These are seven applications by claimants enrolled in the FII Group Litigation for summary judgment, or alternatively interim payments, in respect of their claims for restitution of advance corporation tax (“ACT”) paid on foreign income dividends (“FIDs”). The claims relate to the period between 1 July 1994, when the FID regime was introduced in the United Kingdom, and 5 April 1999, when ACT was abolished.

The seven groups of claimants, and the value of their FID claims (including compound interest) as at 16 November 2015, are as follows:

This judgment assumes a general familiarity with the protracted and complex history of the FII Group Litigation, including in particular the decisions of the Court of Justice of the European Union (formerly the European Court of Justice) (“the ECJ”) upon the first, second and third references (“FII (ECJ) I”, “FII (ECJ) II” and “FII (ECJ) III” respectively), the English liability proceedings in the High Court, Court of Appeal and Supreme Court (“FII (High Court) I”, “FII (CA) I” and “FII (SC)”), and the quantification proceedings in the High Court in which judgment was delivered after a lengthy hearing on 18 December 2014 (“FII (High Court) II”, [2014] EWHC 4302 (Ch), [2015] STC 1471). In general, I will without further explanation use the same definitions, abbreviations, and so forth as I have adopted in earlier cases in the series.

A very brief survey of the history of the FII Group Litigation down to and including the quantification proceedings may be found in the introductory section of my judgment in FII (High Court) II, at [1] to [5]. Of particular relevance to the present applications is paragraph 5, where I recorded that in March 2014 the Court of Appeal had dismissed an appeal by HMRC from my decision in November 2013 ([2013] EWHC 3757 (Ch), [2013] All ER (D) 341 (Nov)) that it was no longer open to HMRC to argue that the FID regime introduced in 1994 could benefit from the “standstill” protection then contained in Article 57(1) EC (now Article 64(1) TFEU), on the basis that the point had already been conclusively determined by the Court of Appeal in FII (CA) I. The Court of Appeal gave its reasons for dismissing the appeal in judgments handed down on 2 September 2014, to which I will refer as “FII (CA) II”: see [2014] EWCA Civ 1214, [2014] All ER (D) 76 (Sep). The leading judgment was delivered by Gloster LJ, with whom McFarlane and Moore-Bick LJJ agreed.

The judgment of Gloster LJ in FII (CA) II contains a helpful summary of the background to the proceedings and the FID regime: see in particular [6] to [13]. Furthermore, although her discussion of the issues at [27] to [38] was of necessity focused on the particular issue under appeal (namely whether HMRC should be permitted to re-amend their defence so as to rely on the standstill provision in relation to the obligation on a UK company to pay ACT on “third country” FIDs), her reasoning contains a valuable review of the way in which the FID issues generally were dealt with, first by the ECJ in FII (ECJ) I, and then by the High Court and the Court of Appeal in FII (High Court) I and FII (CA) I. A central point which Gloster LJ derived from this review was that, at all stages, the FID regime had been considered as a composite whole by each court which had examined it: see her judgment at [30] to [36].

I will have to return to this forensic history later in my judgment, and examine it in the broader context of the present applications for summary judgment. For now, I will set out the following extracts from Gloster LJ’s judgment, omitting the lengthy citations from the cases and the orders made by the English courts:

The judgment in FII (CA) II is final, no application having been made by HMRC for permission to appeal to the Supreme Court.

In the quantification trial, I had to consider three questions relating to FIDs, of which the first two were these:

In the light of the procedural history, including the then recent judgment of the Court of Appeal in FII (CA) II, I said at [174]:

After explaining the factual background to the FID claims made by the BAT test claimants, I then dealt with the first and second questions which I have identified above as follows:

The FID claims of the BAT test claimants accordingly succeeded in full. I refused permission to appeal in respect of this part of the test claims, commenting at the hearing to deal with consequential matters on 30 January 2015 that “In relation to FIDs, I am persuaded that really this has gone as far as it should go …” HMRC then sought permission to appeal from the Court of Appeal, but on 22 May 2015 Patten LJ refused the application on paper, saying this:

It is against this background that the seven sets of present claimants have made the applications now before me in respect of their FID claims. In effect, they wish to replicate the success of the BAT test claimants in the same FII Group Litigation, and they rely on the same arguments which persuaded me in FII (High Court) II that the law is now clear in relation to such claims. Their primary claim is therefore for summary judgment under CPR rule 24.2, which provides, so far as material, that:

If, for any reason, summary judgment is not available, the claimants apply in the alternative for the court to make an order for interim payments in their favour under CPR rule 25.7(1), which provides that the court may do so if:

There is no disagreement between the parties about the general principles which the court should apply on applications for either summary judgment or interim payments. I have recently summarised those principles in another group litigation case, arising under the Controlled Foreign Company and Dividend GLO, and will not repeat them here: see Six Continents Ltd and Another v HMRC [2015] EWHC 2884 (Ch) (“Six Continents”) at [21] to [26].

For their part, HMRC submit that the claims for both summary judgment and interim payments must fail, despite the weight of existing authority which may appear to support the claims. In relation to summary judgment, HMRC’s primary case (which Mr David Ewart QC placed at the forefront of his oral submissions) is that the view of the relevant law which I took in FII (High Court) II is wrong, or at least is arguably wrong, so it cannot be said that HMRC have no real prospect of successfully defending the claims. In addition, HMRC take a number of more or less technical points as to why summary judgment is not available, but while he in no way abandoned them, Mr Ewart was anxious to dispel any suggestion that HMRC might be sheltering behind technicalities in order to disguise the weakness of their case on the merits.

In relation to the interim payment claims, HMRC accept (as Mr Ewart confirmed orally) that the conditions for interim payments are in principle met, and if it were not for the statutory prohibition which I will mention, it would be appropriate for the court to order such payments on the same basis as it has in other recent cases, including Six Continents. HMRC rely, however, on section 234 of the Finance Act 2013, which introduced a restriction on the grant of interim remedies in proceedings relating to taxation matters. So far as material, section 234 reads as follows:

No application for an interim payment is made by Perkins, but the applications of the other six groups of claimants were all made after 26 June 2013, that being the date on which HMRC announced their intention (without any prior public consultation or warning) to procure the enactment of what became section 234. The Finance Act 2013 received Royal Assent on 17 July 2013, some three weeks later. It follows that the interim payment claims of all the claimants other than Perkins are caught by the section, unless they can bring themselves within the exception in subsection (3)(b). Each of the relevant claimants argue, for various reasons, that their circumstances are indeed exceptional and such that the granting of the interim payment sought is necessary in the interests of justice. Further or alternatively, they submit that their entitlement under EU law to restitution of the unlawfully levied ACT must in any event prevail over the procedural obstacle erected by section 234, which should be read down or disapplied accordingly.

The underlying facts relating to the payment of the FIDs, and the payment and repayment of ACT, are not in dispute, subject possibly to some very minor points which should be capable of resolution by agreement. For the purposes of this judgment, I need give only a brief summary which is based on appendix B to the claimants’ skeleton argument.

Two of the Evonik claimants paid FIDs, Laporte Organisation Limited (“LOL”) and Evonik Degussa UK Holdings Limited (“UK Holdings”). The FIDs were paid in the accounting periods ending 31 December 1997 to 1999. LOL was a wholly-owned subsidiary of UK Holdings, which was then a publicly listed company known as Laporte Plc.

LOL paid two FIDs to UK Holdings (on 10 September 1997 and 5 June 1998) which in turn paid four FIDs to its public shareholders (on 12 November 1997, 1 June 1998, 9 November 1998 and 1 April 1999). Credit was given to UK Holdings against the ACT due on its FIDs for the ACT paid on the FIDs it received from LOL. As the FIDs paid by UK Holdings were in aggregate larger than those it received from LOL, some ACT was paid on the FIDs by UK Holdings but most was paid by LOL.

The ACT was repaid to LOL in four payments between September 1999 and November 2004, and was repaid to UK Holdings on three dates between November 2004 and March 2014. The FIDs were matched against distributable foreign profits from a variety of jurisdictions both within and outside the EU, which carried credits for underlying tax paid in excess of the UK rate.

At the relevant time, three of the ICI claimants paid FIDs in the accounting periods ending 31 December 1997 and 31 December 1998. Where FIDs were paid within the group, credit was given for the ACT paid on the FIDs received, and the recipients paid little or no ACT themselves. There were three repayments of ACT for the FIDs on which ACT had been paid, in October 1998 and October 1999. The FIDs were matched against distributable foreign profits from a variety of jurisdictions within and outside the EU which carried credits for underlying tax paid in excess of the UK rate.

One of the Invensys claimants, Invensys International Holdings Limited (which at the relevant times was known as BTR Plc) paid numerous FIDs to its public shareholders in the accounting periods ending 31 December 1994 to 31 December 1998. At the time, BTR Plc was a UK-resident publicly listed company and was the ultimate parent of the BTR Group until February 1999 when the BTR and Siebe Groups merged to form the Invensys Group. The ACT paid on those FIDs was either repaid (on various dates) or utilised against mainstream corporation tax (“MCT”) liabilities. The FIDs were matched against distributable foreign profits from a very large number of jurisdictions both within and outside the EU.

BTR’s FID profile was therefore complex. HMRC would make a provisional repayment of FID ACT for each year on the due date, based on the claimants’ provisional assessment of the underlying tax on the distributable foreign profits. As the underlying tax calculations were then reviewed, any changes in the assessment of the underlying tax would produce further repayments of ACT or the refund of excess repayments of ACT already made, both of which might be accompanied with statutory interest and both of which might later be changed again as the underlying tax position further developed. A balancing exercise was attempted in August 2000 to bring the various repayments and refunded repayments up to date, which was partially successful. Eventually a final agreement as to the ACT to be repaid or utilised was reached on 6 December 2006, and the necessary repayments and refunds were made.

The complexity of the FID profile required the design of a bespoke spreadsheet to calculate the amount of restitution due. The claimants proposed two approaches which produced similar outcomes, the “running balance” method and the “annual breakdown” method. The claimants opted for the latter, and this was accepted by HMRC, subject to correction of a minor error. The amount of the Invensys claim is therefore agreed, on the assumption that the law is correctly stated in FII (High Court) II.

Rhodia International Holdings Limited (then known as Albright & Wilson Overseas Limited) paid three FIDs in the accounting periods ending 31 December 1997 and 31 December 1998 to its parent company, Albright & Wilson Plc. The ACT on those FIDs was either repaid on various dates or utilised against MCT liabilities. The FIDs were matched against distributable foreign profits from jurisdictions within the EU. In all cases, both the actual rate of tax and the nominal rate of tax exceeded the UK rate.

There was a dispute about how to account for an earlier interim payment which had been made to Rhodia International Holdings Limited in relation to part of its FID claim, and which was partly repaid with compound interest following the decision in FII (CA) I. By the date of the hearing before me, it appeared that this dispute had either been resolved or else was very close to resolution.

One of the Richemont claimants, Dunhill Limited, paid a FID of £7,849,474 in the accounting period ending 31 March 1998 on which ACT of £1,962,368.52 was paid. At the time, Dunhill Limited was a wholly-owned subsidiary of Richemont Investments Limited, which was itself a wholly-owned subsidiary of Richemont Holdings (UK) Limited. The latter two companies also paid FIDs, but these carried little or no ACT liability, credit having been given for the ACT paid by Dunhill Limited.

The ACT on the Dunhill Limited FID was then repaid on 2 October 2002. The FID was matched against distributable foreign profits received by Alfred Dunhill International Limited from a Dutch holding company, sourced from profits in Germany and Hong Kong, which carried credits for underlying tax paid in excess of the UK rate.

Perkins Foods Limited (then called Perkins Foods Plc) paid ACT upon a series of FIDs in its accounting periods ending 31 December 1997 and 31 December 1998. These FIDs were matched with dividends received by the UK holding company of the Perkins group from Perkins BV, which was the holding company of the group’s manufacturing operations in the Netherlands. The FIDs paid in 1997 were matched with Dutch profits carrying sufficient underlying tax to provide full double tax relief, and the ACT was repaid. In relation to the 1998 FIDs, there was a dispute concerning the proper computation of the Dutch underlying tax rate, which is currently pending before the Tax Chamber of the First-tier Tribunal. As a result of this dispute, part of the 1998 FID ACT (amounting to £378,230.13) has not been repaid by HMRC to the Perkins group. I will need to return to this point later.

Prudential Plc paid three FIDs, one in 1997 and two in 1998. Prudential Plc reduced its liability for ACT upon its FIDs by taking credit for two FIDs received from its subsidiary, the Prudential Assurance Company Limited (“PAC”), and paid ACT on the balance. Some of the FID ACT paid by Prudential Plc was utilised against MCT liabilities of other companies in the group. HMRC also made three repayments of ACT between July 2000 and December 2002, totalling £88,936,316. HMRC acknowledge that there is a further amount of £11,062,113 due to be repaid. Prudential Plc’s FIDs were matched with distributable foreign profits received ultimately from subsidiaries in the USA.

A description of the principal features of the FID regime was provided by the parties and incorporated in the order for reference to the ECJ in FII (ECJ) I: see FII (High Court) I at [12] (paragraph 8) and [23] to [25], where the relevant passages are either quoted or paraphrased.

This is the material upon which the ECJ based its understanding of the FID system, which it summarised as follows in paragraphs 23 to 26 of its judgment in FII (ECJ) I:

A fuller description of the FID regime may be found in FII (High Court) I at [165] to [172]. This description was adopted by the Court of Appeal in FII (CA) I, where Arden LJ (giving the judgment of the Court) said at [117]:

One further aspect of the regime which needs to be mentioned is the requirement for the distributable foreign profits with which FIDs were matched to have borne a rate of underlying tax which exceeded the UK corporation tax rate, and the practical problem to which this gave rise. I explained this as follows, in FII (High Court) II at [177] to [180]:

I emphasise these points, because they help to bring out the integrated nature of the FID regime, and the fact that ACT would only be repaid by HMRC to the company which had declared and paid a FID when it had been matched to HMRC’s satisfaction with distributable foreign profits of the company which had already borne a rate of underlying tax in excess of the UK corporation tax rate. In the real world, no UK company would ever have declared a FID unless it was confident that it would be able to perform the necessary matching exercise and thereby obtain repayment of the relevant ACT. Furthermore, the effect of the matching requirements was that, once a repayment of ACT had been made on a final as opposed to a provisional basis, one could be certain that the ACT in question was directly attributable to foreign profits of the company which had already borne tax at a rate higher than the UK rate. The necessary linkage was provided by the matching exercise itself.

I can now turn to the central question on the present applications for summary judgment: has the unlawfulness under EU law of the ACT paid by the claimants on their FIDs been established so clearly that there is no real prospect of HMRC successfully defending their claims for restitution of that ACT and its time value? HMRC submit that the answer to this question is No. They say there is still a real prospect that the Court of Appeal will grant them permission to appeal on the FID issues when their application for permission is renewed at the forthcoming appeal hearing, and that the Court of Appeal (or, on further appeal, the Supreme Court) will then take a different view of the law from that which I took in FII (High Court) II.

In order to answer this question, it is necessary for me to retrace the familiar ground which led me to my conclusions in FII (High Court) II, and ask myself whether the law in relation to the payment of ACT on FIDs has indeed been settled as clearly as I thought. The story inevitably begins with the first reference to the ECJ.

The relevant question in the order for reference was Question 4, which the ECJ reformulated in paragraph 140 of its judgment as follows:

Having said in paragraph 144 that the national court was, by its question, “asking the Court of Justice to rule on the lawfulness of the FID regime”, the ECJ continued as follows:

The ECJ went on to consider, and reject, all the arguments advanced by the UK which sought to explain or justify the two differences in treatment which the Court had identified, including an argument that the restrictions were justified by the need to preserve the cohesion of the United Kingdom tax system. The Court accordingly concluded, at paragraph 164:

The Court then considered whether the FID regime also contravened Article 56 EC on the free movement of capital, and concluded that it did (paragraphs 165 to 172). The Court was also asked, by Question 5 in the order for reference, to consider the application of the standstill provision in Article 57(1) EC to the FID regime: see paragraphs 174 to 196. The Court held that the standstill provision could in principle apply, but (at paragraph 194) remitted to the national court the question whether the absence of a right to a tax credit for shareholders in receipt of FIDs had to be regarded as a new restriction for the purpose of Article 57(1).

The Court’s answer to question 4, repeated in paragraph 4 of its formal ruling, was expressed as follows:

It is clear, in my judgment, that the ECJ ruled on the lawfulness of the FID regime as a whole, and held that it infringed both Articles 43 and 56 EC. In the context of the present claims, the critical difference in the treatment of FIDs, when compared with the treatment of nationally-sourced dividends, was the cash flow disadvantage. The second difference in treatment, namely the absence of a tax credit, gives rise to other issues concerning the enhancement of FIDs for the primary benefit of tax-exempt shareholders with which I am not now concerned. The crucial point, for present purposes, is that the ECJ gave a definitive ruling on the unlawfulness of the FID regime, and the only question left unresolved was the possible application of the standstill provision in relation to third country FIDs.

Consistently with this, the only live issues relating to FIDs at the first liability trial in 2008 were “corporate tree” points, which arose in the same way as they did in relation to ACT generally, and the application of the standstill provision. I dealt with these questions in FII (High Court) I at [178] to [191]. The corporate tree points have subsequently been definitively resolved in the test claimants’ favour by the ruling of the ECJ on the second reference, while my decision that the standstill provision did not apply was upheld by the Court of Appeal in FII (CA) I, and HMRC’s attempt to resurrect it in advance of the quantification trial was also rejected by the Court of Appeal, as I have explained, in FII (CA) II.

In the order of the High Court dated 12 December 2008, drawn up to give effect to the judgment in FII (High Court) I, declaration 8 said:

It can be seen, therefore, that the FID claims of the test claimants succeeded both in relation to EU FIDs (paragraph 1(b) of the order) and in relation to third country FIDs (paragraph 1(c)). The qualification at the end of paragraph 1(b) (“in so far as the ACT would not have been payable if dividend income from other EU Member States had been treated as franked investment income”) reflected my decision that the appropriate way to render the ACT regime compliant with EU law was to remove the UK territorial limitation on franked investment income, so that it would include dividends received by a UK company from a company resident in another Member State: see declaration 5 in the order, and FII (High Court) I at [142] to [153]. In relation to ACT paid under the FID regime, this qualification would clearly not have reduced the claims because, if the matched EU dividends had been treated as FII, that FII would have franked the FID to the extent of the matching, and no ACT would have been payable in the first place. Similarly, the restriction contained in paragraph 2 of the order in relation to third country FIDs, namely that the dividends received should have been paid out of profits which had been subject to corporation tax in the hands of the subsidiaries, would again not reduce the claims, because the effect of the matching rules in the FID regime is that the requirement would always have been satisfied.

The Court of Appeal disagreed with my view that the unlawfulness of the ACT regime could be remedied by simply removing the territorial limit on FII. They held, instead, that section 231 of ICTA 1988 should be subjected to a conforming interpretation. The nature of this conforming interpretation was set out in paragraph 107 of FII (CA) I, which I reproduce from the version of the judgment as finally approved, rather than the earlier version contained in the report at [2010] STC 1251, 1308:

This decision was reflected in paragraph 5 of the Court of Appeal’s amended order dated 19 March 2010.

Paragraph 16 of the Court of Appeal’s order then varied paragraph 1 of the High Court’s order (“Order 1”) so as to read:

By paragraph 17 of the Court of Appeal’s order, paragraph 2 of the High Court’s order was affirmed.

Apart from the requirement that the claims be made within the applicable limitation periods, upon which nothing turns for present purposes, the only material difference between the varied Order 1 and the original High Court version of it lies in the new restriction that “the ACT paid was not due after taking into account the tax credit available under section 231 ICTA 1988 in respect of those dividends”. This wording replaced the previous requirement that the dividends be treated as notional FII, and was clearly intended to reflect the Court’s conforming interpretation of section 231. The reference to “the tax credit available under section 231” in respect of the matched dividends must therefore be a reference to the notional tax credit available under the Court’s conforming construction of section 231. The reference cannot be to actual tax credits, because section 231 read without reference to EU law confers no right to a credit for foreign dividends.

Once this point is understood, it seems clear to me that the restrictions contained in sub-paragraphs (a)(i) and (b)(i) of the varied Order 1 will have no impact on claims such as those brought by the present claimants. The unlawfulness of the FID regime as a whole under EU law has been definitively established by the ECJ. It follows that the ACT levied on the FIDs was unlawful, and the companies should have been placed in the same position as a UK company in receipt of FII from a UK subsidiary. The matching rules mean that all of the dividends matched with the FIDs will have been paid out of profits which bore an underlying rate of tax higher than the UK corporation tax rate. Accordingly, had the company which paid the FIDs instead received the same dividends in a purely domestic scenario, they would have been received as FII and would have franked the onward distribution in its entirety. Moreover, EU law would require credit to be given for the whole of the notional foreign tax, up to the UK corporation tax limit, because only thus could economic double taxation of the same underlying profits be avoided. In other words, in cases of the present type the notional tax credit required by EU law under the modified section 231 would in effect require the matched dividends to be treated as if they were domestic dividends, with the result that no ACT on the FIDs was payable.

The conclusion which I have just come to is the same as the one which I reached, rather more briefly, in FII (High Court) II at [181] to [186]. I must now consider the arguments which Mr Ewart advanced in support of his primary argument that my conclusion is, at least arguably, wrong.

In the first place, Mr Ewart argues that the ECJ’s treatment of question 4 in FII (ECJ) I must be read in the context of the Court’s treatment of question 2, which concerned certain aspects of the general (i.e. non-FID) ACT regime. The reasoning of the Court on question 2, and the way in which the Court framed its conclusions, are (he says) similar to its reasoning and conclusions on question 4, which was essentially concerned with the question whether the unlawfulness of the ACT regime identified in answer to question 2 was cured by the FID regime.

Building on that submission, Mr Ewart next submits that the ECJ never intended its treatment of ACT in the context of FIDs to differ in principle from its treatment of ACT generally. In its subsequent decision on the second reference, in FII (ECJ) II, the Court substantially revised and refined its views on the unlawfulness of the Case V charge to corporation tax and ACT, which it has consistently regarded as a payment of corporation tax in advance rather than a tax which differed conceptually from corporation tax. In particular, it was on the second reference that the ECJ paid close attention to the foreign nominal rates of tax, and the relationship between those rates and the UK corporation tax rates. This revised approach of the ECJ generated many further problems, including the disputes about methodology in computing the quantum of the unlawful charges to tax with which the High Court had to grapple in FII (High Court) II. My decision on many of those points of principle is currently under appeal to the Court of Appeal, with permission granted by myself. If, therefore, it is arguable with reasonable prospects of success that the ACT payable in respect of FIDs should in principle be treated in the same way as ACT generally, the Court cannot be satisfied at this stage that the FID claims will succeed in full, or indeed to any identifiable extent. The present claims are therefore not suitable for summary judgment, although (but for section 234 of the Finance Act 2013) they would be suitable for an award of interim payments.

Mr Ewart also gave an example, which he said supported his case. He posited a deliberately simplified scenario, where a UK water’s edge company received two dividends, 100 from an EU subsidiary and 100 from a non-EU subsidiary. Under EU law, only the 100 from the EU subsidiary could result in an unlawful charge to corporation tax, because the standstill provision would protect the charge to tax on the third country dividend. If the UK water’s edge company then itself paid a normal dividend of 200, it would be liable to pay ACT on the whole of that dividend in the usual way; and since EU law regards ACT as a prepayment of corporation tax, the maximum extent to which the ACT could have been unlawful would be the 100 received from the EU subsidiary. If, on the other hand, the UK company had declared a FID of 200, ACT would again have been payable in the usual way, but if the claimants are correct the whole of the ACT would now be unlawful, because the standstill provision has no application to the FID regime. How then, asks Mr Ewart, can the ACT referable to the non-EU dividend be unlawful, although in the eyes of EU law it is a prepayment of lawful corporation tax? Mr Ewart did not invite me to answer his question, which he said clearly gave rise to a difficult issue. His point was, rather, that the question was on any view arguable, and it could not be said with confidence, on the current state of the authorities, that the whole of the ACT on the FID must be unlawful.

Finally, Mr Ewart submitted that the decision of the Court of Appeal in relation to the standstill issue in FII (CA) II was of no assistance in the present context, because it did not concern the way in which unlawful ACT was to be determined in relation to a FID.

Mr Ewart advanced these submissions with his customary skill, but I do not find them convincing. The short answer to his first point, in my judgment, is that in FII (ECJ) I the ECJ considered the FID regime as a whole, and found that it infringed both Articles 43 and 56 EC. The only question left outstanding was the possible application of the standstill provision to third country FIDs. That question has now been definitively answered in the claimants’ favour by the Court of Appeal. Accordingly, all of the claimants in the FII GLO which paid FIDs, and which received refunds of ACT following a matching of the FIDs with either EU or third country dividends, are entitled to restitution of the time value of the unlawful ACT which they paid. The whole of the ACT on the matched FIDs must be regarded as unlawful, because it was paid pursuant to a regime which the ECJ has held to be unlawful, and which it held to be unlawful long before the refinements subsequently introduced by FII (ECJ) II.

Even if that is too simple a way of looking at the matter, and regard should be had to the revised approach of the ECJ on the second reference, the result would in my judgment still be the same. Precisely because the FID regime is a self-contained system, with its own rules, including the matching rules, I can see no scope for operation of the ECJ’s revised approach in any cases where matching has taken place. As I have sought to explain, the matching rules provide the necessary link between the ACT paid on the distribution of the FID and underlying foreign profits (whether EU or non-EU) which have already borne corporation tax at a rate higher than the UK rate. There is accordingly no room for operation of HMRC’s so-called streaming or “tracing” methodologies to apply, even assuming them to be arguably appropriate in relation to ACT generally.

Similar considerations also provide the answer, in my judgment, to Mr Ewart’s example. By its ruling on the first reference, the ECJ has already decided that the FID regime infringed Article 56 EC. It follows that the ACT paid on third country FIDs must be unlawful, even though the Case V charge to corporation tax on the same foreign profits is not unlawful (because protected by the standstill provision). There is an asymmetry between the lawfulness of the Case V charge, and the unlawfulness of the charge to ACT, in respect of the same third country profits, but that merely reflects the fact that the former is protected by the standstill provision, whereas the latter (in the context of the FID regime) is not.

Lastly, I do not agree with Mr Ewart that no assistance can be gained from the decision in FII (CA) II. As I said in the introductory section of this judgment, the decision emphasises the important point that the ECJ was invited to, and did, consider the lawfulness of the FID regime as a whole. This reflects the business reality that no company would ever deliberately have declared and paid a FID unless it intended to take advantage of the regime as a whole. Furthermore, HMRC are protected by the fact that the present claims relate only to ACT which has been repaid, or is due to be repaid, following matching of the FIDs with foreign dividends in accordance with the rules. There is no question of restitution being sought in respect of ACT paid on any FIDs which were declared, but were not followed up by a matching process.

For all these reasons, I see no reason to depart from the conclusions which I reached in FII (High Court) II in relation to the FID claims of the BAT test claimants. I do not consider that HMRC’s arguments to the contrary would have a real prospect of success. In principle, therefore, I am satisfied that each of the present claimants is entitled to summary judgment on its FID claims. I will return later to the question whether the claimants are entitled to judgment on the full amount of their claims, but first I must deal with the technical objections which HMRC make to the grant of summary judgment.

I can dispose of the first objection swiftly. In their skeleton argument, counsel for HMRC submit that summary judgment is not available because the claimants do not seek judgment on either the whole of their claim or a particular issue, but rather on part of their overall claim for restitution. The submission is based on the wording of CPR rules 24.1 and 24.2, which state that:

I confess I find the submission that summary judgment is not available to dispose of parts of claims a startling one, and perhaps wisely Mr Ewart did not press the point in his oral submissions. The existence of such a restriction, of undefined scope, would serve no conceivable purpose, would be contrary to the overriding objective, and would be a trap for the unwary. If necessary, therefore, I would construe the words “a claim” in rule 24.1 as including a part of a claim, if and in so far as any part of a given claim could not properly be regarded as comprising one or more particular issues. Fortunately, however, the position is in my view put beyond reasonable doubt by Practice Direction 24 on the summary disposal of claims. Paragraph 1.2 of PD 24 says:

Since the word “claim” appears nowhere else in paragraph 1 of PD 24, but appears several times in the remainder of the Practice Direction, it is clear that the words “in this paragraph” in para 1.2 must be a drafting slip, and the intention was to say “In this Practice Direction”. So read, the definition in para 1.2 would then apply, for example, to para 5.1, which sets out the orders the court may make on an application under Part 24 as including:

Even if that were wrong, I can see no good reason why the present claims should not be characterised as raising the particular issues whether the FID ACT payments were unlawful, and (if so) to what extent. HMRC submit that it is not appropriate to distinguish between the actual payments of FID and non-FID ACT, because under the domestic UK system ACT paid on FIDs was generally paid at the same time as ACT on any other dividends paid in the same quarter, all of which would be returned on the same form “CT 61”. As a matter of procedure, that is no doubt true; but in my judgment the submission confuses a mere matter of machinery with the underlying substance of the matter. The FID regime was separate and self-contained, even though it involved an initial payment of ACT in the usual way on dividends which had been declared to be FIDs, to the extent that they were not matched by FIDs received.

HMRC’s second objection to the availability of summary judgment is potentially more significant. It asserts that the present applications were premature, because the claimants never applied for the stay imposed on their claims by the FII GLO to be lifted either before or when they made their applications. Paragraph 12 of the now much-amended order establishing the FII GLO has throughout stated that:

It is also relevant to note paragraph 20, which has always said:

The claimants do not deny that they never formally applied for the stay to be lifted on or before making their applications for summary judgment. Their reason for not doing so was their apprehension that, if given notice of their intention to apply for summary judgment, HMRC might take immediate steps designed to prevent the claimants from obtaining the benefit of final judgments in their favour, whether by procuring the enactment of fresh legislation or otherwise. Experience has shown that such fears are by no means fanciful. However, say the claimants, the absence of a formal application to lift the stay is unimportant, because both they and HMRC proceeded on the common understanding that the present claims could be validly brought and adjudicated upon, until HMRC first took the point about the continued existence of the stay in their grounds of objection to the present applications served on 31 July 2015. Before then, HMRC had without demur attended a case management conference held on 30 January 2015 at which directions were given for the case management and determination of the six claims for summary judgment and/or interim payments then extant, namely those of Evonik, ICI, Invensys, Rhodia, Richemont and GKN Holdings Plc and others (“GKN”). Those directions provided for the applications to be case managed, heard and determined together; for HMRC to provide full particulars of the grounds upon which they resisted the applications by no later than 31 July 2015; for HMRC to serve on the claimants any evidence in opposition to the applications by the same date; for the claimants to serve any evidence in reply by no later than 11 September 2015; and for the sequential service of skeleton arguments before the hearing.

Importantly, HMRC also agreed to the listing of the applications for hearing with a four day time estimate, and agreed to further directions to incorporate the application of Perkins Foods made on 9 July 2015. Those further directions were incorporated in an order which I made on 16 July 2015. They provided for the service of HMRC’s grounds of opposition by no later than 9 October 2015, and for the service of any evidence in reply by 23 October. All of these steps were taken without HMRC raising any objection that the applications were barred by the continuing existence of the stay. Accordingly, submit the claimants, HMRC must be taken to have waived the procedural objection, either by election or by estoppel. When HMRC first raised the objection, on 31 July 2015, it was too late to do so. Agreed case management directions had been given and acted upon, and a four day hearing had been listed. The listing, in particular, shows that each side intended the applications to be determined on their merits by the managing judge of the FII GLO.

The claimants support this submission by reference to the explanation of the principles of waiver given by Lord Diplock in Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 at 882-884. The relevant issue was whether the landlords of business premises had waived their right to object to an application by the tenants for a grant of a new tenancy which had been made prematurely, before expiry of the two month period required by section 29(3) of the Landlord and Tenant Act 1954. In agreement with the majority of the court, Lord Diplock held that this statutory requirement was capable of being “waived” by the landlords. He continued, at 882H:

Lord Diplock went on to explain that the types of estoppel which could give rise to the second type of waiver were estoppel in the strict sense, High Trees promissory estoppel and acquiescence. In relation to acquiescence, Lord Diplock said at 884F-H:

In addition, the claimants rely on Handley, Estoppel by Conduct and Election, at paragraph 15-034, which contains this statement:

Applying these principles to the present case, it seems to me that HMRC must be taken to have waived their right to object to the summary judgment applications on the ground that the stay imposed by paragraph 12 of the GLO order had not been lifted. HMRC must have been aware of their right to object to the applications on this ground, but they refrained from asserting that right either at the case management hearing on 30 January 2015 or when the applications were listed for trial. At the lowest, the facts in my judgment establish a waiver by acquiescence, and arguably a promissory estoppel too upon which the claimants acted by taking steps to list the applications for hearing.

HMRC attempt to counter this analysis by pointing out that paragraph 20 of the GLO order enables a claimant to make an application without lifting the stay, but in my view the point does not go far enough. It may be that the mere issue of the applications was permitted by paragraph 20, but the conduct by HMRC which grounds the waiver lies in their subsequent participation in the case management conference, their agreement to directions for trial, and their engagement with the listing process.

HMRC’s next objection follows on from the one which I have just considered. It turns on CPR rule 24.4(1A), which provides that:

HMRC’s simple point is that, if the stay still persists, HMRC’s time for filing a defence has not yet expired, with the consequence that the applications for summary judgment are barred by rule 24.4(1A). The claimants’ answer to this is to say that HMRC’s time for filing defences to the claims under the general rule in CPR 15.4 began to run again when directions were given at the CMC on 30 January 2015, and although HMRC were able to rely on the permissive extension of time in rule 24.4(2) pending the summary judgment hearing, they could not rely on the bar in rule 24.4(1A) once the standard 14 or 28 day period had elapsed. The application notices for summary judgment were all either re-issued, or issued in amended form, on various dates between June and October 2015, long after the primary period for service of HMRC’s defences had elapsed.

On the footing that (as I have held) HMRC waived their right to rely on the stay as a defence to the present applications, I consider that the claimants’ argument on this point must be accepted. Time started to run again for service of HMRC’s defences when directions were given on 30 January 2015, and each claimant is able to rely on an application notice for summary judgment which was either reissued or issued in amended form at least 28 days after that date. Although the interaction between rules 24.4(1A) and (2) is not altogether clear, it would in my view be wrong to construe those provisions as preventing an application for summary judgment against the Crown in any case where the general period for filing a defence has expired but the Crown wishes to take advantage of the permissive extension of time provided by rule 24.4(2). Such a construction would, in effect, turn a purely permissive provision into a positive requirement that no application could be made against the Crown for summary judgment until after a defence had actually been filed.

HMRC’s final objection is touched upon by counsel for HMRC in their skeleton argument, but was not pursued by Mr Ewart in his oral submissions. The gist of it was that it would be inconsistent with the purpose of the FII GLO to permit any applications for summary judgment to be made by claimants other than the test claimants until all of the potentially relevant common issues had been finally determined in the test cases. I would not accept this argument. The present applications relate only to ACT paid in respect of FIDs, which is a small and self-contained part of the overall FII Group Litigation. It is already ten years or more since most of the present claimants issued their claims. If it is the position that there is no reasonable prospect of a defence to the whole or part of the FID ACT claims, considerations of fairness and justice dictate that the claimants should be able to obtain an effective remedy at the earliest convenient opportunity, without being made to wait for several more years until the FII Group Litigation has finally reached its conclusion.

Having disposed of HMRC’s technical objections, it remains for me to consider a number of points raised by HMRC in relation to the quantification of the claims. To a large extent, these points seem to me to fall away in the light of my analysis of the unlawfulness of the FID regime. Thus, for example, I can see no scope for HMRC’s streaming and tracing methodologies, which I have accepted are at least arguable by granting permission to appeal in the FII quantification proceedings, because the FID regime provides its own rules for matching FIDs with foreign dividends. Similarly, there is no room for argument about the level of foreign tax for which credit should be given in the UK, because (as I have explained) matching foreign dividends under the FID regime must have borne a rate of underlying tax higher than the UK corporation tax rate. Nor can I see any scope for HMRC’s arguments of principle that restitution should be limited to the actual benefit derived by the Government from the use of the ACT during the period between its payment and repayment, because whatever the merits of those arguments may be in the abstract, in the quantification proceedings I considered and rejected on the facts HMRC’s attempt to quantify such benefits. I summarised my general conclusions on this issue in FII (High Court) II at [421] to [424]. In relation to prematurely paid ACT, my conclusion is reinforced by the fact that I heard “no credible evidence about how the cash flow aspect of ACT was taken into account in government forecasts of receipts and expenditure”: see FII (High Court) II at [391], where I commented on some of the deficiencies in the evidence of Sir Jonathan Stephens.

There is, however, one aspect of quantification in respect of which I am satisfied that it would be inappropriate to grant summary judgment at this stage, and that is the claims for restitution in the form of compound interest for the period after utilisation or repayment of the relevant ACT. It is common ground that compound interest is the appropriate measure of restitution until utilisation or repayment, because the House of Lords so held in Sempra. I have held that the same principles must apply after utilisation or repayment, and in Littlewoods (CA) the Court of Appeal agreed: see Littlewoods Ltd v Revenue and Customs Commissioners [2015] EWCA Civ 515, [2015] STC 2014, at [201] to [204]. I was told, however, that there was a pending application by HMRC to the Supreme Court for leave to appeal in Littlewoods, which included this and other questions relating to compound interest. The Supreme Court has subsequently granted HMRC permission to appeal on 23 December 2015. Given the importance of the subject, and the difficulty of some of the issues to which it gives rise, I feel unable to say at this stage that HMRC have no real prospect of success in relation to this part of the claims.

In addition, Mr Ewart has satisfied me that it would be wrong to grant summary judgment in respect of so much of the Perkins claim as is subject to the pending proceedings before the First-tier Tribunal: see [30] above. To that extent, it cannot be said that HMRC have no real prospect of successfully defending the claim. The point at issue is a serious one, and the answer to it is not obvious.

I therefore conclude that the claims for summary judgment succeed, save in relation to (i) all the claims for compound interest in respect of the periods after repayment or utilisation of the unlawfully paid ACT, and (ii) the disputed Perkins issue. If I reached this position, Mr Aaronson made it clear in his oral submissions that the claimants would not ask the court to order an interim payment in respect of the post-repayment or utilisation period. No application for an interim payment is made by Perkins: see [17] above. Accordingly, it seems to me that the claims must, at least in theory, proceed to trial on these parts of the claims only. In practice, however, the realistic course will probably be simply to adjourn the remnant of the present proceedings until after the relevant GLO issues relating to compound interest and the outstanding Perkins issue have been finally determined.

Since the applications for summary judgment succeed, and since no interim payments are sought in respect of the limited parts of the claims which I have held must go to trial, it is unnecessary for me to rule on the questions of fact and law in connection with section 234 of the Finance Act 2013 to which the interim payment applications give rise. Many of those questions are of some difficulty, and would almost certainly be the subject of applications for permission to appeal whichever way I decided them. In the circumstances, I think it is undesirable that I should rule on them where it is unnecessary for me to do so, and neither side asked me to take that course. It is better that the questions should be left for decision in a case where they have to be answered.

For the reasons which I have given, the claims for summary judgment succeed save in relation to (i) the claims for compound interest in respect of the periods after utilisation or repayment of the relevant ACT, and (ii) the disputed part of the Perkins claim which is the subject of pending proceedings before the First-tier Tribunal. I hope that the parties will now be able to agree appropriate orders to give effect to this judgment.