Rating — General Rate Act 1967, section 9(1) — Refund of overpayments of rates — House of Lords affirm decision of Court of Appeal reversing decision of Mann J, who had dismissed application for judicial review of rating authority’s refusal to repay overpaid rates — Broader consideration expressed by House 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 upon an erroneous valuation — Retention of amounts overpaid justified only in exceptional circumstances.
present case the ratepayers had paid the rates in question in respect of
unoccupied property, but in fact as a
Building Acts 1930 to 1939 occupation of the property during the material
period would have been unlawful — This was confirmed by a London metropolitan
magistrate, who held that the ratepayers were ‘prohibited by law’ from
occupying a warehouse in respect of which rates were claimed and therefore the
rates were not payable as a result of para 2 of Schedule 1 to the Act of 1967 —
Nevertheless, in spite of the discretion given to them by section 9(1) of the
1967 Act, the rating authority refused to refund the rates already paid — The
main reasons given by the authority for their refusal were that the payment of
rates was made under a mistake of law; that no hardship to the ratepayers had
been alleged, on the analogy of an application for relief from empty rates;
that the ‘scheme and intent’ of the 1967 Act was to provide for completion
notices to prevent owners from avoiding rates by non-completion; and that the
ratepayers could have taken professional advice before making the payments.
Appeal, reversing Mann J’s decision, held that the rating authority, on receipt
of an application under section 9, although not placed under an imperative
obligation to refund, was bound to take into account the object which
Parliament must have intended to achieve in enacting the section — The object
was to enable rating authorities to give redress and to remedy the injustice
which would (at least prima facie) otherwise arise if they were to retain sums
to which they had no right where persons had paid rates which they were not
liable to pay — The Court of Appeal also analysed the reasons given by the
authority for their decision and found each one irrelevant.
Lords agreed with the Court of Appeal’s conclusion and with their criticisms of
the authority’s reasons for refusal, indeed repeating these criticisms more
strongly — The House, however, were content to rest their conclusion on a
higher ground of principle — Lord Bridge in his speech referred to a line of
judicial authority which prevented a trustee in bankruptcy, as an officer of
the court, from taking advantage of the rule that money paid under a mistake of
law was not recoverable — Farwell LJ in Re Tyler had said that such an officer
was ‘bound to be even more straightforward and honest than an ordinary person
in the affairs of everyday life. It would be insufferable for this court to
have said of it that it has been guilty by its officer of a dirty trick’ — It
emerged from these authorities that the retention of money known to have been
paid under a mistake of 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 a course which the
court would not allow one of its own officers, such as a trustee in bankruptcy,
to take — In the case of Blackpool & Fleetwood Tramroad Co v Bispham with
Norbreck UDC [1910] 1 KB 592 the King’s Bench Divisional Court had held that a
rating authority ought not in equity to be allowed to keep money which a
ratepayer had admittedly overpaid in respect of previous rates — Lord Bridge
said that he took the words ‘in equity’ used in that case as referring ‘not to
an equity enforceable in a suit or action, but to a moral principle which the
court could expect to be observed by a public body such as a rating authority’
— At the end of his speech Lord Bridge gave some examples of the exceptional
circumstances in which rating authorities, in the exercise of their discretion
under section 9(1) of the 1967 Act, might be justified in departing from the
prima facie justice of refunding overpayments — Lord Bridge also rejected a
suggested difficulty that the refund might have to be made out of rate income
for a year other than that in which the overpayment of rates took place —
Appeal dismissed and Court of Appeal’s order quashing rating authority’s decision
and ordering reconsideration affirmed.
The following
cases are referred to in this report.
Associated
Provincial Picture Houses Ltd v Wednesbury
Corporation [1948] 1 KB 223; [1947] 2 All ER 680, (1947) 45 LGR 635, CA
Blackpool
and Fleetwood Tramroad Co v Bispham with
Norbreck UDC [1910] 1 KB 592
Investors
in Industry Commercial Properties Ltd v Norwich
City Council [1986] QB 17; [1985] 3 WLR 711; [1985] 3 All ER 257; [1986] AC
822; [1986] 2 WLR 925; [1986] 2 All ER 193; (1986) 84 LGR 745; [1986] 2 EGLR
165; 279 EG 65, HL
James, Ex
parte (1874) LR 9 Ch 609
Kelly v Solari (1841) 9 M&W 54
Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997;
[1968] 2 WLR 924; [1968] 1 All ER 694, CA and HL
R v Rochdale Metropolitan Borough Council, ex parte Cromer Ring
Mill Ltd [1982] 3 All ER 761
Rooke’s
Case (1598) Co Rep 99b
Simmonds,
Ex parte (1885) 16 QBD 308
Tyler,
Re [1907] 1 KB 865
This was an
appeal by the rating authority, Tower Hamlets London Borough Council, from the
decision of the Court of Appeal (reported at [1987] 1 EGLR 180) allowing an
appeal by the ratepayers from the dismissal by Mann J of their application for
judicial review challenging a decision of the rating authority not to refund
rates paid by the ratepayers.
Barry Payton
and Simon Gaunt (instructed by A S Tobias, solicitors’ department, London
Borough of Tower Hamlets) appeared on behalf of the appellants; John Taylor QC
and John Howell (instructed by Lovell White & King) represented the
respondents.
In his speech,
LORD BRIDGE OF HARWICH said: The respondents are a property development
company. The appellants are the rating authority for the London Borough of
Tower Hamlets. In 1975 and 1976 the respondents developed a site at 7 Ditchburn
Street, London E14, in the area of the rating authority by the erection of two
warehouses each with ancillary office and other accommodation. For this they
required and obtained the approval of the Greater London Council (‘The GLC’)
under the London Building Acts 1930-1939. The approval was subject to numerous
conditions governing the detailed construction and fitting out of the buildings
and additionally to condition 43 which provided:
No part of
the building shall be occupied until the consent of the Council has been
obtained to the proposed user. The Council reserves the right to vary the
foregoing conditions and to impose further conditions should such be considered
necessary upon the submission of details of the proposed occupation of the
whole or any part of the building.
It is not
disputed that a contravention of this condition would have been a criminal
offence under section 148 of the London Building Acts (Amendment) Act 1939.
The area of
the rating authority is one to which the provisions of Schedule 1 to the
General Rate Act 1967, relating to the rating of unoccupied properties, have
been applied by resolution of the authority under section 17 of the Act. In
July 1976 the two warehouses were nearing completion and the rating authority
served on the respondents completion notices under para 8 of Schedule 1
specifying August 16 1976 as the date when the building in each case could
reasonably be expected to be completed. The respondents did not appeal against
the notices. Consequently on August 16 1976 the warehouses were deemed to
become unoccupied and from November 16 1976 and for so long thereafter as they
remained unoccupied the respondents, as owners, were liable, subject to the
provisions of Schedule 1, to be rated in respect of the warehouses as if they
were the occupiers: see paras 1, 7 and 8 of Schedule 1.
The
respondents, however, did not immediately proceed with the fitting out and
completion of the warehouses for the good reason that they were unable to find
tenants. Until they knew who was to occupy each warehouse and for what purpose,
they were in no position to submit details of the proposed occupation or to
indicate the nature of the proposed user to the GLC under condition 42 so as to
obtain finalisation of the detailed conditions which would govern the manner in
which the buildings would require to be fitted out. One of the two warehouses
was eventually let and occupied before March 31 1979, but the other remained
unoccupied until November 1980. For
demur the rates demanded in respect of the unoccupied warehouses pursuant to
para 1 of Schedule 1 in the aggregate sum of £51,396.92. But before paying any
rates in respect of the warehouse which remained unoccupied after March 31 1979
the respondents woke up to the fact that they had a valid ground on which to
dispute their liability. Para 2 of Schedule 1 to the Act of 1967 provides, so
far as relevant:
No rates
shall be payable under paragraph 1 of this Schedule in respect of a hereditament
for . . . any period during which — (a) the owner is prohibited by law
from occupying the hereditament or allowing it to be occupied; . . .
The respondents
contended that the effect of condition 42 of the GLC approval and the relevant
provisions of the London Building Acts 1930-1939 was to bring them within this
provision. The rating authority did not accept this and the issue eventually
fell to be determined when the rating authority applied for a distress warrant
for the rates claimed in respect of the warehouse which had remained unoccupied
for the period from April 1 1979 to November 1 1980. On April 3 1981 a
metropolitan stipendiary magistrate sitting at Thames Magistrates’ Court held
that the respondents were ‘prohibited by law from occupying’ the warehouse and
were therefore not liable for the rates claimed. This decision was not
challenged on appeal, its correctness is not in dispute and it follows that the
payments in respect of rates made by the respondents for the period up to March
31 1979 were payments which they were not liable to make.
Section 9 of
the Act of 1967 provides as follows:
(1) Without prejudice to sections 7(4)(b)
and 18(4) of this Act, but subject to subsection (2) of this section, 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 — (a) the amount of any entry in the
valuation list was excessive; or (b) a rate was levied otherwise than in
accordance with the valuation lists; or (c) any exemption or relief to
which a person was entitled was not allowed; or (d) the hereditament was
unoccupied during any period; or (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 a part thereof.
(2) No amount shall be refunded under subsection
(1) of this section — (a) unless application therefor was made before
the end of the sixth year after that in which the amount was paid; or (b)
if the amount paid was charged on the basis, or in accordance with the
practice, generally prevailing at the time when the payment was demanded.
(3) Before determining whether a refund should be
made under subsection (1) of this section — (a) in a case falling within
paragraph (a) of that subsection; or (b) in a case falling within
paragraph (c) of that subsection where the exemption or relief was one
which ought to have appeared in the valuation list, the rating authority shall
obtain a certification from the valuation officer as to the manner in which in
his opinion the hereditament in question should have been treated for the
purposes of the valuation list, and the certificate shall be binding on the
authority.
On August 5
1982 the respondents applied to the rating authority for a refund under section
9(1)(e) of the £51,396.92 they had paid in error. The application was
considered by the rating authority’s finance committee at two meetings on
September 28 and October 26 1983. At the second meeting, exercising powers
delegated to them by the rating authority, the committee decided to refuse the
application for the refund. It appears from the relevant minutes of these
meetings that the committee had considered counsel’s opinion (which had been sensibly
obtained by the council’s officers and with complete propriety disclosed to the
respondents) and the representations made on the respondents’ behalf; in the
light of counsel’s opinion, the council’s officers advised that ‘as this was a
discretionary power the committee would have to make a decision independent of
any officer’s recommendations’. Not surprisingly, the minutes do not record the
reasons for the decision, but when asked by the respondents’ solicitors to
indicate what the reasons were the solicitor to the rating authority replied in
a letter dated November 8 1983 in the following terms:
When this
matter came before the finance committee on October 26 last, members had before
them all the representations made by you on behalf of your client company,
together with the judgment of the stipendiary magistrate and the advice from
counsel. The committee were strenuously advised that the decision required
pursuant to section 9 of the General Rate Act 1967 was one entirely for their
discretion acting fairly in accordance with the principles set out in counsel’s
advice. After discussion the committee decided against a repayment for the
following reasons: (a) the advice that the payment made by the company
was paid under a mistake of law; (b) on the parallel that an application
for relief from empty rates under paragraph 3A of Schedule 1 to the General
Rate Act 1967 would require an applicant to demonstrate ‘hardship’ — which was
not argued by your client company although they were invited to do so; (c)
the scheme and intent of the Act of 1967 with regard to completion notices; (d)
that your clients could have taken professional advice before making such
payments and, of course, they could have avoided the problem if they had
complied with the requirements of the London Building Acts.
The
respondents applied for judicial review of the rating authority’s decision. On
April 3 1985 Mann J dismissed their application, but on February 13 1987 the
Court of Appeal (Slade, Parker and Mustill LJJ) allowed the respondents’ appeal
and made orders of certiorari to quash the rating authority’s decision dated
August 26 1983 and mandamus directing the rating authority to hear and
determine according to law the respondents’ application for a refund of rates:
[1987] 1 WLR 593.* The rating authority
now appeal by leave of your Lordships’ House.
*Editor’s
note: Also reported at [1987] 1 EGLR 180.
It is common
ground that section 9(1) of the Act of 1967 does not impose a duty but confers
a discretion on a rating authority to refund rates paid in any of the
circumstances mentioned in paragraphs (a) to (e) subject to the restrictions
imposed by subsection (2). The judgments below, however, reveal a wide
divergence of opinion as to the scope of that discretion. Mann J [1985] RVR 87,
adopting a phrase used by Forbes J in R v Rochdale Metropolitan
Borough Council, ex parte Cromer Ring Mill Ltd [1982] 3 All ER 761,
described it as a ‘true unfettered discretion’. He added, at p 89:
A rating
authority must not in the exercise of its discretion have regard to a
consideration which is irrelevant, nor can it make a decision ‘which is so
outrageous in its defiance of logic or of accepted moral standards that no
sensible person who had applied his mind to the question to be decided could
have arrived at it’ (per Lord Diplock, Council of Civil Service
Unions v Minister for the Civil Service [1985] AC 374, 410).
The judgment
does not in terms articulate any criterion by which to distinguish between
relevant and irrelevant considerations in relation to the discretion conferred
by section 9, but concludes that each of the four reasons stated in the rating
authority’s letter of November 8 1983:
can be
regarded as a consideration to which a reasonable rating authority could (but
not ‘must’) have regard when considering how to exercise its unfettered
discretion. An authority can ask why was there an overpayment. An authority can
ask whether a refusal to refund would cause hardship. An authority is entitled
to consider that the general rule in cases of unoccupied property is one of
liability upon an owner after the expiration of three months from the date
specified in a completion notice. An authority is entitled to consider whether
overpayment could have been avoided had the applicant acted in one way rather
than in another. Irrationality apart, the conclusion to be drawn from the
questioning and consideration is not for this court to review. Irrationality is
not suggested.
The Court of
Appeal [1987] 1 WLR 593, on the other hand, held the scope of the discretion to
be limited by the purpose of the enactment. Delivering the judgment of the
court, Slade LJ said, at p 602:
We think it
clear that, in broad terms, the purpose of section 9 and its predecessor was to
enable rating authorities to give redress and to remedy the injustice that
would (at least prima facie) otherwise ordinarily arise, if they were to retain
sums to which they had no right, in cases where persons had paid rates which
they were not liable to pay.
In the light of
this purpose they held, in effect, that discretion to withhold repayment in a
case falling within the section could be exercised only for some valid reason.
Without attempting to define in abstract terms the scope of matters which could
properly be regarded as affording such a reason, they gave, at p 602E, as a
concrete example of what they had in mind a case ‘where the payer had
fraudulently represented that he was the occupier, when another was in fact the
occupier’. They impeached the decision of the rating authority both on the
ground that they had failed to have regard to the purpose of section 9 and on
the ground that none of the four reasons given in the letter of November 8 1983
was a valid reason capable of justifying the exercise of discretion against
making a refund to the respondents.
My lords, I
start my consideration of the issue from a basic principle which I have found
nowhere more clearly expressed and explained than by Professor Sir William Wade
QC in Administrative Law, 5th ed (1982), at pp 355-356 in the chapter
entitled ‘Abuse of
After quoting from authorities going back to Rooke’s Case (1598) Co Rep
99b, the author introduces a new subheading ‘No unfettered discretion in public
law’ and writes, at pp 355-356, 357:
The common
theme of all the passages quoted is that the notion of absolute or unfettered
discretion is rejected. Statutory power conferred for public purposes is
conferred as it were upon trust, not absolutely — that is to say, it can
validly be used only in the right and proper way which Parliament when
conferring it is presumed to have intended. Although the Crown’s lawyers have
argued in numerous cases that unrestricted permissive language confers
unfettered discretion, the truth is that, in a system based on the rule of law,
unfettered governmental discretion is a contradiction in terms. The real
question is whether the discretion is wide or narrow, and where the legal line
is to be drawn. For this purpose everything depends upon the true intent and
meaning of the empowering Act.
The powers of
public authorities are therefore essentially different from those of private
persons. A man making his will may, subject to any rights of his dependants,
dispose of his property just as he may wish. He may act out of malice or a spirit
of revenge, but in law this does not affect his exercise of power. In the same
way a private person has an absolute power to release a debtor, or, where the
law permits, to evict a tenant, regardless of his motives. This is unfettered
discretion. But a public authority may do neither unless it acts reasonably and
in good faith and upon lawful and relevant grounds of public interest.
Unfettered discretion is wholly inappropriate to a public authority, which
possesses powers solely in order that it may use them for the public good . . .
Unreviewable administrative action is just as much a contradiction in terms as
is unfettered discretion, at any rate in the case of statutory powers. The
question which has to be asked is what is the scope of judicial review. But
that there are legal limits to every power is axiomatic.
As the author
points out under the next subheading, ‘Judicial rejection of unfettered
discretion’, the application of the basic principle is vividly illustrated by
the decision of this House in Padfield v Minister of Agriculture,
Fisheries and Food [1968] AC 997. Under the Agricultural Marketing Act 1958
the minister had a discretion, which on the face of the statutory language was
unlimited, to refer certain complaints to a committee of investigation. The
headnote accurately summarises the effect of the decision as follows, at p 998:
Parliament
conferred a discretion on the Minister so that it could be used to promote the
policy and objects of the Act which were to be determined by the construction
of the Act; this was a matter of law for the court. Though there might be
reasons which would justify the Minister in refusing to refer a complaint, his
discretion was not unlimited and, if it appeared that the effect of his refusal
to appoint a committee of investigation was to frustrate the policy of the Act,
the court was entitled to interfere.
In the instant
case it is conceded by the rating authority, as Mann J noted in his judgment,
at p 89, that the discretion must be exercised ‘within the confines formulated
in Associated Provincial Picture Houses Ltd v Wednesbury Corporation
[1948] 1 KB 223′. The judgment of Lord Greene MR in that case contains the
classic exposition of the principle of reasonableness in relation to the
exercise of administrative discretions. So far from drawing a contrast between
irrelevance and irrationality, in the sense later defined by Lord Diplock in
the passage quoted by Mann J, Lord Greene MR showed their common derivation. He
said, at p 229:
It is true
the discretion must be exercised reasonably. Now what does that mean? Lawyers familiar with the phraseology
commonly used in relation to exercise of statutory discretions often use the
word ‘unreasonable’ in a rather comprehensive sense. It has frequently been
used and is frequently used as a general description of the things that must
not be done. For instance, a person entrusted with a discretion must, so to
speak, direct himself properly in law. He must call his own attention to the
matters which he is bound to consider. He must exclude from his consideration
matters which are irrelevant to what he has to consider. If he does not obey
those rules, he may truly be said, and often is said, to be acting
‘unreasonably’. Similarly, there may be something so absurd that no sensible
person could ever dream that it lay within the powers of the authority.
Warrington LJ in Short v Poole Corporation [1926] Ch 66, 90, 91
gave the example of the redhaired teacher, dismissed because she had red hair.
That is unreasonable in one sense. In another sense it is taking into
consideration extraneous matters. It is so unreasonable that it might almost be
described as being done in bad faith; and in fact, all these things run into
one another.
Thus, before
deciding whether a discretion has been exercised for good or bad reasons, the
court must first construe the enactment by which the discretion is conferred.
Some statutory discretions may be so wide that they can, for practical
purposes, only be challenged if shown to have been exercised irrationally or in
bad faith. But if the purpose which the discretion is intended to serve is
clear, the discretion can only be validly exercised for reasons relevant to the
achievement of that purpose.
The provisions
of section 9 of the consolidating Act of 1967 reproduce provisions first
enacted in section 17 of the Rating Act 1961. In general terms it is, of
course, obvious that the section authorises the refund of rates overpaid. 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 ratepayer 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. Thus, with regard to para (a), rates
levied in accordance with the value ascribed to a hereditament in the current
valuation list are normally irrecoverable because the valuation list is
conclusive evidence of the appropriate value: section 67(6). A successful
proposal to alter the valuation list only affects the rates payable in the year
in which the proposal was made: section 79. Accordingly, if a ratepayer only
appreciates belatedly that a hereditament has been overvalued, he can only
recover overpaid rates in respect of past years under section 9. With regard to
para (b), a rate levied otherwise than in accordance with the valuation
list is ex hypothesi unlawful, but a ratepayer would only pay such a rate if he
failed to realise that it was unlawfully demanded. With regard to para (c),
failure to allow an exemption or relief to which a person was entitled could
normally only arise from that person’s failure to claim it. With regard to para
(d), since section 18 provides for the recovery pro rata of rates paid
in advance by a person who ceases to occupy a hereditament during the period
for which he has paid rates, the paragraph must contemplate a refund to a
ratepayer who paid rates in respect of a past rate period without appreciating
that while the hereditament in question was unoccupied there was no liability
to pay. Finally, para (e) seems to be simply a sweeping-up provision to
cover any other case, such as that with which we are presently concerned, where
rates have been paid under a mistake of law by a ratepayer who failed to
appreciate that he was under no liability to pay the rates demanded. The common
feature of all the five cases is an error or oversight on the part of the
ratepayer. Only in the case of para (b) is it necessary to predicate any
error on the part of the rating authority, which may in any event have been no
more than a clerical error. In none of the other cases is the rating authority
likely to have been aware of the ratepayer’s error which occasioned the
overpayment. To these considerations must be added the important qualification
that section 9(2)(b) precludes any refund of overpaid rates when the
underlying error affected current general practice, so that either ratepayers
generally or all ratepayers in the class affected by the error are in the same
position. In each case, except para (a), where the obstacle to recovery
is the conclusive evidential effect of an unchallenged entry in the valuation
list, the amount paid would be irrecoverable apart from the section because
paid under a mistake of law. In each case because of his mistake the individual
ratepayer has borne more than his proper share of the rate burden. In each case
the section envisages that the amount overpaid in a past year may be refunded
in a future year.
The rule that
money paid under a mistake of law is irrecoverable is said to stem from the
principle that there must be an end to litigation. But there is an instructive
line of authority showing circumstances in which the court will not permit the
rule to be invoked.
In Ex parte
James (1874) LR 9 Ch 609, a judgment creditor had levied execution in
satisfaction of a judgment debt against a debtor subsequently adjudicated
bankrupt. The judgment creditor later paid over the proceeds of the execution
to the trustee in bankruptcy, mistakenly believing that he was legally obliged
to do so. The trustee in bankruptcy claimed to retain this sum for the benefit
of the general body of unsatisfied creditors on the ground that it had been
paid under a mistake of law. Rejecting this claim, James LJ said, at p 614:
I am of
opinion that a trustee in bankruptcy is an officer of the court. He has
inquisitorial powers given him by the court, and the court regards him as its
officer, and he is to hold money in his hands upon trust for its equitable
distribution among the creditors. The court, then, finding that he has in his
hands money which in equity belongs to someone else, ought to set an example to
the world by paying it to the person really entitled to it. In my opinion the
Court of Bankruptcy ought to be as honest as other people.
Ex parte
Simmonds (1885) 16 QBD 308 was another case of a
trustee in bankruptcy claiming to retain money paid to him under a mistake of
law. Lord Esher MR said, at p 312:
When I find
that a proposition has been laid down by a Court of Equity or by the Court of
Bankruptcy which strikes me as a good, a righteous, and a wholesome one, I
eagerly desire to adopt it. Such a proposition was laid down by James LJ in Ex
parte James LR Ch App 609. A rule has been adopted by courts of law for the
purpose of putting an end to litigation, that, if one litigant party has
obtained money from the other erroneously, under a mistake of law, the party
who has paid it cannot afterwards recover it. But the court has never intimated
that it is a high-minded thing to keep money obtained in this way; the court
allows the party who has obtained it to do a shabby thing in order to avoid a
greater evil, in order that is, to put an end to litigation. But James LJ laid
it down in Ex parte James that, although the court will not prevent a
litigant party from acting in this way, it will not act so itself, and it will
not allow its own officer to act so. It will direct its officer to do that
which any high-minded man would do, viz not to take advantage of the mistake of
law.
Both these
passages were cited with approval in Re Tyler [1907] 1 KB 865 by Vaughan
Williams LJ, who commented on the earlier passage, at p 869:
When James LJ
says that the trustee has in his hands money which in equity belongs to
somebody else, he is not referring to an equity which is capable of forensic
enforcement in a suit or action, but he is referring to a moral principle which
he describes when he says that the Court of Bankruptcy ought to be as honest as
other people.
In the same
case Farwell LJ said, at p 871:
As I
understand the principle laid down in the cases to which my Lord has referred,
it comes to this, that the officer of the court is bound to be even more
straightforward and honest than an ordinary person in the affairs of everyday
life. It would be insufferable for this court to have said of it that it has
been guilty by its officer of a dirty trick.
Perhaps the
most significant authority for present purposes is Blackpool & Fleetwood
Tramroad Co v Bispham with Norbreck Urban District Council [1910] 1
KB 592. In that case an amount of rates in respect of which liability was in
dispute had been paid to a rating authority upon their undertaking, as it was
claimed, to repay it if litigation between the ratepayer and another rating
authority, which turned upon the same issue of law, should be resolved in the
ratepayer’s favour. The ratepayer eventually succeeded in the other litigation,
but the rating authority disputed the scope of their undertaking and applied
for a distress warrant in respect of further rates due from the ratepayer. The
ratepayer claimed to set off the amount of the rates paid under a mistake of
law. The justices issued the distress warrant applied for, but the Divisional
Court reversed the justices’ decision on appeal. Lord Alverstone CJ said, at p
598:
If this had
been a case in which the appellants had been attempting to set off disputed
items, or to raise a claim in damages, against the rate in question, I should
have doubted whether that would have been sufficient cause for a refusal by the
justices to order payment; but in my opinion, apart from any question as to
the undertaking given by the respondents when it is the fact that a rating
authority has in hand money of a ratepayer which has admittedly been overpaid
in respect of previous rates, and which money the rating authority ought not in
equity to be allowed to keep, but which ought to be applied in payment of the
debt due from the ratepayer for a subsequent rate, that is a sufficient cause
for the justices to refuse to make an order for payment of that later rate. (My
emphasis.)
Bray J,
agreeing, said, at p 599:
Then the
justices have found as a fact that the respondents have been overpaid by the
appellants £460.8s, that is, an amount exceeding that claimed in respect of the
1908 rate. In my opinion the respondents were bound in equity to apply that
sum, which they had been overpaid, in payment of the 1908 rate . . .
In both these
passages I take the words ‘in equity’ to be used in the same sense as that in
which they were used by James LJ in Ex parte James LR 9 Ch App 609 as
explained by Vaughan Williams LJ in Re Tyler [1907] 1 KB 865, ie as
referring not to an equity enforceable in a suit or action, but to a moral
principle which the court could expect to be observed by a public body such as
a rating authority. I say this because I know of no general principle that
money paid under a mistake of law which is irrecoverable may nevertheless found
a defence of equitable set-off against a later claim by the recipient of the
money mistakenly paid.
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. If the Blackpool case [1907] 1 KB 592 was rightly decided, the
same principle applies to prevent a rating authority enforcing a liability for
current rates without giving credit for a past overpayment of rates made under
a mistake of law. Yet this seems to produce an anomaly in effectively
permitting a ratepayer to recover a mistakenly overpaid rate by way of set-off
against a subsequent rate liability, when the ordinary rule of law precludes
any direct right of recovery.
It was, as I
understand their reasoning, from this anomalous position and in consideration
of the legitimate sense of grievance which might be felt by the ratepayer who,
like the present respondents, is in no position to avail himself of a right of
set-off, that the Court of Appeal derived their view of the purpose of section
9 of the Act of 1967 as stated in the passage I have earlier quoted from their
judgment.
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 in case (a) upon an erroneous valuation, 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.
I agree with
the Court of Appeal that the rating authority’s decision not to refund the
rates overpaid by the respondents was made in disregard of the legislative
purpose of section 9 and that the reasons given in the letter of November 8
1983 were irrelevant to the question how the discretion conferred by the
section should be exercised. I shall briefly refer to these reasons seriatim.
(a) The fact of overpayment under a mistake of
law, being a necessary and common feature of any application for a refund under
section 9(1)(b) to (e), cannot be a discriminating feature
relevant to the determination of the question how the discretion should be
exercised in the circumstances of a particular case.
(b) There is no ‘parallel’ between an application
for refund of rates overpaid under section 9 and an application for reduction
or remission of rates on the ground of hardship under para 3A of Schedule 1.
Having regard to the purpose of section 9, the absence of a claim of hardship
is not relevant.
(c) The reference to ‘the scheme and intent of
the Act of 1967 with regard to completion notices’ as a reason for the refusal
of a refund is unintelligible unless amplified by reference to counsel’s
opinion which was before the committee and from which this reason is clearly
derived. Counsel listed two related factors which he advised that the rating
authority might take into account:
(3) the scheme and intent of the 1967 Act is to
provide for completion notices for the purpose of preventing owners from
avoiding rates by non-completion;
(4) the effect of the 1939 Act on the
consequential liability for rates is wholly technical, devoid of any merit
which would apply outside London, probably accidental in that the draftsman of
the 1967 Act overlooked the obscure provisions of a local amendment Act and
paradoxical in that it was intended as a sanction against non-compliance.
The view here
expressed was, in my opinion, quite misconceived. The proceedings in the Thames
Magistrates’ Court had established that by the operation of the provisions of
the London Building Acts 1930 to 1939 the respondents were exempt from
liability to pay rates in respect of the unoccupied warehouses under para 2(a)
of Schedule 1 to the Act of 1967. I can see no ground on which it was
legitimate in the technical field of rating law to denigrate this exemption as
‘wholly technical’ and by implication therefore ‘devoid of any merit’, still
less to suggest that it was the consequence of some legislative oversight.
(d) The omission to take professional advice is
of no more relevance than the payment under a mistake of law. No one would make
such a payment if correctly advised. I assume, though not without hesitation,
that the respondents could have avoided the London Building Acts prohibition of
occupation by completing the warehouses before they knew and were able to
notify to the GLC in accordance with condition 42 the nature of the proposed
user and details of the proposed occupation. But both courts below have found
that it would have been commercially absurd for them to do so and this finding
is not challenged. It follows, it seems to me, that the second half of the
reason given in para (d) is equally irrelevant.
The arguments
advanced on behalf of the rating authority in support of this appeal have
suggested reasons other than those indicated in the letter of November 8 1983
as available to justify the decision to refuse to refund the rates overpaid by
the respondents. Counsel for the rating authority submitted that they were not
bound by the reasons given by their solicitor on their behalf, since he could
not know what had been in the mind of the committee members which the minutes
did not reveal and it should be assumed in the rating authority’s favour that
they had relied on other relevant considerations. I reject this submission
without hesitation. When asked for the reasons, the solicitor to the rating
authority, acting with complete propriety, acceded to the request, basing his
reply, it must be assumed, on the instructions of the finance committee who, in
turn, had obviously relied largely on the advice they had been given by
counsel. If the rating authority had declined to give reasons, the position of
the respondents seeking to challenge the decision might have been quite
different. But the respondents launched their application for judicial review
on the basis of the letter of November 8 1983 and it would be absurd that the
rating authority should now be allowed to repudiate that letter as a definitive
indication of the reasons for their decision. It is clear that the decision
cannot stand.
Your
Lordships, however, must accept the obligation to give whatever guidance is
possible as to the matters which may and those which may not be taken into
consideration in exercising the discretion under section 9, not only for the
assistance of the rating authority, who must now make a fresh decision in this
case, and of rating authorities generally, but also to enable the Crown Court
to know on what principles to act in determining any appeals brought under
section 7(1)(e) of the Act of 1967 by a person aggrieved by the refusal of an
application under section 9 for a refund of rates overpaid. It was not, I
think, generally appreciated that the Crown Court had jurisdiction to entertain
such an appeal before the decision in Investors in Industry Commercial
Properties Ltd v Norwich City Council [1986] QB 17 (Court of
Appeal); [1986] AC 822 (House of Lords)*. The decision affirmed the
jurisdiction of the Crown Court to entertain an appeal from a rating
authority’s refusal to reduce or remit the payment of rates on the ground of
hardship under para 3A of Schedule 1 to the Act of 1967, but the reasoning is
equally applicable to an appeal against a rating authority’s refusal to
exercise any other discretionary power under the Act of 1967, including that
given by section 9. No point has been taken that the respondents’ omission to
appeal to the Crown Court in this case affects the propriety of granting the
remedies they sought and have obtained in the judicial review proceedings.
*Editor’s
note: The House of Lords decision was reported also at [1986] 2 EGLR 165.
It was argued
that in exercising discretion under section 9 the rating authority could take
account of the financial circumstances both of the applicant and of their own
body of ratepayers and of the financial constraints to which the authority are
subject in providing much-needed services for the residents in their area. The
London Borough of Tower Hamlets, your Lordships were told, are an indigent,
ratecapped authority. These considerations are irrelevant to the justice or
injustice of retaining rates mistakenly overpaid in the circumstances of any
particular case and therefore irrelevant in the exercise of the discretion
under section 9.
A much more
formidable argument, which has caused me considerable difficulty, is that the
principle underlying the line of decided cases to which I have referred and
justifying the conclusion that it falls short of the highest standards of
probity and fair dealing to retain money paid under a mistake of law has no
application to a case where for any reason the recipient no longer has the
amount mistakenly paid ‘in hand’. It is pointed out, first, that a rating
authority may have expended its entire rate income, including the amount
mistakenly overpaid in one year, in the provision of services in its area in
that year, but will be obliged to rely, as the source of any refund, on its
rate income provided by the body of ratepayers in its area in the year when the
refund has to be made. It is contended, therefore, that a relevant
consideration to the exercise of the discretion under section 9 is whether the
overpayment has contributed to any reserve fund held by the rating authority so
that the rating authority may be said to ‘retain’ the overpayment. It is
pointed out, second, that a substantial proportion of the rating authority’s
rate income in this case in the years in which the respondents’ mistaken
payments were made was levied to meet precepts issued to the rating authority
by other authorities, notably the GLC, pursuant to section 12 of the Act of
1967. Hence a proportion of the amounts mistakenly paid by the respondents, it
is said, ought properly to be regarded as having been received on behalf of
those precepting authorities and at least pro tanto this must afford a
conclusive reason for refusing to refund the amount mistakenly paid.
I was
initially much impressed by this second line of argument. But on reflection I
have reached the conclusion that the argument is really self-defeating. The
legislature must have been well aware, when enacting the provisions now
contained in section 9 of the Act of 1967, that rating authorities levy rates
not only on their own behalf but also on behalf of precepting authorities. This
was the norm under the two-tier system of local government in the 1960s. If it
is legitimate to start from the premise that the primary objective of section 9
is to remedy what would otherwise ordinarily be the injustice of denying
repayment to a ratepayer who has mistakenly paid an amount in excess of his
liability, it is difficult to see any rational ground for making a distinction
between rates levied for the rating authority’s own purposes and rates levied
to meet precepts by other authorities. At all events, if the legislature
intended to make such a distinction in connection with the discretion to refund
overpayments, I would expect to find express provision requiring or authorising
precepting authorities to contribute directly or indirectly to the refund.
Alternatively, if any amount of the overpayment referable to precepts had been
intended to be left out of account in deciding the amount of a refund, it seems
to me inconceivable that the statute would not have expressly so provided. The
absence of any provision to either effect leads to the conclusion that the
intention of section 9 was that the mistaken overpayments should be treated as
having been made to a single indivisible fund in the hands of the rating
authority and this is reinforced by the very use in the section of the word
‘refund’. The eventual accounting process as between rating authorities and
precepting authorities pursuant to rules made under section 14 of the Act of
1967 (currently the Rate Product Rules 1981 (SI 1981 no 327) is a very complex
one. To have introduced some provision for apportionment between authorities of
contributions towards any refund under section 9 of a mistaken overpayment
would have added a further complication and this, to my mind, affords a very
probable explanation why no such provision has been made. If mistaken
overpayments are intended to be treated under section 9 as having been made to
a single indivisible fund, I think it must follow a fortiori that the
justice or injustice of making a refund in any particular case cannot depend on
the rating authority’s internal finances affecting the state of the fund as
between one year and another.
The most
difficult aspect of the problem is to give guidance as to the positive factors
relevant to the exercise of the discretion under section 9 which may be
considered in whole or in part to displace the prima facie justice of refunding
overpayments. I think such factors can arise only from the circumstances in
which the overpayment came to be made in any particular case. The conduct of
the person making the payment considered in relation to those circumstances
will be of primary relevance. The Court of Appeal have given only one example,
which may be thought rather extreme, of the person fraudulently representing
himself to be in occupation when in fact he was not. I can do no more than
offer two further illustrations, which may be a little less extreme. Suppose a
ratepayer has initially disputed his liability to pay an amount demanded in respect
of rates on a debatable legal ground, but after correspondence with the rating
authority’s solicitor has either agreed a compromise payment or even met the
claim in full rather than incur the cost of litigation. Subsequently a decision
of the courts in litigation between other parties establishes that the
ratepayer’s original contention disputing his liability was well founded. He
applies for a refund of the amount he paid under a mistake of law. Here the
ratepayer has made the payment in full knowledge of a possible ground on which
to contest his liability and in consequence of a deliberate decision not to do
so.
Suppose again
that a residential property is over-valued in the valuation list. The value in
the list enables the owner to let the property free of rent restriction. He
lets the property at a high inclusive rent and, by agreement, he pays the
rates. At the end of the tenancy the owner moves into occupation and
immediately makes a successful proposal to reduce the value in the list and
applies for a
by a certificate from the valuation officer under section 9(3). The
circumstances justify the inference that the owner deliberately took advantage
of the excessive valuation. In either of these cases there would be relevant
reasons for the rating authority or a Crown Court on appeal to refuse the
application for a refund. These illustrations are not, of course, intended to
cover the ground exhaustively, which it would be foolish to attempt and
impossible to achieve. But I hope they may be of some assistance to rating
authorities and Crown Courts in any future case arising under section 9 as
indicating the kind of considerations which may and should be taken into
account as relevant to the justice of the application for a refund in the
circumstances of any particular case.
I have not
found this case easy and I confess, in particular, that I cannot envisage
circumstances which, on the principle I have indicated, would point to a partial
refund of overpaid rates as just and appropriate. But if the rating authority,
or the Crown Court on appeal, are not to be guided by the justice of making a
refund, having regard to the circumstances in which the overpayment was made, I
find it impossible to articulate any intelligible alternative principle to
which the exercise of the discretion can sensibly be related. If there is no
guiding principle, the practical consequence must be that the decision whether
or not to make a refund in any particular case may be purely arbitrary. I
cannot believe that this is what Parliament intended.
I would
dismiss the appeal.
LORDS FRASER
OF TULLYBELTON, BRANDON OF OAKBROOK AND ACKNER agreed that the appeal should be
dismissed for the reasons given by Lord Bridge of Harwich.
In his speech,
LORD GOFF OF CHIEVELEY said: I agree that the appeal should be dismissed for
the reasons given by my noble and learned friend, Lord Bridge of Harwich. I
wish only to add a few words regarding the guidance which my noble and learned
friend has given to assist those who may in future have to consider the
exercise of the discretion conferred by section 9 of the Act of 1967.
Section 9
confers on rating authorities a statutory power to refund an amount paid in
respect of rates, which is not recoverable apart from the section, where it is
shown to their satisfaction that the amount could properly be refunded on
certain specified grounds. As my noble and learned friend has pointed out,
putting aside para (a), the amount paid would not be recoverable apart from the
section because it was paid under a mistake of law and, on the law as it stands
at present (which is much criticised, especially by comparative lawyers, since
no comparable rule is to be found in continental legal systems — see, in
particular, Zweigert and Kotz, Introduction to Comparative Law, 2nd ed
(1987) vol 2, pp 260-268), money so paid is generally irrecoverable in English
law. Effectively, therefore, the section creates a statutory remedy of
restitution, in the circumstances specified by the section, to prevent the
unjust enrichment of the rating authority at the expense of the ratepayer.
In these
circumstances, it should be of assistance to those considering the exercise of
the discretion, conferred by the section, to have regard to the general
principles of the law of restitution in their search for guidance in the
exercise of the power, though always bearing in mind that those principles may
be modified, expressly or impliedly, by the terms of the statute. This approach
is, as I see it, entirely consistent with (though broader than) the specific
examples given by my noble and learned friend. He has first anxiously
considered whether the fact that the rating authority will have, for example,
employed a substantial part of its rate income to meet precepts by other
authorities would provide a good reason for denying, at least in part, a
ratepayer’s claim for refund under section 9. This is no more than an inquiry
whether it would be right for the local authority to invoke the restitutionary
defence of change of position. Generally speaking, I would have thought this to
have been an appropriate ground for declining to make a refund; but I
nevertheless agree with my noble and learned friend that to do so would be
inconsistent with the legislative intention as revealed by the section. Again,
he has considered the case of a claim by a ratepayer who has made the payment
‘in full knowledge of a possible ground on which to contest liability and in
consequence of a deliberate decision not to do so’; such a payment would be
irrecoverable in restitution, even on the ground of mistake of fact (see Kelly
v Solari (1841) 9 M&W 54 at p 58, per Lord Abinger CB). Finally, he
has considered the case where a ratepayer deliberately takes advantage of an
excessive valuation; in such a case, there would of course be no basis for
recovery in restitution. It therefore follows, in my opinion, that the general
principles for the law of restitution can provide useful guidance in these
cases.
