about the interpretation of section 32(1)(c). We would make three
points about this example.
(i) The case arose in unusual circumstances and is one of the most extreme
forms of mistake of fact case one can imagine. The more usual type of
mistake of fact case is one where the mistake is liable to emerge after a much
shorter period, by contrast with what happens in relation to mistake of law:
para 290 above.
F
(ii) It seems to us that the reasoning of Lord Hodge DPSC for the Board of
the Privy Council in this case tends to demonstrate that Parliament cannot
have intended section 32(1)(c) to apply in the case of mistakes of law. It
involved a very late challenge to entitlement to the honour of a baronetcy in
which the modern discovery of DNA and the use of DNA testing to
determine parentage had the e›ect of unsettling the operation of various
G rules of law which previously would have made such a challenge very
di–cult indeed after the baronetcy had been held by an individual for a very
long period. The particular form of claim was not one to which any
limitation period had been enacted by Parliament, either in English law
(para 39) or Scots law (paras 50—61). The policy concern at potential
disruption of property transactions in other cases was so obvious that the
Board felt that it should call attention to the lacuna in the limitation statutes
H
(para 85). Yet the reasoning of Lord Reed PSC and Lord Hodge DPSC in the
present case would have the e›ect of exacerbating this problem by extending
the application of section 32(1)(c) to cover mistakes of law.
(iii) Most importantly, if one imagined a relevant common law claim
arising from facts similar to those in the Stichill Baronetcy case, although it

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would be an unusual case it would fall squarely within the meaning which A
Parliament intended section 32(1)(c) to have, as involving a mistake of fact.
But the question in the current case is di›erent. It is whether a mistake of
law, which has arisen only because of a change in the law long after a
relevant payment was made, falls within the intention of Parliament in
the legislation it enacted, even though Parliament could never have
contemplated that it did. In our view, for the reasons we have given, it is not
B
possible to draw such an inference. The unusual circumstances of the Stichill
Baronetcy case were such as to unsettle only one transaction, the inheritance
of the baronetcy, and one small set of people were interested in that
question. But the extension of section 32(1)(c) to cover payments made
under mistake of law will tend to unsettle whole classes of transactions, such
as were governed by rules of law of general application.
293 Secondly, the phenomenon of judicial decisions changing the law C
occurs across a wide range of cases. As was pointed out by Lord Browne-
Wilkinson and Lord Lloyd in Kleinwort Benson [1999] 2 AC 349 (at
pp 363—364 and 393—394, respectively), it extends from situations in which
rules of the common law are derived from practice and the understanding of
lawyers skilled in the eld, through decisions of lower courts being
overturned by superior courts (a very common feature of the legal system),
D
to this court deciding in comparatively rare cases to re-open and overturn
previous decisions of itself or the House of Lords. The law is often settled by
a decision of the Court of Appeal, or even at rst instance, as was thought to
have happened in relation to oating charges in Siebe Gorman & Co Ltd v
Barclays Bank Ltd [1979] 2 Lloyds Rep 142: see In re Spectrum Plus Ltd
[2005] 2 AC 680, paras 1—17, per Lord Nicholls. If this court (or the Court
of Appeal, in the case of a rst instance decision) concludes that the earlier E
decision is wrong, then it will overrule it, and with retrospective e›ect, with
little scope for considering the risks to the security of settled transactions. In
Kleinwort Benson the House of Lords departed from law which had been
settled by a lower court in Bilbie v Lumley. Again, it seems to us that neither
a purposive interpretation of the relevant provisions nor the application of
the always speaking doctrine could lead to the conclusion that Parliament
F
intended that such uncertainty and potential for undermining the security of
transactions should be introduced into the law across such a wide range of
cases, least of all in a Limitation Act, the general object of which is to achieve
the opposite e›ect: see para 271 above. The extent of the contradiction
between the uncertainty created by alterations in the law made by the courts
and the policy of the Limitation Acts was already great in 1939, since
common law rules established by professional practice or decisions of courts G
up to and including the Court of Appeal could always be changed. The
extent of the contradiction has been greatly increased with the 1966 Practice
Statement (Practice Statement (Judicial Precedent) [1966] 1 WLR 1234),
which has the e›ect that even rules established by the House of Lords or the
Supreme Court can now be changed with retrospective e›ect. Therefore, in
our view, the reasons why section 26(c) of the 1939 Act and section 32(1)(c)
H
of the 1980 Act cannot be construed as applying to mistakes of law have
become even stronger than they were in 1939.
294 Lord Reed PSC and Lord Hodge DPSC say that the 1966 Practice
Statement was not in the mind of Parliament in 1939 and suggest that
reference to it is therefore inapposite: para 238. We respectfully doubt that.

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A The court has to infer what should be regarded as the true intention of
Parliament in enacting section 26(c) of the 1939 Act (and then re-enacting that
provision in section 32(1)(c) of the 1980 Act) as to whether it should apply in
new circumstances which Parliament did not have in its contemplation in
1939. To do that, the court has to take account of the entire impact of the
new circumstances on the policy underlying Parliaments choice to enact
B
section 26(c) in the terms it did. It seems to us that the major transformation
of the legal landscape produced by the 1966 Practice Statement and the
major change in doctrine in Kleinwort Benson both have to be brought into
consideration to address that question.
295 We note that Lord Reed PSC and Lord Hodge DPSC at para 241
refer in similar fashion (correctly in our view, as a matter of principle) to the
change of position defence, which also developed after 1939. So far as that
C defence is concerned, we do not consider that it provides an adequate answer
to the policy objections to treating section 32(1)(c) as covering mistake of
law. We cannot see how the merits of an alleged change of position could be
examined over intervening decades or centuries. Moreover, many public
authority defendants, including the revenue, may be unlikely in practice to
be able to rely on it. The majority in Kleinwort Benson likewise referred to
D the new defence of change of position as a possible answer to, or at least
amelioration of, the problems of injustice and uncertainty to which their
interpretation of section 32(1)(c) gave rise. However, experience, including
claims in the eld of tax as a›ected by EU law for recovery of payments
made under mistakes of law dating back to 1973, has shown that this hope
has not been realised.
296 Thirdly, as is clear from the LR Committees Report, section 26(c)
E
of the 1939 Act (and now section 32(1)(c) of the 1980 Act) enacts what
was previously largely an equitable principle, namely that relief should be
available in the occasional case where the particular circumstances of
the claimant would otherwise render the rigid application of the law
unconscionable. Thus it would be unconscionable for claimants to have
time running against them when, either because they were labouring under a
F fraud or, because of a mistake as to the facts, they were unaware of their
cause of action. The occasional claimant thus disadvantaged could rely
upon the exceptional extension of the running of time. But if section 32 is
applied to extend time where there has been a retrospective judicial change
in the law, then every potential claimant is benetted by the exception. By
denition every potential claimant was su›ering from the same deemed
G mistake when making the relevant payment. In the make-believe world view
necessitated by the need to give retrospective e›ect to judicial law-making,
no one knew what the law then really was on the point in issue. It seems to
us that to extend the application of these provisions to this class of case goes
well beyond the narrow equitable principle which was intended to apply. As
we have noted, the equitable principle grew from the idea of the
unconscionability of a defendant relying on his own fraud and was given a
H modest extension to cover individual cases of mistake of fact. By contrast,
a claim based on a deemed mistake which has arisen only because of a
retrospective change in the law and which a›ects all cases within the
purview of the rule of law which is overruled lies very far indeed from any
concept which could be grounded in the equitable principle which the LR

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Committee identied and which Parliament intended to apply to common A

law claims.
297 In our view, the approach of Lord Brown in Deutsche Morgan
Grenfell [2007] 1 AC 558, which Lord Reed PSC and Lord Hodge DPSC
endorse, does not provide an answer to these objections. Plainly, there may be
a very long period when a rule of law is taken to be established by professional
practice or judicial decisions before the threshold of discoverability proposed
B
by Lord Brown to suggest it might be wrong is crossed. Accordingly, even
though Lord Browns approach ameliorates to some degree the conict
between section 32(1)(c) and the basic object of the Limitation Acts which
arises when that provision is taken to apply to mistakes of law, it does so only
to a very limited and inadequate extent.
298 There are several additional reasons which reinforce our view that
it is not plausible to identify Lord Browns interpretation of section 32(1)(c) C
as representing the intention of Parliament in any genuine sense, including
the extended sense to which the always speaking doctrine refers.
(i) The meaning which Parliament intended section 26(c) of the 1939 Act
and then section 32(1)(c) of the 1980 Act to bear is clear from consideration
of the context in which they were enacted. Having identied that the House
of Lords in Kleinwort Benson [1999] 2 AC 349 erred in departing from that
D
meaning, it seems to us that the proper course is to correct the error by
reinstating the meaning Parliament intended. In our opinion it is not
appropriate for this court to devise a half-way house position which falls
short of delity to Parliaments intention, and which only nibbles at the edge
of the problems of unlocking very stale claims to which the mistaken
interpretation gives rise.
(ii) Section 32(1)(c) is an exception to the general object of the Limitation E
Act 1980, and as such should be given a restrictive construction.
(iii) The test of discoverability proposed by Lord Brown is itself very
uncertain, in a way that the test for discoverability of whether there has been
a mistake as a matter of fact is not. The identication of a point in time,
earlier than when the relevant claim was actually launched, when such a
claim became worth pursuing requires a deeply speculative process of
F
hypothetical fact-nding. It is not plausible to suppose that Parliament
intended to adopt this as the criterion to be applied in a Limitation Act, i e in
a statute which has the object of producing certainty by application of
simple rules which also o›er the prospect of resolution of disputes without
the need for litigation. In any given case it may be very di–cult to say
whether Lord Browns threshold of discoverability has been crossed or not.
The application of his test will often require a wide-ranging investigation at G
trial of something as inherently vague and intangible as the state of
professional opinion as it changes year by year over what may be a very long
period. It is unclear whether expert evidence would be of much assistance
for such a speculative investigation into legal history. Moreover, the more
one focuses on what was reasonable to expect of one claimant or particular
type of claimant, as distinct from the general understanding of the legal
H
profession, the greater the range of cases in which the court will have to
produce speculative and uncertain judgments as to whether the relevant
threshold of discoverability has been passed. Again, therefore, this tends
to undermine the principle of certainty which Parliament and the LR
Committee intended should be upheld.

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A (iv) As the discussions in Kleinwort Benson, Deutsche Morgan Grenfell

and FII (SC) 1 demonstrate, the concept of discoverability becomes very
strained when applied in relation to mistake of law produced by the
retrospective application of a later judicial decision which changes the law.
It has to be taken to a very rareed and abstract level to adapt it to apply in
such a case. It is an odd kind of discoverability when the thing being
discovered, or revealing the supposed mistake, has not yet happened when
B
the relevant payment is made. It is not plausible to suppose that Parliament
intended the Limitation Act to operate on this basis. The analogy with
mistake of fact is not at all persuasive: see para 274(i) above. In the case of
an alleged mistake of fact, the fact either has or has not occurred; its
occurrence does not depend upon retrospective e›ects of judicial acts in the
future.
C (v) It is no comfort that in those cases where the law has not changed
section 32(1)(c) is unlikely to cause limitation di–culties, because the true
law will usually have been reasonably discoverable by taking legal advice.
This just indicates that the reality is that there is only practical scope for
section 32(1)(c) to have an e›ect when the law is changed retrospectively by
judicial decision, so Parliaments intention as to its meaning and e›ect
should properly be tested by reference to that class of case.
D
(vi) The interpretation of section 32(1)(c) proposed by Lord Brown
produces arbitrary and unfair distinctions which we do not consider
Parliament can have intended to be drawn. Claimants who are by a
retrospective change in the law enabled for the rst time to make a claim in
contract or in tort get no benet at all from the provision. They must bring
their claim within the primary limitation period running from the date when
E they rst had a cause of action. This is because their claim will not be based
upon mistake of law, as an essential element in the cause of action, which is
all that section 32(1)(c) applies to. Nonetheless a deemed mistake of law
occurring in this way may well be the reason why they did not claim sooner.
299 Our conclusion regarding the proper interpretation of
section 32(1)(c) would open the door to a departure from Kleinwort Benson
[1999] 2 AC 349 on that issue under the 1966 Practice Statement [1966]
F
1 WLR 1234. In our view, it would be appropriate for the Practice
Statement to be applied to restore the proper interpretation of
section 32(1)(c) which we consider Parliament intended, as set out above.
We express our views shortly, as we are in a minority so far as concerns
reversing Kleinwort Benson by construing mistake in section 32(1)(c) to
mean only a mistake of fact, in accordance with the law as it stood in 1939
G and 1980.
300 In our judgment, for the reasons we have set out, the decision in
Kleinwort Benson that section 32(1)(c) applies to mistakes of law was wrong
for reasons of much greater solidity and signicance than a mere intellectual
di›erence of opinion. The reasoning in Kleinwort Benson is in our
respectful view gravely undermined by an underlying view of the equitable
antecedents to what is now section 32(1) which cannot be squared with
H
previous authority and by an apparent failure to weigh in the balance how
serious a departure from the overall policy of the 1980 Act is involved in a
conclusion that section 32(1)(c) does apply to claims based upon a mistake
of law. Furthermore the readiness of the House of Lords in both Kleinwort
Benson and Deutsche Morgan Grenfell to acknowledge common law

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claims based on mistake of law where settled law had been changed with A
retrospective e›ect, and that section 32(1)(c) applied to such claims, was
heavily based upon a hope that Parliament would remedy the unsatisfactory
consequences, a hope which has now clearly been shown to have been
misplaced, save to a limited degree in relation to tax.
301 An important consideration underlying the Practice Statement is
that where possible past transactions should not be rendered uncertain or
B
insecure. As the Practice Statement [1966] 1 WLR 1234 says, in deciding
whether it is right to depart from a previous decision of the House of Lords
(or, now, this court) the court will bear in mind the danger of disturbing
retrospectively the basis on which contracts, settlements of property and
scal arrangements have been entered into . . . The greater the degree of
such disruption, the less will it be regarded as acceptable for the court to
change the law for the future. It is possible that some past transactions C
might be unsettled by changing the interpretation of section 32(1)(c)
adopted in Kleinwort Benson; however, for the reasons we have explained,
the application of section 32(1)(c) to cases of mistake of law will unsettle
past transactions and will generate such uncertainty to a very much greater
degree. Changes in the law produced by higher courts reversing decisions of
lower courts or correcting professional practice are commonplace. The
D
period of time before such a decision is produced, and in which parties will
have entered transactions on the basis of the previous understanding of the
law, may be very long.
302 Further, this open-ended prospect of unravelling past transactions
without limit of time is likely to act as a very serious and chilling constraint
upon any departure from an earlier decision by the House of Lords or this
court under the 1966 Practice Statement. The older the decision from which E
departure is being considered, the greater the peril to settled transactions,
and the greater the di–culty which this court will face in assessing whether
that peril is su–cient to prohibit an otherwise worthwhile change. The
speeches of Lord Browne-Wilkinson and Lord Lloyd in Kleinwort Benson
[1999] 2 AC 349 illustrate this point. Absent their concerns about the
absence of an e›ective limitation cut-o›, they would both have wished to
F
support the substantive change in the law of unjust enrichment produced by
the majority. The new circumstances in which the proper interpretation of
section 32(1)(c) falls to be assessed as a statutory provision which is always
speaking include not just the change in the law in Kleinwort Benson but the
change in the practice of the House of Lords e›ected by the 1966 Practice
Statement. Parliament cannot have intended that section 32(1)(c) should
have the practical e›ect of acting as a serious impediment to desirable G
judicial modernisation of the common law pursuant to the 1966 Practice
Statement.
303 Accordingly, it is our view that correction of the wrong turn taken
in Kleinwort Benson regarding the true interpretation of section 32(1)(c) is
justied pursuant to the Practice Statement. It would tend to reduce, rather
than promote, insecurity of transactions across time. It would also secure
H
the ability of this court to review and amend substantive legal doctrine in the
interests of promoting doctrinal coherence and keeping the law broadly in
line with changing social expectations and values.
304 Finally, since our view regarding the proper interpretation of
section 32(1)(c) is not accepted by Lord Reed PSC and Lord Hodge DPSC and

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A the majority in the court, we address the position which arises under the
Practice Statement if their interpretation of section 32(1)(c) prevails, as it
does. On their interpretation, there is still considerable scope for uncertainty
in the law to arise and unsettle transactions dating far back in time. Their
interpretation, following Lord Browns approach in Deutsche Morgan
Grenfell [2007] 1 AC 558, is also productive of a degree of uncertainty
because of the test of discoverability of a mistake which they say should
B apply. To that extent, therefore, it seems to us that the argument for applying
the Practice Statement [1966] 1 WLR 1234 in relation to both Kleinwort
Benson and Deutsche Morgan Grenfell is weakened. Nonetheless, we
consider that their interpretative approach better reects the legislative
purpose in the context of the Limitation Act of securing a degree of certainty
in relation to past transactions than does that of the majority in Deutsche
C Morgan Grenfell and the approach which the Appellate Committee in
Kleinwort Benson assumed would apply. Therefore, on the footing that the
interpretation of section 32(1)(c) preferred by Lord Reed PSC and Lord
Hodge DPSC must be accepted, we agree that it is appropriate to apply the
Practice Statement in relation to those decisions and in favour of now
adopting their interpretation.

D Appeal allowed.
Question remitted to High Court.
SUSANNE ROOK, Barrister

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