095-NLR-NLR-V-70-THE-ATTORNEY-GENERAL-Appellant-and-J.-L.-D.-PEIRIS-Respondent.pdf
Attorney-General v.•Petris
447
1967Present: T. S. Fernando, A.C.J., and Sirimane, J.THE ATTORNEY-GENERAL, Appellant, andJ.L. T>. PEIRIS, RespondentS. C. 27811965—D. C. Colombo, 55283jM
Prescription—Action for recovery of money paid under a mistake of fact or a mistakeof law—Maintainability—Requirement of demand before institution of action—Effect of omission to make such demand—Effect of demand on a time-barreddebt—Profits tax—Payment of it by executor when it was not legally due—Claim by executor for repayment—Plea of prescription raised by Crown—Permissibility—Profits Tax Act (Cap. 243), s. 14—Profits Tax (SpecialProvisions) Act, No. 36 of 1964, s. 2—Income Tax Ordinance (Cap. 242),8. 28—Prescription Ordinance (Cap. 68), s. 10—Trusts Ordinance (Cap. 87),8. 91.
n an action to recover money due, prescription starts to rim as from the datewhen the cause of action arose. The fact that the plaintiff was not awarethat he had a cause of action does not affect the question at all. “ An obligation(such as the one in this case) remains alive only for a particular period of timeand the demand for its fulfilment must be made within that time. But it is notthe demand itself which gives rise to the cause of action. If the plaintiff cameinto Court without making a demand he may have been deprived of his costsor mulcted in costs, if the defendant brought the money to Court ; for, thesummons in the case would itself constitute the demand. But an obligation,which is no longer alive, cannot bo revived by making a demand and elicitinga refusal, long after an action to enforce the obligation is time-barred.”
Plaintiff, who was one of the executors of a deceased person’s estate, sought torecover from the defendant certain sums of money paid by him on behalf of theestate as Profits Tax in respect of the years 1948 to 1951, at a time when there wasno provision in law under which Profits Tax could be levied by the Commissionerof Income Tax. The payments were made between the years 1952 and 1955.The present action was instituted on 3rd May 1962 after a demand for the returnof the money was made by the plaintiff in 1959 (when he discovered his mistake)and was refused by the Commissioner of Income Tax on 29th November 1961.It was conceded that a claim in such a ease would be prescribed under section 10of the Prescription Ordinance three years after the accrual of the cause of action.Further, the trial Judge found that the payment was made by the executorunder a mistake of fact and without any “ undue influence ” on the part of theTax Department.
Held, (i) that the plaintiff’s claim was time-barred. As soon as theCommissioner of Income Tax recovered money from the plaintiff without legalauthority, he was under an obligation to return it ; and the plaintiff’s right todemand a return of the money accrued to him the moment he made the payment.Accordingly, the plaintiff’s causes of action arose on the dates he made thepayments, the last of which was on 6th April 1955. The argument that theplaintiff was not aware of his mistake, and having discovered it in 1959 madea demand, the refusal of which on 29th November 1961 gave rise to the “ causeof action ” was quite untenable.
(ii) that, as the action was instituted on 3rd May 1962 and decree wasentered in favour of the plaintiff on 29th April 1964, the provisions of section 2of the Profits Tax (Special Provisions) Act, No. 36 of 1964, were not applicablein the absence of any express reference therein to pending actions.
448
T. S. FERNANDOf A.C.J.—Attorney-General v. Peiris
(iii) that, as it could not be said that the money was paid as the result of“ undue influence ” or that a fiduciary relationship had come into beingbetween the Tax Department and the plaintiff, section 91 of the TrustsOrdinance was not applicable.
Quaere, whether the money was paid by the plaintiff under a mistake oflaw and, if so, whether he was entitled in law to recover what he paid.
Observations on the question whether it is proper for the Crown to resista citizen’s claim, which is otherwise than fraudulent, by resorting to a pleabased on the provisions of the Prescription Ordinance.
_/pPEAL from a judgment of the District Court of Colombo.
II. Deheragoda, Senior Crown Counsel, with D. S. Wijesinghe, CrownCounsel, for the defendant-appellant.
H. W. Jayewardene., Q.C., with 8. J. Kadirgamar, Q.C., and
Eliyatamby, for the plaintiff-respondent.
Cur. adv. vult.
December 2, 1967. T. S. Fernando, A.C.J.—
I have had the advantage of seeing the judgment prepared by mybrother Sirimane, and I agree to the making on this appeal of the orderproposed by him. I wish only to add the following observations.
The effect of section 10 of the Prescription Ordinance could havebeen avoided in this case by the plaintiff only if he could have broughthimself within the benefit of the provisions of section 91 of the TrustsOrdinance. The relevant issue was answered by the learned trial judgeagainst the plaintiff, and nothing we have heard from counsel on hisbehalf was cogent enough to lead us to a reversal of the finding thereon.
As I am in agreement with my brother that the issue as to prescriptionhas to be answered in favour of the Crown, I do not wish to express anyopinion on the question whether the trial judge was right or wrong inanswering in the plaintiff’s favour the issue as to whether the paymentof the profits tax by the plaintiff was made under a mistake of law orunder a mistake of fact. Even if the trial judge was correct, the causeof action was barred by section 10 of the Prescription Ordinance.
It is very unusual to find the Crown resisting a citizen’s claim, whichis otherwise than fraudulent, by resorting to a plea based on theprovisions of the Prescription Ordinance. Remembering always that theCrown is declared not bound by that Ordinance, great circumspectionmust be exercised by the law officers of the Crown before defeating a
SIRIMA-NE, J.—Attorney-general v. Petris
449
citizen’s honest claim by raising the plea of prescription. The Depart-ment of Inland Revenue has consistently to deal with the general tax-paying public, and its smooth and proper working can be renderedpossible only when it gains the confidence of that public by creatingthe impression that they can expect fair dealing from the Department.In recent years the Department has so often announced its readinessto assist and guide the tax-paying public and invited them to bringtheir problems to it that I think it would be of some advantage to citizenand Department alike to read the following observations of an experiencedChancery Judge in a fairly recent case. Vaisey J., in Sebel Products Ltd.v. Commissioners of Customs and Excise x, dealing with a case, not wherethe Statute of Limitations was relied on by the Crown, but where theCommissioners of Customs and Excise had refused to refund moneypaid to them by a plaintiff voluntarily under a mistake of law, stated :—
“ At the same time I cannot help feeling that the defence is onewhich 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, boundto maintain the highest standards of probity and fair dealing com-parable with those which the courts, which derive their authorityfrom the same source and fountain, impose on the officers under theircontrol: see Re Tyler (1907) 1 KL. B. 805. Secondly, because the tax-payer, who is too often tempted to evade his liability and to keep inhis own pocket money which he ought to have paid to the revenue,will find too ready an excuse in the plea that the revenue authoritieswill, if they can, keep in their coffers, if they can get it there, moneywhich the taxpayer wras under no obligation to pay to them and they'had no right to demand. Although such an excuso would haveno validity in either a court of law or in the forum of the taxpayers’own conscience, I think that, in the public interest, grounds forproferring it should, so far as possible, bo avoided. ”
SrRIMANE, J.
The plaintiff is the son of the lato Mrs. Nancy Charlotte Reiris andalso one of the executors of her estate. Mrs. Peiris died on 20.3.51.
After her death, the Commissioner of Income Tax served on the plain-tiff four notices of assessment claiming various sums of money as ProfitsTax which the deceased was liable to pay during the yTears 1948, 1949,1950 and 1951, aggregating to a sum of Rs. 271,533/40. In consequenceof these notices, the plaintiff made certain payments, and in this actionalleged (inter alia) that the Commissioner of Income Tax was not entitledto recover any sum as Profits Tax duo from the deceased, from him,and sued the Attorney-General as representing the Crown to recoverthe amounts he had paid.
i U949) 1 A. E. R. at p. 731.
450
SIRIMANE, J .g—Attorney-General v. Peiris
It was admitted at the trial that the plaintiff had made variouspayments as follows :
Rs. c.
On 27. 6.52. .287 40
On 27.11.52. .32,35640
On 27.11.52..115,57680
On 27.11.52..28,80294
On 7. 3.55. .18,59392
On 7. 3.55. .8,80448
On 6. 4.55..1,37040
205,792 34
and he restricted his claim to that sum.
Items 5 and 6 set out above were sums due to the plaintiff by way ofreduction of income tax, if he paid all the Profits Tax due.
The learned District Judge gave him judgment in a sum ofRs. 178,393'94 which figure had been reached by disallowing items5 and 6.
The Attorney-General has aj)poaled against this judgment, and theplaintiff has filed a cross-appeal claiming a further sum of Rs. 27,398'40(which is the total of items 5 and 6).
The Profits Tax Act, Chapter 243, came into force in 1948. By section14 of that Act, the charging and recovery of Profits Tax was to be effectedin the same manner as in the case of Income Tax and for that purposecertain sections in the Income Tax Ordinance were made applicable toProfits Tax.
Under section 28 of the Income Tax Ordinance (Chapter 242) anexecutor of a deceased person is chargeable with tax for periods prior(o such person’s death. But this section 28 was not one of the sectionsmade applicable to Profits Tax by section 14 of the Profits Tax Act asit stood at the time these payments were demanded and paid. It wasonly on the 20th of October, 1957 (by Act 53 of 1957) that section 28referred to above was made applicable to the Profits Tax Act, and it wasconceded at the argument, therefore, that at the time the Commissionerof Income Tax demanded payments totalling to Rs. 271,533'40, therewas no provision in law under which ho could levy or receive that sum.
SIR I MANE, J.—Attorney-General v. Petris
451
The learned Crown Counsel urged this appeal on three grounds which(though not in the order they were advanced) were :
that the plaintiff’s claim was prescribed,
that the plaintiff made these payments under a mistake of law
and was not, therefore, entitled to claim them now, and
that section 2 of Act No. 36 of 1964 which validated the recoveries
of Profits Tax from an executor between 1948 and 20th March1957 (to which I shall refer later) precluded the plaintiff frommaking a claim such as this against the Crown.
In regard to prescription, it was conceded that section 10 of thePrescription Ordinance (Chapter 68) applies to the plaintiff’s claim,and that his claim was, therefore, prescribed three years after hiscause of action arose.
Section 5 of the Civil Procedure Code (Chapter 101) defines “ causeof action ” as—
“ The wrong for the prevention or redress of which an action maybe brought, and includes the denial of a right, the refusal to fulfilan obligation, the neglect to perform a duty, and the infliction of anaffirmative injury. ”
This action was filed on 3.5.62.
When did the plaintiff’s cause of action arise ?
In my view, as soon as the Commissioner of Income Tax received apayment to which he was not legally entitled, he was under an obligationto return it ; and the plaintiff’s right to demand a return of the moneyhe paid (assuming that he paid it under a mistake of fact) accrued tohim the moment he made the payment. In other words, as soon as theCommissioner recovered money from the plaintiff without legal authority,there was a wrong for the redress of wdiich the plaintiff could have broughtan action immediately, so that the plaintiff’s causes of action aroseon the dates he made the payments, the last of wrhich wras on 6.4.55.Once a cause of action has arisen, prescription starts to run as fromthat date. The fact that the plaintiff was not avTare that he had a causeof action does not affect the question at all. The only instances wherethe running of prescription is delayed or suspended, are those where,at the time the cause of action arose the plaintiff was suffering fromsome disability such as minority, unsoundness of mind, or absence beyondthe seas as enumerated in section 13 of the Prescription Ordinance.One may also add to these, a case where there has been a fraudulentconcealment of the cause of action by the opposing party. None ofthese considerations arise in this case.
452
SIRIMANE, .4.—Attorney-General v. Peiris
The argument that the plaintiff was not aware of his mistake, and havingdiscovered it in 1959 made a demand, the refusal of which on 29.11.61gave rise to the “ cause of action ” is, in my opinion, quite untenable.An obligation (such as the one in this case) remains alive only for a parti-cular period of time, and the demand for its fulfilment must be madewithin that time. But it is not the demand itself which gives rise to thecause of action. If the plaintiff came into Court without making ademand he may have been deprived of his costs, or mulcted in costs,if the defendant brought the money to Court; for, the summons in thecase would itself constitute the demand. But an obligation, which isno longer alive, cannot be revived by making a demand and eliciting arefusal, long after an action to enforce the obligation is time-barred.
A simple example will make this position clear. Under section 7 ofthe Prescription Ordinance an action to recover rent is barred threeyears after the cause of action has arisen. Suppose a tenant mistakenlypays more rent than he is legally liable to pay, and the landlord alsomistakenly receives it. Can a tenant, who discovers his mistake 10 or 20years after the payments have been made, demand from the landlord areturn of the excess rent and sue for it within three years of the date ofrefusal ? The answer must obviously be in the negative.
Our attention w'as drawn to section 26 of the English Limitations Act(as amended) of 1939 which enacts that where the action is for relief fromthe consequences of a mistake, the period of limitation shall not beginto run until the plaintiff has discovered the mistake, or could with reason-able diligence have discovered it. We do not have a similar provisionin the Proscription Ordinance. If thoro was, we would have had toaddress our minds as to when the plaintiff could reasonably havediscovered his mistake. He had the right of appeal, which if exercisedwould undoubtedly have brought the error to light ; or, at least, afterAct 53 of 1957 was passed, the mistake could reasonably have beendiscovered. But we are not called upon to construe a section similarto section 26 of the English Act.
Wessels (Law of Contract in South Africa, Second Edition, Volume II),says at page 754 (section 2789) :
“ Where money has been paid by mistake, the condictio indebitiaction runs from the moment payment has been made and not fromthe date of demand, for in this respect it resembles a loan.”
It was pointed out by learned Counsel for the respondent that thepassage in Voet referred to by the learned author has no relevance tothis question, but the cases referred to (in particular, Baker v. CourageCompany) are directly in point, and I think, with respect, that the learned
SIRIMANE, J.—Attorney-general v. Peiria
45a
author correctly sets out the law in the passage quoted above. Bakerv. Courage & Company 1 was decided before the amendment to the EnglishAct of Limitations. Though the term “ cause of action ” has a somewhatdifferent meaning in English law, the reasoning in the judgment is entirelyapplicable to the facts of the present case. It was held there, that wheremoney has been paid under a mistake of fact common to both parties theStatute of Limitations runs against the right to recover the money fromthe date of payment and not from the date of the discovery of the mistake.
Hamilton J. in the course of his judgment as reported in 101 LawTimes, page 854, said (at page 857) :
“ It was contended upon the authority of Kelly v. Solari (9 N. M. W.54) that the fact that the defendants had the means of knowing thetruth if they had only read their own books is quite immaterial, andthat the only point to be considered is, when did they know the fact ?If this were right, it would take away the protection of the Statute ofLimitations which has always been understood to be a statute passedfor the protection and benefit of persons upon whom claims are made,so as to prevent them from being called on to account in respect oftransactions long gone by. It would convert that statute into a snarewherever, as so constantly happens in business, a mistake of fact hasoccurred ; and supposing that, instead of being the case of the plaintiffit had been the case of a corporation, which would not die, I see noparticular reason why this mistake of fact might not have been provedfrom the documents at the end of 50 or even 100 years, and then noticegiven and a demand made and the point urged by Mr. Danckwertswould have arisen equally then as now if it arises at all.”
One views with distaste a plea of prescription raised by the Crownagainst a subject who is unable to raise a similar plea against the Crown.But the Crown has thought it fit to take the plea in this case, and it mustsucceed.
The next point urged for the Crown was that the learned DistrictJudge was wrong when he held that the plaintiff had net made thesepayments under a mistake of law because, to quote the Judge’s words,“ at the stage he made his payments there was no such law in existence. ”
Why did the plaintiff make these payments ? I think the answer tothat question is, that he did so because he believed, that according to theprovisions of the Profits Tax Act, he was under a legal liability to pay. Theevidence shows that he had the assistance of accountants and legaladvisers. Had he acquainted himself with the provisions of section 14of the Profits Tax Act as it stood, at the time he was called upon to pay,he would have known that the law did not require him to do so.
He made his payments, therefore, under a mistake of law.
1 (1910) 1 K. B. 56.
454
SIRIMANE, 3.—Attorney-General v. Peiris
As a rule payments made under a mistake of law are not recoverable(see Attorney-General v. Arumugam 1,Bogaars v. Van Buuren 2), and as faras X am aware this rule has always been followed in our Courts. InAttorney-General v. Arumugam (supra), L. B. de Silva, J., followed thelaw as set out in Voet, Book XII. title 6, section 7 (Gane’s Translation,Volume II, page 839).
“ Condictio indebiti lies only for ignorance of fact, not of law. Thenagain it is not every ignorance of a payer which is enough for the actionfor the return of what was not due, but only that which is ignoranceof fact, and does not appear to be slack or studied. If the payment ofwhat was not due happened through ignorance of law, the truer viewis that a claim was denied by the civil law.”
But there have been certain modifications of this rule in exceptionalcircumstances, and much reliance was placed by Counsel for the plaintiffon Kiriri Cotton Company Limited v. Dewani 3. It was held in that casethat where the person who mistakenly makes payment, is not “ in paridelicto ” with the person who receives it, then the former is entitled torecover what he mistakenly paid. In the course of his judgment, LordDenning said :
“ It is not correct to say that every one is presumed to know the law.The true position is that no man can excuse himself from doing hisduty by saying that he did not know the law on the matter.Ignorantia juris neminem excusat. Nor is it correct to say thatmoney paid under a mistake of law can never be recovered back.The true proposition is that money paid under a mistake of law, by itselfand without more, cannot be recovered back. James L.J. pointedthat out in Rogers v. Ingham. If there is something more in additionto a mistake of law—if there is something in the defendant’s conductwhich shows that, of the two of them he is the one primarily responsiblefor the mistake—then it may be recovered back. Thus, if as betweenthe two of them the duty of observing the law is placed on the shouldersof the one rather than the other—it being imposed on him speciallyfor the protection of the other—then they are not in pari delicto and themoney can be recovered back.”
At one stage of the argument I was inclined to think that these dictawere applicable to the case before us. But a closer examination of thefacts here and those in Kiriri Cotton Company Limited v. Dewani has ledme to a different conclusion. In that case a tenant paid a premium to alandlord in order to obtain a sub-lease. Under the Uganda RentRestriction Ordinance (the case was from that country) a landlord whoreceived such a premium was guilty of an offence and liable to a fine. Thetenant whc made the payment, however, was not made liable in any way.In these circumstances, it was held-that the duty of observing the law
1 (1963) 66 N. L. R. 403.2 (1882) 2 S. A. R. 259.
(I960) 1 A. E. R. 177.
SIRIMANE, J.—Attorney-Qgneral v. Peirie
455
being placed by the statute on the landlord for the protection of thetenant the parties were not in pari delicto and the tenant was entitled atcommon law to recover the premium. In the case before us, it is truethat it was the Tax Department which made the initial mistake. Butone can go no further than that. The law does not prohibit the depart-ment from receiving money mistakenly paid to it by a tax payer whenboth the receiver and the payer are mistaken. There is no law whichthe department has to observe for the protection cf the tax payer. Inthis instance, the tax payer could have found out without much difficulty,that the department was mistaken and so refused to pay. Neither partywere really “ in delicto ”, and the payment was made by the plaintiffpurely under a mistake of law. He is, therefore, not entitled in law torecover what he has paid. I have expressed this view, as a good deal ofargument was addressed to us on this matter, though it is unnecessary todecide this point in view of the conclusion I have reached on the questionof prescription.
The last point urged by Counsel for the Crown might also be dealtwith. He submitted that the plaintiff’s action must now be dismissed,in view of the provisions of section 2 of Act No. 36 of 1964. That sectionreads as follows :—
“2. Where any profits tax under the Profits Tax Act with which adeceased person, if he were alive, would have been chargeable at anytime after the date of commencement of that Act and before the 20thday of December, 1957, had been assessed upon, paid by or recoveredfrom the executor of such deceased person, such assessment, paymentor recovery shall be deemed to have been, and to be, valid as it wouldhave been if the provisions of section 28 of the Income Tax Ordinancehad mutatis mutandis applied in relation to such assessment, paymentor recovery ; and accordingly such executor or any heir of the deceasedperson shall not be entitled to the refund of any sum so paid by, orrecovered from, such executor as profits tax or to institute any actionin any court of law, for the recovery of any sum so paid. ”
The effect of the first part of this section is to validate retrospectivelyall profits tax levied from executors during the period in which the provi-sions of section 28 of the Income Tax Ordinance were not applicable to theProfits Tax Act. The second part of the section provides that accordinglyan executor who had paid taxes, which were now validated, could notsue to recover those payments. It is quite clear, I think that the dis-ability to sue commences only after the Ordinance came into force, i.e.,from 12th November, 1964. This action was filed on 3.5.62, and decreeentered in favour of the plaintiff on 29.4.64. The appeal was filed on
It is settled law now that legislation will not affect pendingactions unless the enactment is expressly made applicable to suchactions. This argument advanced on behalf of the Crown is, therefore,rejected.
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SIRIMANE, J.-—Attorney-General v. Peiria
Counsel for the plaintiff then sought to support the findings in hisfavour by contending that the learned District Judge was wrong whenhe rejected the plaintiff's plea that the Commissioner of Income Taxheld this money in trust for the plaintiff. It was argued that if pres-cription was to run at all it would only begin to run from the date of therepudiation of the trust which (it was submitted) was 29.11.Cl. Thisargument was based on the provisions of section 91 of the Trusts Ordin-ance (Chapter 87), which lays down that when an advantage is gainedby the exercise of undue influence, the person gaining the advantagemust hold it for the benefit of the person who has been prejudiced. Itwas contended that a statement in the assessment notice, to the effectthat if the tax demanded is not paid, a further sum not exceeding 20per cent, of the tax would be added, amounted to duress, or the use ofundue influence.
I am quite unable to accept this argument. The assessment noticessent to the plaintiff are those sent out by the department to every taxpayer. The words complained of are no more than a formal intimationto the tax payer that he may be liable to pay more in the event of delayor default. His right to protest, or appeal against the assessment, is inno way affected—in fact, the notices themselves inform him of the rightof appeal. The plaintiff was the executor of a very large estate and inmatters pertaining to the payment of taxes (these sums were paid out ofa bank account relating to the estate) had at least the assistance ofa firm of Chartered Accountants. In fact, most of his correspondencewith the Tax Department was through these Accountants. It cannotbe said that the money was paid as the result of “ undue influence ” orthat a fiduciary relationship had come into being between the TaxDepartment and the plaintiff. I think the learned District Judge was.right in answering the issue relating to a trust against the plaintiff.
The appeal must succeed, and the cross-appeal must, therefore, fail!But the appeal succeeds on the plea of prescription and on the plea thatpayment was made under a mistake of law—a mistake which the TaxDepartment itself had made. In the circumstances, I am not disposed,to make an order for costs in favour of the defendant.
The appeal is allowed and the plaintiff’s action dismissed. Thecross-appeal is also dismissed, but there will be no cosh either hereor below.
Appe/ji allowed.