WOOLWICH BUILDING SOCIETY VS INLAND REVENUE COMMISSIONERS (N0.2), 1995 PTD-HOUSE-OF-LORDS 26 (1992) | PakCaselaws | Pakistan Caselaw Access Project
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WOOLWICH BUILDING SOCIETY VS INLAND REVENUE COMMISSIONERS (N0.2)
1995 P T D 26
[House of Lords]
[(1992) 3 All ER 737]
Before Lord Keith of Kinkel, Lord Goff of Chieveley, Lord Jauncey of Tullichettle, Lord Browne- Wilkinson and Lord Slynn of Hadley
WOOLWICH BUILDING SOCIETY
Versus
INLAND REVENUE COMMISSIONERS (N0.2)
decided on 20/07/1992.
Income-tax---
----Restitution---Money paid to Revenue---Payment of unlawful demand for tax---Recovery of money paid and interest---Building Society paying tax in response to demand made under ultra vires regulations---Whether Society immediately acquiring prima facie right to be repaid the amount paid-- Whether interest payable from date of payment---Whether general restitutionary principle that if subject pays in response to unlawful demand for tax he immediately acquires right to be repaid.
The Revenue issued a demand under the Income Tax (Building Societies) Regulations, 1986 to the plaintiff building society for payment of tax amounting to Ł 56,998,21 on interest and dividends paid to investors between 30th'September 1985 and 1st March, 1986. The plaintiff disputed the validity of the 1986 Regulations but paid the amount assessed in three instalments commencing on 16th June, 1986. The next day it applied for judicial review of the Regulations and also issued a writ on 15th July to recover the amount paid as money had and received, together with interest thereon. The judicial review proceedings were decided in the plaintiff's favour at first instance on 31st July 1987 and the Crown repaid the capital with int6rest from 31st July, 1987 pending an appeal. The Crown's appeal was ultimately unsuccessful when the relevant 1986 Regulations were held to be ultra vires and void. The plaintiff then continued its action for repayment seeking payment of interest on the capital from the dates of payment of the three instalments until judgment was given at first instance on 31st July, 1987. The Judge dismissed the plaintiffs claim, holding that since the capital payments were recoverable under an implied agreement that they would be repaid if the plaintiff's contentions as to the invalidity of the 1986 Regulations proved to be correct and not under any general principle of restitution the plaintiffs right to repayment arose only from the date of his decision as to the invalidity of the regulations. The plaintiffs appealed to the Court of Appeal which allowed the appeal on the ground that there was at common law a general restitutionary principle that where a subject made a payment in response to an unlawful demand for tax or any like demand for which there was no basis in law he immediately acquired a prima facie right to be repaid the amount so paid unless the payment had been made voluntarily to close a transaction or had been made under a mistake of law and that since neither limitation applied to the plaintiffs' claim it was entitled to rely on the general principle to recover the interest claimed. The Crown appealed to the House of Lords.
Held---(Lord Keith of Kinkel and Lord Jauncey of Tullichettle dissenting) Money paid by a subject to a public authority in the form of taxes or other levies pursuant to an ultra vires demand by the authority was prima facie recoverable forthwith by the subject as of right at common law together with interest thereon, regardless of the circumstances in which the tax was paid, since common justice required that any tax or duty paid by the citizen pursuant to an unlawful demand be repaid, unless special circumstances or some principle of policy required otherwise, and full effect could only be given to the fundamental principle enshrined in the Bill of Rights (1688) that taxes should not be levied without the authority of Parliament if the return of taxes exacted under an unlawful demand could be enforced as a matter of right. It followed that when the plaintiff paid the amount under the ultra vires regulations it immediately acquired a right to be repaid the amount so paid and was entitled to interest on the payments from the dates of the payments. The appeal would, therefore, be dismissed.
Atchison Topeka and Santa Fe Rly. Co. v. O'Connor (1912) 223 US 280 fol.
Air Canada v. British Columbia (1989) 59 DLR (4th) 161 at 169 applied.
Slater v. Burnley Corp (1888) 59 LT 636; William Whiteley Ltd. v. R (1908--10) All ER Rep. 639 and Twyford v. Manchester Corp (1946) 1 All ER 621 doubted.
(1991) 4 All ER 577 affirmed.
Notes:
For restitution from the Crown, see 1(1) Halsbury's Laws (4th Edn. reissue), paras: 194, 196.
For the invalidity of taxation without parliamentary authority, see 8 Halsbury's Laws (4th Edn.), para 913, and for cases on the subject, see 11 Digest (Reissue) 665, 57-58.
For the Bill of Rights (1688), see to Halsbury's Statutes (4th Edn.) 44.
Cases referred to in opinions:
A-G v. Wilts United Dairies Ltd. (1921) 37 TLR 884, CA; Affd. 91 LJKB 897, HL; Air Canada v. British Columbia (1989) 59 DLR (4th) 161, Can SC; Amministrazione delle Finanze dello Stato v. SpA San Giorgio Case 199/82 (1983) ECR 35.95; Atchison Topeka and Santa Fe Rly. Co. v. O'Connor (1912) 223 US 280, US SC; Auckland Harbour Board v. R (1924) AC 318, PC; Bilbie v. Lumley (1802) 2 East 469; (1775--1802) All ER Rep. 425; 102 ER 448; Brocklebank (T&J) Ltd. v. R (1925) 1 KB 52, CA; rvsg (1924) 1 KB 647; Campbell v. Hall (1774) 1 Cowp 204,-Lofft 655; 20 State Tr 239; (1558-1774) All ER Rep. 252; 98 ER 1045; Dew v. Parsons (1819) 2 B & Ald 562; 106 ER 471; Donoghue (or M. Alister) v. Stevenson (1932) AC 562; (1932) All ER Rep. 1, HL; Eadie v. Brantford Township (1967) 63 DLR (2d) 561; Can SC; Fairbanks v. Snow (1887) 13 NE 596; 145 Mass 153; Mass Sup Jud Ct.; Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. (1942) 2 All ER 122; (1943) AC 32; HL; Glasgow Corp v. Lord Advocate 1959 SC 203; Ct of Sess; Great Western Rly. Co. v. Sutton (1869) LIZ 4 HL 226; Henderson v. Folkestone Waterworks Co. (1885) 1 TLR 329; DC; Hooper v. Exeter Corp (1887) 56 LJQB 457, DC; Lancashire and Yorkshire Rly. Co. v. Gidlow (1875) LR 7 HL 517; Mareva Cia Naviera SA v. International Bulkcarriers SA; The Marevxr(1975) (1980) 1 All ER 213, CA; Maskell v. Horner (1915) 3 KB 106; (1914-15) All ER Rep. 595; KBD and CA; Mason v. New South Wales (1959) 102 CLR 108; Aust HC; Morgan v. Palmer (1824) 2 B&C 729; 107 ER 554; Moses v. Macferlan (1760) 2 Burr 1005; (1558-1774) All ER Rep. 581; 97 ER 676; National Pari-Mutual Association Ltd. v. R (1930) 47 TLR 110, CA; affg 46 TLR 594; Nepean Hydro Electric Commission v. Ontario Hydro (1982) 132 DLR (3d) 193, Can SC; Newdigate v. Davy (1693) 1 Ld Raym 742; 91 ER 1397, NP; Parker v. Great Western Rly. Co. (1844) 7 Man & G 253; 135 ER 107; Queens of the River Steamship Co. Ltd. v. River Thames Conservators (1899) 15 TLR 474; Sargood Bros. v. Commonwealth (1910) 11 CLR 258; Aust, HC; Sebel Products Ltd. v. Customs and Excise Commrs. (1949) 1 All ER 729; (1949) Ch. 409; Slater v. Burnley Corp (1888) 59 LT 636, DC; South of Scotland Electricity Board v. British Oxygen Co. Ltd. (No.2) (1959) 2 All ER 225, (1959) 1 WLR 587, HL; Steele v. Williams (1853) 8 Exch. 625; 155 ER 1502; Tower Hamlets London BC v. Chetnik Developments Ltd. (1988) 1 All ER 96 (1988) AC 858; (1988) 2 WLR 654, HL; Twyford v. Manchester Corp (1946) "j All ER 621; (1946) Ch. 236; Tyler, Re, ex p Official Receiver (1907) 1 KB 865, (1904-7) All ER Rep. 181, CA; Werrin v. Commonwealth (1938) 59 CLR 150, Aust HC; Whiteley (William) Ltd. v. R (1909) 101 LT 741, (1908- 10) All ER Rep. 639; Woolwich Equitable Building Society v. IRC (1991) 4 All ER 92, (1990) 1 WLR 1400, HL; rvsg (1989) STC 463, CA; rvsg in part (1987) STC 654.
Appeal:
The Inland Revenue Commissioners appealed against the decision of the Court of Appeal (Glidewell and Butler-Sloss I.JJ (Ralph Gibson, LJ dissenting) on 22nd May 1991 (1991) 4 All ER 577, (1991) 3 WLR 790) allowing an appeal by the Woolwich Building Society against the decision of Nolan. J, (1989) STC 111, (1989) 1 WLR 137) dismissing their claim in an action for money had and received for the recovery of interest on payments of tax amounting to L56,998,211 on interest and dividends paid to investors between 30th September 1985 and 1st March 1986 which had been paid by the society to the Inland Revenue Commissioners pursuant to a demand made under the Income Tax (Building Societies) Regulations. 1986, SI 1986/482, and repaid by the Revenue following the decision of Nolan, J. (1987) STC 654) that the relevant 1986 Regulations were ultra vires and void. The facts are set out in the opinion of Lord Keith of Kinkel.
Ian Glick QC, Alan Moses QC and David Pannick (instructed by the Solicitor of Inland Revenue) for the Crown.
John Gardiner QC, Nicholas Underhill QC and Jonathan Peacock (instructed by Clifford Chance) for Woolwich.
Rengan Krishnan, Barrister.
Dates of hearing: 17th to 19th, 23rd to 26th March and 20th July, 1992.
JUDGMENT
[20-7-1992]: LORD KEITH OF KINKEL.---My Lords, by section 40 of the Finance Act, 1985 Parliament terminated as from 5th,April, 1986 the system of annual voluntary arrangements which had since 1895 regulated the payment by building societies to the Revenue of sums representing income-tax on interest and dividends due to depositors and investors. The purpose was to make applicable to building societies the composite rate system which had been in force as respects bank interest since the Finance Act, 1984. Parliament did not by primary legislation introduce the new system as regards building society interest and dividends but instead, by adding a new section 343(1A) to the Income and Corporation Taxes Act, 1970, authorized the Board of Inland Revenue to do so by regulations made by statutory instrument. So the Board made the Income Tax (Building Societies) Regulations, 1986, SI 1986/482. The effect of these regulations, so far as the Woolwich Building Society (Woolwich) was concerned, was to subject it over a period of 24 months (6th April 1986 to 5th April, 1988) to tax on 29 months of income, amounting to an excess of some Ł 76m. Woolwich challenged by judicial review the validity of the particular regulations which had this effect. Before the case came to a hearing Parliament sought to improve the Revenue's position by enacting with retrospective effect section 47(1) of the Finance Act, 1986, but this proved ineffective for the purpose and on 31st July, 1987 Nolan, J. decided that the regulations complained of were ultra vires and void in so far as they purported to provide for the imposition of tax on interest and dividends paid by building societies prior to 6th April, 1986 and made an order accordingly (see (1987) STC 654). His order was reversed by the Court of Appeal (see (1989) STC 463) but restored on appeal to this House (see (1991) 4 All ER 92, (1990) 1 WLR 1400).
Before the order of Nolan, J. was made Woolwich had paid to the Revenue sums totaling Ł 56,998,221 claimed by way of tax for the period before 6th April 1986. The first payment of Ł 42,426,421 was made on 16th June, 1986. On 12th June an accountant employed by Woolwich had written to the Revenue accounts office:
You should be aware that we are presently seeking leave to commence legal proceedings in connection with the regulations and accordingly this payment is made without prejudice to any right to recover any payments made pursuant to the regulations which may arise as a result of legal proceedings, or as a result of any future extinguishment or reduction of any liability under the said regulations or otherwise.
A further payment of Ł2,856,821 was made on 15th September 1986, being accompanied by a letter in similar terms, and a third payment of Ł 11,714,969 on 16th March, 1987. On 15th- July, 1987 Woolwich issued a writ of summons against the Inland Revenue Commissioners (the Crown) claiming repayment of these sums with interest under section 35-A of the Supreme Court Act, 1981 from the respective dates of payment. Following the order of Nolan, J. negotiations ensued between the parties as a result of which the Revenue repaid to Woolwich the sum of Ł 56,998,221 with interest from 31st July, 1987, the date of the order, but refused to pay interest from any earlier date. So the one issue remaining on Woolwich's writ of summons came to be whether or not Woolwich had grounds for claiming interest on the three payments which they had made' from their respective dates up to 31st July, 1987. The amount of such interest, if due, is agreed between the parties to be Ł 6,730,000. Whether or not Woolwich can claim to be awarded that interest depends on whether it had a cause of action to recover each payment as a debt due to it on the date when it was made. If it did have a cause of action, then the Court would have power to award interest from the moment it arose by virtue of section 35-A of the Supreme Court Act, 1981.
Woolwich's writ of summons was tried by Nolan, J. on 10th and 11th March, 1988. The primary submission for Woolwich was that a subject who makes a payment in response to an unlawful demand for tax, or any similar demand, at once acquires a right to recover the amount so paid as money had and received to the subject's use. There` was an alternative submission that the money had been paid under duress and was therefore immediately recoverable. On behalf of the Crown it was contended that the law did not recognize any such general principle as was involved in the primary submission for Woolwich, that the facts of the case did not meet the established principles governing the restitution of sums paid under duress, and that the Revenue were never under any obligation to make any repayment and did so only as a matter of grace. As an alternative to the last submission it was argued that the money was paid to and received by the Revenue under an implied agreement that it would be held as a deposit against tax that might be held to have been due at the dates of payment and that it would be repaid if and when it turned out that no tax was due. By a judgment given on 12th July 1988 (see (1989) STC 111, (1989) 1 WLR 137) Nolan, J. dismissed Woolwich's action, holding that Woolwich was not entitled to recover the sums in issue under any general principle of restitution or as having been paid under duress. He took the view that the sums were paid under an implied agreement that they would be repaid if and when the dispute about the validity of the 1986 Regulations was resolved in the taxpayer's favour. So Woolwich had no cause of action to recover the money until the date of his order of 31st July, 1987. Woolwich appealed, and on 22nd May, 1991 the Court of Appeal by a majority (Glidewell and Butler-Sloss LJJ (Ralph Gibson, LJ dissenting) allowed the appeal and awarded the interest claimed (see (1991) 4 All ER 577, (1991) 3 WLR 790). The majority'-accepted Woolwich's primary submission that where money was paid under aiz illegal demand for taxation by a Government body the payer had an immediate prima facie right to recover the payment. The Crown now appeals, with leave given in the Court of Appeal to your Lordships' House.
The first matter which logically falls to be considered is whether or not Nolan, J. was correct in the view, which was accepted by Ralph Gibson, LJ in the course of his dissenting judgment in the Court of Appeal, that the payment by Woolwich of the principal sums demanded and the acceptance of these sums by the Revenue created, having regard to the terms of Woolwich's letters of 12th June and 15th September, 1986, an implied agreement that the Revenue would repay the sums in question in the event of Woolwich succeeding in its action for judicial review. If that view were correct, it would appear to pre-empt Woolwich's arguments in favour of a right to repayment arising at common law, though it is fair to say that this was not the position adopted by counsel for the Crown before your Lordships' House. In my opinion no such implied agreement can properly be inferred. The letters of 12th June and 15th September, 1986 did not say that Woolwich was offering the money to the Revenue on the condition that it would be repaid if ultimately found, in the pending litigation, not to be due: The letters said that the payments were made without prejudice to any right to recover them which might arise as a result of legal proceedings. That means that Woolwich were asserting a legal right to recover the payments in the event of the relevant regulations being held to be ultra vires, and stating that the payments were made without prejudice to such right. In accepting the payments the Revenue were doing no more than agreeing that they would not be treated as prejudicing any such right. In reaching the conclusion he did Nolan, J. founded on the decision of Vaisey, J. in Sebel Products Ltd. v. Customs and Excise Comrs. (1949) 1 All ER 729, (1949) Ch. 409. In that case a claim to purchase tax in respect of one of their products was made against the plaintiffs. They brought an action for a declaration that the product was not so liable and while the action was awaiting trial they paid the sum claimed. The circumstances under which they did so do not appear from the report of the case. The plaintiffs succeeded in their action for a declaration, but the defendants refused to repay the money. Vaisey, J. held that they were bound to do so. He said (1949) 1 All ER 729 at 731, (1949) Ch. 409 at 412-413):
..I ask myself, first, with what intention the plaintiffs paid the money, and, secondly, with what intention the defendants received it? If the intention was the same on both sides, the result, in my judgment, was that an agreement was made between the parties by implication. The intention of the plaintiffs was, to my mind, clear. They expected to recover the money if they won their action. What was the intention of the defendants? It is irrelevant to speculate on what, if anything; was in the mind of the clerk or other subordinate officer who actually received the money or in the mind of the officer who paid it into the bank to lie defendants' credit and I must assume the existence of some person in the defendants' employment who accepted and appropriated the money with a full knowledge of all the facts, particularly the discussion which had preceded the institution of the action and the pending of the action itself, who knew and realised that the right of the defendants to receive the money was at the moment sub judice, and, indeed, on the point of coming before this Court for decision. What would that hypothetical person have thought about it? In my judgment, he would inevitably have come to the conclusion, as a matter of necessary inference, that the plaintiffs were paying and the defendants accepting the money subject to repayment if the action resulted in the plaintiffs' favour. If, however,' he had entertained any doubt on the matter, I feel sure that he would as a matter of courtesy have refused to accept the money until the position had been made clear to him. What is, to my mind, incredible, is that he could ever have supposed that the money was being either paid by the plaintiffs or received by the defendants on the footing that the defendants were to keep it in any event. I come, therefore, to the conclusion that the intentions of the plaintiffs and the defendants were identical. In other words, I find that there was an agreement.
Nolan, J. regarded the facts of that case as being indistinguishable from the present, and he enunciated the following general proposition. (see (1989) STC 111 at 119):
`I would say more generally that whenever money is paid to the Revenue pending the outcome of a dispute which, to the knowledge of both parties, will determine whether or not the Revenue are entitled to the money, an agreement for the repayment of the money if and when the dispute is resolved in the taxpayer's favour must inevitably be implied unless the statute itself produces that result, as it does, for example, in cases falling within para.10(4) of Sch. 20 to the Finance Act, 1972.'
For my part, I would not be prepared to accept that as a proposition of law. Whether or not there is an agreement must depend on the facts of the particular case, and whether or not the decision of Vaisey, J. was correct I consider that the facts of the present case, including as they do the letters of 12th June and 15th September 1986, are not consistent with an agreement on the lines suggested. This does not mean, however, that a taxpayer would necessarily be without remedy in such a situation. The possible existence of a remedy in the law of restitution is for consideration later, but assuming there is not one, relief by way of judicial review would in my opinion be available. In Tower Hamlets London BC v. Chetnik Developments Ltd. (1988) 1 All ER 961, (1988) AC 858 this House had occasion to consider section 9(1) of the General Rate Act, 1967, which provides, so far as material:
.where it is shown to the satisfaction of a rating authority that any amount, paid in respect of rates, and not recoverable apart from this section, could properly be refunded on the ground that ....(e) the person who made a payment in respect of rates was not liable to make that payment, the rating authority may refund that amount or part thereof.'
The facts were that Chetnik constructed two warehouses under a consent granted under the London Building Acts, 1930 to 1939, the consent being subject to a condition that the buildings should not be occupied until the consent of Tower Hamlets London Borough Council had been obtained to the proposed user. Tower Hamlets, acting under para. 1 of Sch. 1 to the 1967 Act, required Chetnik to pay rates on the buildings over a period of some years during which they were unoccupied because tenants could not be And. Chetnik paid the rates not appreciating that by virtue of para. 2 of Sch. 1 to the 1967 Act rates were not payable on any unoccupied hereditament for any period during which the owner was prohibited by law from occupying the hereditament or allowing it to be occupied. As Tower Hamlets had not consented to the proposed user Chetnik were prohibited during the material period from allowing the warehouses to be occupied. When Chetnik came to appreciate this it sought to reclaim the rates it had paid under section 9 of the 1967 Act. Tower Hamlets declined to make the repayment and Chetnik applied or judicial review of the adverse decision, unsuccessfully at first instance but successfully in the Court of Appeal and in your Lordships' House. Lord Bridge, having reviewed two nineteenth century cases which decided that a trustee in bankruptcy was not entitled to retain moneys paid to him under a mistake of law, said (1988)1 All ER 961 at 969-970, (1988) AC 858 at 876--877):
`So it emerges from these authorities that the retention of moneys known to have been paid under a mistake at law, although it is a course permitted to an ordinary litigant, is not regarded by the Courts as a "high-minded thing" to do, but rather as a "shabby thing" or a "dirty trick" and hence is a course which the Court will not allow one of its own officers, such as a trustee in bankruptcy, to take ..I in no way dissent from this reasoning, but I should myself have been content to derive the same conclusion from the broader consideration that Parliament must have intended rating authorities to act in the same high-principled way expected by the Court of its own officers and not to retain rates paid under a mistake of law, or on an erroneous valuation (section 9(1)(a)), unless there were, as Parliament must have contemplated there might be in some cases, special circumstances in which a particular overpayment was made such as to justify retention of the whole or part of the amount overpaid.'
In that case the discretionary power to refund payment of rates for which the person who made the payment was not liable had been expressly conferred on local authorities by Parliament. But it is not open to serious doubt that Central Revenue Departments have a similar discretionary power to make refunds of tax payments which were not legally due. Indeed, it is a power of that nature which the Revenue claim to have exercised in the present case, in the course of their general function of managing and administering the tax system. So if the Revenue had refused in the exercise of their discretion to make the repayment they did in the present case I am of opinion that in the absence of any other remedy it would have been open to Woolwich to claim repayment in proceedings for judicial review, and there would appear to be no reason why such proceedings would not have been successful.
I turn now to consider the arguments advanced on behalf of Woolwich in support of its right to recover the payments it made as money had and received or as having been made under duress, two grounds which it was accepted shaded into one another. At this stage it is appropriate to introduce Nolan, J.'s account of the reasons which led Woolwich to make the payments (see (1989) STC 111 at 115-116):
`The factors which induced Woolwich to make the payments are set out in Mr. Mason's affidavit, dated 1st December, 1987 and may be summarised as follows. First and foremost, the requirements of the regulations as amplified in communications from the Revenue amounted on their face to lawful demands from the Crown. Woolwich would have expected any refusal of payment to lead to collection proceedings which would have been gravely embarrassing for Woolwich, the moreso as it would have been the only building society refusing to pay. Any publicity suggesting that Woolwich might be in difficulty in meeting its financial obligations, or that alone amongst building societies it was pursuing a policy of confrontation with the Crown, might have damaging effects far outweighing Woolwich's prospects of success on the issue of principle. Second, Woolwich feared that if it failed in its legal arguments it might incur penalties. Third, the three payments to which I have referred formed parts of larger quarterly payments, the other parts of which were agreed to have been correctly charged. At the time when the payments were made, it had not been possible to identify the amounts in dispute. Fourth, Woolwich was not, of course, to know at the time of the payments that it would succeed in the judicial review proceedings. Had Woolwich failed in those proceedings, it would have faced a bill for interest, which would not have been deductible for tax purposes, in an amount for exceeding the net return which Woolwich could have obtained from investing the money withheld. Nolan, J. accepted that, as a practical matter, Woolwich had little choice but to make the three payments.
The argument for Woolwich starts with the general principle enunciated by Lord Wright in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. (1942) 2 All ER 122 at 135, (1943) AC 32 at 61:
`The claim was for money paid for a consideration which had failed. It is clear that any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is, to prevent a man from retaining the money of, or some benefit derived from, another which it is against conscience that he should keep. Such remedies in English Law are generically different from remedies in contract or in tort, and are now recognized to fall within a third category of the common law which has been called quasi contract or restitution:
This general principle has, however, been circumscribed in various ways by decided cases, not least by the rule that money paid under a mistake of law is not recoverable, a rule which, though heavily criticised in academic writings and elsewhere, is in my opinion too deeply embedded in English jurisprudence to be uprooted judicially. There is a considerable tract of authority, both in England and in other jurisdictions, which must be examined in order to ascertain whether or not the circumstances of the present case fall with Lord Wright's principle. The earliest case is Newdigate v. Davy (1693) 1 Ld Raym 742, 91 ER 1397, where before the revolution of 1688 the plaintiff had sentence from James 1l's High Commissioners to pay a sum of money to the defendant and did pay it. After the revolution the plaintiff succeeded in recovering the money on the ground of indebitatus assumpsit. Leaving aside the political implications, the circumstance that the money was paid under the sentence of a Court, albeit one that was held to have no jurisdiction, gives the case a flavour of duress, so that it is not a significant authority in Woolwich's fa'v9ur. Then in Campbell v. Hall (1774) 1 Cowp 204, (1558-1774) All ER Rep, 252 the plaintiff brought a successful action against the King's. collector to recover duty which he had paid on sugar exported from the island of Grenada. The question principally debated was whether the duty had been validly imposed by the Sovereign though not consented to by the British Parliament or the local assembly, and this question was answered in the negative. The nature of the action was thus stated by Lord Mansfield, CJ (1 Cowp 204 at 205, (1558 1774) All ER Rep. 252 at 253):
`The action is an action for money had and received; and it is brought upon this ground; namely, that the money was paid to the defendant without any consideration; the duty for which and in-respect of which he received it, not having been imposed by lawful or sufficient authority to warrant the same.'
The judgment does not, however, contain any examination of this ground, there being no opposition on the part of the Crown to the duty being recoverable in the event of its being invalid. So no weight can be attached to the decision.
In Dew v. Parsons (1819) 2 B & Ald 562, 106 ER 471 an attorney was held entitled to set-off against a claim by a sheriff the excess amount which he had paid to the sheriff for the issue of warrants over what the sheriff was legally entitled to charge. The short judgments proceed on the simple ground that the sheriff was not entitled to retain sums which he had no legal right to demand, but the sums were demanded in return for the rendering of a service, namely the issuing of warrants, so the case is capable of being rationalized on the basis that they were exacted colore offici, a concept which emerged more clearly in later cases. That concept was thug described by Winderyer, J. in Mason v. New South Wales (1959) 102 CLR 108 at 140:
`Extortion by colour of office occurs when a public officer demands and is pain money he is not entitled to, or more than he is entitled to for the performance of his public duty. Examples of such exactions are overtolls paid to the keepers of toll-bridges and turnpikes, excessive fees demanded by sheriffs, pound-keepers, &c. The parties were not on an equal footing; and generally the payer paid the sum demanded in ignorance that it was not due.'
Some of the early cases seem to turn on a consideration of whether or not a payment, which it is, sought to recover was made voluntarily or not. In Morgan v. Palmer (1824) 2 B&C 729, 107 ER 554 it was held that the plaintiff was entitled to recover from the Mayor of Great Yarmouth a sum which he had been required to pay as a condition of being granted a renewal of his publican's licence, the payment having been demanded without lawful authority. Abbott, CJ, with whom Bayley, J. agreed on this point, said the payment might have been voluntary if the parties had stood on equal terms, and continued (2 B & C 729 at 735,107 ER 554 at 556):
`But if one party has the power of saying to the other, "That which you" require shall not be done except upon the conditions which I choose to impose", no person can contend that they stand upon any thing like an equal footing.'
Holroyd, J. simply said that the action did not fall within that class of cases which apply to voluntary payments. Littledale, J. said that the payment was not voluntary because the plaintiff submitted to pay the sum claimed, as he could not otherwise procure his licence. I consider that this is properly to be regarded a case of extortion colore offici.
Steele v. Williams (1853) 8 Exch. 625, 155 ER 1502 is also, in my opinion, such a. case. The plaintiff was unlawfully charged for making extracts from a parish register, and was held entitled to recover back the payments. It clearly weighed with Parke and Martin BB that if the plaintiff had not agreed to pay the sums asked he would not have been allowed to make the extracts. Hooper v. Exeter Corp (1887) 56 LJQB 457 is an interesting case. Exeter Corporation were entitled under a private Act to charge dues on the landing of stone, but there was an exemption for limestone, landed for the purpose of being burnt into lime. The plaintiff, being unaware of this exemption, paid dues on limestone which he had landed and ultimately burnt into lime. He was held entitled to recover the sums which he had paid. Lord Coleridge, CJ observed that the cooperation would not have insisted on payment of the dues if they had known the facts. He regarded the case as governed by Morgan v. Palmer which was cited in argument. Smith, J. held that the plaintiff was entitled to recover on the authority of Morgan v. Palmer and Steele v. Williams. Both Judges expressed the view that the payments could not be considered to have been voluntary. The interesting feature of the case is that the corporation exacted the payments under a mistake of fact---they did not know that the limestone was to be burnt into lime---while the plaintiff made the payments under a mistake of law---he did not know of the exemption. Counsel for the plaintiff pointed out that under the private Act the corporation had a power of absolute and immediate distress in the event of non-payment of dues, though the Court did not advert to this. If, however, Morgan v. Palmer and Steele v. Williams are properly to be regarded as cases of extortion colore officii the same must be true of Hooper v. Exeter Corp which followed them.
In all the foregoing cases recovery was allowed, but a contrary trend then set in. In Slater v. Burnley Corp (1888) 59 LT 636 the plaintiff sued to recover an overcharge of water rates which he had paid for one-quarter, but did not succeed. Both Cave and Wills, JJ. held that the payment was a voluntary one. Although the corporation had power to cut off the water supply in the event of non-payment of rates it had not threatened to do so. Wills, J. observed that the case was simply the ordinary one of a person raising a contention when a 'demand was made of him, which was not sufficient to constitute duress. Steele v. Williams and Hooper v. Exeter Corp were cited in argument, but no reference to them appears in the judgments. These cases must therefore have been regarded as distinguishable, presumably on the ground that Slater's case did not involve any refusal to perform a service unless an unlawful payment was made. In Queens of the River Steamship Co. Ltd. v. River Thames Conservators (1899) 15 TLR 474 Phillimore, J. held that the steamship company was entitled to recover a charge for making use of .the conservator's pier facilities which was greater than that authorised by statute, the ground being simply that there was no consideration for the payment without any further reasoning. The report contains no citation of authority nor any account of the argument, so that the decision cannot be regarded as significant.
William Whiteley Ltd. v. R. (1909) 101 LT 741, (1908-10) All ER Rep. 639 is a further case where a claimant was held not to be entitled to recover payments which were not legally due. The claimant employed a number of persons for the purpose of preparing and serving meals to other employees of its business. The Revenue authorities maintained that these persons were `male servants' in respect of whom licence duties were payable under the Revenue Act, 1869. This was disputed but the payments were made under protest for a number of years, and finally refused. Proceedings were brought by the Revenue which ultimately resulted in a Divisional. Court holding that the employees in question were not `male servants' within the meaning of the Act. The employers then presented a petition of right seeking repayment of the sums paid in the past years. Morgan v. Palmer, Steele v. Williams and Hooper v. Exeter Corp were founded on by the claimant and Slater v. Burnley Corp. by the respondent. Walton, J. dismissed the petition on the ground that the payments were not made in discharge of a demand illegally made under colour of office, though in the course of his judgment he observed that the moneys were paid under a mistaken belief on the part of the employers that they were bound to pay them. That must be extremely dubious, considering that for a number of years the payments were made under protest. But that did not constitute the ratio of the decision.
Maskell v. Horner (1915) 3 KB 106; (1914-15) All ER. Rep. 595, a decision of the Court of Appeal, was a fairly straightforward case of duress. The plaintiff carried on business in a market the owner of which demanded tolls from him. The plaintiff objected to paying the tolls, and on the first occasion when he did so the owner seized his goods. On other later occasions there was either a threat of seizure or an actual seizure of goods followed by payment under protest. It was eventually decided, in proceeding to which the plaintiff was not party, that the owner of the market was not entitled to levy tolls. The plaintiff sued to recover payments he had made in past years, and the Court of Appeal, reversing the judgment of Rowlatt, J., held that he was entitled to do so. Lord Reading, C.J. said (1915) 3 KB 106 at 118, (1914-15) All ER Rep. 595 at 597):
"If a person pays money, which he is not bound to pay, under the compulsion of urgent and pressing necessity or of seizure, actual or threatened, of his goods he can recover it as money had and received. The money is paid not under duress in the strict sense of the term, as that implies duress of person, but under the pressure of seizure or detention of goods which is analogous to that of duress."
It had been argued for the defendant that the payments had been made voluntarily to close the transaction, but Lord Reading, C.J. held that payment under the type of pressure he had described was not so made. Later he distinguished payment under threatened seizure of goods from payment in consequence of a threat of action, saying (1915) 3 KB 106 at 121-122, (1914-15) All ER Rep. 595 at 599).
"There is no doubt that if a person pays in an action or under threat of action the money cannot be recovered by him, as the payment is made to avoid the litigation to determine the right to the money claimed. Such payment is not made to keep alive the right to recover it, inasmuch as the opportunity is thus afforded of contesting the demand, and payment in such circumstances is a payment to close the transaction and not to keep it open. Even if the money is paid in the action accompanied by a declaration that it is paid without prejudice to the payer's right to recover it, the payment is a voluntary payment, and the transaction is closed."
A-G v. Wilts United Dairies Ltd. (1921) 37 TLR 884 was not a case concerned with the recovery of a payment unlawfully demanded. The position was that the Food Controller, purporting to be acting under Defence of the Realm Regulations, had imposed as a condition of the grant of a licence to purchase milk the payment to him by the purchaser of a charge of 2d per gallon. The defendant agreed to this and obtained a licence but later refused to pay the charge. In proceedings against him by the Attorney-General it was held in the Court of Appeal that the charge was unlawful and that the defendant was under no obligation to pay it. However, Atkin, LJ said (at 887):
"The agreement itself is not enforceable against the other contracting party; and if he had paid under it he could, having paid under protest, recover back the sums paid, as money had and received to his use:"
This dictum, though carrying the authority of Atkin, LJ., was uttered without any reference to authority and cannot be accorded great weight as a general statement of law. It is capable, however, of being correct in its application to a case where the food Controller had unlawfully demanded and received payment as a condition of allowing any purchase of milk. That would be a case of extortion colore officii which was the position in T & J Brocklebank Ltd. v. R (1925) 1 KB 52, rvsg (1924) 1 KB 647. The Shipping Controller purporting to act under the Defence of the Realm Regulations had imposed as a condition of licensing the sale of a ship to a foreign purchaser the payment to him by the seller of 15% of the purchase price, and the seller made the payment. It was held by Avory, J. and the Court of Appeal that the condition was illegal. Avory, J. held that the payment was recoverable but was reversed by the Court of Appeal on a point concerned with the Indemnity Act, 1920. But for that point the Court of Appeal would have allowed recovery. Bankes, L.J. (1925) 1 KB 52 at 62 held that the case was covered by the decision in A-G v. Wilts United Dairies Ltd. Scrutton, LJ. said (at 67) that the payment was demanded by the Shipping Controller colore officii, as one of the only terms on which he would grant a licence for the transfer, and he quoted Abbott, CJ. and Littledale, J. in Morgan v. Palmer. Sargant, LJ said (at 72) that the payment was made under compulsion and was recoverable under the principles of the judgments in Morgan v. Palmer.
In National Pari-Mutuel Association Ltd. v. R (1930) 47 TLR 110 the suppliant company claimed repayment of betting duty which they had paid for three years in respect of the operation of a totalisator. In proceedings involving another such operator the House of Lords had held that on a proper construction of the relevant legislation there was no liability to pay the duty. The argument for the suppliants was concerned only with whether the mistake under which they had paid the duty was one of fact or of law. Branson, J. (see 46 TLR 594) and the Court of Appeal held that the mistake was a mistake of law, and that the payments were not recoverable.
The last English case in point is Twyford v. Manchester Corp. (1946)1 All ER 621, (1946) Ch. 236, a decision by Romer, J. The corporation owned a cemetery and it charged the plaintiff, a monumental mason, fees for permission to cut, recut, repaint and regild inscriptions on monuments and stones in the cemetery. The plaintiff paid under protest, and later brought an action for a declaration that the charges were illegal and for recovery of past payments, Romer, J. held that the charges for recutting, repainting and regilding were illegal but refused to allow recovery of past payments for these. He followed and applied William Whiteley Ltd. v. R and Slater v. Burneley Corp., holding that the principle of duress colore officii did not apply to the case.
Next to be considered are two Scottish cases, very close to each other in time. The first is Glasgow Corp. v. Lord Advocate 1959 SC, 203. The corporation for, a number of years paid purchase tax on stationery manufactured by it and used in its various departments. Finally it raised an action for declarator that it was not liable to purchase tax on such stationery and for recovery of past payments. It was held by the Lord Ordinary (Lord Wheatley) and a majority of the First Division of the Inner House of the Court of Session that the corporation was not liable to purchase tax on stationery manufactured by it and supplied to its public service departments but was liable to the tax on stationery supplied to its trading departments. The claim to recovery of past payments was dismissed by Lord Wheatley and the First Division unanimously. The first ground on which recovery was sought was based on the Connotational argument that since Parliament had not authorised the collection by the Customs and Excise Commissioners of the tax the corporation was entitled to recover the amounts illegally exacted from it. The Lord President (Lord Clyde) stated two reasons for rejecting the argument. The first was that there was no authority for it.. He added (at 230):
"Indeed, the elaborate statutory provisions in various Finance Acts regarding the precise circumstances in which income-tax already paid may be reclaimed would have been quite unnecessary if the conclusion sought to be drawn by the corporation were sound."
The second reason he expressed thus:
"It would, in my opinion, introduce an element of quite unwarrantable uncertainty into the relations between the taxpayers and the Exchequer if there could be a wholesale opening up of transactions between them whenever any Court put a new interpretation upon an existing statutory provision imposing a tax."
The second ground for recovery was based on the confictio inilebiti. In relation to this ground it was held unanimously that the condictio did not apply to the case of an error in law in interpreting an Act of Parliament.
The second Scottish case in South of Scotland Electricity Board v. British Oxygen Co. Ltd. (No.2) (1959) 2 All ER 225, (1959) 1 WLR 587 a decision of your Lordships' House. Certain industrial consumers of high voltage electricity claimed that tariffs applied by the electricity board resulted in undue discrimination against them as compared with consumers of low voltage electricity, and sought recovery of sums alleged to have been overcharged. The actual decision of the House was that a proof before answer of the pusuers' averments should be allowed, but in the course of reaching that decision it was necessary to consider whether they would be entitled to recover overcharges if their complaint of undue discrimination was made out. That question was answered in the affirmative. Viscount Kilmuir LC (1959) 2 All ER 225 at 233, (1959) 1 WLR 587 at 596 stated that the pursuers might recover whatever sum they might prove was in excess of such a charge as would have avoided undue discrimination against them, and he supported this by reference, inter alia, to Great Western Rly. Co. v. Sutton (1869) L,R 4 HL 226 Lord Merriman, after referring to a number of authorities, said (1959) 2 All ER 225 at 240, (1959) 1 WLR 587 at 606-607:
"It is sufficient to say that, in Maskell v. Horner (1915) 3 KB 106 at 119, (1914-15) All ER Rep. 595 at 598, Lord Reading, C.J., referring to these authorities, and in particular to the advice given by Willes, J., in Great Western Rly. Co. v. Sutton (1869) LR 4 HL 226 at 249-- where that learned Judge said that he had "always understood that when a man pays more than he is bound to do by law for the performance of a duty which the law says is owed to him for nothing, or for less than he has paid, there is a compulsion or concussion in respect of which he is entitled to recover the excess by condictio indebiti, or action for money had and received"---said, that such claims made in this form of action are treated as matters of ordinary practice and beyond discussion:"
Lord Reid (1959) 2 All ER 225 at 242, (1959) 1 WLR 587 at 609 also founded on Great Western Rly. Co. v. Sutton (1869) LR 4 HL 226. In that case the railway company had carried the parcels of other persons at a rate less than similar parcels were carried by it for the plaintiff. It was held by this House, after taking the opinion of the consulted judges, that the plaintiff was entitled to recover the excess. Lord Chelmsford, with whom Lord Colonsay and. Lord Cairns agreed, said (at 263):":
Now if the defendants were bound to charge the plaintiff for the carriage of his goods a less sum, and they refused to carry them except upon payment of a greater sum, as he was compelled to pay the amount demanded, and could not otherwise have his goods carried, the case falls within the principle of several decided cases, in which it has been held that money which a party has been wrongfully compelled to pay under circumstances in which he was unable to resist the imposition, may be recovered back in an action for money had and received. In the language of the Court of Common Pleas, in the case of Parker v. the Great Western Railway Company (1844) 7 Man & G 253, 135 ER 107), the payments made by the plaintiff were not voluntary, but were made in order to induce the company to do that which they were bound to do without them."
That case can thus be seen to proceed on the same basis as the colore officii cases.
The foregoing review of the native authorities satisfies me that afford no support for Woolwich's major proposition. The principle to be derived from them, in my opinion, is that payments not lawfully due cannot be recovered unless they were made a result of some improper form of pressure. Such pressure may take the form of duress, as in Maskell v. Horner (1915) 3 KB 106, (1914-15) All ER Rep. 595. It may alternatively take the form of withholding or threatening to withhold the performance of some public duty or the rendering of some public service unless a payment is made which is not lawfully due or is greater than that which is lawfully due, as was the position in the colore officii cases. The mere fact that the payment has been made in response to a demand by a public authority does not emerge in any of the cases as constituting or forming part of the ratio decidendi. Many of the cases appear to turn on a consideration of whether the payment was voluntary - or involuntary. In my opinion that simply involves that the payment was voluntary if no improper pressure was brought to bear, and involuntary if it was. In the present case no pressure to pay was put on Woolwich by the Revenue. Woolwich paid because it calculated that it was in its commercial interest to do so. It could have resisted payment, and the Revenue had no means other than the taking of legal proceedings which it might have used to enforce payment. The threat of legal proceedings is not improper pressure. There was no improper pressure by the Revenue and in particular there was no duress.
To give effect to Woolwich's proposition would, in my opinion, amount to a very far-reaching exercise of judicial legislation. That would be particularly inappropriate having regard to the considerable number of instances which exist of Parliament having legislated in various fields to define the circumstances under which payments of tax not lawfully due may be recovered, and also in what situations and on what terms interest on overpayments of tax may be paid. Particular instances are section 33 of the Taxes Management Act, 1970, as regards overpaid income7tax, corporation tax, capital gains tax and petroleum revenue tax; section 24 of the Finance Act, 1989 as regards value added tax; section 29 of the Finance Act, 1989 as regards excise duty and car tax; section 241 of the Inheritance Tax Act, 1984 as regards inheritance tax; and section 13(4) of the Stamp Act, 1891 as regards stamp duty. Mention may also be made of section 9 of the General Rate Act, 1967 which, as described above, was considered by this House in Tower Hamlets London BC v. Chetnik Developments Ltd. It is to be noted that the section only applies where overpayment of rates is not otherwise recoverable, and it plainly did not occur to the House in that case that the overpayment might be recoverable apart from the section. It seems to me that formulation of the precise ground on which overpayments of tax ought to be recoverable and of any exceptions to the right of recovery, may involve nice considerations of policy which are properly the province of Parliament and are not suitable for consideration by the Courts. In this connection the question of possible disruption of public finances must obviously be a very material one. Then it is noticeable that existing legislation is restrictive of the extent to which interest on overpaid tax (described as `repayment supplement') may be recovered. A general right of recovery of overpaid tax could not incorporate any such restriction. I would add that although in the course of argument some distinction was sought to be drawn between overpayment of tax under regulations later shown to be ultra vires and overpayment due to the erroneous interpretation of a statute, no such distinction can in my view, properly be drawn. The distinction had particular reference to Article 4 of the Bill of Rights (1688), but I do not consider that this article has any relevance to the present case, being concerned, as it was, with the denial of the right of the executive to levy taxes without the consent of Parliament.
Reference was made in the course of the argument to a number of Commonwealth and American decisions, but I have not found in them any reasoning persuasive of a view contrary to that which I have formed in the light of the English and Scottish authorities. Sargobd Bros. v. Commonwealth (1910) 11 CLR 258 seems to me to be a clear case of extortion colore officii. Mason v. New South Wales (1959) 102 CLR 108 was a case where the ratio decidendi of the majority turned on the principle of duress. If the plaintiffs had refused to pay the illegal fees for a permit to run their vehicles they would have been at risk of having their vehicles seized and their business disrupted. In Atchison Topeka and Santa Fe Rly. Co. v. O'Commor (1912) 223 US 28(1 Holmes, J., delivering the judgment of the circuit Court for the district of Colorado, was of the opinion that the illegal tax paid by the plaintiff was paid under duress. If the plaintiff had not paid he would not only have been subject to legal proceedings for recovery of the tax but would have been liable to forfeiture of his business until it had been paid. The case does not vouch the proposition that a mere illegal demand for tax by a public authority is a sufficient ground for recovery of payment under it.
Finally, in Air Canada v. British Columbia (1989) 59 DLR (4th) 161 the Supreme Court of Canada, by a majority, held that there was no right to recover tax paid under a statute later found to be unconstitutional. La Forest, J., dealing with the argument that the tax had been paid under compulsion, said (at 199):
"What the rule of compulsion seems to require is that there is no practical choice but to pay in the circumstances, or to put it another way, before a payment will be regarded as involuntary there must be some natural or threatened exercise of power possessed by the party receiving it over the person or property of the taxpayer for which he has no immediate relief than to make the payment (and he referred to Maskell v. Horner)."
Wilson, J. disagreed. She said (at 169):
"It is, however, my view that payments made under unconstitutional legislation are not "voluntary" in a sense which should prejudice the taxpayer. The taxpayer, assuming the validity of the statute as I believe it is entitled to do, considers itself obligated to pay. Citizens are expected to be law-abiding. They are expected to pay their taxes. Pay first and object later is the general rule. The payments are made pursuant to a perceived obligation to pay which results from the combined presumption of constitutional validity of duly enacted legislation and the holding out of such validity by the legislature. In such circumstances I consider it quite unrealistic to expect the tax payer to make its payments "under protest". Any taxpayer paying taxes exigible under a statute which it has no reason to believe or suspect is other than valid should be viewed as having paid pursuant to the statutory obligation to do so."
It is sufficient to say that the majority view appears to be in line with that which I have formed in the light of the British authorities, and that the dissenting opinion of Wilson, J. does not persuade me that that view is wrong.
My Lords, for these reasons I would allow this appeal.
LORD GOFF OF CHIEVELEY:---My Lords, the factual and legal background to this appeal are summarised with scrupulous care and accuracy in the judgment of Ralph Gibson, LJ in the Court of Appeal (see (1991) 4 All ER 577 at 603-607, (1991) 3 WLR 790 at 819-822). His account I gratefully adopt. The question which lies at the heart of the appeal is whether money exacted as taxes from a citizen by the Revenue ultra vies is recoverable by the citizen as of right; if so, the Woolwich Building Society (Woolwich) will be entitled to interest on the sums repaid to it by the Revenue, running from the dates when those sums were paid to the Revenue by Woolwich. A majority of the Court of Appeal (Glidewell and Butler-Sloss, LJJ.) held that, as a matter of principle, such a payment is recoverable as of right, although Glidewell, LJ considered it to be irrecoverable where the money was paid to close the transaction or was paid under a mistake of law. I only comment at this stage that the latter exclusion would render the remedy of little practical use. This is a matter to which I will return later. Ralph Givson, LJ, in a powerful dissenting judgment, concluded that both principle and authority prevented him from reaching the same conclusion. I should record that Woolwich also sought recovery of the money paid to the Revenue on the alternative ground of compulsion. This alternative submission did not, however, occupy much time in argument before your Lordships.
There can be no doubt that this appeal is one of considerable importance. It is certainly of importance to both parties---to the Revenue, which is concerned to maintain the traditional position under which the repayment of overpaid tax is essentially a matter for its own discretion; and to Woolwich, which adopted a courageous and independent stance about the lawfulness of the underlying regulations, and now adopts a similar stance about the obligation of the Revenue to repay tax exacted without lawful authority. In addition, of course, there is a substantial sum of money at stake. But the appeal is also of importance for the future of the law of restitution, since the decision of your Lordships' House could have a profound effect on the structure of this part of our law. It is a reflection of this fact that there have been cited to your Lordships not only the full range of English authorities, and also authorities from Commonwealth countries and the United States of America, but in addition a number of academic works of considerable importance. These include a most valuable consultation paper published last year by the Law Commission, entitled Restitution of Payments made under a Mistake of Law (Law Com no 120), for which we owe much to Mr. Jack Beatson and also, I understand, to Dr. Sue Arrowsmith; and a series of articles by academic lawyers of distinction working in the field of restitution. I shall be referring to this academic material in due course. But I wish to record at once that, in my opinion, it is of such importance that it has a powerful bearing on the consideration by your Lordships of the central question in the case.
My first task must be to review the relevant authorities. I am very conscious, however, that this task has already been performed in considerable detail, not only by Ralph Gibson and Glidewell, LJJ. in the Court of Appeal, but also by my noble and learned friends Lord Keith and Lord Jauncey. Rather than once again review the authorities in chronological order, therefore, I propose to encapsulate their effect in a number of propositions which can, I believe, be so stated as to reflect the law as it is presently understood with a reasonable degree of accuracy. The law as so stated has, I think, been so understood for most of this century, at least at the level of the Court of Appeal; but it has been the subject of increasing criticism by academic lawyers, and has been departed from in significant respects in some Commonwealth countries, both by legislation and by judicial development of the law. A central question in the present case is whether it is open to your Lordships' House to follow their judicial brethren overseas down the road of development of the law; and, if so, whether it would be appropriate to do so, and which is the precise path which it would then be appropriate to choose. But the answer to these fundamental questions must follow a review of the law as understood at present, which I would express in the following propositions.
(1) Whereas money paid under a mistake of fact is generally recoverable, as a general rule money is not recoverable on the ground that it was paid tinder a mistake of law. This principle was established in Bilbie v. Lumley (1802) East 469, (1775-1802) All ER Rep. 425. It has, however, been the subject of much criticism, which has grown substantially during the second half of the present century. The principle had been adopted in most, if not all, Commonwealth countries; though in some it has now been modified or abandoned, either by statute or by judicial action. No such principle applies in civil law countries, and its adoption by the common law has been criticised by comparative lawyers as unnecessary and anomalous. This topic is the subject of the consultation paper published by the Law Commission last year (Law Com no 120)', in which serious criticisms of the rule of non-recovery are rehearsed and developed, and proposals for its abolition are put forward for discussion.
(2) But money paid under compulsion may be recoverable. In particular; (a) money paid as a result of actual or threatened duress to the person, or actual or threatened seizure of a person's goods, is recoverable. For an example of the latter, see Maskell v. Horner (1915) 3 KB 106, (1914-15) All ER Rep. 595. Since these forms of compulsion are not directly relevant for present purposes, it is unnecessary to elaborate them; but I think it pertinent to observe that the concept of duress has in recent years been expanded to embrace economic duress; (b) money paid to a person in a public or quasi -public position to obtain the performance by him of a duty which he is bound to perform for nothing or for less than the sum demanded by him is recoverable to the extent that he is not entitled to it. Such payments are often described as having been demanded colore officii. There is much abstruse learning on the subject (see, in particular, the illuminating discussion by Windeyer, J. in Mason v. New South Wales (1959) 102 CLR 108 at 139-142), but for present purposes it is not, I think, necessary for us to concern ourselves with this point of classification. Examples of influential early cases are Morgan v. Palmer (1824) 2 B & C 729, 107 ER 554 and Steele v. Williams (1853) 8 Exch 625, 155 ER 1502; a later example of some significance is T & J Brocklebank Ltd. v. R (1925) 1 KB 52; (c) money paid to a person for the performance of a statutory duty, which he is bound to perform for a sum less than that charged by him, is also recoverable to the extent of the overcharge. A leading example of such a case is Great Western Rly. Co. v. Sutton (1869) LIZ 4 HL 226; for a more recent Scottish case, also the subject of an appeal to this House, see South of Scotland Electricity Board v. British Oxygen Co. Ltd. (No.2) (1959) 2 All ER 225, (1959) 1 WLR 587; (d) in cases of compulsion, a threat which constitutes the compulsion may be expressed or implied (a point perhaps overlooked in Twyford v. Manchester Corporation (1946) 1 All ER 621, (1946) Ch. 236); (e) I would not think it right, especially bearing in mind the development of the concept of economic duress, to regard the categories of compulsion for present purposes as closed.
(3) Where a sum has been paid which is not due, but it has not been paid under a mistake of fact or under compulsion as explained under proposition 2 above, it is generally not recoverable. Such a payment has often been called a voluntary payment. In particular, a payment is regarded as a voluntary payment and so as irrecoverable in the following circumstances. (a) The money has been paid under a mistake of law (see proposition (1) above) (see e.g. Slater v. Burnley Corp. (1888) 59 LT 636 and National Pari-Mutuel Association Ltd. v. R (1930) 47 TLR 110). (b) The payer has the opportunity of contesting his liability in proceedings, but instead gives way and pays (see e.g. Henderson v. Folkestone Waterworks Co. (1885) 1 TLR 329 and Sargood Bros. v. Commonwealth (1910) 11 CLR 258 esp at 301 per Isaacs, J.). So where money has been paid under pressure of actual or threatened legal proceedings for its recovery, the payer cannot say that for that reason the money has been paid under compulsion and is therefore recoverable by him. If he chooses to give way and pay, rather than obtain the decision of the Court on the question whether the money is due, his payment is regarded as voluntary and so is not recoverable (see e.g. William Whiteley Ltd. v. R (1909) 101 LT 741, (1908-10) All ER Rep. 639). (c) The money has otherwise been paid in such circumstances that the payment was made to close the transaction. Such would obviously be so in the case of a binding compromise; but even where there is no consideration for the payment, it may have been made to close the transaction and so be irrecoverable. Such a payment has been treated as a gift (see Maskell v. Horner (1915) 3 KB 106 at 118, (1914-15) All ER Rep. 595 at 597 per Lord Reading, CJ.).
(4) A payment may be made on such terms that it has been agreed, expressly or impliedly, by the recipient that, if it shall prove not to have been due, it will be rapid by him. In that event, of course, the money will be repayable. Such was held to be the case in Sebel Products Ltd. v. Customs and Excise Comrs. (1949) 1 All ER 729, (1949) Ch. 409 (although the legal basis on which Vaisey, J. there inferred the existence of such an agreement may be open to criticism). On the other hand, the mere fact that money is paid under protest will not give rise of itself to the inference of such an agreement; though it may form part of the evidence from which it may be interred that the payer did not intend to close the transaction (sec; Maskell v. Horner (1915) 3 KB 106 at 120, (1914-15) All ER Rep. 595 at 598 per Lord Reading, C.J.).
The principles which I have just stated had come to be broadly accepted, at the level of the Court of Appeal, at least by the early part of this century. But a formidable argument has been developed in recent years by leading academic lawyers that this stream of authority should be the subject of reinterpretation to reveal a different line of thought pointing to the conclusion that money paid to a public authority pursuant to an ultra vires demand should be repayable, without the necessity of establishing compulsion, on the simple ground that there was no consideration for the payment. I refer in particular to the powerful essay by Professor Peter Birks entitled `Restitution from the Executive: A Tercentenary Footnote to the Bill of Rights' (Finn (ed) Essays on Restitution (1990) pp. 164-265). I have little doubt that this essay by Professor Birks, which was foreshadowed by an influential lecture delivered by Professor WR Cornish in Kuala Lumpur in 1986 (the first Sultan Azlan Shah lecture, published in (1987) 14 Jo Malaysian and Comparative Law 41), provided the main inspiration for the argument of Woolwich, and the judgments of the majority of the Court of Appeal, in the present case.
I have a strong presentiment that, had the opportunity arisen, Lord Mansfield, C.J. would have seized it to establish the law in this form. His broad culture, his knowledge and understanding of Roman law, his extraordinary gift for cutting through technicality to perceive and define principle, would surely have drawn him towards this result. Mr. Gardiner QC for Woolwich relied on Campbell v. Hall (1774) 1 Cowp. 204, (1558-1774) All ER Rep. 252 as authority that he did in fact reach that very conclusion. But that case was the subject of research by Mr. Glick QC and his team, and was revealed (from the reports in Lofft 655 and in 20 State Tr. 239) to be a cause celebre in which the great issue (of immense public interest) related to the power to levy taxes in the island of Grenada following its capture from the French King, it being accepted by the Crown without argument that the relevant taxes, if not duly levied, must be repaid. Lord Mansfield, C.J.'s judgment in the case, adverse to the Crown, became known as the Magna Carta of the Colonies. The fact that the basis of recovery was not in issue, and indeed was overshadowed by the great question in the case, must detract from its importance in the present context; even so, the simple fact remains' that recovery was stated to be founded on absence of consideration for the payment. Furthermore there are other cases in the late eighteenth and early nineteenth centuries, of which Dew v. Parsons (1819) 2 B & Ald 562, 106 ER 471 is a significant example, which support this approach.
Later cases in the nineteenth century on which Professor Birks places much reliance are Steele v. Williams (1853) 8 Exch. 625, 155 ER 1502 and Hooper v. Exeter Corp. (1887) 56 LJQB 457. In Steele v. Williams the judgment of Martin B was certainly on the basis that the money, having been the subject of an ultra vires demand by a public officer, was as such recoverable. That approach seems also to have provided considerable attraction for Parke B; but although the point was left open by him, the case was decided by the majority (Parke and Platt BB) on the ground of compulsion. Both of them treated the case as one in which there was an implied threat by the defendant to deprive the plaintiffs clerk of his right to take extracts from the parish register for no charge; and both appear to have concluded that, in the circumstances, although that threat was made before the plaintiff's clerk obtained the extracts he needed, nevertheless it was causative of the payment which was therefore recoverable on the ground of compulsion. In Hooper v. Exeter Corp Professor Birks is perhaps on stronger ground, although the basis on which the Court proceeded is not altogether clear. The plaintiff sought to recover dues paid by him for landing stone for which, unknown to him, he was not liable because the stone was covered by an exemption. It was argued on his behalf that the payment was not voluntary, citing Morgan v. Palmer (1824) 2 B & C 729, 107 ER 554 (a case of compulsion). Reliance was also placed on the power of absolute and immediate distress in the statute. The Court accepted the plaintiff's argument. Both Lord Coleridge, CJ. and Smith, J. relied on Morgan v. Palmer; Smith, J. also invoked Steele v. Williams without, however, referring to the judgment of Martin B. Neither referred to the power of immediate distress. The case, brief and obscure though it is, might well have provided a basis on which Judges could later have built to develop a principle that money demanded ultra vires by a public authority was prima facie recoverable.
Professor Birks also places reliance on Queens of River Steamship Co. Ltd. v. River Thames Conservators (1899) 15 TLR 474 and obiter dictum of Atkin LJ in A-G v. Wilts United Dairies Ltd. (1921) 37 TLR 884 at 887.
The former case, so far as it goes, is undoubtedly consistent with his thesis; but it is very briefly reported, without any indication of the arguments advanced or cases cited, and the conclusion is encapsulated in one brief sentence. The dictum of Atkin, LJ is to the effect that such a payment is. if paid under protest, recoverable on the simple ground that it was a sum received by the public authority to the use of the citizen. However, the subsequent decision of the Court of Appeal in T & J Brocklebank Ltd. v. R (1925) 1 KB 52 shows that, in circumstances similar to those of the Wilts United Dairies case, recovery could be, and indeed there was, founded on compulsion and not on the simple fact that the money was paid pursuant to an ultra vires demand (see (1925) 1 KB 52 at 61-62 per Bankes, LJ (accepting the opinion of the trial Judge, Avory J. (1924) 1 KB 647 at 652-653)), at 67 per Scrutton, IJ and at 72 per Sargant, 1J. So the question of the soundness of Atkin, LJ's dictum did not arise for decision in that case. Even so, a similar approach to that of Atkin, LJ is to be found in an obiter dictum of Dixon, CJ in Mason v. New South Wales (1959) 102 CLR 108 at 117, which was to the effect that he had not been able completely to reconcile himself to the view that, if the weight of a de. facto governmental authority manifested in a money demand, the money belonged to the Crown unless the payment was made under compulsion.
In all the circumstances, it is difficult to avoid the conclusion that in this country, at the level of the Court of Appeal (see, in particular, the decisions of that Court in T and J Brocklebank Ltd. v. R and National Pari Mutuel Association Ltd. v. R), the law had settled down in the form which I have indicated. I have little doubt that a major force in the moulding of the law in this form is to be found in the practitioners' textbooks of the time, notably Bullen and Leake Precedents of Pleading (3rd Edn., 1868), p. 50 and Leake on Contracts (5th Edn., 1906) p. 61; we can see this reflected in the form of the arguments advanced in the cases, and the manner in which the Court reacted to submissions by counsel challenging the accepted view. I fear that the Courts sorely missed assistance from academic lawyers specializing in this branch of the law; but the law faculties in our universities were only beginning to be established towards the end of the nineteenth century. It can, however, be said that the principle of justice, embodied in Martin B's judgment in Steele v. Williams and perhaps also in Hooper v. Exeter Corp, and expressed in the dicta of Atkin; LJ and Dixon, CJ, still calls for attention and the central question in the present case is whether your Lordships' House, deriving their inspiration from the example of those two great Judges, should rekindle that fading flame and reformulate the law in accordance with that principle. I am satisfied that, on the. authorities, it is open to your Lordships' House to take that step. The crucial question is whether it is appropriate for your Lordships to do so.
However, before considering whether your Lordships should proceed in that direction, it is first necessary to have regard to the impact of any relevant statutory provisions governing the repayment of overpaid tax by the Revenue to this taxpayer. Statutory regulation of such repayments is a commonplace of our law, not only in the case of overpaid income and corporation tax, but also in the case of other taxes (such as value added tax, capital gains tax and inheritance tax) and other duties and charges. These statutory provisions, which vary in their effect to a remarkable degree, are usefully summarised and considered in the Law Commission's consultation paper entitled Restitution of Payments made under a Mistake of Law (Law Coin no 120),
Your Lordships were referred by the Crown to a number of statutory provisions of this kind, but in particular to section 33 of the Taxes Management Act, 1970, subsections (1) and (2) of which provide as follows:
`(1) If any person who has paid tax charged under an assessment alleges. that the assessment was excessive by reason -of some error or mistake in a return, he may by notice in writing at any time not later than six years after the end of the year of assessment (or, if the assessment is to corporation tax, the end of the accounting period) in which the assessment was made, make a claim to the Board for relief.
(2) On receiving the claim the Board shall inquire into the matter and shall, subject to the provisions of this section, give by way of repayment such relief in respect of the error or mistake as is reasonable and just: Provided that no relief shall be given under this section in respect of an error or mistake as to the basis on which the liability of the claimant ought to have been computed where the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when the return was made.
There is some doubt whether this section is in any event applicable in the case of composite rate tax, which was the tax demanded of Woolwich in the present case. By section 118(1), the interpretation section of the Taxes Management Act, 1970, it is provided that where neither income-tax nor capital gains tax nor corporation tax nor development tax is specified, the word `tax' means any of those taxes. Composite fate tax is not defined as falling within the description of income-tax, but only as `an amount representing income-tax' (see section 343 of the Income and Corporation Taxes Act, 1970). However, there is in my opinion, a more fundamental reason why the section has no application in the present case. This is because the present case is not one in which an excessive assessment was made on a taxpayer, through some error of fact or law, as is contemplated by section 33(1). This is a case where there is no lawful basis whatever for any demand of tax to be made by the Revenue. In such circumstances, the demand itself is ultra vires and is therefore a nullity. It follows that in a case such as the present there can be no valid assessment. No assessment was in fact raised on Woolwich in the present case, because the money alleged to be due by way of tax was paid, though under protest. It was pointed out in argument that, pursuant to Regulation 7 of the Income Tax (Building Societies) Regulations, 1986, ST 1986/482, tax which was due but not paid on or before the due date could have been the subject of 2m assessment on Woolwich under para..4(2) or (3) of Schedule 20 to the Finance Act, 1972; but for the reasons I have already given any such assessment would, in my opinion, have been a nullity in the circumstances of the present case. In particular, I do not see how there could have been an appeal against such an assessment pursuant to para. 10(3) of Sched. 20; because such an appeal presupposes an assessment which, apart from the impugned error, would otherwise have been valid. If the assessment is alleged to have been made (as here) under ultra vires regulations, the proper course is to take proceedings by way of judicial review to quash the aberrant regulations and the assessment made thereunder, not by way of an appeal under procedure which presupposes that the assessment, although it may be erroneous, is basically lawful. Just as the appeal procedure presupposes a lawful assessment, so does section 33(1) of the Taxes Management Act, 1970, which is concerned with a lawful assessment which is excessive by reason of some error or mistake in a return. This, as I understand it, was the view accepted by Nolan, J. (see (1989) STC 111 at 120) and by Butler-Sloss, LJ (see (1991) 4 All ER 577 at 637, (1991) 3 WLR 790 at 855), whose view on this point I respectfully prefer to that of Ralph Gibson, LJ (1991) 4 All ER 577 at 628, (1991) 3 WLR 790 at 846), despite the doubt expressed in para. 3.38 of the Law Commission's consultation paper.
This is, in my opinion, a point of some significance in the present case. It is for these reasons that Woolwich is not enabled or required to seek its remedy through the statutory framework, but must fall back on the common law. It also follows that the common law principles, whatever they may be, are applicable to a case such as the present, unconstrained by the provisions of any statute. It was submitted by Mr. Glick for the Crown that statutory provisions creating a discretionary regime for the repayment of taxes or charges presuppose that the common law principles give no right to recovery. Historically, that may be correct; but having, where applicable, overlaid and replaced the common law principles, whatever those principles may be, they become neutral in their effect when the development of those principles is considered by the Courts. Of course, Mr. Glick was fully entitled to point our to your Lordships that the vast majority of cases concerned with the recovery of tax which is not due will indeed be covered by statutory provisions regulating the right of recovery; he also suggested that, if it should be held that section 33 has no application in the present case, steps can easily, and may well, be taken at an early opportunity to bring cases such as the present, which are in any event likely to be very rare, within its ambit. These are practical considerations, the force of which I accept and understand. But in my opinion they cannot, in the last analysis, touch the point of principle, which is that we are here concerned with the question of the basis of the common law right of recovery in these circumstances, on which statute law has no direct impact.
In the present case, the primary argument of the Revenue has been that the repayment of sums paid by Woolwich was made by them on a voluntary basis, i.e. that the payment was repaid ex gratia. In the alternative, however, they contended that the payments by Woolwich had been made pursuant to an implied agreement between Woolwich and the Revenue whereby it was agreed that the Revenue would hold the sums pending the outcome of proceedings to determine the validity of the relevant regulations, and that any entitlement of Woolwich to repayment arose on the date of the first judgment of Nolan, J. with the effect that interest ran only from that date. It was the latter view which was accepted both by Nolan, J. at first instance, and by Ralph Gibson, LJ in his dissenting judgment in the Court of Appeal. (The point whether any such implied agreement came into existence was not considered either by Glidewell, LJ or by Butler-Sloss, LJ, no doubt because it was not material on their approach to the case.) Whether or not any such implied agreement did come into existence must depend on the terms on which the money was paid by Woolwich, as set out in letters from Woolwich to the Revenue dated 12th June and 15th September 1986, construed in the light of the surrounding circumstances. My noble and learned friend Lord Keith has expressed the opinion that these letters, on their true construction, did not give rise to any such implied agreement. With respect, I appreciate the force of his reasoning. On the view which I have formed of the case, it is not necessary to reach any conclusion on that point. But I wish to observe that, if there was no such agreement, then, for the reasons I have given, there is no statutory basis for the discretionary repayment of the money by the Revenue. Such a repayment could only be authorized by the exercise of a general, residuary, extra-statutory discretion. Furthermore, the exercise of such discretion would not in my opinion be amenable to judicial review on the basis set out in the decision of your Lordships' House in Tower Hamlets London BC v. Chetnik Developments Ltd. (1988) 1 All ER 961, (1988) AC 858. In that case this House decided that a failure by the defendant council to repay rates overpaid by mistake was subject to judicial review. Under section 9 of- the General Rate Act, 1967 a discretionary power was conferred on the council to refund amounts paid in respect of rates, and the council purported, in the exercise of its discretion, to decide not to make such a refund. The House held that the discretion, being a discretion conferred by statute, must be exercised in accordance with the statutory intention. Having regard to the true construction of section 9 of the 1967 Act, the House concluded that the refusal of the council to make a refund was not in accordance with the statutory intention and so affirmed the decision of the Court of Appeal allowing the ratepayers' claim for judicial review of the decision. It is plain that those principles cannot apply where the discretion is not exercised pursuant to a statutory power. If; therefore, in the present case the Revenue was under no contractual obligation to repay the money; and had refused to exercise such residuary discretion as it had to repay, it is difficult to see on what ground its refusal to repay could have been challenged, except on very narrow grounds such as bad faith (of the Chetnik Developments Ltd. case (1988) 1 All ER 961 at 967, (1988) AC 858'at 873 per Lord Bridge). However, the point is for present purposes academic and it is not therefore necessary for me to consider it further. The present appeal falls to be considered on the basis that the sums were in fact repaid, and further that (as is now no longer in dispute) there was no contractual right to interest. I think it only right to comment that the fact that it is, in a case such as the present, open to a taxpayer to stipulate, if he wishes, that the money shall be repaid if it is found not to be due in pending proceedings, provides another practical reason why a case such as the-present is likely to occur only in very rare circumstances indeed.
I now return to the submission of Woolwich that your Lordships' House should, despite the authorities to which I have referred, reformulate the law so as to establish that the subject who makes a payment in response to an unlawful demand of tax acquires forthwith a prima facie right in restitution to the repayment of the money. This is the real point which lies at the heart of the present appeal; in a sense, everything which I have said so far has done no more than set the stage for its consideration.
The justice underlying Woolwich's submission is, I consider, plain to see. Take the present case. The Revenue has made an unlawful demand for tax. The taxpayer is convinced that the demand is unlawful, and has to decide what to do. It is faced with the Revenue, armed with the coercive power of the state, including what is in practice a power to charge interest which is penal in its effect. In addition, being a reputable society, which alone among building societies is challenging the lawfulness of the demand, it Understandably fears damage to its reputation if it does not pay. So it decides to pay first, asserting that it will challenge the lawfulness of the demand in litigation. Now, Woolwich having won that litigation, the Revenue asserts that it was never under any obligation to repay the money, and that it in fact repaid it only as a matter of grace. There being no applicable statute to regulate the position, the Revenue has to maintain this position at common law.
Stated in this stark form, the Revenue's position appears to me; as a matter of common justice, to be unsustainable; and the injustice is rendered worse by the fact that it involves, as Nolan, J. pointed out, the Revenue having the benefit of a massive interest-free loan as the fruit of its unlawful action. I turn then from the particular to the general. Take any tax or duty paid by the citizen pursuant to an unlawful demand. Common justice seems to require that tax to be repaid, unless special circumstances or some principle of policy require otherwise; prima facie, the taxpayer should be entitled to repayment as of right
To the simple call of justice, there are a number of possible objections. The first is to be found in the structure of our law of restitution, as it developed during the nineteenth and early twentieth centuries. That law might have developed so as to recognize a condictio indebiti---an action for the recovery of money on the ground that it was not due. But it did not do so.
Instead, as we have seen there developed common law actions for the recovery of money paid under a mistake of fact, and under certain forms of compulsion. What is now being sought is, in a sense, a reversal of that development, in a particular type of case; and it is said that it is too late to take that step. To that objection, however, there are two answers. The first is that the retention by the state of taxes unlawfully exacted is particularly obnoxious, because it is one of the most fundamental principles of our law---enshrined in a famous constitutional document the Bill of Rights (1688)---that taxes should not be levied without the authority of Parliament; and full effect can only be given to that principle if the return of taxes exacted under an. unlawful demand can be enforced as a matter of right. The second is that, when the Revenue makes a demand for tax, that demand is implicitly backed by the coercive powers of the state and may well entail (as in the present case) unpleasant economic and social consequences if the taxpayer does not pay. In any event, it seems strange to penalize the good citizen, whose natural instinct is to trust the Revenue and pay taxes when they are demanded of him. The force of this answer is recognised in a much-quoted passage from the judgment of Holmes, J. in Atchison Topeka and Santa Fe Rly. Co. v. O'Connor (1912) 223 US 280 at 285 286, when he said:
.as is common the State has a more summary remedy, such as distress, and the party indicates by protest that he is yielding to what he cannot prevent, Courts sometimes perhaps have been a little too slow to recognize the implied duress under which payment is made. But even if the State is driven to an action, if at the same time the citizen is put at a serious disadvantage in the assertion of his legal, in this case of his constitutional rights, by defence in the suit, justice may require that he should be at liberty to avoid those disadvantages by paying promptly and bringing suit on his side. He is entitled to assert his supposed right on reasonably equal terms.'
This particular answer might; however, point at first sight to a development of the common law concept of compulsion, rather than recognition of the broad principle of justice for which Woolwich contends. This was what in fact occurred in the leading Australian case of Mason v. New South Wales (1959) 102 CLR 108. It is impossible to summarise the effect of that complicated case in a few lines, but in practical terms the High Court of Australia found duress to exist in the possibility that the state might seize the plaintiffs property. A similar tendency to expand the concept of compulsion is to be discovered in the majority judgment of the Supreme Court of Canada in Eadie v. Brantford Township (1967) 63 DLR (2d) 561 (though events of a more dramatic character have since occurred in that jurisdiction, to which I will refer in a moment). This type of approach has also been advocated by Mr. Andrew Burrows in his interesting essay entitled `Public Authorities, Ultra Vires and Restitution' (Burrows (ed) Essays on the Law of Restitution (1991) pp. 39ff). We may expect that in any event the common law principles of compulsion, and indeed of mistake, will continue to develop in the future. But the difficulty with this approach for the present case is what Woolwich was in reality suffering from no mistake at all, so much so that it was prepared to back its conviction that the Revenue was acting ultra vires by risking a very substantial amount of money in legal costs in establishing that fact; and, since the possibility of distraint by the Revenue was very remote, the concept of compulsion would have to be stretched to the utmost to embrace the circumstances of such a case as this. It is for this reason that Woolwich's alternative claim founded on compulsion did not loom large in the argument, and is difficult to sustain. In the end, logic appears to demand that the right of recovery should require neither mistake nor compulsion, and that the simple fact that the tax was exacted unlawfully should prima facie be enough to require its repayment.
There is, however, a second objection to the recognition of such a right of recovery. This is that for your Lordships' House to recognize such a principle would overstep the boundary which we traditionally set for ourselves, separating the legitimate development of the law by the Judges from legislation. It was strongly urged by Mr. Glick, in his powerful argument for the Crown, that we would indeed be trespassing beyond that boundary if we were to accept the argument of Woolwich. I feel bound, however, to say. that, although I am well aware of the existence of the boundary, I am never quite sure where to find it. Its position seems to vary from case to case. Indeed, if it were to be as firmly and clearly drawn as some of our mentors would wish, I cannot help feeling that a number of leading cases in your Lordships' House would never have been decided the way they were. For example, the minority view would have prevailed in Donoghue (or M'Alister) v. Stevenson (1932) AC 562, (1932) All ER 1; our modern law of judicial review would have never developed from its old, ineffectual, origins; and Mareva injunctions would never have seen the light of day (see Mareva Cia Naviera SA v. International Bulkcarriers SA. The Mareva (1975) (1980) 1 All ER 213). Much seems to depend on the circumstances of the particular case. In the present case Mr. Glick was fully entitled to, and did, point to practical considerations to reinforce his argument. The first was that a case such as the present was so rare that it could not of itself call for a fundamental reformulation of the underlying principle----a point which I find unimpressive, when I consider that our task is essentially to do justice between the parties in the particular case before us. Second, however, he asserted that, if your Lordships' House were to accept Woolwich argument, it would be impossible for us to set the appropriate limits to the application of the principle. An unbridled right to recover overpaid taxes and duties subject only to the usual six-year time bar was, he suggested, unacceptable in modern society. Some limits had to be set to such claims; arid the selection of such limits, being essentially a matter of policy, was one which the legislature alone is equipped to make.
My reaction to this submission of Mr. Glick is to confess (to some extent) and yet to avoid. I agree that there appears to be a widely held view that some limit has to be placed on the recovery of taxes paid pursuant to an ultra fires demand. I would go further and accept that the armoury of common law defences, such as those which prevent recovery of money paid under a binding compromise or to avoid a threat of litigation, may be either inapposite or inadequate for the purpose; because it is possible to envisage, especially in modern taxation law which tends to be excessively complex, circumstances in which some very substantial sum of money may be held to have been exacted ultra vires from a very large number of taxpayers. It may well therefore be necessary to have recourse to other defences, such as for example short time limits within which such claims have to be advanced. An instructive example of this approach is to be found in German law, in which we find a general right of recovery which is subject to the principle that an administrative act is, even if in fact unlawful, treated as legally effective unless and until it is cancelled, either by the authority itself or by an administrative Court. Furthermore a citizen can only enforce the cancellation by making a formal objection within one month of notification; and if that objection is rejected by the authority, the citizen must take legal action within another month. In addition, one citizen cannot benefit from the successful formal objection of another citizen; he must object in due time himself. Such draconian time limits as these may be too strong a medicine for our taste; but the example of a general right of recovery subject to strict time limits imposed as a matter of policy is instructive for us as we seek to solve the problem in the present case.
At this stage of the, argument, I find it helpful to turn to recent developments in Canada. First, in a notable dissenting judgment (with which Laskin CJC concurred) in Nepean Hydro Electric Commission v. Ontario Hydro (1982) 132 DLR (3d) 193 Dickson, J. subjected the rule against recovery of money paid under a mistake of law to a devastating analysis and concluded that the rule should be rejected. His preferred solution was that, as in, cases of mistake of fact, money paid under a mistake of law should be recoverable if it would be unjust for the recipient to retain it. Next, in the-leading case of Air Canada v. British Columbia (1989) 59 DLR (4th) 161 the question arose whether money in the form of taxes paid under a statute held to be ultra vires was recoverable. It is impossible for me, for reasons of space, to do more than summarise the most relevant parts of the judgments of the Supreme Court of Canada. Of the seven Judges who heard the appeal, four thought it necessary to consider whether the taxes paid were recoverable at common law. The leading judgment was delivered by La Forest, J. with whom Lamer and L'Heureux-Dube, JJ. agreed. First, he decided (at 192) to follow Dickson, J's lead, and to hold that the distinction between mistake of fact and mistake of law should play no part in the law of restitution. This did not, however, imply that recovery would follow in every case where a mistake had been shown to exist:
If the defendant can show that the payment was made in settlement of an honest claim, or that he has changed his position as a result of the enrichment, then restitution will be denied.
However he went on to hold that, where `unconstitutional or ultra vires levies' are in issue, special considerations arose. These were two-fold. First, if the plaintiff had passed on the relevant tax toothers, the taxing authority could not be said to have been unjustly enriched at the plaintiff s expense, and he was not therefore entitled to recover. As La Forest, J. said (at 193): The law of restitution is not intended to provide windfalls to plaintiffs who have suffered no loss. On that basis alone, he held that the plaintiff's claim in the case before the Court must fail (at 193-194). However, he went on to hold that the claim failed on another ground, viz. that as a general rule there will, as a matter of policy, be no recovery of taxes paid pursuant to legislation which is unconstitutional or otherwise invalid. Basing himself on authority from the Untied States, La Forest, J. concluded that any other rule would at best be inefficient, and at worst could lead to financial chaos (at 194-197). The rule against recovery should not, however, apply where a tax is exacted, not under unconstitutional legislation, but through a misapplication of the law. He added that, in his opinion, if recovery in all cases is to be the general rule, then that was best achieved through the route of statutory reform (at 198).
Wilson, J. dissented. She did not think it necessary to consider whether the old rule barring recovery of money paid under mistake of law should be abolished, though .had she thought it necessary to do so she would have followed the approach of Dickson, J. She considered (at 169) that money paid under unconstitutional legislation was generally recoverable:
`The taxpayer, assuming the validity of the statute as I believe it is entitled to do, considers itself obligated to pay. Citizens are expected to be law-abiding. They are expected to pay their taxes. Pay first and object later is the general rule. The payments are made pursuant to a perceived obligation to pay which results from the combined presumption of constitutional validity of duly enacted legislation and the holding out of such validity by the legislature. In such circumstances I consider it quite unrealistic to expect the taxpayer to make its payments "under protest". Any taxpayer paying taxes exgible under a statute which it has no reason to believe or suspect is other than valid should be viewed as having paid pursuant to the statutory obligation to do so.
Furthermore, she was unable to accept the view of La Forest, J. that the principle of recovery should be reversed for policy reasons. She spoke in forthright terms (at 169):
`What is the policy that requires such a dramatic reversal of principle? Why should the individual taxpayer, as opposed to taxpayers as a whole, bear the burden of Government's mistake? I would respectfully suggest that it is grossly unfair that X, who may not be (as in this case) a large corporate enterprise, should absorb the cost of Government's unconstitutional act. If it is appropriate for the Courts to adopt some kind of policy in order to protect Government against itself (and I cannot say that the idea particularly appeals to me), it should be one that distributes the loss fairly across the public. The loss should not fall on the totally innocent taxpayer whose only fault is that it paid what the legislature improperly said was due.'
She also rejected the proposed defence of `passing on' (at 169-170). Accordingly in her opinion the taxpayer should be entitled to succeed.
I cannot deny that I find the reasoning of Wilson, J. most attractive. Moreover I agree with her that, if there is to be a right to recovery in respect of taxes exacted unlawfully by the Revenue, it is irrelevant to consider whether the old rule barring recovery of money paid under mistake of law should be abolished, for that rule can have no application where the remedy arises not from error on the part of the taxpayer, but from the unlawful nature of the demand by the Revenue. Furthermore, like Wilson, J. I very respectfully doubt the advisability of imposing special limits on recovery in the case of `unconstitutional or ultra vires levies'. I shall revert a little later to the defence of passing on.
In all the circumstances, I do not consider that Mr. Glick's argument, powerful though it is, is persuasive enough to deter me from recognising, in law, the force of the justice underlying Woolwich's case. Furthermore, there are particular reasons which impel me to that conclusion. The first is that this opportunity will never come again. If we do not take it now, it will be gone forever. The second is that I fear that, however compelling the principle of justice may be, it would never be sufficient to persuade a Government to propose its legislative recognition by Parliament; caution, otherwise known as the Treasury, would never allow this to happen. The third is that, turning Mr. Glick's argument against him, the immediate practical impact of the recognition of the principle will be limited, for (unlike the present case) most cases will continue for the time being to be regulated by the various statutory regimes now in force. The fourth is that, if the principle is to be recognised, this is an almost ideal moment for that recognition to take place. This is because the Law Commission's consultation paper is now under active consideration, calling for a fundamental review of the law on this subject, including a fresh look at the various, often inconsistent, statutory regimes under which overpaid taxes and duties either may or must be repaid. The consultation may acquire a greater urgency and sense of purpose if set against the background of a recognised right of recovery at common law. But in addition there is an immediate opportunity for the authorities concerned to reformulate, in collaboration with the Law Commissioner, the appropriate limits to recovery, on a coherent system of principles suitable for modern society, in terms which can (if it is thought right to do so) embrace the unusual circumstances of the present case. In this way, legislative bounds can be set to the common law principle, as Mr. Glick insists that they should. Fifth, it is well established that, if the Crown pays money out of the consolidated fund without authority, such money is ipso facto recoverable if it can be traced (see Auckland Harbour Board v. R (1924) AC 318). It is true that the claim in such a case can be distinguished as being proprietary in nature. But the comparison with the position of the citizen, on the law as it stands at (resent, is most unattractive.
There is a sixth reason which favours this conclusion. I refer to the decision of the Court of Justice of the European Communities in Amministrazione delle Finanze dello Stato v. SpA San Giorgio Case 199/82 (1983) ECR 3595, which establishes that a person who pays charges levied by a member State contrary to the rules of Community law is entitled to repayment of the charge, such right being regarded as a consequence of, and an adjunct to, the rights conferred on individuals by the Community provisions prohibiting the relevant charges (see para. 12 of the judgment of the Court in San Giorgio (at 3612)). The San Giorgio case is also of interest for present purposes in that it accepts that Community of law does not prevent a national legal system from disallowing repayment of charges where to do so would entail unjust enrichment of the recipient, in particular where the charges have been incorporated into the price of goods and so passed on the purchaser. I only comment that, at a time when Community law is becoming increasingly important, it would be strange if the right of the citizen to recover overpaid charges were to be more restricted under domestic law than it is under Community law.
I would therefore hold that money paid by a citizen to a public authority in the form of taxes or other levies paid pursuant to as ultra vires demand by the authority is prima facie recoverable by the citizen as of right. As at present advised, I incline to the opinion that this principle should extend to embrace cases in which the tax or other levy has been wrongly exacted by the public authority not because the demand was ultra vires but for other reasons, for example because the authority has misconstrued a relevant statute or regulation. It is not, however, necessary to decide the point in the present case, and in any event cases of this kind are generally the subject of statutory regimes which legislate for the circumstances in which money so paid either must or may be repaid. Nor do I think it necessary to consider for the purposes of the present case to what extent the common law may provide the public authority with a defence to a claim for the repayment of money so paid; though for the reasons I have already given, I do not consider that the principle of recovery should be inapplicable simply because the citizen has paid the money under a mistake of law. It will be a matter for consideration whether the fact that the plaintiff has passed on the tax or levy so that the burden has fallen on another should provide a defence to his claim. Although this is contemplated by the Court of Justice of the European Communities in the San Giorgio case, it is evident from Air Canada v. British Columbia that the point is not without its difficulties; and the availability of such a defence may depend on the nature of the tax or other levy. No doubt matters of this kind will in any event be the subject of consideration during the current consultations with the Law Commission.
For these reasons, I would dismiss the appeal with costs.
LORD JAUNCEY OF TULLICHETTLE:---My Lords, my noble and learned friend Lord Keith has set out in detail the background to this appeal. I gratefully adopt his account thereof. I further agree with my noble and learned friend that there can be inferred no implied agreement between the Woolwich Building Society (Woolwich) and the Revenue that the latter would repay the sum of h 57m in the event of the former succeeding in their challenge to the Income-Tax (Building Societies) Regulations, 1986 SI 1986/482.
I turn, therefore, to what I consider to be the primary issue in this appeal, namely, whether there exists a principle whereby a subject who makes a payment in response to a demand of taxation (or other like demand) from the Crown which is unlawful either because it is wholly ultra vires or merely excessive thereby acquires a prima facie right Up its repayment forthwith as money had and received. The existence of such a principle was negative by Nolan, J. (see (1989) STC 111, (1989) 1 WLR 13)) but accepted by a majority of the Court of Appeal (see (1991) 4 All ER 577, (1991) 3 WLR 790). Glidewell, LJ after an extensive review of authority concluded that such a principle existed subject to two limitations and Butler-Sloss LJ agreed with him. The two limitations were that recovery will not be available (i)-where it can properly be said that the payment was made to close the transaction, and (2) where the payer was mistaken as to the proper interpretation of the statute.
In Fibrosa Spolka Akcyina. v. Fairbairn Lawson Combe Barbour Ltd. (1942) 2 All ER 122 at 135, (1943) AC 32 at 61 Lord Wright said:
"It is clear that any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that it, to prevent a man from retaining the money of, or some benefit derived from another Which it is against conscience that he should keep:"
If the remedies provided in England were of universal application then it is clear that this appeal would not have been before your Lordships. However, since Lord Mansfield, CJ said in Moses v. Macferlan (1760) 2 Burr 1005 at 1012, (1558-1774) All ER Rep. 581 at 585 that the gist of the action of indebitatus assumpsit `is, that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money' it is clear that the remedies which the law has provided have been subject to certain important limitations. Mr. Gardiner QC for Woolwich accepted that none of the cases directly vouched the principle but argued that a detailed analysis of authority from the eighteenth century to date supported its existence. There is, of course, no doubt that a payment made in response to an unlawful demand under duress or compulsion may be recovered. Duress need not be physical and can take many forms. For example an official may refuse to issue a necessary certificate except on payment of a fee which exceeds that which he may lawfully exact or an authority may threaten seizure of goods or disconnection of vital supplies if an unlawful demand is not met. In some of the cases reference is made to recovery after demands colore officii. This phrase has been described as confusing and was so in the present case by Ralph Gibson, LJ. If it is necessary to define it I would adopt the following passages:
(1) In the judgment of Isaacs, J. in Sargood Bros. v. Commonwealth (1910) 11 CLR 258 at 301:
The right to recovery after a demand colore officii rests upon the assumption that the position occupied by the defendant creates virtual compulsion, where it conveys to the-person paying the knowledge or belief that he has no means of escape from payment strictly so called if he wishes to avert injury to or deprivation of some right to which he is entitled without such payment.
(2) In the judgment of Windeyer, J. in Mason v. New South Wales (1969) 102 CLR 108 at 140:
`Extortion by colour of office occurs when a public officer demands and is paid money he is not entitled to, or more than he is entitled to, for the performance of his public duty. Examples of such exactions are over-tolls paid to the keepers of toll-bridges and turnpikes, excessive fees demanded by sheriffs, pound-keepers, &c. The parties were not on an equal footing; and generally the payer paid the sum demanded in ignorance that it was not due.'
These passages in my view admirably define what is meant by colore officii and effectively dispose of any suggestion that because the person making the demand holds some official position that of itself amounts to a form of compulsion. Before turning to consider the main authorities I should emphasise that Woolwich paid the principal sum under neither mistake of fact nor of law, rather did it pay under protest and take immediate action to challenge the validity of the demand:
In Woolwich's case' on appeal the main authorities are set out chronologically as an appendix and I find it convenient to deal with them in that order and to describe the principle above referred to as `the Woolwich principle'. The first case is Newdigate v. Davy (1693) 1 Ld Raym 742, 91 ER 1397 in which it was held that indebitatus assumpsit lay for money paid under the sentence of a Court which had no jurisdiction. The report runs to only a few lines and Treby; CJ of the Common Pleas is reported as holding that `when money is paid in pursuance of a void authority, &c. indebitatus assumpsit lies for it'. Although this proposition is wide enough to cover payment made in response to an illegal demand it was stated in the context of a Court order of which the compulsitor must be assumed to be very much stronger than that of a mere demand which has yet to be enforced. It thus appears to be a case in which the payment was made under duress or compulsion and does not support the Woolwich principle.
The next case is Campbell v. Hall (1774) 1 Cowp 204, (1558-1774) All ER Rep. 252 in which duty unlawfully exacted on the export of sugar from Grenada was held to be recoverable. The basis of the action for money had and received was that the money was paid to the defendant without any consideration, the duty having been unlawfully imposed. Mr. Gardiner relied on this case as demonstrating that it was considered self-evident that the right to recovery arose directly from the unlawful exaction irrespective of whether any element of compulsion existed. I think that this is to take too much from the decision. In the first place, almost the entire judgment was devoted to a consideration of whether or not the letters under the Great Seal were good and valid to impose the duty whereas the right to recover was dealt with in ten words as a necessary consequence of invalidity. In the second place, Mr. Glick QC for the Crown pointed out that in the State Trials report (see 2U State Tr 239) it appeared that the Crown did not suggest that if the duty was not payable in law it nevertheless could not be recovered. The Crown's failure to present such an argument may not have been unconnected with the tension existing between the King and the North American colonies consequent on the recent Boston Tea Party. I do not therefore think that support for the Woolwich principle can be derived from this case.
In Dew v. Parsons (1819) 2 B & Aid 562, 106 Er 471 a sheriff demanded a fee for the issue of a warrant which was larger than that to which he was in law entitled, and received payment from an attorney who was in ignorance of the law. It was held that .the sheriff was not entitled to retain the surplus. Abbott, CJ and Holroyd, J. decided the case on the simple-ground that the sheriff could not retain what he was not entitled to demand without any suggestion of a demand colore officii or an involuntary payment. Best, J. appeared to consider that the payment was involuntary inasmuch as the attorney being in ignorance of the true situation, both parties were not in an equal position. Mr. Gardiner submitted that this case supported the Woolwich principle because it showed that a sum unlawfully demanded as of right by a person in authority could be recovered. Mr. Glick maintained that this was a colore officii case. The description of the facts is somewhat exiguous and I cannot help feeling that if they had been fully stated the case would fall to be treated as involving a demand colore oficii rather than as supporting the Woolwich principle.
Morgan v. Palmer (1824) 2 B & C 729, 107 ER 554 concerned the recovery of fees unlawfully demanded for the grant of a publican's licence. It was held that the payment was not voluntary so as to preclude recovery. Abbott, CJ said (2 B & C 734-735, 107 ER 554 at 556).
Then as to the last point. It has been well argued that the payment having been voluntary, it cannot be recovered back in an action for money had and received. I agree that such a consequence would have followed had the parties been on equal terms. But if one party has the power of saying to the other, "That which you require shall not be done except upon the conditions which I choose to impose," no person can contend that they stand upon anything like an equal footing. Such was the situation of the parties to this action.
Abbott, CJ's reference to the lack of an equal footing was, in my view, to the fact that the defendant was in a position to force the plaintiff to comply with the lawful demand if he wished to obtain the necessary licence to continue to trade, and not simply to the fact that the defendant held an official position whereas the plaintiff did not. Bayley, Holroyd and Littledale, JJ. all agreed that the payment was not voluntary, the latter remarking (2 B & C 729 at 739, 107 ER 554 at 558) that the plaintiff had `submitted to pay the sum claimed, as he could not otherwise procure his licence'. This was a clear case where the defendant was in a position to and did in fact exert duress to require payment of the sum unlawfully claimed.
In Steele v. Williams (1853) 8 Exch. 625, 155 ER 1502 the plaintiff's clerk was unlawfully charged for taking extracts from a parish register the larger fee which was chargeable in respect of certificates. The plaintiff was held entitled to recover the unlawfully demanded excess. Although the conclusion of the Court was unanimous the reasoning of the three Judges differed. Parke B concluded that the payment `was not voluntary, because, in effect, the defendant told the plaintiff's clerk, that if he did not pay for certificates when he wanted to make extracts, he should not be permitted to search'. However, he later went on to countenance the possibility that the defendant might have been guilty of extortion in insisting on payment `even without that species of duress, viz. the refusal to allow the party to exercise his legal right, but colore officii (see 8 Exch. 625 at 630-631, 155 ER 1502 at 1504-1505). It appears that Parke B was there using the words colore officii merely to denote an official demand and not in the more limited, and in my view, correct sense referred to by Isaacs and Windeyer, JJ. in the cases to which I have already referred (Sargood Bros. v. Commonwealth (1910) 11 CLR 258 at 301 and Mason v. New South Wales (1959) 102 CLR 108 at 140). Platt B said (8 Exch. 625 at 631, 155 ER 1502 at 1505):
`But, inasmuch as before the search began the defendant told the plaintiff's clerk that the charge would be the same whether he made extracts or had certified copies, and under that pressure the extracts were obtained, and it would have been most dishonorable for the party, after having got the extracts, to refuse to pay, the money so obtained may be recovered back.'
This is an interesting passage because Platt B is effectively saying that an undertaking to pay this excessive charge had been extracted from the clerk before he commenced his search and that he could not honestly have gone back on that undertaking. Martin B said (8 Exch. 625 at 632-633, 155 ER 1502 and 1505):
As to whether the payment was voluntary, that has in truth nothing to do with the case. It is the duty of a person to whom an Act of Parliament gives fees, to receive what is allowed, and nothing more. This is more like the case of money paid without consideration---to call it a vountary payment is an abuse of language. If a person who was occupied a considerable time in a search gave an additional fee to the parish clerk, saying, "I wish to make you some compensation for your time," that would be a voluntary payment. But where a party says, "I charge you such a sum by virtue of an Act of Parliament," it matters not whether the money is paid before or after the service rendered; if he is not entitled to claim it, the money may be recovered back.
Although the last sentence in that passage could be read as covering any demand for payment in purported reliance on a statute Martin B does relate it F to a service rendered' and the following interjection by him (8 Exch. 625 at 629,155 ER 1502 at 1504) during argument suggests that he was thinking of a demand colore officii in the sense referred to by Isaacs and Windeyer, JJ.
`The case of Morgan v. Palmer shows, that if a person illegally claims a fee colore officii, the payment is not voluntary so as to preclude the party from recovering it back.'
This sentence should also be read in the light of the sentence in the judgment of Plott B to which I have referred. It is, therefore, in my view taking too much out of this case to read it as supporting the broad proposition that payment in response to an unlawful demand by an official is ipso facto recoverable.
In Hooper v. Exeter Corp (1887) 56 LJQB 457 the plaintiff paid harbor dues on all limestone which he landed, being unaware that such dues were not payable in respect of limestone to be burnt. Having discovered the true position he successfully claimed recovery of all dues paid in respect of exempted limestone. The judgments were very short and appeared to have been extempore. Lord Coleridge, CJ said (at 457-458):
`I feel sure that if the corporation of Exeter had had the facts of the present case brought before them they would never have insisted upon the payment of a toll which they clearly would have had no right to insist on if the plaintiff had but claimed exemption upon landing the limestone From the case cited in the course of the argument (Morgan v. Palmer) it is shown that the principle has been laid down that, where one exacts money from another and it turns out that although acquiesced in for years such exaction is illegal, the money may be recovered as money had and received, since such payment could not be considered as voluntary so as to preclude its recovery.'
Smith, J. agreed referring to the authority of Morgan v. Palmer and Steele v. Williams. Mr. Gardiner argued that this case supported the Woolwich principle inasmuch as recovery depended solely, on the fact that the corporation had been placed by statute is a position of authority. Morgan v. Palmer was, as I have already said, a case in which the defendant used his authority to exert pressure on the plaintiff to pay the sum demanded. I do not doubt that Lord Coleridge, CJ fully understood the ratio of that case and he must therefore have considered that there were facts in the case before him which were comparable to those obtaining in Morgan v. Palmer, although the report does not suggest the existence of any such facts. Indeed whereas in Morgan v. Palmer the defendant had no statutory authority to demand a fee and the plaintiff had no option but to pay it in order to obtain the licence, in this case the corporation were fully entitled to levy a toll on the landing of limestone which they were not informed was to be burnt. The exaction in this case was accordingly unlawful not because of what the corporation did but because of what the plaintiff did not do. I find this a difficult case to understand but I do not think that it can be said to support the Woolwich principle.
The next case is Slater v. Burnley Corp (1888) 59 LT 636, where the plaintiff without objection paid water rates which were wrongly charged on the basis of a gross rental instead of a rateable value. Although the defendants had power to cut off the water supply for non-payment of rates they had neither done so nor threatened to do so. The plaintiff, who did not give evidence in the county Court, failed to recover the excess payments on the ground that they were made voluntarily. Both Judges of the Divisional Court, Cave and Wills, JJ. considered (at 639) that the mere existence of the power to cut off the water supply without any threat to exercise that power did not prevent the payment from being voluntary. The plaintiff argued for the Woolwich principle and referred to both Hooper v. Exeter Corp and Steele v. Williams but no reference to these cases appears in the reserved judgment. The lack of such a reference stems, in my view not from the fact that the Judges were wrong, as Mr. Gardiner submitted but rather from their recognition that the cases did not support the existence of such a principle as was contended for.
In Queens of the River Steamship Co Ltd. v. Thames Conservators (1899) 15 TLR 474 improper charges levied for use of a pier were held by Phillimore, J. to be recoverable on the ground that the charges being illegal there was no consideration for the payment made. No further reason was given by the Judge and no authority was referred to in his very short judgment. While the case may appear to support the Woolwich principle it cannot be treated as a decision of any weight.
In William Whiteley Ltd. v. R (1909) 101 LT 741, (1908-10) All ER Rep. 639 a company was charged duties by the Revenue on `male servants' whom they employed. The company initially expressed doubts as to their liability to duty but were informed that the Revenue were of the opinion that the duties were payable and that they would incur penalties if they did not pay. The company then paid the duties for three years. At the end of that time they again expressed doubts as to their liability to pay and for the next three years paid under protest. Finally they refuse to pay and a Divisional Court held that they were not liable to do so. A petition of right to cover the duties paid was unsuccessful. Walton, J, held that the payments were voluntary and therefore irrecoverable and he rejected the submissions of the plaintiffs that they were paid (i) in discharge of an illegal demand colore officii or (20) in any event under duress. Although Walton, J. referred on two occasions to the suppliants being under a mistaken belief that they were bound to pay the duties it is clear from his findings that in relation to at least the last three payments they were in considerable doubt as to their liability and he said (101 LT 741 at 745, (1908 10) All ER Rep. 639 at 641):
`The suppliants knew all the facts. They had present to their minds plainly; when these payments were made, there was a question as to whether upon such servants as those in question duty was payable. They themselves raised that question and they paid the duties. They could have resisted payment. They must have known if proceedings were taken for penalties it would be open to them in such proceedings to raise the question as to whether the duties were payable or not, as they did, in fact, in 1906. They must have known and must have had present to their minds all that'
Earlier the judge, after referring to the rule that money paid under mistake of law is irrecoverable had said (101 LT 741 at 745, (1908-10) All ER Rep 639 at 641): .
`There is no doubt as to the general rule in Leake on Contracts [(5th Edn.) pp. 622-623) to which I have already referred, that money paid voluntarily--that is to say, without compulsion or extortion or undue influence, and, of course, I may add without any fraud on the part of the person to whom it is paid, and with knowledge of all the facts, though paid without any consideration, or in discharge of a claim not due, or a claim which might have been successfully resisted, cannot be recovered back.
Mr. Gardiner argued that Walton, J erred in number of respects although he may have reached the right answer by the wrong route. I do not agree. His conclusion that there was no duress where the defendant could only put pressure on the plaintiff by the institution of proceedings, to which proceedings there would have been available the defence which ultimately prevailed, was, in my view, unimpeachable since there is ample authority for the view that a mere threat of action does not per se constitute duress. This accords with common sense since if there is defence to an unlawful demand the most appropriate time to raise it is when the demand is sought to be enforced by action. It the defence is good that will be the end conclusion that the case did not fall within the approach as enunciated by Isaacs, J. to decide the case on the basis of agree with the doubts expressed by Romer as to their understanding of the law at would go further and conclude that at least in case is that in factual plaintiffs contended for the principle relied on by Mr. Gardiner and failed to persuade the judge that such a principle existed.
Maskell v. Homer (1915) 3 KB 1b6, (1914-15) All ER Rep. 595 concerned unlawful demands for market tolls. On the plaintiffs refusal to pay seizure took place, and thereafter on his solicitor's advice the plaintiff paid under protest. Later when the plaintiff challenged the defendant's demands seizure either took place or was threatened. Some years later it appeared from a decision in the Chancery Division that the tolls had been unlawfully demanded and the plaintiff sued for their recovery. It was held that as he had only paid to avoid seizure of his goods and never voluntarily nor intending to give up his rights to the sums paid nor to close the transactions, he was entitled to recover those payments which were not barred by the statute of limitation. Lord Reading, CJ drew a distinction between payments made to close a transaction and those made to avoid seizure in the allowing passage ((1915) 3 KB 106 at 118, (1914-15) All ER Rep. 595 at 597):
'If a person with knowledge of the facts pays money, which he is not in law bound to pay, and in circumstances implying that he is paying, it voluntarily to close the transaction, he cannot recover it. Such a payment is in law like a gift, and the transaction cannot be reopened. If a person pays money, which he is not bound to pay, under the compulsion of urgent and pressing necessity or of seizure, actual or threatened, of his goods he can recover it as money had and received. The money is paid not under duress in the strict sense of the term, as that implies duress of person, but under the pressure of seizure or detention of goods which is analogous to that of duress. Payment under such pressure establishes that 'the payment is not made voluntarily to close the transaction.'
He later quoted with approval ((1915) 3 KB 106 at 119, (1914-15) All ER Rep. 595 at 598) the following dictum of Willes, J. in Great Western Rly. Co. v. Sutton (1869) LR 4 HL 226 at 249:
`When a man pays more than he is bound to do by law for the performance of a duty which the law says is owed to him for nothing, or for less than he has paid, there is a compulsion or concussion in respect of which he is entitled to recover the excess by condictio indebiti, or action for money had and received. This is every day's practice as to excess freight.'
Lord Reading, CJ later explained why payment in or under threat of an action is irrecoverable ((1915) 3 KB 106 at 121--122, (1914-15) All ER Rep. 595 at 599):
`There is no doubt that if a person pays in an action or under threat of action the money cannot be recovered by him, as the payment is made to avoid the litigation to determine the right to the money claimed. Such payment is not made to keep alive the right to recover it, inasmuch as the opportunity is thus afforded of contesting the demand, and payment in such circumstances is payment to close the transaction and not to keep it open. Even if the money is paid in the action accompanied by a declaration that it is paid without prejudice to the payer's right to recover it, the payment is a voluntary payment, and the transaction is closed.'
Mr. Gardiner submitted that this case was neutral relation to the Woolwich principle but I think that is to take too favourable view of it. In the passages to which I have referred I understand Lord Reading, CJ to be predicating some measure of compulsion in addition to the unlawful demand before recovery is available.
In A-G v. Wiltus United Dairies Ltd. (1921) 37 TLR 884 the defendants resisted an unlawful demand for a levy on milk purchased by them under a licence granted by the Food Controller. The following passage from the judgment of Atkin, LJ (at 887) was relied on by Mr. Gardiner as showing that recoverability was not dependent on any measure of compulsion:
It makes no difference that the obligation to pay the money is expressed in the form of an agreement. It was illegal for the Food Controller to require such an agreement as condition of any licence. It was illegal for him to enter into such an agreement. The agreement itself not enforceable against the other contracting party; and if he had paid under it he could, having paid under protest, recover back the sums paid, as money had and received to his use.
The reference to recovery of money paid was obiter and Atkin, LJ referred to no authority throughout his judgment. It may well be that he considered payment of the levy was necessary prerequisite of obtaining the licence and hence amounted to a form of compulsion. If, on the other hand, he was stating m a matter of principle that the coupling of a protest with a payment of money unlawfully demanded per se rendered that payment recoverable he was expressing view for which no authority prior to that date has been cited this House and which were contrary to those expressed by Lord Reading, CJ in Maskell v. Horner. In that case Lord Reading, CJ said ((1915) 3 KB 106 at 120 1914- All ER Rep. 595 at 598.
`I do not think that the mere fact of a payment under protest would be sufficient to entitle the plaintiff to succeed; but I think that it affords some evidence, when accompanied by other circumstances, that it affords some evidence, when accompanied by other circumstances, that the payment was not voluntarily made to 'end the matter.'
This comment was made in the context of the dictum of Wifes, J. in Great Western Rly. Co. v. Sutton (1869) LR 4 HL 226 at 249 which he had previously cited with approval and which presupposed that compulsion had induced the payment. As Windeyer, J. said in Mason v. New South Wales (1959) 102 CLR 108 at 143: `But there is no magic in a protest; for a protest may accompany a voluntary payment or be absent from one compelled.'
T & J Brocklebank Ltd. v. R (1925) 1 KB 52, CA; rvsg (1924) 1 KB 647 concerned the grant by the Shipping Controller of a licence to cell a ship under an unlawful condition as to the payment to him of a proportion of the sale price. It was held both by Avory, J. and the Court of Appeal that the payment in terms of the unlawful condition was not voluntary having been made for the purpose of obtaining the licence and could therefore be recovered as in Morgan v. Palmer. The case does not assist Woolwich. Nor does National Pari-Mutuel Association Ltd. v. R (1930) 47 TLR 110 in which it was held that payment of betting duty under a statutory provision thought by the plaintiffs to be applicable but later held by this House in similar case to be inapplicable, was made under a mistake of law and not of fact and was therefore irrecoverable. No question of payment under duress was raised.
In Twyfrd v. Manchester Corp (1946) 1 All ER 621, (1946) Ch. 236 the plaintiff, although believing that he was not liable, for some years paid fees under protest for permission to recut and repaint tombstones in a cemetery. In an action to recover those fees it was held that the registrar of the cemetery had no right to demand fees for recutting and repainting but that there being no suggestion that any unpleasant result would follow from non-payment the plaintiff must be taken to have paid voluntarily. Romer, J. relied on William Whiteley Ltd. v. R and Slater v. Burnley Corp. in reaching his decision, and he also referred to the `principle of duress coleri officii' in a manner which showed that the necessary duress required something more than a simple demand by an official (see (1946) 1 All ER 621 at 627, (1946) Ch. 236 at 241). This is another case in which the Woolwich principle could readily have been applied in favour of the plaintiff had it existed. In Glasgow Corp. v. Lord Advocate 1959 SC 203 the corporation, having for a number of years paid purchase tax on manufactured stationery, erroneously believing it to be due, sought to recover it when it was held not to be chargeable. Two separate grounds were advanced in support of the claim, namely (1) the broad Constitutional point that as the Customs and Excise Commissioners had no authority from Parliament to impose the charges and the corporation were under no legal liability to pay them the latter should be entitled to recover, and (2) that the condictio indebiti applied where there was error in the interpretation of a public general statute. The Lord President (Lord Clyde) rejected both grounds and in relation to the first observed that no authority of any kind had been cited to justify it and that A-G v. Wilts United Dairies Ltd. was not in point. The Lord President (at 230) also made the following observation in relation to the consequences of sustaining the first ground:
`It would, in my opinion, introduce an element of quite unwarrantable uncertainty into the relations between the taxpayers and the Exchequer if there could be a wholesale opening up of transactions between them whenever any Court put a new interpretation upon an existing statutory provision imposing a tax.'
South of Scotland Electricity Board v. British Oxygen Co. Ltd. (No: 2) (1959) 2 All ER 225, (1959) 1 WLR 587 concerned an action by the pursuer companies against an electricity board seeking declarator and payment in respect of unlawful overcharges by the defenders for the supply of electricity. The issue before this House was whether the action should go to proof before answer or be dismissed and proof before answer was allowed. In the course of his speech Viscount Kilmuir, LC said ((1959) 2 All ER 225 at 232-233, (1959) 1 WLR 587 at 596):
`The respondents were charged more than is warranted by the statute. Then it is clear that, until a Court so declares, the respondents have no alternative but to continue to pay the charges demanded of them. In principle, the appellants should not be permitted to retain payments for which they have no warrant to charge. The respondents may, therefore, recover whatever sum they may be able to prove was in excess of such a charge as would have avoided undue discrimination against them. I cannot find anything in the cases decided under the railway and electricity statutes which would necessitate or lead to a contrary view. I respectfully agree with Lord Patrick that Great Western Ry. Co. v. Sutton and Lancashire and Yorkshire Ry. Co. v, Gidlow (1875) L R 7 HL 517 support this view.'
Mr. Gardiner relied on the first part of this quotation stating the principle of recoverability in wide terms. I do not, however, consider that Viscount Kilmuir, LC was intending to state that any payment in response to any unlawful demand could be recovered. His reference to the respondents having no alternative but to continue to pay and to Great Western Rly. Co. Ltd. v. Sutton suggests that he was referring to payments made to avoid unpleasant consequences other than a simple action of payment.
My Lords, that concludes my analysis of what I perceive to be the important British cases but before seeking to draw conclusions therefrom I must refer to certain Commonwealth and American cases. In Sargood Bros. v. Commonwealth (1910) 11 CLR 258 duties were charged under a proposed tariff which exceeded the tariff subsequently enacted. The excess was held to be recoverable as not having been paid voluntarily. Mr. Gardiner relied on the following passage in the judgment of O'Connor, J. as supporting the Woolwich principle inasmuch as he made no mention of the payment having to be exacted for the performance of a duty (at 276-277).
"The first ground is taken that the payment was voluntary. In one sense it was. It was in fact made without protest and in the ordinary course of Customs business. But it was paid with the knowledge on both sides that Customs control over goods imported may be exercised in support of illegal as well as of legal demands of duty. The principle of law applicable in such cases is well-recognised. Where an officer of Government in the exercise of his office obtains payment of moneys as and for a charge which the law enables him to demand and enforce, such moneys may be recovered back from him if it should afterwards turn out that they were not legally payable even though no protest was made or question raised at the time of payment. Payments thus demanded colore officii are regarded by the law as being made under duress. The principle laid down in Morgan v. Palmer, Steele v. Williams, and adopted in Hooper v. Exeter Corporation clearly establish that proposition (After referring to a section of the relevant Customs Act which was said to give an importer an opportunity to obtain his goods without making an irrevocable payment of the duty claimed O'Connor, J. continued:) The Collector has the power to keep the goods under Customs control until the importer either pays the duty or takes the advantage of the section. The latter he can do only by depositing with the Collector the whole amount of the duty. He may, it is true, exercise his free will as to which of these courses he shall adopt. But there is a compulsion to adopt one or the other, and whichever course he may take he cannot ;obtain possession of his goods without handing over to the Collector either absolutely or conditionally the amount claimed as duty."
I do not read this passage as stating that an unlawful demand which is enforceable is per se insufficient to found recovery. The references to Morgan v. Palmer and the other two cases and to the compulsion on the importer to adopt one of two courses suggest that O'Conner, J. was referring to a situation where there was not only an unlawful demand but a means of enforcing it without recourse to litigation. This judgment therefore, does not support the Woolwich principle.
Mason v. New South Wales (1959) 102 CLR 108 concerned fees paid by the plaintiffs to obtain licences to carry goods between states. It was subsequently held by the Privy Council that permits were not required by persons in the position of the plaintiffs. In paying the fees the plaintiffs were aware of the pending appeal and paid under protest. The Act under which the permits were purported required empowered authorized officers to seize unlicensed vehicles. The High Court of Australia (McTiernan, J. dissenting) held that the payments were not made voluntarily but under duress and were therefore, recoverable. Dixon, C.J. said (at 116):
"In all these circumstances I think that it is a proper inference that, in the case of each journey in question, the plaintiffs paid the money unwillingly and only because they apprehended on reasonable grounds that without the permit which could not otherwise be obtained officers acting under the authority of the State of New South Wales would or might stop the motor vehicle and refuse to allow it to proceed upon the journey."
He expressed doubts as to whether money paid in response to an unlawful demand by the Crown could not be recovered in the absence of some threatened action or inaction, but he considered that English authority seemed to say that it was not recoverable. He said (at 117):
"We are dealing with the assumed possession by the officers of Government of what turned out to be a void authority. The moneys were paid over by the plaintiffs to avoid the apprehended consequence of a refusal to submit to the authority. It is enough if there be just and reasonable grounds for apprehending that unless payment he made an unlawful and injurious course will be taken by the defendant in violation of the plaintiffs' actual rights."
Fullager, J. (at 124) considered that the payments were made in order to avoid a very real risk that a refusal to pay would be followed by action which could be ruinous to the plaintiffs' Kitto, J. said (at 126):
"The proposition need not be questioned that where an Act purports, invalidly, to require a payment to be made, leaving the liability to be enforced by means of an action in which the invalidity of the statute is an available defence, a person who might have relied upon that defence but has paid without raising it should not be held, just because he was obeying the de facto command of a legislature, to have made the payment involuntarily. But even in the case of such an Act, if there are superadded provisions which attach to non-payment consequences other than a bare liability to be sued, there can be no justification for refusing to have regard to those consequences and to consider whether the existence of the provisions creating them has placed the payer under such pressure that the payments have not in truth been voluntary."
The final paragraph of his judgment included the following passage (at 129):
"I do not myself feel justified in attaching much weight to the tenuous evidence upon which we were invited to find that the plaintiffs made their payments because of apprehensions induced by words or conduct of State officials that vehicles would or might be seized and detained under section 47. My judgment rests upon the view that the plaintiffs had quite enough compulsion upon them from the terms of the Act itself, apart altogether from anything that may have been said or done by officers of Government. Under that compulsion they parted with their money."
As I understand it, Kitto, J. is saying that the mere availability to the payee of summary remedies for non-payment may amount to sufficient compulsion on the payer to entitle him to recover irrespective of whether the payee has given any indication that the proposes of excise such remedies. In this view he was alone. Windeyer, J. rejected any idea that mere superiority of position of the defendant was a ground of recovery in the following passage (at 142):
"The importance of the matter is that the plaintiffs cannot succeed simply because of the superior position of the defendant. They must go further and establish that there was, in a legal sense, compulsion by something actually done or threatened, something beyond the implication of duress arising from a demand by person in authority, which suffices in a true colore officii case. Further the plaintiffs must establish that they actually paid because of this compulsion, and not voluntarily despite it."
He differed from Kitto, J. in his approach to the amount of compulsion necessary in this passage (at 144):
"... but the mere appearance on the statute book of a measure providing for penalties and forfeitures does not mean that all moneys collected pursuant to the statute are exorted by the Crown. It is, in my view, necessary for the plaintiffs to do more than point to the provisions of the statute. They must show that the Crown by its servants was exercising, or threatening to exercise, powers under the statute in such a way as to constitute compulsion in law. A threat of proceedings for a pecuniary penalty does not make a payment made thereafter involuntary; for the payer might have defended .the proceedings and relied upon the unlawfulness of the demand (William Whiteley Ltd. v. The King and Wertin v. The Commonwealth (1938) 59 CLR 150). But a payment made under pressing necessity to avoid a seizure of goods, or to obtain the release of goods unlawfully detained, or to prevent some interference with or withholding of a legal right, is compelled and not voluntary and is recoverable in an action for money had and received."
I consider that the foregoing reason of Windeyer, J. accords better with prior authority such as Slater v. Burnley Corp. (1888) 59 LT 636, and is to be preferred.
Mr. Gardiner founded on a passage in the dissenting judgment of Wilson, J. in Air Canada v. British Columbia (1989) 59 DLR (4th) at 169:
"It is, however, my view that payments made under unconstitutional legislation are not `voluntary' in a sense which should prejudice the taxpayer. The taxpayer, assuming the validity of the statute as I believe it is entitled to do, considers itself obligated to pay. Citizens are expected to be law-abiding. They are expected to pay their taxes. Pay first and object later is the general rule."
While there may be much to be said for the views expressed in this passage it seems to me with all respect to Wilson, J. that she was stating what she thought the law ought to be rather than what it is. La Forest, J. who delivered the leading judgment on behalf of the majority concluded (at 196) that the rule should be against recovery of ultra vires taxes, at least in the case of unconstitutional statutes" and went on (at 199) to reject the proposition that payment under an ultra vires statutes constituted compulsion.
Finally, I refer to two American cases, Fairbanks v. Snow (1887) 13 NE 596 and Atchison Topeka and Santa Fe Rly. Co. v. O'Connor (1912) 223 US 280. In the former the defendant alleged that her signature to a promissory note was obtained by duress and threats on her husband's part. Holmes, J. said (13 NE 596 at 598):
"Again, the ground upon which a contract is voidable for duress is the same as the case of fraud, and is that, whether it springs from a fear or a belief, the party has been subjected to an improper motive for action."
The latter case was an action to recover taxes paid under duress and protest, the plaintiff contending that the levying statute was unconstitutional, and the defendant contending that payment was voluntary. Holmes, J. said (223 USC 280 at 285-286).
"It is reasonable that a man who denies the legality of a tax should have a clear and certain remedy. The rule being established that apart from special circumstances he cannot interfere by injunction with the State's collection of its revenues, an action at law to recover back what he has paid is the alternative left. Of course we are speaking of those cases where the State is not put to an action if the citizen refused to pay. In these latter he can interpose his objections by way of defence, but when, as is common, the State has a more summary remedy, such as distress, and the party indicates by protest that he is yielding to what he cannot prevent, Courts sometimes perhaps have been a little too slow to recognize the implied duress under which payment is made. But even if the State is driven to an action if at the same time the citizen is put at a serious disadvantage in the assertion of his legal, in this case of his Constitutional rights, by defence in the suit, just may require that he should be at liberty to avoid those disadvantages by paying promptly and bringing suit on his side. He is entitled to assert his supposed right on reasonable equal terms."
The serious disadvantages to which the plaintiffs could have been put in that action were (1) the possible forfeiture of their right to do business within the State until the tax was paid; Holmes, J. recognized that it might not be possible to establish the forfeiture without quo warranto but considered that even before or until such a proceeding the effect of the clause on the plaintiffs' business could be serious, and (2) the incurring of a penalty which would continue to accrue and accumulate pending litigation should the plaintiffs ultimately fail. Holmes, J. considered that in these circumstances the payment was made under duress. He was there dealing not with summary remedies available to the State to which a citizen had no opportunity to state a defence, but rather to additional consequences which might adversely affect a citizen should he fail in his defence to the claim to the principal sum. These views, which have undoubted attraction, give some support to the Woolwich principle but they are inconsistent with the reasoning in Slater v. Burnley Corp., William Whiteley Ltd. v. R. Twyford v. Manchester Corp. and with that of Windeyer, J. in Mason v. New South Wales.
My Lords, that concludes my somewhat prolonged analysis of the main authorities. Running through the authorities is the distinction between voluntary payments and payments made under compulsion or duress--the former being irrecoverable, the latter recoverable. The difference in the various authorities lies in the determinations as to what constitutes compulsion or duress. Although the matter does not arise in this appeal because Woolwich were fully aware of all the relevant circumstances, I cannot help feeling that there is some illogicality in treating as voluntary a payment by someone who justifiably believes that the demand is lawful whereas in fact it turns out to be unlawful. Voluntary to my mind suggests that the payer being aware of all relevant circumstances including the true state of the law or perhaps having a doubt but not caring which way that doubt is resolved consciously makes a decision to pay. Indeed, I very much doubt whether in all cases the distinction between mistake of fact and of law can be justified any longer. Can the reasoning of Lord Ellenbrough, CJ. in Bilbie v. Lumley (1802) 2 East 469, (1775-1802) All ER Rep. 425 be appropriately applied to the complex legislation both primary and subordinate to which the citizen is subject in present times? These are, however, matters for the Law Commission and not for this appeal. Woolwich did not suggest that the difference between the treatment of vountary and compulsory payments. was wrong, rather did the principle involve the proposition that an unlawful demand by the Crown for tax or other similar impost per se implied a measure of compulsion or duress which entitled the payer to recover. My Lords, I have no doubt that the weight of authority is against such a proposition and does not support the Woolwich principle. If this House were to apply such a principle it would involve going beyond what any of the authorities have decided, departing from such decisions as Slater v. Burnley Corp. William Whiteley Ltd. v. R. and Twyford v. Manchester Corp. which have stood for many years and would involve making new law. For reasons to which shall refer later I do not think that we should do that. In reaching this conclusion I desire to express my general agreement with the very careful reasoning of Relph Gibson, L.J. (See (1991) 4 All ER 577, (1991) 3 WLR 790).
Further support for the view that there does not exist a principle such as Woolwich contends for is to be found in statutory provisions for the recovery of imports which should not have been paid. The Law Commission consultation paper on the Restitution of Payments made under a Mistake of Law (Law Com no 20), paras. 3.20-3.36 sets out a number of statutory provisions for the recovery of payments made to public authorities. These include such matters as value added tax, excise duty and car tax, income-tax, corporation tax, capital gains tax, petroleum revenue tax, inheritance tax, stamp duty, social security contributions and community charges. I do not propose to refer to the various provisions in detail. If the Woolwich principle comprehends payments made, under a mistake of law then such payments are also covered by the statutory provisions. If the principle does not comprehend such payments, as the majority of the Court of Appeal held to be the case, then there are other situations covered by the provisions which would also be within the ambit of the Woolwich principle. The importance of these statutory provisions appears to me to be that Parliament has considered at various times and in various contexts the need for recovery of imposts paid but not due and has legislated in a manner which suggests that no such general principle as Woolwich contends for was thought to be in existence. It is in this context relevant to mention briefly section 9 of the General Rate Act, 1967 which provided that an amount paid in respect of rates and not recoverable apart from this section could properly be refunded on five specified grounds, some of which would fall within the Woolwich principle. In Town Hamlets Lodon BC v. Chetnik Developments Ltd. (1988) 1 All ER 961 at 967, (1988) AC 858 at 873 874 Lord Bridge explained the principle underlying the section as follows:
"But, to articulate the apparent principle underlying the section more precisely it is surely envisaged in each of the five cases where the section authorises refunds of amounts paid in respect of rates which would otherwise be irrecoverable that the rate payer who has paid rates in compliance with a demand note which he might have successfully resisted may appropriately be relieved of the consequences of his oversight."
This passage is interesting as it assumes that there would have been no right of recovery in any of the cases to which the section referred although had the Woolwich principle been applicable there would have been recovery, apart from the section, in some.
Mr. Gardiner submitted as an alternative that even if the Woolwich principle did not apply, nevertheless the payment to the Revenue was made under duress and was therefore, recoverable. He accepted that his submissions on duress were substantially subsumed in his primary argument but he maintained that a threat by the Crown to sue put Woolwich on unequal terms and that this was sufficient to constitute duress. Nolan, J. rejected this argument as did Ralph Gibson and Butler-Sloss LJJ (see (1991) 4 All ER 577 at 617 at 617-618, 637, (1991) 3 WLR 790 at 833-834, 855). Nolan, J. referred to Winderyer, J. 's definition of colore officii and continued ((1989) STC 111 at 117, (1989) 1 WLR 137 at 144):
"There is, however, an analogous and broader principle embracing demands for money by the Crown or public authorities which come under the heading of duress because of the nature of the sanctions levied or threatened against the subject if he refuses to pay. This principle has been applied; and the money held to be recoverable, in cases where the sanction has amounted to duress of the person of the subject or of his goods. The principle does not, however, apply if the sanction involves only the institution of legal proceedings for the recovery of the money and penalties. These propositions are illustrated by the decisions in William Whiteley Ltd. v. R. and in the Mason case."
He said ((1989) STC 111 at (1989) 1 WLR 137 at 146):
"The potential cost to Woolwich of refusing to pay in terms of damage to reputation and interest liabilities may have been commercially unacceptable but I cannot regard it as involving duress on the part of Revenue. The position might be different if Woolwich had paid under threat of the Revenue taking distress proceedings without a Court order under section 61 of the Taxes Management Act, 1970, but as I have said there is no evidence that such drastic and highly unusual proceedings were either threatened by the Revenue or anticipated by Woolwich, still less that Woolwich had a reasonable apprehension of being put out of business by them."
Nolan, J.'s reference to duress on the part of the Revenue is important because the duress with which the law is concerned is that exerted by the defendant and not that exerted by extraneous circumstances such as general commercial considerations. Duress to be relevant must be found within the four walls of the transaction. In this case Woolwich would, in relation to the Revenue, have been no worse off if they had refused payment of the tax claimed and raised the defence which subsequently proved successful. I, therefore, agree with Nolan, J. and the majority of the Court of Appeal that Woolwich are not entitled to recover on the ground of duress.
That is sufficient for the disposal of this appeal which I would allow albeit with no little regret. The Revenue obtained a huge sum of money which they had no right to demand and they are now hanging on to a very large amount of interest which they have no moral right to retain.
In Sebel Products Ltd. v. Customs and Excise Comrs. (1949) 1 All ER 729 at 731-732, (1949) Ch. 409 at 413 Vaisey, J. said:
"By the Crown Proceedings Act, 1947, section 21(1), the defendants are placed in the same position as the ordinary subjects of the Crown and I see no reason why they should not in appropriate cases refuse to refund money paid to them voluntarily under a mistake of law as the revenue authorities were held to be entitled to do in the case of William Whiteley, Ltd. v. R and National Pari-Mutuel Assocn. Ltd. v. R. At the same time I cannot help feeling that the defence is one which ought to be used with great discretion, and that for two reasons. First, because the defendants, being an emanation of the Crown, which is the source and fountain of justice, are, in my opinion, bound to maintain the highest standards of probity and fair dealing comparable to those which the Courts, which derive their authority from the same source and fountain, impose on the officers under their control: see Re: Tyler ((1907) 1 KB 865, (1904-7) All ER Rep. 181:"
In Tower Hamlets London BC v. Chetnik Developments Ltd. (1988) 1 All ER 961 at 970, (1988) AC 858 at 877 Lord Bridge referred to:--
" .... the broader consideration that Parliament must have intended rating authorities to act in the same high-principled was expected by the Court of its own officers and not to retain rates paid under a mistake of law, or on an erroneous evaluation ... unless there were, as Parliament must have contemplated there might be in some cases, special circumstances in which a particular overpayment was made such as to justify retention of the whole or part of the amount overpaid."
These observations are in my view equally applicable to the Revenue and to sums by way of principal or interest retained by them.
If it could have seen a respectable way to dismiss this appeal I should have been happy to do so. However, as I have already remarked, I do not consider that it would be appropriate for this House to make new law in this instance. In Glasgow Corp. v. Lord Advocate 1959 SC 203 at 230 the Lord President (Lord Clyde) pointed out the problems which could arise if there were a wholesale opening up of prior transactions and Ralph Gibson, LJ clearly had such problems in mind when he summarised his reasons (see (1991) 4 All ER 577 at 631, (1991) 3 WLR 790 at 849). The application of the Woolwich principle in the present case might well create no administrative difficulties inasmuch the payment was made under protest and was almost immediately followed by an application for judicial review. The Revenue were thus aware from the outset that the validity of their demand was being challenged. The position would have been very different in the case of a payment made some years before which was sought to be recovered because a Court in another case had ruled that the regulation under which the demand had been made had all along been ultra vires.
There is in theory a good deal to be said for the submission of Professor, Briks in his Introduction to the Law of Restitution (1985) P.295 that a payer should be able to recover payments demanded ultra vires by a public authority on the sole ground that retention of such payment would infringe the principle of "no taxation without Parliament" enshrined in the Bill of Rights (1688). However, it is clear that in practice some limitation would have to be imposed on any such principle. During the course of argument Mr. Gardiner suggested certain alternative modifications to the Woolwich principle as initially enunciated by him. First and foremost he maintained that a mistake of law would be no defence to the application of the principle but as alternatives he submitted that the principle would be subject to the mistake of law defence or that the defence or mistake of law should be abrogated altogether. He also sought to draw a distinction between an unlawful demand made under an ultra vires instrument and one made under an intra vires instrument which was misconstrued or misapplied. A distinction which I consider to be without a difference. Public authorities are creatures of statute and can do no more than the statute permits them to do. A demand by such an authority under an ultra vires regulation is no more or no less unlawful than a demand under a valid regulation which does not apply to the situation in which the demand is made. I mention these matters because they show that to accept the Woolwich principle in one or other of its forms would appear to involve a choice of what the law should be rather than a decision as to what it is.
To apply the Woolwich principle as initially enunciated without limitation could cause very serious practical difficulties of administration and specifying appropriate limitations presents equal difficulties. For example, what, if any, knowledge is required on the part of a payer at the time of payment to entitle him to recovery at a later date? Or how long should any right to repayment last? Is it in the public interest that a public authority's finances should be disrupted by wholly unexpected claims for repayment years after the money in question has been received? These are all matters which would arise in any reform of the law to encompass some such principle as Woolwich contends for and are matters with which the legislature is best equipped to deal.
LORD BROWNS-WILKINSON: --- My Lords, in this case your Lordships are all agreed that, as the law at present stands, tax paid under protest in response to an ultra vires demand is not recoverable at common law. The authorities are fully analysed in the speeches of my noble and learned friends Lord Keith, Lord Jauncey and Lord Goff and I agree with those analyses.
The issue which divides your Lordships is whether this House should now reinterpret the principles lying behind the authorities so as to give a right of recovery in such circumstances. On that issue, I agree with my noble and learned friend Lord Goff that, for the reasons he gives, it is appropriate to do so.
Although as yet there is in English Law no general rule giving the plaintiff a right of recovery from a defendant who has been unjustly enriched at the plaintiff s expense, the concept of unjust enrichment lies at the heart of all the individual instances in which the law does give a right of recovery. As Lord Wright said in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. (1942) 2 All ER 122 at 135, (1943) AC 32 at 61:
"The claim was for money paid for a consideration which had failed. It is clear that any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is, to prevent a man from retaining the money of, or some benefit derived from, another which it is against conscience that he should keep. Such remedies in English Law are generically different from remedies in contract or in tort, and are now recognized to fall within a third category' of the common law which has been called quasi- contract or restitution."
In the present case the concept of unjust enrichment suggests that the plaintiffs should have a remedy. The Crown demanded and received payment of the sum by way of tax alleged to be due under regulations subsequently held by your Lordships' House to be ultra vires (see (1991) 4 All ER 92, (1990) 1 WLR 1400). The payment was made under protest. Yet the Crown maintains that it was under no legal obligation to repay the wrongly extracted tax and in consequence is not liable to pay interest on the sum held by it between the date it received the money and the date of the order of Nolan, J. If the Crown is right, it will be enriched by the interest on money to which it had no right during that period. In my judgment, this is the paradigm of a case of unjust enrichment.
As in so many other fields of English law, the occasions on which recovery is permitted have been built up on a case by case basis. For present purposes there are in my judgment two streams of authority relating to moneys wrongly extracted by way of impost. One stream is founded on the concept that money paid under an ultra vires demand for a tax or other impost has been paid without consideration. The other stream is based on the notion that such payments have been made under compulsion, the relative positions and powers of the two parties being unequal.
The stream based on the concept of payment without consideration stems from what Lord Mansfield, CJ. said in Campbell v. Hall (1774) 1 Cowp 204, (1558-1774) All ER Rep. 252 and is reflected in the decision in Dew v. Parson (1819) 2 B & Ald 562,106 ER 471. In Steele v. Williams (1853) 8 Exch. 625 at 632, 155 ER 1502 at 1505 Martin B said that the payment in that case was not a voluntary payment but was more like the case of money paid without consideration'. In Queens of the River Steamship Co. Ltd. v. River Thames Conservators (1899)15 TLR 474 Phillimore, J. founded his decision on the fact that there was no consideration for the payment. Although this stream seems subsequently to have run into the sand, I find the approach attractive: money paid on the footing that there is a legal demand is paid for a reason that does not exist if that demand is a nullity. There is in my view a close analogy to the right to recover money paid under a contract the consideration for which has wholly failed.
The other stream, based on compulsion, stems from Morgan v. Palmer (1824) 2 B & C 729, 107 ER 554 and the majority decision in Steele v. Williams. In their inception, these authorities were based on the fact that the payer and payee were not on an equal footing and it was this inequality which gave rise to the right to recovery. However, most of the cases which arose for decision were concerned with payments extracted ultra vires by persons who in virtue of their position could insist on the wrongful payment as a precondition to affording the payer his legal rights, i.e. they were payments colore officii. In consequence, the Courts came to limit the cases in which recovery of an ultra vires impost was allowed to cases where there had been an extraction colore officii. I can see no reason in principle to have restricted the original wide basis of recovery to this limited class of case. In my judgment, as a matter of principle the colore officii cases are merely examples of a wider principle, viz. that where the parties are on an unequal footing so that money is paid by way of tax or other impost in pursuance of a demand by some public officer, these moneys are recoverable since the citizen is, in particie, unable to resist the payment save at the risk of breaking the law or exposing himself to penalties or other disadvantages.
In my view the principle is correctly expressed by Holmes, J. in Atchison Topeka and Santa Fee Rly. Co. v. O'Connor (1912) 223 US 280 at 285-286, where he said:
"It is reasonable that a man who denies the legality of a tax should have a clear and certain remedy. The rule being established that apart from special circumstances he cannot interfere by injunction with the State collection of its revenues, an action at law to recover back what he has paid is the alternative left. Of course we are speaking of those cases where the State is not put to an action if the citizen refuses to pay. In these latter he can interpose his objections by way of defence, but when, as is common, the State has a more summary remedy, such as distress, and the party indicates by protest that he is yielding to what he cannot prevent, Courts sometimes perhaps have been a little too slow to recognize the implied duress under which payment is made. But even if the State is driven to an action, if at the same time the citizen is put at a serious disadvantage in the assertion of his legal and in this case of his Constitutional rights, by defence in the suit, justice may require that he should be at liberty to avoid those disadvantages-by paying promptly and bringing suit on his side. He is entitled to assert his supposed right on reasonably equal terms."
In cases such as the present both the concept of want of consideration and payment under implied compulsion are in play. The money was demanded and paid for tax, yet no tax was due: there was a payment for no consideration. The money was demanded by the State from the citizen any the inequalities of the parties' respective positions is manifest even in the case of a major financial institution like the Woolwich Building Society. There are, therefore, in my judgment sound reasons by way of analogy for establishing the law in the scene which Lord Goff proposes. I agree with him that the practical objections to taking this course are not sufficient to prevent this House from establishing the law in accordance with both principle and justice. I too therefore, would dismiss this appeal.
LORD SLYNN OF HADLEY.--- My Lords, the respondents to this appeal, the Woolwich Building Society (Woolwich), paid to the Inland Revenue (Commissioners almost h57m pursuant to demands made under the Income Tax (Building Societies) Regulations, 1986, Act, 1 S.I. 1986/482. They did so under protest that the money was not due because the 1986 Regulations were ultra vires and void. They immediately began proceedings for judicial review to challenge the validity of the 1986 Regulations. In those proceedings they succeeded (see (1991) 4 All ER 92, (1990) 1 WLR 1400, HL: affg (1987) STC 654 Nolan, J.).
The Revenue repaid the amount of the tax and interest which accrued subsequent to the date of the decision of Nolan, J. on 31st July, 1987, but refused to pay interest prior to that date contending that the principal sum could not be recovered as a debt under section 35-A of the Supreme Court Act, 1981. In these proceedings Woolwich claims interest from tire-date of payment to 31st July, 1987 amounting in total to some Ł 6.7m.
The question on the appeal can be stated shortly. Does the citizen have the right to recover from the Revenue money demanded by the Revenue and paid by him, which was not due in law because the demand was ultra vires? It is however, short, a question of fundamental importance. Many authorities been cited. These have been considered in depth in the judgments of the 'Court of Appeal and in the speeches of my noble and learned friends Lord Keith and Lord Jauncey; the principles to be derived from them have been analysed by my noble and learned friend Lord Goff. I have had the advantage of reading those speeches and it seems appropriate that I should set out my conclusions without repeating in detail the facts and points for decision in those authorities.
It is convenient, however, before turning to the central question, to deal with a number of other issues which have arisen in argument.
In the first place this tax was not, in my view, paid pursuant to a contract that if the money was held not to have been payable it would then fall due to be repaid, -thus excluding any right to interest before Nolan, J.'s decision. It was paid and accepted without prejudice to Woolwich's contention that it was never due and to any right to recover any payments made pursuant to the 1986 Regulations (see the letters of 12th and 23rd June, 1986 between Woolwich and the Revenue).
Second, this is not a case where the tax was paid under a mistake of law made by the payer and the Revenue thus cannot, and does not, rely on the authorities which rule that a claim for money had and received does not lie where they were paid under a mistake of law. It is thus not necessary in this case to consider whether that rule is well-founded, though it seems to me that it is open to review by your Lordships' House.
Third there is, as I see it, no-statutory provision on which Woolwich can rely to reclaim this money or any interest. Section 33 of the Taxes Management Act, 1970, even if it applies to composite rate tax, is not applicable for a number of reasons, not least that no valid assessment could be made under an invalid regulation, that no assessment was in fact made and that, even if made, the assessment could not on the facts of the present case have been said to be "excessive by reason of some error or mistake in a return". In other areas Parliament has specifically provided that tax paid which was not lawfully due to be paid may be recovered and it has laid down the machinery and the conditions for repayment, including the payment of interest. None of these other statutory provisions applies to the present case.
I do not consider that the fact that Parliament has legislated extensively in this area means that no principle of recovery at common law can or should at this stage of the development of the law be found to exist. If the principle does exist that tax paid on a demand from the Crown when the tax was the subject of an ultra vires demand can be recovered as many had and received then, in my view, it is for the Courts to declare it. In so doing they do not usurp the legislative function. I regard the proper approach as the converse. If the legislature finds that limitations on the common law principle are needed for reasons of policy or good administration then they can be adopted by legislation, e.g. by a short limitation period, presumptions as to validity, even (which I mention but do not necessarily think appropriate since the matter has not been discussed) a power in the Courts to limit the effect of any order for recovery comparable to that conferred on the Court of Justice of the European Communities by Article 174 of the EEC Treaty. Because of the other legislative provisions dealing with repayment of various taxes it seems in any event that the number of cases where any principle of common law would need to be relied on is likely to be small. The "floodgates" arguments is therefore, not a persuasive one in this case. If it were a risk, then the Revenue would need to consider appropriate legislation.
Finally, the Crown has contended that the proper procedure was for Woolwich to seek to challenge its decision not to pay interest by way of judicial review, although it would of course contend that no order should be made on such a review in the present case. I do not accept this. If a claim lies for money had and received, judicial review adds nothing. If the money falls in law to be repaid, a direct order for its repayment is more appropriate than a declaration that it should be repaid or an order setting aside a refusal to repay it. Moreover, if it is right here that the tax was repaid as a matter of extra statutory discretion, and interest from the date of Nolan, J.'s order was paid on the same basis, it is not clear to me how a review of the discretionary refusal to pay interest which was not due in law can properly be examined by way of judicial review.
The cases cited, and referred to in depth by my noble and learned friends, have proceeded on the basis that on the one hand money paid under a mistake of fact or under duress or as it is said "colore officii" can be recovered, whereas money paid under a mistake of law or voluntarily "to close a transaction" or to avoid threatened litigation cannot.
The present case does not fall clearly into any of these separate categories.
On the one hand, so as to exclude recovery, the present was not a payment made under mistake of law nor was there any payment to avoid threatened litigation. It is quite impossible to say that Woolwich paid to close a transaction since it protested that it was not liable and it immediately sought to establish that the regulation was void.
On the other hand none of the conditions which permits recovery was satisfied. There was no mistake of fact. There was no duress in a sense of an actual or threatened interference with the person or property of Woolwich as occurred in many of the cases (though I am of the view that the notion of duress or coercion should not be narrowly confined). There was no strictly a demand colore officii in the sense defined by Windeyer, J. in Mason v. New South Wales (1959)102 CLR 108 at 140.
It thus has to be accepted that none of the cases cited provides in its ratio a decisive basis on which Woolwich can rely to support its claim. As Mr. Glick QC for the Crown showed, Campbell v. Hall (1774) 1 Cowp 204, (1558 1774) All ER Rep. 252 which appears to be favourable to Woolwich was really concerned with Constitutional issues rather than with the present question. Steele v. Williams (1853) 8 Exch. 625,155 ER 1502. Great Western Rly. Co. v. Sutton (1869) LR 4.HL 226, Morgan v. Palmer (1824) 2 B & C 729, 107 ER 554, Maskell v. Horner (1915) 3 KB 106, (1914-15) All ER Rep. 595, Sargood Bros. v. Commonwealth (1910) 11 CLR 258 and Mason v. New South Wales (1959) 102 CLR 108 were all concerned with claims for money paid under compulsion or colore officii.
Yet in my view there is nothing in the authorities which precludes your Lordships' House from laying down that money paid by way of tax following an ultra vires demand by the Revenue is recoverable. On the other hand, there are in some cases statements of principle in general terms, which do not form part of the ratio decidendi and in others statements in dissenting judgments which it seems to me should be considered when the present question has to be resolved.
Thus, Lord Mansfield, CJ. said in Campbell v. Hall (1774) 1 Cowp 204 at 205, (1558-1774) All ER Rep. 252 at 253:
"The action is an action for money had and received; and it is brought upon this ground; namely, that the money was paid to the defendant without any consideration; the duty, for which, and in respect of which he received it, not having been imposed by lawful or sufficient authority to warrant the same."
Lord Mansfield, CJ. said further in Moses v. Macferlan (1760) 2 Burr 1005 at 1012, (1558-1774) All ER Re. 581 at 585:
"In one word, the gist of this kind of action (for money had and received) is, that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money."
In Morgan v. Palmer (1824) 2 B & C 729 at 734-735, 107 ER 554 at 556 Abbott, CJ. said:
'Then as to the last point. It has been well-argued that the payment having been voluntary, it cannot be recovered back in an action for money had and received. I agree that such a consequence would have followed had the parties been on equal terms. But if one party has the power of saying to the other, `that which you require shall not be done except upon the conditions which I choose to impose', no person can contend that they stand upon any thing like an equal footing. Such was the situation of the parties to this action."
In Steele v. Williams (1853) 8 Exch. 625 at 632-633, 155 ER 1502 at 1505 Martin B said:
"As to whether the payment was voluntary, that has in truth nothing to do with the case. It is the duty of a person to whom an Act of Parliament gives fees, to receive what is allowed, and nothing more. This is more like the case of money paid without consideration--- to call it a voluntary payment is an abuse of language. If a person who was occupied a considerable time in a search gave an additional fee to the parish clerk, saying, "I wish to make you some compensation for your time, `that would be a voluntary payment. But where a party says, `I can charge you such a sum by virtue of an Act of Parliament', it matters not whether the money is paid before or after the service rendered; if he is not entitled to claim it, the money may be recovered back."
In A-G v. Wills United Dairies Ltd. (1921) 337 TLR 884 at 887 Atkin IJ said:
"It makes no difference that the obligation to pay the money is expressed in the form of an agreement. It was illegal for the Food Controller to require such an agreement as a condition of any licence. It was illegal for him to enter into such an agreement. The agreement itself is not enforceable against the other contracting party; and if he had paid under it he could, having paid under protest, recover back the sums paid, as money had and received to his use."
Finally, amongst the English cases I refer to Lord Wright's statement in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. (1942) 2 All ER 122 at 135, (1944) AC 32 at 61:
"The claim was for money paid for a consideration which had failed. It is clear that any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is, to prevent a man from retaining the money of, or some benefit derived from, another which it is against conscience that he should keep. Such remedies in English law are generically different from remedies in contract or in tort, and are now recognized to fall within a third category of the common law which has been called quasi contract or restitution."
There are passages from other common law jurisdictions. Thus in Mason v. New South Wales (1959)102 CLR 108 Dixon, CJ. clearly had doubts as to whether it was right that money paid pursuant to an unlawful demand of the Crown should not be recoverable. Kitto, J. (at 129) considered it sufficient that---
"the plaintiff had quite enough compulsion upon them from the terms of the Act itself, apart altogether from anything that may have been said or done by officers of Government. Under that compulsion they parted with their money."
This was a lone voice but his view reflects the sort of pressure which compels the taxpayer to pay even on an unlawful demand by the Revenue. A similar lone voice is to be found in the recent judgments of the Supreme Court of Canada in Air Canada v. British Columbia (1989) 59 DLR (4th) 161 at 169 1.70. Extracts from the forceful judgment of Wilson, J. have been set out by my noble and learned friends Lords Keith- and Lord Jauncey. I repeat that they are part of a dissenting judgment but if one is to consider what principle of law is to be applied in an area where there is no direct authority of your Lordships' House, it is relevant to have regard to them.
At the end of the day I find that the statement of Holmes, J. in Atchison Topeka and Santa Fe Rly. Co. v. O'Connor (1912) 223 US 280 at 285 287 to be particularly persuasive when considering the principle of law to be applied. Holmes, J. said:--
"It is reasonable that a man who denies the legality of a tax should have a clear and certain remedy. The rule being established that apart from special circumstances he cannot interfere by injunction with the State's collection of its revenues, an action at law to recover back what he has paid is the alternative left. Of course we are speaking of those cases where the State is not put to an action if the citizen refuses to pay. In these latter he can interpose his objections by way of defence, but when, as is common, the State has a more summary remedy, such as distress, and the party indicates by protest that he is yielding to what he cannot prevent, Courts sometimes perhaps have been a little too slow to recognize the implied duress under which payment is made. But even if the State is driven to an action, if at the same time the citizen is put at a serious disadvantage in the assertion of his legal, in this case of his Constitutional rights, by defence in the suit, justice may require that he should be at liberty to avoid those disadvantages by paying promptly and bringing suit on his side. He is entitled to assert his supposed right on reasonable equal terms ... As appears from the decision below, the plaintiff could have had no certainty of ultimate success, and we are of opinion that it was not called upon to take the risk of having its contracts disputed and its business injured and of finding the tax more or less nearly doubled in case it finally had to pay. In other words, we are of opinion that the payment was made under duress."
With these passages in mind it is well to recall the circumstances in which Nolan, J. found that Woolwich paid. They are set out strikingly in his judgment (see (1989) STC 111 at 115-116, (1989) 1 WLR 137 at 142-143):
"The factors which induced Woolwich to make the payments are set out in Mr. Mason's affidavit dated 1st December, 1987 and may be summarized as follows. First and foremost, the requirements of the regulations as amplified in communications from the Revenue amounted on their face to lawful demands from the Crown. Woolwich would have expected any refusal of payment to lead to collections proceedings which would have been gravely embarrassing for Woolwich, the moreso as it would have been the only building society refusing to pay. Any publicity suggesting that Woolwich might be in difficulty in meeting its financial obligations, or that alone amongst building societies it was pursuing a policy of confrontation with the Crown, might have damaging effects far outweighing Woolwich's prospects of success on the issue of principle. Second, Woolwich feared that if it failed in its legal arguments it might incur penalties. Third, the three payments to which I have referred formed parts of larger quarterly payments, the other parts of which were agreed to have been correctly charged. At the time when the payments were made, it had not been possible to identify the amounts in dispute. Fourth, Woolwich was not, of course, to know at the time of payments that it would succeed in the judicial review proceedings. Had Woolwich failed in those proceedings, it would have faced a bill for interest, which would not have deductible for tax purposes, in an amount far exceeding the net return which Woolwich could have obtained from investing the money withheld."
The Judge added that if Woolwich had not paid there might have been an assessment or a writ "with the result in either case of highly undesirable publicity for Woolwich if it had withheld the very large sums claimed by the Revenue to be due". There was an understandable fear by Woolwich of damage to its reputation. He concluded: "I `accept, as a practical matter, Woolwich had little choice but to make the three payments:"
Although as I see it the facts do not fit easily into the existing category of duress or of claims colore officii, they shade into them. There is a common element of pressure which by analogy can be said to justify a claim for repayment.
If I felt compelled to hold that the taxpayer in this case could not recover I would share the no little regret expressed by my noble and learned friend Loid Jauncey. With great defence .to him and to Lord Keith I. do not, however, feel so constrained by authority, by statute or by principle.
I find it quite unacceptable in principle that the common law should have no remedy for a taxpayer who has paid large sums or any sum of money to the Revenue when those sums have been demanded pursuant to an invalid regulation and retained free of interest pending a decision of the Courts.
It is said that William Whiteley Ltd. v. R (1909) 101 LT 741, (1908-10) All ER Rep. 639 and Twyford v. Manchester Corp. (1946) 1 All ER 621, (1946) Ch. 2.36 are authorities to the contrary. I consider that they are cases where payments were made to close a transaction and are to be treated as cases of voluntary payments. If they were not, in my view they were wrongly decided and they should not influence your Lordships' decision.
Accordingly I consider that Glidewell and Butler-Sloss, LJJ were right to conclude that money paid to the Revenue pursuant to a demand which was ultra vires can be recovered as money had and received. The money was repayable immediately it was paid.
I do not however, agree that this principle cannot apply where there is mistake of law. That is the situation where the relief is most likely to be needed and if it is excluded not much is left.
This is not a case where the demand was based on an erroneous interpretation of legislation by the Revenue; my provisional view is that there is no distinction between such a case and a case like the present where the demand is based on ~ an invalid regulation and is, therefore, ultra vires. That does not have to be decided in this case, nor is it necessary to consider what defences would be open to such a claim for recovery of the money paid if it lay.
My Lords, for the reasons given I would, however, dismiss this appeal.
Appeal dismissed with costs.
M.BA./501/F.C.Appeal dismissed.