Heidelberg Graphic Equipment Ltd.& Anor v Revenue & Customs

This is an application by the two Heidelberg claimants ("Heidelberg") for an interim payment pursuant to CPR Rule 25.7(1)(c). The application is brought by an application notice which was issued on 9th March 2009.

Heidelberg was one of the 19 test claimants in the Europcar group of cases which I heard within the ACT GLO in April of last year and in which I handed down my reserved judgment on 19th June 2008. The main purpose of the Europcar proceedings was to determine four out of five of the Class 1 Post-judgment Issues which related to limitation and pleading. The remaining Post-judgment Issue, Post-judgment Issue E, concerned the validity of section 320 of the Finance Act 2004 which introduced a new and strict limitation period. Rimer J by his order of 20th July 2007 had directed that determination of that issue was to await developments in the Aegis test case, which was a test case for what became Limitation Issue Q in the FII GLO. That, of course, was one of the questions which I determined in the FII hearing in which I handed down judgment in November, following a three week hearing last July.

Returning to Europcar , I held that Heidelberg alone of the test claimants had not succeeded in making a valid claim in mistake before 8th September 2003, that being the date from which section 320 applied. I also held that amendments to Heidelberg's claim form made on 27th February 2007 raised a new claim in mistake, which did not arise out of the same or substantially the same facts as the claim in its original form. It followed that Heidelberg's claim at trial succeeded only in relation to amounts of ACT which it had paid within six years before the date of issue of its original claim form in January 2001. Heidelberg's claim in relation to amounts of ACT paid before that time was unsuccessful.

Heidelberg appealed against my decision, with permission to appeal given by myself, but the present position is that the appeal has been stayed until after the Court of Appeal has given judgment on the FII appeal, which it is due to hear in October of this year. The direction to that effect was made by Lloyd LJ on 30th March 2009. He said it seemed to him the most sensible course would be to stay Heidelberg's appeal until after judgment on the FII appeal, rather than to list it to come on immediately after that appeal as Heidelberg had requested.

The order which was made following my judgment in Europcar recited an agreement between the parties that determination of the Class 1 Post-judgment Issue E should await resolution of Limitation Issue Q in the FII GLO, and paragraph 12 of the order provided that the claim of Heidelberg should otherwise be stayed "pending further developments in relation to the determination of Limitation Issue Q in the Franked Investment Income GLO".

Limitation Issue Q, as I have said, was considered by myself in the FII test case, and in the judgment (which I delivered on 27th November 2008) I held that section 320 breached Community law by purporting to curtail the applicable limitation period without providing transitional arrangements. It followed that the Revenue were not entitled to rely on section 320 as a defence to the test claims. I did, however, give the Revenue permission to appeal on all points which I had decided adversely to them, on the footing that they raised important and difficult questions of law; and on 30th January 2009 the Revenue filed their appellant's notice, including an appeal against my decision on section 320.

The notice of appeal does not provide details of the arguments in support of the appeal which will be deployed, but I am certainly prepared to accept, as Mr Baldry submitted to me this morning, that the issue is an important and difficult one. It turns not so much on the absence of transitional arrangements, which is fairly plainly unlawful if Community law is relevantly engaged, but rather on a much more difficult underlying issue as to whether a mistake- based claim in restitution under English law is necessary to satisfy the principle of effectiveness in relation to San Giorgio claims under community law. It is there that the real difficulties are involved, which I fully accept are eminently arguable both ways, and will no doubt occupy the Court of Appeal and probably in due course the Supreme Court (as it will by then be) as well.

Against that background the current application was made, as I say, by an application notice issued on 9th March. It is supported by a witness statement of Mr Gerard Heanue dated 6th March. The Revenue have given their consent to the application being heard by myself as envisaged by CPR 25.9. The reason why they gave their consent, although nothing turns on this, is that issues of quantum are no longer in dispute between the parties. Quantum has been agreed, subject only to the issue of liability.

The only objection raised by the Revenue to this application is set out in their Notice of Objection dated 3rd April 2009 where they say that Heidelberg relies on my decision in FII in relation to section 320, but the decision is subject to appeal, and until the appeal is decided “it is impossible to say that [ Heidelberg ] would obtain judgment for a substantial amount of money in the present case”.

The relevant rule is CPR 25.7 (1), which provides:

It is important to remember that the court has no inherent jurisdiction to make interim payments. That is reflected in the wording of the rule, which says that the court may make an order only if the specified conditions are satisfied; and the circumstances for which provision is made are by way of exception to the normal rule, which is that a final judgment is required before any sum is to become payable by a defendant to a successful claimant.

It is common ground that the burden of proof on the issue lies upon the claimant, and the court needs to be satisfied on the balance of probabilities. The court does not need to be satisfied to the criminal standard of proof, beyond all reasonable doubt. There is some learning in the Court of Appeal about the degree of certainty or satisfaction rather that the court needs to feel. The reported cases, as Mr Cavender rightly says, concentrate on the question whether a court which has given unconditional leave to defend on an application for summary judgment can simultaneously be satisfied that the claimant will succeed at trial for the purposes of the interim payment rule.

The leading decision in the Court of Appeal is the case of British and Commonwealth Holdings plc v Quadrex Holdings Inc [1989] 1QB 842 (“ Quadrex ”) where the court held that it was not possible for a court to simultaneously give unconditional leave to defend and be satisfied for the purposes of the precursor of what is now CPR 25.7(1). In the view of the court that would involve impossible mental gymnastics, and even if it were conceptually possible it would involve a degree of refinement that it was not desirable to encourage in this area. The Court of Appeal's test was subsequently applied by another division of the Court of Appeal in Andrews v Schooling [1991] 1WLR 783. I think the only passage I need to cite from the judgment of Sir Nicolas Browne-Wilkinson V.-C. (as he then was) in Quadrex is at the foot of page 865 where he sasid, referring to the predecessor of the present provision, that as construed by the Court of Appeal in an earlier case it "requires the court, at the first stage, to be satisfied that the plaintiff will succeed and the burden is a high one; it is not enough that the court thinks it likely that the plaintiff will succeed at trial."

It follows, therefore, that the burden, although the usual civil standard of proof applies, is a high one, and the court needs to be satisfied that the plaintiff will succeed; it is not enough that it merely thinks it likely that the plaintiff will succeed.

A further question which arises in relation to sub-paragraph (c) of CPR 25.7(1) is when the notional trial of the matter is to be regarded as taking place. The wording of the rule is silent on the point, the court merely being required to consider the position if the claim went to trial. Mr Cavender submits that the position has to be assessed by the court on the basis of matters as they stand at the date of the application, and he draws a parallel with the wording of paragraphs (a) and (b), which both direct attention to the situation as it is at the date of the application.

It seems to me that Mr Cavender is correct in his submission that the court must consider the position as at the date of the application, and has to hypothesise a trial taking place in the state of the law which obtains at the date when the application is made. Anything else would, in my view, involve a wholly unrealistic and speculative exercise in crystal ball gazing, which would involve not only the court taking a view as to how long the matter would take to come to trial, but also as to what might or might not happen to various appeals on questions of law during the interim period. That is not to say that the existence of an appeal should be totally disregarded, but as a matter of general principle I think the focus has to be on the law as it is at the date of the application, rather than at the probable time of a hypothetical future trial of the action.

Against that background, Mr Cavender's basic submission is simple. He says that now the section 320 issue has been determined in Heidelberg's favour in FII , liability is for all practical purposes established. He submits that Heidelberg could now apply to lift the stay, if indeed it needs to be lifted, and seek summary judgment under Part 24 on its claim; and that if Heidelberg followed that course, it would clearly succeed. Permission to defend would not be given merely because there is a pending appeal on the section 320 issue which is due to be heard later this year. If that is right, no question of an interim payment would arise, because liability would be established by the judgment of the court.

He says the only reason why this course of action has not been followed is that it would cause some procedural difficulty and perplexity, given that summary judgment on that footing would then give rise to an application for permission to appeal by the Revenue which would doubtless be granted, and the Court of Appeal would then be faced with two separate appeals raising the same question of law on appeals from two opposing parties in the same group litigation. That is a situation which the Court of Appeal could no doubt cope with if it had to, but it would be a rather messy and complex situation, and I see some force in the argument that this is why Heidelberg did not think it appropriate to seek summary judgment.

However, says Mr Cavender, the court should not overlook the possibility of such an application having been made when it looks at the present application, because he submits it is really an accident of timing that the decision in Europcar preceded that in FII . If the two cases had been heard the other way round, he says there can be little doubt that Heidelberg would have obtained judgment for precisely the same sum as that which it now seeks by way of interim payment.

Those in summary are the main arguments relied upon by Heidelberg in support of this application.

The counter-arguments, skillfully advanced before me by Mr Baldry, raise essentially two points. His first point is that it would be wholly inappropriate for the court to entertain this application in the light of the stay which is contained in the Europcar order and which reflected an agreement between the parties. He submits that the parties agreed that Heidelberg's claim should effectively be put on ice until final determination of the section 320 limitation issue. He says that this understanding or agreement is reflected not only in the recital which I have quoted, but also in paragraph 12 of the order itself. It seems to me, however, that this submission seeks to read too much into the wording of paragraph 12 of the order, which says merely that Heidelberg's claim shall be stayed “pending further developments” in relation to determination of the section 320 issue. It does not say “pending final determination” of the issue.

There was, of course, a further development in relation to that issue in the course of last year when I heard and decided the section 320 issue, and that is the current position, subject to the outcome of the pending appeal against my decision.

I therefore do not agree with Mr Baldry that the existence of the stay in the order makes it inappropriate in any way for the current application to be made, although as a matter of housekeeping I think it would be desirable, if an order is to be made, that it should include a lifting of the stay to the extent necessary to enable this application to be made. It may be, as Mr Cavender submits, that this would not be necessary because the stay automatically terminated following my determination of the issue in FII, but the contrary is certainly arguable and it should be put beyond doubt in any order that is made.

Mr Baldry's second, and I think more substantial, point is that the court cannot be satisfied that Heidelberg would succeed at trial because of the pending appeal on the section 320 question, which, as I have said, I readily accept involves a difficult and important question of law which certainly cannot be regarded as clearly and irrevocably settled in the claimants’ favour. He says until that issue has been finally resolved it cannot possibly be said that the claimants would succeed with their claim or that the Revenue has no sustainable defence. He also submits, more generally, that the interim payment procedure in the CPR is not designed for cases of the present nature, but is really only appropriate in cases where there is no real room for doubt about the ultimate outcome of the proceedings and the claimant is on any view going to be entitled to recover at least a clearly definable minimum amount of money.

It seems to me that this submission depends very much on the question of the time at which the state of the law has to be assessed under CPR 25.7(1)(c). As I have said, I consider that the assessment has to be carried out as at the date of the application rather than as at the date of the hypothetical future trial. But if I focus on the position today, it seems to me that the position is relatively clear. I have, for better or for worse, decided the section 320 point at first instance, and I would decide it in the same way if I were now faced with an application for summary judgment rather than the application which is now before me. The law is as I have now held it to be unless and until I am overruled by the Court of Appeal, and my existing decision has the force of precedent, even though it is of course not binding on a judge of coordinate jurisdiction. I think, therefore, that I should apply the law as it now is, rather than as it might speculatively be at some future date.

It is not suggested by Mr Baldry that my decision on the section 320 point was reached per incuriam or is otherwise obviously wrong. Indeed, on the contrary, he accepts that it raises a difficult question and he has eloquently explained to me what many of the difficulties involved consist of.

The fact is the law is full of difficult questions, but they have to be determined and when they have been determined that then represents the law, subject to any appeal which may be made. Accordingly, although I do not put the appeal process out of my mind altogether, I see no reason why I should not proceed on this application on the footing that section 320 has been held to be relevantly invalid and has to be disapplied in the case of claimants in the position of Heidelberg.

It is also important to remember that an order for interim payments is not irreversible. On the contrary, Heidelberg will have to repay the sum paid if the Revenue eventually win on the section 320 point and if Heidelberg themselves also lose in the Court of Appeal on the pleading point. If those two conditions are satisfied, the money will be repayable. There is no dispute in the present case about Heidelberg's ability to repay, and an offer has been made to fortify that contingent obligation with undertakings to be given by both of the relevant companies. The relevant passage is in paragraph 12 of Mr Heanue's witness statement, where he says that the claimant and the claimant's parent company are prepared to give undertakings to the court to repay the interim payment to HMRC with interest should the sums become repayable.

Accordingly, for the reasons which I have given it seems to me that the threshold condition in CPR 25.7(1)(c) is satisfied in the present case. The court does still have a wide discretion in the matter, as Mr Cavender rightly reminded me, but in the present case I would agree with him that there is every reason for exercising the court's discretion in favour of making the interim payment and really no solid reason for declining to do so. This is not a case where there is any doubt about the ability of Heidelberg to repay the interim payment if at the end of the day they lose. It is also material to bear in mind that the appeal process is likely to take a number of years before the section 320 issue is finally resolved. In those circumstances, I see no good reason why Heidelberg should be kept out of the money which they claim and the quantum of which has been agreed, bearing in mind their acknowledged liability to repay it at the end of the day if the Revenue are successful.

Mr Cavender did also rely on the differential between the rate of interest which runs under the agreed quantification of the claim and the current considerably higher borrowing costs which would apply if Heidelberg were to seek to borrow equivalent sums on the money markets. I attach rather less weight to that consideration, which no doubt reflects the current economic situation, but for better or for worse the parties agreed the interest rate which applies in this case and, as I say, I am not very much swayed by that consideration. Having said that, however, I see no reason not to exercise my discretion in Heidelberg's favour and I will therefore do so.

That then leaves finally the issue of quantum. The case is an unusual one in that quantum has been agreed and there is no dispute between the parties as to what Heidelberg is entitled to recover if liability is once established. In such a situation I can see no good reason for not making an interim payment in the full amount of the agreed quantum. CPR 25.7(4) says that the court must not order "an interim payment of more than a reasonable proportion of the likely amount of the final judgment". In most normal cases that will involve a good deal of estimation and guesswork, but that is not the position here, and I see no reason in principle why in an appropriate case a reasonable proportion should not be 100 per cent of the likely amount of the final judgment. Again, I am heavily influenced in taking this view by the clear evidence of Heidelberg's ability to repay, backed by the undertakings to which I have referred. Taking all these factors into account I will order an interim payment in the full amount claimed, which amounts to approximately £505,000.

For the reasons which I have given, I conclude that this application succeeds.