Evonik Degussa UK Holdings Ltd & Ors v Revenue And Customs

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:

“30.

In the light of what the ECJ said in these paragraphs [i.e. paragraphs 188 to 196 of FII (ECJ) I], read in the context of the full judgment, I cannot accept Mr Baldry’s submission [for HMRC] that the only issue which the ECJ was addressing, or remitting to the national court, was the issue whether the denial of a tax credit to the shareholder receiving the FID was a new restriction. As paragraphs 192 to 194 to my mind emphasise, one has to look at the legislative package as a whole in order to ascertain whether the approach reflects a new approach which is different from that of the previous law. Moreover, as Mr Aaronson QC [for the Test Claimants] pointed out, the ECJ was well aware that, ultimately, the question to be determined was whether the Claimants could make claims in respect of ACT paid on third country FIDs and that the ACT charge was already in place under the legislation existing at 31 December 1993.

31.

When one turns to consider the judgment of Henderson J in [FII (High Court] I] in what was effectively a liability trial, and the orders and declarations made by him to give effect to his judgment, it is plain to me that he decided that the composite FID regime [Gloster LJ’s emphasis] (and not merely that element of it which involved the denial of a tax credit to the shareholder receiving the FID) was incompatible with Community Law and a new restriction …

32.

What is clear from this passage [inFII (High Court) I] at [180] to [191] (and indeed Mr Baldry QC did not dispute this point) was that, before Henderson J, Mr David Ewart QC, leading counsel on behalf of HMRC, was contending that there was a composite scheme and that the inextricable link between payment of ACT and the receipt of a tax credit demonstrated that the FID regime was indeed protected by the standstill provision of Article 57(1)). Basically, Mr Ewart QC was arguing that, although the removal of the tax credit to shareholders was an additional restriction, one had to read it in conjunction with the change to [the] ACT regime, and, viewed as a whole [Gloster LJ’s emphasis], the legislation adopted the same approach and the same logic as the previous statutory regime, and therefore was protected by the standstill provision of Article 57(1).

…

35.

As quoted above, the declarations which the Court of Appeal made pursuant to its judgment can only be regarded as consistent with the conclusion that the composite FID regime was not saved by the standstill provision …

36.

In the light of this approach, in my judgment HMRC’s current assertion before this court that Henderson J and the Court of Appeal focused solely on the removal of the shareholders’ right to a tax credit, and that they had not adjudicated on the Claimant companies’ claims in respect of the time value of ACT is simply not sustainable. Such an argument is inconsistent with the orders of both Courts, which dealt expressly with the Claimant companies’ claims for the time value of ACT. Moreover, Mr Ewart’s submissions before both Courts was that the FID regime should be looked at as a whole, and, as the main purpose of the FID regime as a whole was to alleviate the discriminatory restriction on ACT payments, the regime as a whole should be regarded as falling within the “standstill” in Article 57(1). Both Henderson J and the Court of Appeal rejected this argument. In those circumstances it lies ill in HMRC’s mouth now to change tactics and put forward a wholly different case.

37.

Accordingly, in my judgment, the issue which HMRC wishes to raise has been conclusively determined against it by Henderson J and the Court of Appeal. Therefore HMRC is estopped per rem judicatam, from raising the issue a second time: the contention now being advanced by HMRC is inconsistent with the earlier decision in the same case …

38.

Alternatively, if I am wrong in my analysis that the issue which HMRC now seeks to raise has been conclusively determined against it by Henderson J and the Court of Appeal, in any event the raising of this argument (namely that one should look at the various elements of the restrictions imposed by the FID regime separately) would be contrary to the public interest and an abuse of process: see Lord Bingham in Johnson v Gore Wood [2002] 2 AC 1, at 31A, where he explains the principle articulated in Henderson v Henderson.”

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]:

“In the light of all this material, it is in my judgment now clear beyond argument that the FID regime not only breached Arts 49 and 63 TFEU in relation to EU FIDs (i.e. FIDs matched with distributions made by companies resident in the EU), as the ECJ expressly held in FII (ECJ) I, but that the regime also breached Art 63 (and could not benefit from the standstill provision) in relation to third country FIDs. It follows that the claimants are in principle entitled to recover the time value of all of the ACT which they were obliged to pay under the FID regime, from the dates of payment until the dates when the ACT was repaid to them.”

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:

“181.

I now come to the first and second questions under this Issue. The Revenue submit in their skeleton argument that FIDs should be treated in the same way as ordinary dividends. They say that the unlawfulness of the ACT charge was in principle the same for FIDs and non-FIDs, so the remedy should likewise be the same. Accordingly, the matching of FIDs with particular distributable foreign profits (which was in fact agreed with the Revenue) must be ignored, and the EU income component of FIDs must be determined in accordance with the Revenue’s standard “tracing” methodology.

182.

These submissions were not developed by the Revenue in oral argument. In their written closing submissions, they sought to justify their stance thus (para 67A):

“There is no reason in principle to apply any different treatment. The task is to identify the amount of tax that the UK could lawfully charge on a FID. That amount must be determined on the same basis as for a non-FID. The fact that, under domestic law, a special regime applied to enable the Claimants to choose to match their FIDs with certain foreign profits is wholly irrelevant in working out how much tax the UK could lawfully charge on those FIDs.”

183.

In my judgment, it is not open to the Revenue to advance these arguments. The unlawfulness under EU law of the FID regime has already been conclusively established, in relation to EU FIDs by the judgment in FII (ECJ) I, and in relation to third-country FIDs by the judgment in FII (CA). The UK was therefore not entitled to levy any ACT on FIDs, and the claimants are entitled to recover the time value of the ACT which they paid, from the dates of payment until the dates of repayment. This entitlement is reflected in para 16(b) of the Court of Appeal’s order.

184.

These claims are simpler than those relating to ordinary dividends, because the FID regime was subject to a separate and self-contained legislative code which required the FIDs to be matched with identified foreign profits which had borne underlying tax in excess of the UK corporation tax rate. In those circumstances, there could be no question of EU law requiring any further tax credit to be granted for the FIDs, but equally there is no further linking exercise to perform before the extent of the illegality of the ACT charge can be ascertained. Since the whole of the matched foreign profits had already borne foreign tax at a rate above the corporation tax rate, it was clearly unlawful to subject the same profits to a second charge to corporation tax in the form of ACT.

185.

For these reasons, I am satisfied that FIDs must be treated separately from ordinary dividends. It follows that:

(a)

the claimants have good time value claims for the whole amount of the ACT paid on the FIDs and subsequently repaid to them; and

(b)

they have no further claims in respect of the foreign dividends which were in fact agreed with the Revenue to be matched with the FIDs.

This is the approach adopted by the claimants in their computation …

186.

As to third country FIDs, they must in my judgment be treated in the same way as EU FIDs. The distributable foreign profits with which they were matched must be brought into account accordingly, and must be excluded from the foreign income available to be matched with ordinary dividends. Because of the self-contained nature of the FID regime, and the separate rulings of the ECJ in relation to it, I consider that these conclusions would hold good even if the Revenue’s arguments in relation to the treatment of ordinary dividends were to be accepted.”

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:

“Had this been the first time this issue had been considered I would be minded to grant permission. But it seems to me that the position is now well established both at High Court and, more relevantly, Court of Appeal level, particularly by the Court of Appeal order of 19 March 2010. In these circumstances, I am bound to refuse permission to appeal.”

Patten LJ then directed that any oral renewal of the application was to be heard at the same time as the appeal, with the appeal to follow in the event that permission were granted. The appeal from FII (High Court) II is now fixed to be heard in June 2016, with a time estimate of ten days.

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:

“The court may give summary judgment against a … defendant on the whole of a claim or on a particular issue if:

(a)

it considers that –

…

(ii)

that defendant has no real prospect of successfully defending the claim or issue; and

(b)

there is no other compelling reason why the case or issue should be disposed of at a trial.”

In short, the present claimants submit that the test for summary judgment is satisfied, because HMRC have no real prospect of successfully defending the FID claims, and there is no other compelling reason why the case should be disposed of at trial.

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:

“(c)

it is satisfied that, if the claim went to trial, the claimant would obtain judgment for a substantial amount of money (other than costs) against the defendant from whom he is seeking an order for an interim payment …”

By virtue of rule 25.7(4), “[t]he court must not order an interim payment of more than a reasonable proportion of the likely amount of the final judgment”.

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:

“234 Restrictions on interim payments in proceedings relating to taxation matters

(1)

This section applies to an application for an interim remedy (however described), made in any court proceedings relating to a taxation matter, if the application is founded (wholly or in part) on a point of law which has yet to be finally determined in the proceedings.

(2)

Any power of a court to grant an interim remedy (however described) requiring the Commissioners for Her Majesty’s Revenue and Customs … to pay any sum to any claimant (however described) in the proceedings is restricted as follows.

(3)

The court may grant the interim remedy only if it is shown to the satisfaction of the court –

(a)

that, taking account of all sources of funding (including borrowing) reasonably likely to be available to fund the proceedings, the payment of the sum is necessary to enable the proceedings to continue, or

(b)

that the circumstances of the claimant are exceptional and such that the granting of the remedy is necessary in the interests of justice.

(4)

The powers restricted by this section include (for example) –

(a)

powers under rule 25 of the Civil Procedure Rules 1998 …

(5)

This section applies in relation to proceedings whenever commenced, but only in relation to applications made in those proceedings on or after 26 June 2013.

(6)

This section applies on and after 26 June 2013.

…

(9)

For the purposes of this section, proceedings on appeal are to be treated as part of the original proceedings from which the appeal lies.

(10)

In this section “taxation matter” means anything, other than national insurance contributions, the collection and management of which is the responsibility of the Commissioners for Her Majesty’s Revenue and Customs …”

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.

Evonik

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.

ICI

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.

Invensys

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

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.

Richemont

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

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

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 PrudentialAssuranceCompany 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:

“The FID regime

23.

From 1 July 1994, a resident company receiving dividends from a non-resident company could elect that a dividend which it paid to its shareholders be treated as a “foreign income dividend” (“FID”). ACT was payable on the FID but, to the extent to which the FID matched the foreign dividends received, the resident company could claim repayment of the surplus ACT.

24.

While ACT was payable within 14 days of the end of the quarter in which the dividend was paid, surplus ACT was repayable when the resident company became liable for mainstream corporation tax, namely 9 months after the end of the accounting period.

25.

When a FID was paid to an individual shareholder, the latter ceased to be entitled to a tax credit, but was treated for income tax purposes as having received income which had borne tax at the lower rate. Tax-exempt shareholders, such as United Kingdom pension funds which received a FID, were also not entitled to a tax credit.

26.

For dividends paid after 6 April 1999, the ACT system and the FID regime were abolished.”

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]:

“Neither party to this appeal has suggested that the judge’s description of the regime is in any material respect inaccurate.”

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]:

“177.

… the companies which paid the FIDs … duly paid ACT upon them. The FIDs were matched against qualifying distributable foreign profits received by UK-resident subsidiaries within the group. In order to qualify, it was necessary for the distributable foreign profits to have borne a rate of underlying tax which exceeded the UK corporation tax rate (a requirement which can be extracted, with some effort, from s 246I of ICTA 1988: fortunately it is not in dispute). When the matching had been agreed with the Revenue, the ACT was repayable. In fact, provisional repayments of the ACT were always made nine months after the end of the accounting period in which the FID had been paid.

178.

There was a practical problem associated with the operation of the FID regime, described by another of BAT’s witnesses, Mr Thomas Bilton, in his evidence for the first liability trial in 2008. At the time when the election to treat a distribution as a FID had to be made, the underlying tax liabilities on the matching distributable foreign profits were most unlikely to have been finally settled. Thus the group had to make an educated guess what the underlying rate of tax would turn out to be. The consequences of under-estimating the rate could be severe, because if the matching foreign profits failed to satisfy the tax rate criterion the dividend would cease to qualify as a FID, the ACT would no longer be repayable, and by declaring the FID the group would in fact have exacerbated the problem of surplus ACT which the regime was intended to relieve.

179.

Two consequences flowed from this. First, the group would aim to err on the safe side by matching FIDs with a greater amount of distributable foreign profits than it thought it would probably need. Secondly, the repayments of ACT which the Revenue made nine months after the end of the accounting period were (as I have said) provisional.

180.

With one exception … the claimants’ FID time-value claims are based on matching with foreign profits which was eventually agreed with the Revenue. It follows that the underlying rate of foreign tax paid on those profits equalled or exceeded the UK corporation tax rate, and the associated repayments of ACT became final.”

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:

“140.

By question 4, the national court essentially asks whether Articles 43 EC and 56 EC … preclude national legislation, such as the legislation at issue in the main proceedings, which, while allowing resident companies receiving foreign-sourced dividends to elect to recover ACT accounted for on a subsequent distribution to their own shareholders, first, obliges those companies to pay the ACT and to reclaim it subsequently and, secondly, does not provide any tax credit to their shareholders, whereas those shareholders would have received such a tax credit if the resident companies had made a distribution based on nationally-sourced dividends.”

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:

“144.

… That regime permits resident companies receiving foreign-sourced dividends to obtain a repayment of the amount of surplus ACT, that is to say, the amount of ACT which could not be offset against the amount due by way of corporation tax.

145.

However, it must be held that the tax treatment of resident companies receiving foreign-sourced dividends and opting for the FID regime remains less favourable in two respects than that which applies to resident companies receiving nationally-sourced dividends.

146.

As regards, in the first place, the ability to recover surplus ACT, the order for reference shows that, while ACT must be accounted for within 14 days of the quarter in which the company concerned pays dividends to its shareholders, surplus ACT is repayable only when corporation tax becomes due, that is to say, nine months after the end of the accounting period. Depending on when the company paid the dividends, it must wait between eight-and-a-half months and 17½ months to obtain repayment of the ACT accounted for.

147.

Accordingly, as the claimants contend, resident companies electing to be taxed under such a regime by reason of their receipt of foreign-sourced dividends are exposed to a cash flow disadvantage which does not arise in the case of resident companies receiving nationally-sourced dividends. In the latter case, since the resident company making the distribution has already accounted for ACT on the profits distributed, a tax credit is granted to the resident company receiving the distribution, thereby allowing that company to pay an equivalent amount by way of dividends to its own shareholders without having to account for ACT.

148.

In the second place, a shareholder receiving a payment of dividends from a resident company which has its origin in foreign-sourced dividends treated as FIDs, is not entitled to a tax credit, but is treated as having received income which has been taxed at the lower rate for the tax year in question. In the absence of a tax credit, such a shareholder has no right to any repayment if he is not liable to income tax or where the income tax due is less than the tax on the dividend at the lower rate.

149.

As the claimants contend, that means that a company which has elected to be taxed under the FID regime must increase the amount of its distributions if it wishes to guarantee its shareholders a return equivalent to that which would be achieved from a payment of nationally-sourced dividends.

150.

The United Kingdom Government claims that those differences in treatment do not involve any restriction on freedom of establishment.”

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:

“It follows that Article 43 EC precludes a regime having the characteristics of the FID regime described by the National Court in question 4.”

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:

“173.

The answer to question 4 must therefore be that Articles 43 EC and 56 EC preclude legislation of a member state which, while exempting from advance corporation tax resident companies paying dividends to their shareholders which have their origin in nationally-sourced dividends received by them, allows resident companies distributing dividends to their shareholders which have their origin in foreign-sourced dividends received by them to elect to be taxed under a regime which permits them to recover the advance corporation tax paid but, first, obliges those companies to pay that advance corporation tax and subsequently to claim repayment and, secondly, does not provide a tax credit for their shareholders, whereas those shareholders would have received such a tax credit in the case of a distribution made by a resident company which had its origin in nationally-sourced dividends.”

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:

“The FID regime is incompatible with Article 56 EC in relation to FIDs matched with dividends paid by a company resident in a country other than a Member State (“third country FIDs”).”

Paragraph 1 of the order then provided (so far as material) as follows:

“1.

The following claims are successful in relation to the GLO issues determined in the trial:

(a)

…;

(b)

claims for the repayment of surplus ACT … or the time value of ACT utilised against lawful corporation tax or ACT refunded under the FID regime, paid on or after 1 January 1973, by claimants which received dividend income from subsidiaries in other Member States 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;

(c)

claims for the time value of ACT on third country FIDs paid on or after 1 July 1994 and refunded under the FID regime;

(d)

claims for the repayment of interest based on claims under 1…(b) or (c).

2.

1(b) and (c) apply solely to claims for ACT paid by UK-resident companies in receipt of dividends received from their subsidiaries resident in other Member States or, in the case of 1(c), third countries out of profits which have been subject to corporation tax in the hands of those subsidiaries.”

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:

“107.

It therefore falls to this Court to determine the appropriate conforming interpretation. In our judgment, a conforming interpretation can be achieved simply by reading in words that make it clear that resident companies can claim a credit under section 231 in respect not only of qualifying distributions made by resident companies (domestic-source income) but also distributions made by other companies (foreign-source income) to the extent that Community law requires a tax credit to be given in respect of that income too. The extent of that entitlement can then be investigated when the section falls to be applied. The difficulties more properly arising at the point of application should not be erected as an objection to conforming interpretation. This interpretation will apply even if the extent of the entitlement is not fully ascertained until after the ECJ has answered any question put to it in a further reference.”

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:

“The following claims are successful in relation to the GLO issues determined in the trial:

(a)

claims for the repayment of surplus ACT … or ACT refunded under the FID regime, paid on or after 1 January 1973, by claimants which received dividend income from subsidiaries established in other Member States in so far as (i) the ACT paid was not due after taking into account the tax credit available under section 231 ICTA 1988 in respect of those dividends and (ii) the claims are made within the applicable limitation periods;

(b)

claims for the time value of ACT on third country FIDs paid on or after 1 July 1994 and refunded under the FID regime in so far as (i) the ACT paid was not due after taking into account the tax credit available under section 231 in respect of those dividends and (ii) the claims are made within the applicable limitation periods;

(c)

claims for interest based on claims under (a) and (b) above.”

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:

“24.1

This Part sets out a procedure by which the court may decide a claim or a particular issue without a trial.

…

24.2

The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if …”

The notes in the White Book at paragraph 24.1.1 point out that the words “a claim or a particular issue” in rule 24.1 are not defined, and say that the word “claim” when used as a noun in other rules usually refers to the whole of a case in question. In some rules, however, the word is used to refer to separate causes of action raised in the case: see, for example, rule 7.3, which says that “A claimant may use a single claim form to start all claims which can be conveniently disposed of in the same proceedings”.

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:

“In this paragraph, where the context so admits, the word “claim” includes –

(1)

a part of a claim, and

(2)

an issue on which the claim in whole or part depends.”

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:

“(1)

judgment on the claim,

(2)

the striking out or dismissal of the claim,

(3)

…”

The error in paragraph 1.2 is in my judgment one which the court can correct as a matter of construction, because it is obvious what was meant, and there can be no doubt about the correction that is needed.

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:

“All claims listed in Schedule 1 save for those identified to proceed as test claims pursuant to Paragraph 11 above be stayed until further order with permission to apply for the stay to be lifted on giving 14 days’ notice in writing to the other parties.”

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

“Notwithstanding Paragraph 12 of this Order, every party to this Order shall have permission to apply on giving not less than 14 days’ notice in writing to every other party.”

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:

“So it becomes necessary to consider whether the respondents did waive this requirement. “Waiver” is a word which is sometimes used loosely to describe a number of different legal grounds on which a person may be debarred from asserting a substantive right which he once possessed or from raising a particular defence to a claim against him which would otherwise be available to him. We are not concerned in the instant appeal with the first type of waiver. This arises in a situation where a person is entitled to alternative rights inconsistent with one another. If he has knowledge of the facts which give rise in law to these alternative rights and acts in a manner which is consistent only with his having chosen to rely on one of them, the law holds him to his choice even though he was unaware that this would be the legal consequence of what he did. He is sometimes said to have “waived” the alternative right, as for instance a right to forfeit a lease or to rescind a contract of sale for wrongful repudiation or breach of condition; but this is better categorised as “election” rather than as “waiver” …

The second type of waiver which debars a person from raising a particular defence to a claim against him, arises when he either agrees with the claimant not to raise that particular defence or so conducts himself as to be estopped from raising it. This is the type of waiver which constitutes the exception to a prohibition such as that imposed by section 29(3) of the Landlord and Tenant Act, 1954, and other statues of limitation. The ordinary principles of estoppel apply to it.”

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:

“One of the essential elements as respects the quasi-estoppel by acquiescence is that [the party debarred from relying on the relevant right] must have encouraged the other party to act as he did; and this encouragement may be active, as in the instant case by agreeing to the postponed date, or passive by refraining from asserting his own inconsistent legal right. But in contrast to estoppel in the strict sense of the term the party estopped by acquiescence must, at the time of his active or passive encouragement, know of the existence of his legal right and of the other party’s mistaken belief in his own inconsistent legal right. It is not enough that he should know of the facts which give rise to his legal right. He must also know that he is entitled to the legal right to which those facts give rise.”

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

“A step taken in the High Court in breach of the CPR will not be void and any irregularity will be waived by election or estoppel if the party affected fails to challenge it within a reasonable time or takes a fresh step, or if the other party would be prejudiced.”

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:

“(1A) In civil proceedings against the Crown, as defined in rule 66.1(2), a claimant may not apply for summary judgment until after expiry of the period for filing a defence specified in rule 15.4.”

It is common ground that the present claims are civil proceedings against the Crown within the definition contained in rule 66.1(2). The normal period for filing a defence specified in rule 15.4(1) is 14 days after service of the particulars of claim, or if the defendant files an acknowledgment of service under Part 10, 28 days after service of the particulars of claim. The general rule is subject, inter alia, to rule 24.4(2), which provides that, if the claimant applies for summary judgment before the defendant has filed a defence, the defendant need not file a defence before the summary judgment hearing. Rule 24.4(2) is clearly permissive in nature, as I pointed out in Six Continents at [19].

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.