That was the question the Supreme Court faced in Test Claimants in the Franked Investment Income Group Litigation v Commissioners of Inland Revenue. In allowing HMRC’s appeal on the question of the application of section 32 of the Limitation Act to mistakes of law, three judges—Lords Briggs, Sales and Carnwath—would have held that the answer was ‘two’. But a majority—Lords Reed and Hodge, with whom Lord Lloyd-Jones and Lord Hamblen agreed—ultimately held that the answer was ‘one’. The judgments of the Court reshape the law of limitation, discuss important principles of statutory interpretation, and provide helpful guidance on res judicata.
The case arose out of overpaid tax paid by the Test Claimants between 1973 and 1999, in a “unique” case of “unparalleled complexity”. The Test Claimants sought restitution of sums totalling billions of pounds, arguing that they paid the money due to a mistake of law. The key substantive question in the case concerned section 32 of the Limitation Act 1980—and, in particular, when the Test Claimants could have discovered that they made a mistake (which was of significant value, given the historic nature of the claims in question).
Having been successful in its arguments that it was entitled to raise the point in the context of the long-running litigation, HMRC contended that the Supreme Court should overrule Deutche Morgan Grenfell v Inland Revenue Commissioners  UKHL 49 (in which it had been held that a mistake of law can be discovered only when an ultimate appellate court had stated what the law is on some matter). The Court unanimously agreed, in particular with HMRC’s submission that the limitation period begins to run when a claimant could have sufficient confidence that they have made a mistake to justify embarking on the preliminaries to issuing a claim.
HMRC had also argued, at the Supreme Court’s invitation, that the Supreme Court should overrule Kleinwort Benson Ltd v Lincoln City Council  2 AC 349, which held that mistakes of law fall within section 32 of the Limitation Act 1980. By a majority of 4-3, the Court was not prepared to go so far.
Since the majority held therefore that the question was a fact-dependent exercise, the case was remitted for further inquiries: a third High Court trial in the Test Claimants’ case, almost 15 years since the first, can therefore be expected.
The judgment can be found here.
Jennifer MacLeod and Frederick Wilmot-Smith appeared as junior counsel for HMRC, instructed by HMRC’s in-house legal team.