AXA SUN LIFE PLC & Ors. v COMMISSIONERS OF INLAND REVENUE & Anor.

C6 and C7 (together the “Claimants”) appear on the register of the CFC and Dividend Group Litigation Order (the “CFC/Dividend GLO”) which is discussed further below. C6 and C7 have very similar names. To avoid confusion, I will refer to C6 as “AXAIUK” and will refer to C7 as “GREA” (since its former name was Guardian Royal Exchange Assurance plc).

The CFC/Dividend GLO was established in 2003. Litigation on the issues it raises has thus been going on for nearly 20 years. I will not endeavour to provide a comprehensive summary of the history of the CFC/Dividend GLO or other group litigation orders under CPR 19.11 (“GLOs”) by which taxpayers have sought to make claims against the Defendants (together “HMRC”). I will assume that any reader of this judgment has a good grounding in the general issues to which the CFC/Dividend GLO gives rise so far as relevant to this application.

I will also assume that any reader of this judgment has a secure grasp of the following concepts:

Since the litigation concerning the UK's tax treatment of overseas dividends has been going on for so long, it has generated a number of judgments, both of the domestic courts and of the Court of Justice of the European Union and its predecessor, the European Court of Justice (together the “CJEU”). I will use the naming convention commonly used in cases of this kind of referring to the applicable group litigation order (or representative taxpayer), the court and the number of the judgment in that court. The principal judgments in GLO cases referred to in this judgment are as follows. Other cases will be introduced as the discussion in this judgment develops:

The relevant issues to which the CFC/Dividend GLO gives rise can, very broadly, be summarised as follows:

It is now settled law that, in principle, taxpayers are entitled to a restitutionary remedy in relation to both corporation tax claims and ACT claims. Questions of both quantification and limitation remain with the following points being relevant:

AXAIUK has made corporation tax claims which it first brought on 8 April 2003. Its claims relate to “portfolio shareholdings”, that is shareholdings in companies, both in the EU/EEA and in third countries, in which AXAIUK holds 10% or less of the voting power. AXAIUK’s claims go back to its accounting period ended 31 December 1995, more than 6 years before it made its claims, so AXAIUK needs to rely on the extended limitation period in s32(1)(c) of the Limitation Act. AXAIUK makes no ACT claims.

GREA was added as a claimant in these proceedings on 20 July 2009. It makes ACT claims, but no corporation tax claims. Its ACT claims go back to 14 January 1997 and so, like AXAIUK, it needs to take the benefit of s32(1)(c) of the Limitation Act. Both AXAIUK and GREA have been enrolled in the CFC/Dividend GLO at all material times.

By an order of Falk J (as she then was) of 29 September 2022, this hearing has been listed to determine the following three preliminary issues:

The Limitation Issue is relevant to AXAIUK and GREA and concerns the determination of the date of constructive discovery for the purposes of s32(1)(c) of the Limitation Act. The Limitation Issue arises because of rules of procedure relating to GLOs set out in CPR 19. In essence, the Claimants assert that a judgment and order of Henderson J in 2014 in Prudential HC, a test case in the CFC/Dividend GLO, determined that their claims were all in time. The Claimants accept that Henderson J made his decision before FII SC2 overruled DMG and that a more searching examination of the date of constructive discovery would be required applying FII SC2 principles. However, they argue that Henderson J’s order in Prudential HC was not successfully appealed and so is binding in accordance with the provisions of CPR 19.12 and is determinative of the Claimants’ limitation position notwithstanding the change in the law in FII SC2.

HMRC deny that Henderson J made any such determination of limitation issues as a GLO issue. To the extent he did, HMRC argue that the binding effect of his determination should be disapplied under CPR 19.12(1)(a).

The Set-Off Issue is relevant to GREA only as it relates to ACT claims rather than corporation tax claims. In Prudential HC, Henderson J determined (based on Sempra Metals which was good law at the time) that where unlawful ACT is set off against lawful MCT, there is a restitutionary remedy consisting of compound interest for the period during which HMRC have had, prematurely, the use of the unlawful ACT. GREA argues that this was a binding determination of a GLO issue to the effect that some restitutionary remedy is available in this situation. GREA does not assert that the remedy has to consist of compound interest.

On the Set-Off issue, HMRC deny that Prudential HC made a binding determination of a GLO issue, arguing that the relevant binding determination is instead found in Prudential SC, to the effect that no restitutionary remedy is available. Alternatively, if there was a binding determination in Prudential HC, HMRC argue that its binding effect should be disapplied under CPR 19.12(1)(a).

The Pleading Issue does not involve any consideration of procedural rules applicable to GLOs and will therefore be introduced later.

Part III of CPR 19 makes provision for group litigation. CPR 19.11 deals with the establishment of a GLO as follows:

CPR 19.10 contains the following definitional provision:

CPR 19.12 sets out the effect of a GLO in the following terms, so far as material:

The following points emerge from these provisions:

The CFC/Dividend GLO was first established by an order of Master Winegarten on 30 July 2003. It has been amended many times since then and in this judgment, I will refer to the CFC/Dividend GLO in the form that it currently bears.

After various recitals, Paragraph 1 provided that “This Order applies to claims in respect of the following common or related issues of law: …”. Six paragraphs (labelled (a) to (f)) followed. It is not necessary to quote those paragraphs in detail. It is sufficient to note that the issues identified were formulated at a high level and largely asked whether particular provisions of UK statute law that had a bearing on ACT claims and corporation tax claims were compatible with EU law.

In his oral submissions, I understood Mr Ewart KC to argue that only the matters specified in paragraphs 1(a) to 1(f) of the CFC/Dividend GLO were “GLO issues” specified for the purposes of CPR 19.10 and CPR 19.11 in that order. I do not accept that for the following reasons:

The Schedule 3 that resulted from this process set out many more common issues of fact and law than had been set out in paragraph 1 of the CFC/Dividend GLO. Schedule 3 was divided into two parts. Part 1 dealt with “EU Issues” with a focus on the corporation tax treatment of dividends paid by companies established within the EU/EEA. Part 2 dealt with “Third Country Issues” with a focus on dividends paid by companies established outside the EU/EEA.

In Part 1 of Schedule 3, after setting out 11 detailed questions concerning the compatibility or otherwise of various UK statutory provisions relating to ACT and the corporation tax charge on dividends, and the effect of any incompatibility, the CFC/Dividend GLO set out the following issues:

Part 2 of Schedule 3, dealing with “Third Country Issues” contained an issue formulated in identical terms.

At points in his submissions on behalf of HMRC, I understood Mr Ewart to be arguing that the limitation issues set out in the above extract were not formulated with sufficient precision to be GLO issues. However, in my judgment limitation issues A and B were GLO issues by virtue of being designated as such in the CFC/Dividend GLO.

As well as setting out the GLO issues, the CFC/Dividend GLO provided for claimants on the register to be divided into “Classes”. The existence of these classes did not effect any change to the binding nature of determinations of GLO issues set out in CPR 19.12. Therefore, it remained the case that a determination of a GLO issue would, absent an “otherwise” order by the court, be binding on all claimants on the register, irrespective of the Class or Classes of which they were members. The function of the Classes was, instead, to enable appropriate representative test cases to be selected and for claimants with an interest in the outcome of a particular issue to contribute to the costs of the litigant in the corresponding test case.

By paragraph 3.1(b) of an order of Park J made on 12 December 2003, the claim (reference HC03C01346) of The Prudential Assurance Company (“PAC”) was designated as a test claim (for both EU and Third Country issues) for all of the issues set out in paragraph 23 above, namely “Quantum Issue A” (the only issue on quantum) and “Limitation Issues A and B” which are set out in paragraph 23 above.

Prudential HC was a judgment in the claim of PAC that Park J had designated as a test case (see paragraph 27 above). PAC’s claim had a procedural history of its own which can, so far as material, be summarised as follows:

Both PAC and PHL were making claims in respect of tax paid more than six years before issuing those claims. HMRC had pleaded in their Defence that such claims were statute-barred by the Limitation Act. Perhaps surprisingly, PAC and PHL had not pleaded by way of reply that they were entitled to the extended limitation period set out in s32(1)(c) but all parties proceeded on the basis that they were.

At the time of Prudential HC, DMG remained good law. Even if all of the claims summarised in paragraph 28 that were made after the issue of the claim form were regarded as new claims, made for the first time on the date of the relevant amendment, there would have been good grounds for PAC and PHL to conclude that all of their claims based on mistake were in time by reference to the extended limitation period in s32(1)(c). Moreover, there was a possibility that successive amendments to the claim form or the addition of parties, did not even result in new claims being made for limitation purposes. That was because s35(4) and s35(5) of the Limitation Act (“Section 35”) provided that any new claim that PAC and PHL made could be “related back” to the date of the original claim for limitation purposes if either (i) the new claim involved no new cause of action or (ii) if it did, the new cause of action arose out of the same facts, or substantially the same facts already in issue on the original claim.

However, there were potential issues associated with PAC and PHL’s hope to be able to rely on the extended limitation period in s32(1)(c) of the Limitation Act. By s320 of the Finance Act 2004, Parliament sought to limit access to that extended period of limitation in relation to claims made on or after 8 September 2003. Section 320 also restricted the ability of taxpayers to amend an existing claim on or after 20 November 2003 but PAC and PHL argued that their amendments could be “related back” to a claim originally made before 8 September 2003 so as to circumvent the restriction imposed by section 320.

Therefore, s320 had the potential to dent PAC and PHL’s strong limitation position, based on the then authoritative judgment in DMG. The claims summarised in paragraph 28.i) and 28.ii) could not be affected by s320 because they were made before 8 September 2003, the date from which s320 took effect. However, s320 could prevent the later claims summarised in paragraphs 28.iii) and 28.iv) benefiting from the extended limitation period set out in s32(1)(c) of the Limitation Act. That would not make the entirety of those later claims statute-barred, but could have meant that PAC and PHL could only recover tax paid in the six years before making them, whereas PAC and PHL were hoping to recover tax paid much earlier than that. Moreover, s320(2) would have prevented PAC and PHL from using the provisions of Section 35 to “relate back” these later claims to the pre-8 September 2003 claim so as to retain the benefit of the extended limitation period in s32(1)(c).

That said, viewing matters at the time of Prudential HC, the validity of s320 was doubtful. On 23 May 2012, the Supreme Court handed down judgment in FII SC1 holding, among other matters, that s320 was invalid as it deprived taxpayers of remedies in contravention of EU law. Since that conclusion was reached by a majority judgment of their Lordships, the Supreme Court referred the question to the CJEU. (As will be seen, after the hearing in Prudential HC, but before the order giving effect to that judgment, the CJEU gave judgment in FII CJEU3 holding that s320 was invalid).

In the run up to the trial in Prudential HC the parties agreed a “List of GLO Issues” to be determined at the trial. That List of GLO Issues was referred to at [248] of Prudential HC and was annexed to the order that Henderson J made (see paragraph 57 below). The following items are listed on the List of GLO Issues:

It will be seen that there were material differences between the way in which the limitation issue was described in the List of GLO Issues referred to above and the way in which it was described in Schedule 3 of the CFC/Dividend GLO (see paragraph 23 above). In particular:

In his oral submissions before me, Mr Bremner KC described issues VIII.1 and VIII.2 as “giving a more precise formulation” of the GLO limitation issue that had been set out in the original CFC/Dividend GLO (see paragraph 23 above). I do not accept that description. The issues raised were both different and formulated differently. The absence of a question relating to the start of a limitation period was consistent with a perception that this question had largely been settled by DMG. With hindsight, it can also be seen that issues VIII.1 and VIII.2 reduced precision by blurring the distinction between issues particular to PAC and PHL and GLO issues that would be binding in all claims in the CFC/Dividend GLO.

The list of issues came about because, at a case management conference on 20 December 2012, Henderson J required the parties to agree a “List of Issues of the matters to be decided at the resumed trial”. He did not specifically order that the list was to be a revised list of GLO issues. It is not clear precisely what process led to the parties’ agreed list of issues becoming a list of GLO issues as described in paragraph 57 below. It is, therefore, not clear how much thought the parties gave to the suitability of issues VIII.1 and VIII.2 for determination as GLO issues. The end result, however, is clear. By describing the list as a list of “GLO Issues” in his order of 28 January 2014 discussed below, Henderson J made them GLO issues as he had power to do given his inherent jurisdiction and the power of the Management Court (reserved by paragraph 11 of the CFC/Dividend GLO itself) to vary GLO issues. Moreover, issues VIII.1 and VIII.2 replaced the previous formulation of the GLO issues relevant to limitation set out in paragraph 23 above because Henderson J made determinations of issues VIII.1 and VIII.2 but made no determination of the previous formulation of those issues.

I was shown extracts from the transcript of the oral submissions before Henderson J. It is clear from that transcript that neither side made any detailed submissions on the issues VIII.1 and VIII.2. It is also clear that both sides shared a common understanding that the two limitation issues were of theoretical interest if s320 was invalid (as the Supreme Court had held in FII SC1). The basis of that common understanding was not spelled out in any of the materials to which I was referred. It must have been based on the following general propositions: (i) if s320 was invalid, then PAC and PHL would have access to the extended limitation period in s32(1)(c); (ii) DMG demonstrated that the extended time limit would start to run only from the date of a judicial ruling of the CJEU demonstrating the unlawfulness of the relevant UK statutory provisions; (iii) no such judicial ruling had been made more than 6 years before PAC and PHL made any of the claims summarised in paragraph 28.

Apart from indicating the common understanding to which I have referred, the submissions of the parties on the issues VIII.1 and VIII.2 proceeded largely at cross-purposes. The history of PAC’s and PHL’s claims to which Henderson J referred at [249] was based on material from the taxpayers’ skeleton argument. However Mr Aaronson KC (then QC), who appeared for the taxpayers made no oral submissions as to conclusions that should be drawn from that history. He simply asserted that the answer to issue VIII.1 was “no” and the answer to issue VIII.2 was that it was necessary to wait and see what the CJEU said in FII CJEU 3 following the reference to the CJEU in FII SC1.

Mr Aaronson’s answers to questions from Henderson J suggested that the taxpayers were approaching issue VIII.1 as relating to time limits for Woolwich claims which did not need to be considered if s32(1)(c) applied to the taxpayers’ claims in mistake. That approach was obviously informed by the common understanding summarised in paragraph 38 but it glossed over an issue of potential importance. If s320 was valid, then the taxpayers’ later claims summarised in paragraphs 28.iii) and 28.iv), would not benefit from the limitation period in s32(1)(c). In that case, there might have been some benefit for PAC and PHL in seeking to “relate back” those later claims to PAC’s original claim (made on 8 April 2003) because, even if those later claims could only recover tax paid in the 6 years prior to making them, the later claims would be treated as made on 8 April 2003 so that ostensibly tax paid after 8 April 1997 would be in scope. That was a possible point for the taxpayers, but Mr Aaronson did not advance it in oral submissions.

In his oral submissions before me, Mr Bremner argued that the extended definition in s320(6) meant that s320 was capable of applying both to Woolwich claims and to claims in mistake. Mr Ewart did not agree. I do not need to determine this dispute on the interpretation of s320 because it did not feature before Henderson J and so does not advance the debate as to the proper construction of either his judgment or order in Prudential HC. It appears as though both parties approached s320 as applying only to claims brought in mistake in the hearing before Henderson J. After all, limitation issue VIII.2 referred to in paragraph 34 above was whether a claim for recovery under a mistake of law was barred by s320.

Mr Ewart appeared for HMRC before Henderson J. He made fuller submissions on limitation issues than did Mr Aaronson. Mr Ewart engaged with the history of the proceedings set out in the taxpayers’ skeleton argument and his submission suggested that HMRC were alive to the point, which Mr Aaronson had not made, summarised in paragraph 40. Mr Ewart submitted that (i) PHL’s claims could not be “related back” under Section 35 to PAC’s earlier claims because PAC and PHL were different parties and (ii) both PAC’s and PHL’s ACT claims could not be “related back” to PAC’s corporation tax claim because the ACT claims relied on establishing different facts and circumstances (namely the onward payment of dividends that generated an ACT obligation) which were not necessary to establish the corporation tax claim. However, his submissions confirmed that HMRC shared the common understanding set out in paragraph 38 as he said:

Henderson J’s judgment on limitation issues is found at [248] to [259] of Prudential HC. Paragraph [248] sets the scene by referring to limitation issues VIII.1 and VIII.2. Paragraph [249] sets out the history of the various claims (which was derived from paragraph 173 of the taxpayers’ skeleton argument to which I have already referred). Paragraph [250] quoted s320 of Finance Act 2004. Paragraph [251] quoted a matter of practice in GLOs as to the procedure for determining whether amendments should be treated as “relating back” to earlier claims.

At [252], Henderson J introduced two issues as follows:

At [253], Henderson J noted that s320’s validity was doubtful and that, therefore, he would address the issues on two hypotheses: first that s320 was valid and second that it was invalid.

At [254], Henderson J dealt with the position under the first hypothesis, that s320 was valid, saying:

At [255], Henderson J introduced issues arising on the hypothesis that s320 was invalid:

Paragraph [255] introduced the first issue that Henderson J had summarised at [252] which was also the first issue that Mr Ewart had raised in his submissions summarised in paragraph 42 above. I was not shown any formal concession, whether in pleadings, written or oral submissions or otherwise to which Henderson J could have been referring when he said that he “did not understand the Revenue to argue that PHL could with reasonable diligence have discovered its mistake before 14 July 1998”. I infer that HMRC made no express concession to this effect. Since PAC and PHL had not even asserted in their pleadings that s32(1)(c) applied and still less had they set out their case as to a date of constructive discovery, there was no pleaded case on this matter that HMRC could accept. Moreover, limitation issue VIII.1 and VIII.2 did not explicitly require the court to determine any date, or earliest date, of constructive discovery. All of these matters point against HMRC making an express concession as to any date of constructive discovery.

Henderson J had, by the time of Prudential HC, acquired a deep knowledge of the CFC/Dividend GLO not least since he was the docketed judge case managing that GLO. His understanding set out at [255] was, in my judgment, based on his impression of the common understanding between HMRC and the taxpayers to which I refer at paragraph 38 above and his experience of case-managing the GLO generally. It was not based on any formal concession by HMRC that the date of constructive discovery of a corporation tax claim was 14 July 1998 at the earliest. Therefore, Henderson J’s conclusion at [255] was that “in principle” it was unlikely to matter whether PHL’s later claims could be “related back” to PAC’s earlier claims since the worst case scenario, so far as PHL was concerned, was that all its claims were treated as made on 14 July 2004. Even in that scenario, because of Henderson J’s understanding that HMRC did not suggest that the limitation period had started earlier than 14 July 1998, he reasoned that PHL’s claims would be in time.

Nevertheless, in paragraph [256], Henderson J considered whether PHL’s later claims could be treated as “relating back” to PAC’s earlier claims. He concluded that PHL’s claims could not be “related back” to those of PAC broadly because PHL was a different person and was basing its claims on different dividends that it had received.

At [257] to [259] Henderson J dealt with the “relating back” issue relating to the ACT claims of PAC and PHL on which Mr Ewart had also made submissions but Mr Aaronson had not. He introduced that issue as follows:

For reasons similar to those set out in paragraph 48 and 49, I have concluded that HMRC made no formal concession that a date of constructive discovery in an ACT claim was the date of FII CJEU 1. The statement that the claimants would “probably” be able to rely on section 32(1)(c) by reference to that date was Henderson J’s explanation of his own initial view rather than reflecting an express concession that HMRC had made.

At [258] and [259], the Judge concluded that PAC and PHL could “relate back” their ACT claims to their respective earlier corporation tax claims concluding, at [259]:

In his oral submissions before me, Mr Ewart submitted that Henderson J had got matters the wrong way round. He argued that the question of “relating back” PHL’s corporation tax claims (and indeed PAC’s and PHL’s ACT claims) would be a live issue if s320 was valid because of the point I have made in paragraph 40 above. Yet Henderson J dealt with the issue of “relating back” in the part of his judgment dealing with the position if s320 was invalid.

There is something in that point, but it contributes little to an understanding of Henderson J’s judgment. As I have noted, the submissions of Mr Aaronson and of Mr Ewart proceeded at cross-purposes on this issue because Mr Aaronson, representing the taxpayers who had the most interest in making a “relating back” argument, made no detailed submissions on the point. Because of that, even if HMRC thought that the question of “relating back” was most likely to be relevant if s320 was valid, Henderson J did not approach matters in that way. Instead, Henderson J considered “relating back” on the footing that s320 was invalid, expressed a conclusion on that issue at [256] and [259], but noted that his conclusion did not matter greatly because his impression of the parties’ common understanding set out at [255] meant that all PAC’s and PHL’s corporation tax and ACT claims benefited from the extended limitation period afforded by s32(1)(c) of the Limitation Act and were in-time by reference to that extended period.

Henderson J made his order (the “2014 Order”) following Prudential HC on 28 January 2014. By that time the CJEU had given judgment in FII CJEU3 confirming that s320 was invalid.

The 2014 Order recited the parties as having agreed the “List of GLO Issues” to be determined at the trial. That list was annexed to the Order at Schedule 1. The list contained issues which were quite clearly intended to be GLO issues binding on all claims in the GLO. For example, Issue II.1 was whether UK law imposing an ACT charge was contrary to Article 63 of the Treaty on the Functioning of the European Union (“TFEU”). The List of GLO Issues included issues VIII.1 and VIII.2 dealing with limitation which are set out in paragraph 34.

The 2014 Order contained the following sections:

Paragraph 11 of the Declarations section read:

In paragraph 3 of the Orders section, it was ordered that certain claims were upheld. Paragraph 5 upheld claims relating to tax liabilities paid after 1 July 1990 (in relation to dividend income received from EU resident companies) and after 1 January 1994 for dividend income received from companies resident in the EEA or “third countries” outside the EU or EEA. Those dates reflected the differing dates on which EU law provisions relating to free movement of capital took effect for movements between member states, and between member states and the EEA or third countries, respectively.

With the hindsight that comes with knowledge of the judgment in FII SC2, there is a clear question whether issues VIII.1 and VIII.2 were suitable for determination as GLO issues at all. I have carefully considered HMRC’s argument that the very formulation of those issues meant that Henderson J simply could not have determined them as GLO issues and that, when he gave his judgment and order on issues VIII.1 and VIII.2, he was necessarily determining only issues relevant to PAC and PHL without any “GLO dimension”.

However, I have concluded that while this might be an entirely sensible approach that might be followed if Prudential HC were being determined today, it is not the approach that Henderson J followed in 2014 when he did not have the benefit of the judgment in FII SC2. Henderson J was well aware that limitation issues were GLO Issues in the CFC/Dividend GLO. He made it clear that he was determining issues VIII.1 and VIII.2 as GLO issues, by including them in the list of issues in Schedule 1 and making it clear that Schedule 1 contained a list of GLO issues. Schedule 1 contained many other issues that clearly needed to be determined as GLO issues. Paragraph 11 of the Declarations section of the Order declared explicitly that the claims of PAC and PHL were “in time” and did so with an explicit cross-reference to issues VIII.1 and VIII.2 which were GLO issues appearing on the list in Schedule 1.

Therefore, in my judgment, Prudential HC and the 2014 Order did determine limitation issues as GLO issues. The more difficult question is what precise GLO limitation issues Henderson J determined. The Claimants argue that he determined, as a GLO issue, that the date of constructive discovery for the purposes of their corporation tax claims was no earlier than 14 July 1998 and that the date of constructive discovery for the purposes of their ACT claims was no earlier than 12 December 2006.

The Claimants’ submission runs into the obvious difficulty that neither Prudential HC nor the 2014 Order sets out any date of constructive discovery for the purposes of s32(1)(c). That is scarcely surprising since Henderson J was not asked by issues VIII.1 or 2 to determine any such specific date (see paragraph 36 above). The closest that there is to any express determination of a date of constructive discovery is to be found in Henderson J’s statement at [255] that he “did not understand the Revenue to argue” that the date of constructive discovery was before 14 July 1998 for corporation tax claims and his statement at [257] that the date of constructive discovery for the ACT claims was “unlikely” to be before December 2006. Recognising that these somewhat equivocal statements do not obviously amount to determinations read in isolation, the Claimants base their argument on a close reading of both Henderson J’s judgment and the 2014 Order, submitting that once regard is had to their totality, the only conclusion is that Henderson J did make these determinations as GLO issues.

Before considering those arguments, I observe that the task is not simply to identify a plausible, or even highly plausible, basis on which Henderson J might have given the judgment he did or made the order that he did. A determination of a GLO issue is, on the face of it, binding on other claims in the GLO at the relevant time. GLO members need to know whether decisions are binding on them so that, if adversely affected, they can exercise their right in CPR 19.12(2) to request permission to appeal.

I do not accept HMRC’s general submission that Henderson J’s reasoning as set out in Prudential HC was so wrapped up in a consideration of the particular facts of PAC and PHL and the issue of “relating back” that it had nothing to say on GLO issues. That submission is at odds with the fact that the 2014 Order makes it clear that Henderson J was determining limitation as a GLO issue. It is also at odds with the way that all parties approached the hearing before Henderson J. They were agreed that a detailed analysis of the “relating back” issue was not necessary if s320 was invalid and had good reason to be agreed on that because, in that case, PAC’s and PHL’s claims all looked to be in time by reference to the law as it then stood in DMG. It would be counter-intuitive to conclude that, once FII CJEU3 determined that s320 was indeed invalid the 2014 Order should be based on the kind of detailed factual analysis of “relating back” that all parties thought was unnecessary.

Moreover, Henderson J rejected PHL’s argument that it could relate back its corporation tax claims (first made in 2004) to the date on which PAC had issued proceedings (8 April 2003). Fact-specific determinations on a “relating back” case that Henderson J had rejected could not support the conclusion, reached in the order, that PHL’s corporation tax claims were “in time”. In paragraph 5 of the “Orders” section of the Order, Henderson J upheld claims going back to 1 July 1990 (in the case of dividends received from EU companies) and to 1 January 1994 (in the case of dividends received from companies resident in the EEA or in third countries). Even if Henderson J had fully accepted the argument that PHL’s corporation tax claim could be related back to PAC’s original claim that would not on its own have supported the order that he made.

Therefore, the statement that PAC’s and PHL’s claims were “in time” was not a determination based on a fact-specific analysis of arguments based on “relating back”. There was some “GLO dimension” to Henderson J’s judgment and order on limitation issues. Yet if his judgment and order include a determination of earliest dates of constructive discovery binding on other GLO members there is no unequivocal statement of what those dates are. The statement that Henderson J “did not understand the Revenue to argue that” constructive discovery of a corporation tax claim took place before 14 July 1998 or that it was “unlikely” that constructive discovery of ACT claims took place before December 2006 are not the language of firm judicial conclusions intended to be binding on a large number of GLO members. That is particularly the case when no express concession had been made as regards either date.

In my judgment, the answer to the conundrum is that both HMRC and the Claimants are partially correct in their analyses of Henderson J’s judgment and order. As HMRC argue, Henderson J did not determine any earliest date of constructive discovery, for the simple reason that he was not asked to do so. However, the Claimants are correct to assert that Henderson J was determining some questions of limitation as GLO issues. I have concluded, in short, that Henderson J did as requested in the parties’ formulation of issues VIII.1 and VIII.2 (set out in paragraph 34 above) and determined, as a GLO issue, the extent to which PAC’s and PHL’s claims fell foul of a 6-year limitation period, concluding that their claims were in-time in their entirety.

The Claimants support their argument that the 2014 Order must have decided that their own claims were in time by observing that simply determining (even as a GLO issue) that PAC’s and PHL’s particular claims were in time could not have much to say about the claims of other litigants in the GLO, possibly with very different facts. Yet, on the analysis set out in paragraph 69, those other litigants are ostensibly bound by Henderson J’s determination of GLO issues VIII.1 and VIII.2.

However, that observation relies unduly on hindsight. Only following FII SC2 did it become clear that the date of constructive discovery had the potential to be fact-specific and require an analysis of when taxpayers discovered, or could with reasonable diligence have discovered, that they had a “worthwhile claim” (to paraphrase FII SC2). Henderson J made his judgment and order at a time when DMG was the controlling authority. DMG did not set out a test that was particularly fact sensitive: it suggested that the sole relevant question was whether the CJEU had released a judgment determinative of a claim more than 6 years before that claim was made.

In the run-up to the trial before Henderson J, the validity of s320 was the most difficult limitation issue and that is why it was specifically included as issue VIII.2. However, after the trial concluded, FII CJEU3 determined that s320 was invalid. In those circumstances, it is not surprising that Henderson J concluded that resolution of issue VIII.1 was adequately dealt with in the 2014 Order by a confirmation that the claims of PAC and PHL were in time in their entirety. It is only with hindsight based on the change of law in FII SC2 that difficulties have arisen with the formulation of the GLO issue on limitation and the answer Henderson J gave to it.

Because the date of constructive discovery was thought to be governed by DMG, there was a benefit in a determination of the kind I have set out in paragraph 69 above. By determining, as a GLO issue, that PAC’s and PHL’s claims were in time, Henderson J was precluding any member of the GLO or HMRC (absent an “otherwise” order under CPR 19.12(1)(a)) from taking a position in the other claims that was inconsistent with that determination. DMG prevented HMRC from running any argument that the date of a claimant’s constructive discovery was on anything other than the date of a final CJEU decision and there was just a handful of CJEU decisions that could realistically be argued to start the limitation clock. Henderson J’s judgment and order prevented HMRC from asserting optimistically that an early CJEU decision started the clock if that would be inconsistent with PAC’s and PHL’s claims being in time. I consider that was the outcome that the parties were expecting in 2014 when they formulated their agreed List of GLO Issues. It is consistent with the limited nature of the argument before Henderson J.

Therefore, the central question raised by the Limitation Issue is whether it would be inconsistent with Henderson J’s judgment in Prudential HC, or with the 2014 Order, for HMRC to assert that the Claimants’ date of constructive discovery was earlier than 14 July 1998 (for corporation tax claims) or 12 December 2006 (for ACT claims).

Henderson J had ordered that PHL, who brought its claim for the first time on 14 July 2004 and who could not “relate back” that claim to any earlier claim, was in time to make corporation tax claims going back to 1994. There is force in the Claimants’ point that he could not have made that order unless he had found that PHL’s constructive discovery took place on or after 14 July 1998 (6 years before PHL made its corporation tax claims). There is, however, less force in the point in relation to the ACT claims. Henderson J accepted that PAC’s ACT claim (made in 2009) could be “related back” to PAC’s original corporation tax claim (issued on 8 April 2003). He also accepted that PHL’s ACT claims (also made in 2009) could be related back to PHL’s earlier corporation tax claims (made on 14 July 2004). Since all PHL’s ACT claims were treated as made on 14 July 2004 for limitation purposes, Henderson J’s conclusion that the entirety of PHL’s ACT claims were in time is not inconsistent with the proposition that PHL’s date of constructive discovery for its ACT claims was 14 July 1998 at the earliest (rather than December 2006 as the Claimants argue).

In any event, even if the Claimants are correct and Henderson J’s order is inconsistent with PAC’s and PHL’s date of constructive discovery being later than 14 July 1998 for corporation tax claims, or December 2006, for ACT claims, it does not follow that Henderson J determined those as dates of earliest constructive discovery for all claimants in the GLO. Issues VIII.1 and VIII.2 did not require Henderson J to determine a date of constructive discovery for PAC and PHL, still less for all claimants in the GLO.

The Claimants counter that PAC and PHL’s claims were test claims for, among other GLO Issues, the question of limitation. That is true, but it does not mean that issues VIII.1 and VIII.2, should be construed as meaning that the outcome of those issues in PAC’s and PHL’s claims is binding in all other claims in the GLO. Issues VIII.1 and VIII.2 were not expressed in that way. They could not be intended to have that effect. PAC’s and PHL’s claims were made in 2003 and 2004 (later ACT claims having been “related back” to earlier corporation tax claims). Many claims on the CFC/Dividend GLO register were made much later. Neither the parties nor Henderson J can have intended issues VIII.1 and VIII.2 to be interpreted as meaning that if PAC’s claim made in 2003, for example, was in- time so would a claim made, and entered on the GLO register, on 23 October 2013 (the day before judgment in Prudential HC).

As I have noted in paragraph 73, in 2014 the parties would have regarded a determination that PAC’s and PHL’s claims were in time, read together with the judgment in DMG, as providing a framework for determining whether other claims in the GLO were in time. However, it does not follow from this that Henderson J’s judgment and order have binding effect under CPR 19.12 now that the law has changed following FII SC2. The only way to determine the extent to which Henderson J’s judgment or order was binding is by ascertaining the extent to which they were judgments or orders “in relation to a GLO issue”. Limitation was, as I have found, a GLO issue. However, the judgment or order that Henderson made was simply that PAC’s and PHL’s claims were in time. He made no determination as to a date, or earliest date, of constructive discovery for all claimants in the GLO for the simple reason that he was not asked to do so.

I acknowledge that there was a common understanding between HMRC, PAC and PHL at the hearing before Henderson J of the kind I have summarised in paragraph 38. It might well be inconsistent with that common understanding for HMRC to argue that the date of constructive discovery of a worthwhile ACT claim for a claimant other than PAC or PHL was before 12 December 2006. However, that would not be inconsistent with Henderson J’s judgment or order relating to PAC and PHL. It was simply not canvassed in the proceedings before Henderson J, that the date of constructive discovery might vary from one taxpayer to another. All parties proceeded on the basis that constructive discovery could be fixed entirely by reference to the state of CJEU authorities in the six years before a claimant made a claim rather than by reference to matters particular to each claimant. The fact that the parties proceeded on that basis does not elevate their approach (now shown to be incorrect in law) into the determination of a GLO issue, binding in other claims in the GLO.

The Claimants argue that, at [156] to [159], in a decision refusing permission to appeal on aspects of Prudential HC, reported at [2016] EWCA Civ 376 (“Prudential CA”) the Court of Appeal reached a conclusion contrary to that set out in paragraph 79.

HMRC had sought permission to appeal against Henderson J’s conclusion that ACT claims could be “related back” to earlier corporation tax claims. HMRC also sought permission to argue, on appeal, that the date of constructive discovery was 8 March 2001 (the date on which the CJEU gave judgment in Joined Cases C-397 and 410/98 – Metallgesellschaft and Hoescht). The Court of Appeal refused HMRC permission to appeal saying, at [158]:

I do not consider that passage to be inconsistent with my analysis in paragraph 79 above. In their application for permission to appeal, HMRC were seeking to establish that Henderson J’s conclusion on the “relating back” of ACT claims was wrong. However, that could alter the outcome only if HMRC were permitted to resile from what the Court of Appeal considered to be their acquiescence in a common understanding before Henderson J that the date of constructive discovery was December 2006 at the earliest. The Court of Appeal refused permission to appeal because it was unwilling to permit HMRC to resile from that common understanding. That process of reasoning sheds relatively little light on the extent to which Henderson J conclusions set out in his judgment and order were binding in other claims in the GLO.

My conclusion on the limitation issue is that the Claimants’ claims have not been conclusively established to have been issued within the limitation period by reason of the orders and judgments in PrudentialHC. It follows that the question whether the claims are in time needs to be determined in accordance with the law as determined in FII SC2.

My conclusion set out in paragraph 83 means that the question of ordering “otherwise” does not arise. In their submissions on this issue, the parties explained that they have not been able to find much authority as to the principles that govern the exercise of a discretion under CPR 19.12(1)(a) to order “otherwise”. The Claimants also do not accept that I have the power to order “otherwise” arguing that such an order could only have been made by Henderson J in 2014. I consider that resolution of this debate should be left to a case in which the issue matters. Accordingly I will not address the question of whether I can, or should, order “otherwise”.

I will explain some terms that I will use in this section:

As I have noted in paragraph 23 above, paragraph 11 of the CFC/Dividend GLO, designated, as a GLO Issue, the question “how should compensation or relief be assessed?”. The parties are agreed that this raises, as a GLO issue, the availability or otherwise of a restitutionary claim for utilised ACT.

In the List of GLO Issues described in paragraph 23 above, the point was formulated slightly differently as follows:

It is common ground that slightly different formulation in the List of GLO Issues did not affect the designation as a GLO issue or the interpretation of the issue to be determined.

At [242] of Prudential HC, Henderson J held:

The common ground that Henderson J was referring to was set out at [195] of Prudential HC in the following terms:

That conclusion was reflected in Declaration 8A of the Order which stated as follows:

HMRC deny that Henderson J has made a conclusive determination of a GLO issue in relation to utilised ACT for the following reasons:

I do not accept the premise of the argument in paragraph 92.i) above. Henderson J did not just make a declaration on an issue that was common ground. The 2014 Order went further. In paragraphs 3(d)(i) and 4 of the “Orders” section, there was a determination of a GLO issue, namely that (i) there was a restitutionary claim in respect of utilised ACT and (ii) the claim was to be satisfied by an award of compound interest. It was clearly material to Henderson J’s determination that HMRC did not dispute the existence of a restitutionary claim. However, that does not alter the conclusion that he made a judgment or order “in relation to” a GLO issue.

Even if I had accepted the premise of HMRC’s argument set out in paragraph 92.i), I would not have accepted the conclusion that HMRC seek to draw from it. CPR 19.12(2) expands the group of people who are entitled to seek permission to appeal by providing that persons other than the immediate parties to a judgment or order are entitled to seek that permission. It does not say, and does not need to say, that a judgment or order ceases to have binding effect on other GLO members simply because that permission is unlikely to be granted (whether because a party conceded a point or for any other reason).

I reject the argument in paragraph 92.ii) for reasons similar to those set out in paragraph 93. Henderson J did not make a declaration that was devoid of any effect because it referenced only the inconclusive determination of the CJEU in Hoescht. He made a specific order that compound interest was payable by way of restitutionary remedy in utilised ACT situations.

HMRC’s argument in paragraph 92.iii) needs to be addressed in the light of the judgment of the Supreme Court in Prudential SC. Paragraph [34] of the Supreme Court's judgment sets out three categories of situation in which the taxpayer asserted an entitlement to compound interest as a restitutionary remedy in respect of the unlawful levying of ACT. Category (a) involved utilised ACT. As I have noted, HMRC accepted before Henderson J in Prudential HC that compound interest was due in that situation. They stood by that concession in Prudential SC on the basis that it was what the House of Lords had decided in Sempra Metals (see paragraph [35] of Prudential SC).

HMRC, however wanted to argue as regards categories (b) and (c) that the opportunity to use money mistakenly paid is not a benefit obtained at the expense of the person who made the mistaken payment (see [39] of Prudential SC). By making that argument, they wished to establish that there was no restitutionary remedy in categories (b) and (c) and that, instead, the remedy in those situations should consist of simple interest only under s35A of the Senior Courts Act 1981 (the “1981 Act”)

PAC’s position was that the approach in Sempra Metals, that determined the availability of compound interest as a restitutionary remedy in a category (a) situation (i.e. utilised ACT) should apply also to categories (b) and (c). PAC further argued that HMRC should not even be permitted to advance the arguments set out in paragraph 97 above, having conceded the position as regards category (a), because those arguments challenged the reasoning in the Sempra Metals case and therefore the basis on which the concession was made (see [39] of Prudential SC).

At [40] of Prudential SC, the Supreme Court permitted HMRC to advance submissions questioning the soundness of the reasoning in Sempra Metals. Their Lordships noted that the law on the concept of a benefit being obtained at the expense of a claimant, and the related concept of a transfer of value, was evolving and had recently been considered at the level of the Supreme Court. They observed:

At [68] to [79] of their judgment in Prudential SC, the Supreme Court explained that, when money is paid by mistake, a claimant provides a single benefit to the defendant “at his own expense”: namely the amount of the payment itself. The Supreme Court concluded, contrary to the judgment of the majority in Sempra Metals, that there was no additional and simultaneous transfer of value comprising the opportunity to use the money which could also give rise to a cause of action based on unjust enrichment. Those conclusions underpinned the Supreme Court's overall conclusion on categories (b) and (c) set out at [79] of Prudential SC as follows:

The Claimants submit that the Supreme Court “held HMRC to their concession” and therefore did not disturb Henderson J’s conclusion that PAC was entitled to compound interest in a category (a) situation. That is true so far as it goes, but does not answer HMRC’s argument summarised in paragraph 92.iii). Henderson J had not just decided that PAC was entitled to compound interest by way of restitutionary remedy in a category (a) situation. He had decided, as a GLO issue, that all claimants on the register with category (a) facts were entitled to that remedy. The relevant question for the purposes of HMRC’s argument is posed by the opening words of CPR 19.12(1), namely whether the Supreme Court was giving or making a judgment or order “in relation to one or more GLO issues”. If it was, then the Supreme Court's judgment or order is binding on other claims that were on the register at the relevant time (including those of the Claimants). The question whether the Supreme Court's judgment and order was binding in other claims in the GLO is not determined conclusively by whether PAC retained the compound interest that Henderson J had ordered.

In my judgment, the Supreme Court did make a judgment or order “in relation to” the question whether members of the GLO were entitled to a restitutionary remedy in respect of utilised ACT. That was a GLO issue that Henderson J had decided so as to be binding on all members of the GLO at the relevant time. At paragraph [79] of their judgment, the Supreme Court stated expressly that there was no restitutionary claim for compound interest in category (a) for precisely the same reasons that there was no such claim in categories (b) and (c).

The Claimants place emphasis on paragraph [78] of Prudential SC. In that paragraph, their Lordships noted a distinction between category (a) on the one hand and categories (b) and (c) on the other. Whereas simple interest under s35A of the 1981 Act could be payable in situations falling within categories (b) and (c), there could be no such simple interest payable, at least on a literal reading of s35A, in a category (a) situation. That gave rise to a potential problem because EU law required an effective remedy in a category (a) situation. The Claimants are correct to note that in paragraph [78] of Prudential SC their Lordships left open the possibility that domestic law might permit some interest to be payable in a category (a) situation remarking that “… there are a number of potential solutions” to the apparent difficulty under s35A. However, whatever those solutions might consist of, they could not include the availability of a restitutionary remedy of the kind raised by the Set-Off Issue. Paragraph [79] of Prudential SC ruled out the availability of a restitutionary remedy for utilised ACT for precisely the reasons that it ruled out that remedy in situations falling within categories (b) and (c).

Moreover, one of the reasons that the Supreme Court gave, at [40] of their judgment, for considering submissions that questioned the soundness of the reasoning in Sempra Metals, was that the appeal had to be decided in the context of a GLO and that the points of law which HMRC were raising were of general public importance. I do not agree with the Claimants that in this paragraph the Supreme Court was indicating only that the debate on the categories (b) and (c) was of general public importance (category (a) not being contentious because HMRC were being held to their concession). Paragraph [40] set out the Supreme Court’s explanation as to why it was prepared to hear any argument that called into question the correctness of the decision in Sempra Metals. Moreover, having heard that argument and having decided to overrule Sempra Metals, the Supreme Court expressly extended their conclusion beyond categories (b) and (c) by including claims relating to utilised ACT. Against that background, the Supreme Court’s judgment as regards utilised ACT must have been intended to be, and was, a determination “in relation to” the GLO issue that Henderson J had decided.

My conclusion on the Set-off Issue is that the Claimants are not entitled to a claim in restitution for unlawful ACT utilised against lawful tax or repaid before the issue of their claim. That is because the judgment of the Supreme Court in Prudential SC was given “in relation to” that very issue and determines that no such restitutionary remedy is available. Accordingly, by CPR 19.12, that judgment is binding in those claims that were on the GLO register at the time of the Supreme Court’s judgment.

In those circumstances, no question of ordering “otherwise” arises under CPR 19.12(1)(a). For reasons that I have already given, I will not express any view on how I would have exercised the discretion under CPR 19.12(1)(a) had the question arisen.

This issue arises in relation to AXAIUK’s corporation tax claims. In a simple case, the insufficiency of DTR that AXAIUK relies upon would just result in it having an excessive corporation tax liability on receipt of those dividends. However, the impact of the insufficient tax credit was also felt elsewhere in AXAIUK’s corporation tax computation and not just in accounting periods in which it received the dividends in question. That is because under the UK corporation tax regime, some of the excessive corporation tax charged on dividends was satisfied by the use of other deductions or credits. Setting off those deductions and credits against excessive corporation tax due on overseas dividends necessarily meant that AXAIUK could not use them elsewhere.

In his skeleton argument, Mr Bremner provided a helpful example to illustrate the point. I will take the liberty of simplifying that example somewhat so that it can readily be considered in the context of the judgments of the CJEU and the Supreme Court which I deal with below:

A modification of the UK rules was introduced in respect of dividends arising after 30 March 2001 through the introduction of legislation on “eligible unrelieved foreign tax” (“EUFT”). That permitted unused foreign tax credits effectively to be carried forward within a company or surrendered to another group company. That reduced the impact of the problem set out in paragraph 108 above but it did not fully eliminate it. First, UK tax law continued to calculate foreign tax credits (and so EUFT) by reference to the amount of overseas tax actually paid. It is now clear, however, that EU law requires that tax credit to be calculated at the “foreign nominal rate” or “FNR” being the headline rate of corporation tax applicable in the overseas jurisdiction concerned. Second, EUFT could not be set off against all categories of income. Therefore, taxpayers such as AXAIUK did not consider that the EUFT regime fully addressed the problem and continued to make claims for restitution as regards corporation tax overpaid in the situations I have set out.

Claims such as these gave rise to some conceptual difficulties that took a while to resolve. For example, there was a live issue as to whether they should be characterised as San Giorgio claims in restitution, or as Francovich claims for damages. Since the test cases in the Prudential litigation did not involve any such claim, the debate on these issues was not resolved within the context of the CFC/Dividend GLO and instead took place within the FII GLO. Following FII CA1, it was thought that there was no claim at all in this situation for reasons that I do not need to set out. However, following this judgment there were developments in EU law that shifted the focus of the debate.

In joined cases C-436/08 and C-437/08 [2011] STC 917 (“Salinen”), the CJEU considered the example set out in paragraph 108 above. The question arose because the Austrian tax system taxed certain non-Austrian dividends in much the same way as the UK corporation tax system taxed non-UK dividends. Whereas “Austria to Austria” dividends were tax exempt, an Austrian company receiving dividends from a company resident outside Austria would in certain circumstances be subject to tax on that dividend with a credit for non-Austrian tax paid.

The Austrian courts notified the question to the CJEU. They asked, effectively, whether in the circumstances of the example in paragraph 108 it would be a breach of Article 63 of the TFEU for Austrian legislation to deny the ability to carry forward the credit of 30 (using the figures in that example) that would otherwise be lost. The CJEU concluded that the provisions of Article 63 of the TFEU would indeed be breached if the tax credit of 30 could not be carried forward. The CJEU characterised the inability to carry forward the tax credit as being, in effect, the application of higher taxation on the non-Austrian dividends than was applied to Austrian dividends in the following extract from its judgment:

The issue came before the Supreme Court in FII SC3. I accept the Claimants’ analysis of the Supreme Court’s judgment which can be summarised as follows:

The Claimants’ position on the pleadings issue is that they have pleaded a claim in restitution for the recovery of unlawful tax which was paid as a result of their inability to offset unused DTR credits.

Paragraph 2 of the claim form to which the claimants were party, originally issued on 8 April 2003, included the following paragraph in the section giving brief details of the claim:

Paragraph 40(b) of the Claimants’ current Particulars of Claim served on 27 March 2019 contains the following claim for relief. That claim has been a feature of the Claimants’ pleadings throughout and was included in paragraph 7(b) of the particulars of claim endorsed on the original claim form in 2003:

The “circumstances referred to in paragraph 3 above” (which were also set out in paragraph 3 of the particulars of claim endorsed on the original claim form in 2003) were as follows:

Paragraph 32 of the current particulars of claim served on 27 March 2019 reads as follows:

HMRC submit that the Claimants’ pleadings are inadequate for the following reasons:

I do not accept HMRC’s argument set out in paragraph 119.ii). The claim is not just for restitution of sums that can be understood as having been imposed directly on the dividends. The declaration sought is wider: namely that the claimants are not liable to tax “in respect of” the dividends. Moreover, the request is for restitution of “monies paid... in the circumstances referred to in paragraph 3... pursuant to a mistake of law”. Both Salinen and FII SC3 have established that this difference in treatment outlined in the example in paragraph 108 results, in effect, in an unlawful tax charge on overseas dividends (see [138] of FII SC3 and [158] and [159] of Salinen). In my judgment, a claim for restitution of tax paid by mistake in the light of the unjustified difference in treatment between the corporation tax treatment of UK dividends and of overseas dividends (the “circumstances set out in paragraph 3” of the Claimants’ particulars of claim) is sufficient to articulate a claim for the restitution of tax overpaid in the example set out in paragraph 108.

I also consider that the pleadings summarised in paragraphs 116 and 117 above comply, albeit in a brief way, with Lord Burrows’ guidance set out in paragraph 119.iii) above. It is asserted that HMRC were enriched at the expense of the Claimants because the Claimants made actual payments of tax to HMRC. It is said that the enrichment was “unjust” because the payments were made as a consequence of a mistake of law, namely that the UK's corporation tax system complied with EU law, when it did not.

HMRC’s argument that the Claimants’ pleadings did not comply with CPR 16.4 is based on the proposition that they failed to identify the precise payments that “enriched” HMRC. It is true that the Particulars of Claim do not set out specific amounts of tax that were overpaid as a consequence of the Claimants’ inability to carry forward unused DTR credits. That was, when the Particulars of Claim were served, a failure in particularisation. HMRC could, therefore, at the time have applied for further particulars and if no such particulars were forthcoming, have applied to strike out the relevant aspects of the Particulars of Claim as embarrassing.

However, a failure to provide full particulars does not mean that the Claimants failed to make any claim at all as regards the recovery of unlawful tax paid as a result of an inability to offset unused DTR credits. Moreover, any failure of particularisation has now been cured as the Claimants have sent HMRC detailed schedules of the tax they claim to have overpaid in this regard. Indeed, some of the debate before me was concerned with the granular detail of those schedules.

I consider that the conclusion I have reached is consistent with the judgment of the majority of the Court of Appeal in Deutsche Morgan Grenfell Group plc v IRC [2005] EWCA Civ 78 on a pleading issue that was not subsequently reversed by the judgment of the House of Lords. In that case, the taxpayers made a claim for restitution in respect of ACT paid on dividends. The pleading of that claim was in reasonably general terms not dissimilar to the pleadings of AXAIUK (set out in paragraph [242] of the judgment of Jonathan Parker LJ). The amount of ACT that the taxpayers had paid was expressed to include, but not be limited to, amounts set out in a schedule. When the taxpayers sought to add additional amounts to the schedule, both Jonathan Parker LJ and Rix LJ concluded that they were giving further particulars of an existing claim, rather than making a new claim (see [238] to [249] of the judgment of Jonathan Parker LJ and [250] to [260] of the judgment of Rix LJ). In his oral submissions, Mr Ewart resisted the analogy arguing that, if HMRC had wanted to understand the Claimants’ case in 2003 when the claim form was served, they would not have been asking for particulars of amounts, but would have been asking whether the Claimants had a claim at all. As Mr Ewart put it in his oral submissions:

The flaw in that submission is that, as has been made clear in both Salinen and FII SC3, a claim for restitution of tax overpaid in the example set out in paragraph 108 is in effect a claim for restitution of tax overpaid on the overseas dividends themselves, rather than a claim for restitution of “other tax” as Mr Ewart submitted.

That, I consider, also deals with HMRC’s objection to the effect that the tax that is the subject of the Pleading Issue might have been paid only in accounting periods subsequent to that in which AXAIUK made its corporation tax claims. The parties were agreed that a claim in restitution can succeed only if an actual payment has been made which unjustly enriches the recipient. Therefore, if at the time AXAIUK made its corporation tax claims, HMRC had asked for full particulars of the payments said to have resulted in unjust enrichment, AXAIUK would not have been able to substantiate its claim by reference to payments which had not yet been made. To that extent, therefore, its claim might have failed. However, in my judgment for the reasons I have given it had still pleaded a claim based in unjust enrichment.

My conclusion on the pleading issue is that the Claimants have pleaded a claim in restitution for the recovery of unlawful tax which was paid as a result of their inability to offset unused DTR credits.

This was the first sub-issue identified in paragraph 9.iv) above. However, no party advanced any submissions on quantification before me and, accordingly, I will not address this issue.

Paragraph 51 of Schedule 18 of the Finance Act 1998 (“Paragraph 51”) permits a company to make a claim to HMRC for repayment of corporation tax that the company considers was either not due or has been overpaid. Paragraph 51(6) is a provision that ousts other methods of reclaiming corporation tax considered to be overpaid (for example common law restitution reclaims). However, paragraph 51 (6) has no application to claims made before 1 April 2010.

Some of the additional corporation tax that AXAIUK considers that it has overpaid as a consequence of the inability to carry forward unused DTR was paid in respect of profits of its 2017 and 2018 accounting periods. HMRC argue that AXAIUK could not have made a claim for repayment of this amount until 2017 and 2018 at the earliest (since it could not apply for repayment of tax until that tax fell due). Therefore, argue HMRC, paragraph 51(6) has the effect of ousting a restitutionary claim in respect of tax paid in the 2017 and 2018 accounting periods.

In my judgment, this issue is dealt with in the same way as the pleading issue dealt with above. AXAIUK’s claim was, following the reasoning of Salinen, a claim for restitution of tax overcharged on the dividends that it had received. AXAIUK made that claim in 2003. Accordingly, paragraph 51(6) does not apply.

Companies resident in the UK are liable to corporation tax, rather than income tax on their profits. However, despite not being liable to income tax, UK resident companies can receive payments from which income tax has been deducted. For example, payments of yearly interest were often required to be paid under deduction of income tax at the rate of 20%.

Under the law as it stood in relation to AXAIUK’s accounting periods ended 31 December 1995 and 31 December 1996, income tax that AXAIUK suffered when it received a payment made under deduction of income tax could be treated in the following ways:

Issue C(iii) raises a question of some detail as regards the quantification of AXAIUK’s corporation tax claim in circumstances where some of the corporation tax that it paid for relevant accounting periods was satisfied by income tax pursuant to s7(2) of ICTA. The issue arises in the following circumstances (with the figures used being “round number” versions of the actual figures in the interests of simplicity):

The disagreement between the parties starts with the analysis of the position in the 1995 accounting period. HMRC contend:

AXAIUK does not accept the entirety of the analysis set out in paragraph 135 above. Its primary position is as follows:

The parties are agreed on the outcome so far as relating to the £200,000 “in year” insufficiency of DTR in 1995 if not on the reasoning that supports that outcome. I do not, therefore, need to make any determination in relation to that issue. Accordingly, I focus on the £500,000 DTR that is, under the principles of FII SC3 to be treated as available for carry-forward.

One point at least is clear. In 1995, it would not even have occurred to AXAIUK that any part of the corporation tax liability it had could be discharged by means of a notional carry-forward of under-used DTR. In saying this, I am not, of course, making any finding as to a date of constructive knowledge for the purposes of section 32(1)(c) of the Limitation Act. However, even if AXAIUK had known or suspected that it had been given £500,000 too little DTR between 1992 and 1994, it could scarcely have realised that any surplus DTR could be carried forward to 1995 since UK domestic law at the time set out no ability for unused DTR to be carried forward. I therefore agree with AXAIUK that HMRC’s argument involves undertaking a “notional reconstruction” of AXAIUK’s 1995 corporation tax computation under which carried forward DTR that AXAIUK could not have known was available is set off against a notional corporation tax liability that AXAIUK could not have considered due because of the availability of credit for income tax.

AXAIUK submits that HMRC unsuccessfully argued for a similar “notional reconstruction” at [141] of FII SC3. However, I agree with HMRC that their argument in FII SC3 was different from that now made. In FII SC3, HMRC were arguing that domestic legislation on the set-off of management expenses against income could be construed in a way that would have prevented those management expenses from being set off against “Case V income” such as non-UK dividends. HMRC advanced that “conforming construction” with a view to persuading the Supreme Court that it would remove a central cause of the problem identified in paragraph 108, namely the set-off of reliefs against income that could otherwise be sheltered with DTR (see paragraph 108.iii)). If this feature of the tax landscape was removed by HMRC’s suggested “conforming construction”, it was argued that the problem identified in paragraph 108 would not arise. The taxpayer would have a notional corporation tax liability of 30 on a gross dividend of 100 that would be fully satisfied with DTR of 30 and would retain the ability to carry forward management expenses of 500.

HMRC’s unsuccessful argument summarised at [141] of FII SC3 was not, therefore, directed at the question of which corporation tax liabilities carried forward DTR should be set off against. Rather, it was an attempt to persuade the court that there was no need for taxpayers to have the ability to carry forward DTR in the first place. HMRC’s argument failed because the court considered that the root cause of the problem identified in paragraph 108 was that the UK’s DTR legislation was contrary to EU law. Therefore, the way to address that was by means of a conforming construction of DTR legislation rather than a conforming construction of provisions related to management expenses (see [143] of FII SC3).

However, AXAIUK is on much stronger ground when it submits that the notional reconstruction of its 1995 corporation tax computation that HMRC seek is inconsistent with all the Supreme Court’s analysis at [154] to [158] of FII SC3. Those paragraphs must be read together with [146] of FII SC3. In my judgment, the following points emerge from that analysis:

HMRC’s analysis is premised on the proposition that £500,000 of corporation tax in AXAIUK’s 1995 accounting period became “unlawful” when it was not mitigated by a carry forward of surplus DTR. However, there is no basis for that proposition in FII SC3. On the contrary, the whole focus of [146] and [154] to [158] of FII SC3 is on the need to identify tax paid as a consequence of a mistaken belief that underused DTR credits could not lawfully be carried forward. The Supreme Court said explicitly at [154] “We are concerned with the payment of tax, not with its non-payment.” That actual tax paid will necessarily relate to amounts shown in actual tax computations.

The flaw in HMRC’s analysis is that they focus, not on actual tax paid, but on tax that counterfactually, could not have been paid if AXAIUK had, with remarkable prescience, realised in 1995 that it could carry forward surplus DTR.

HMRC effectively argue that AXAIUK should have made a claim in 1995 for repayment of income tax and must, therefore, suffer the consequences if it is now too late for such a claim to be made. However, the only basis on which it is said that AXAIUK should have made this claim is the notional rewriting of its actual tax computation for 1995 which HMRC now advance some 28 years after the event. There was no realistic prospect of AXAIUK making the claim which HMRC say they should have made in 1995. Therefore, the effect of HMRC’s analysis is to deny AXAIUK any restitution of indirect double taxation of foreign-sourced dividends arising as a consequence of a mistaken belief that surplus DTR could not be carried forward. I do not consider that to be consistent with either the outcome or the reasoning in FII SC3.

Therefore, the premise of HMRC’s analysis fails. The only remaining task is to answer Issue C(iii) which was worded as follows:

This is quite a compressed way of dealing with a question of some difficulty. Moreover, the formulation of the question suggests that it is income tax set off against corporation tax that is to be the subject of a claim for restitution. The true position is that the restitutionary claim is for the indirect double taxation on dividends that AXAIUK received between 1992 and 1994. I will therefore answer the question slightly differently from the way in which it was posed.

Subject to compliance with appropriate time limits, AXAIUK is entitled to make a claim for restitution of an economic double charge to corporation tax on dividends received between 1992 and 1995, together with interest, as follows:

The reason for omitting the 1996 accounting period is simply that HMRC and AXAIUK have reached a settlement in relation to that accounting period which neither side invites me to disturb.

The Limitation Issue and the Set-Off Issue are determined in favour of HMRC (see paragraphs 83 and 105 above).

The Pleading Issue and sub-issues C(ii) and C(iii) are determined in favour of the Claimants (see paragraphs 127, 131 and 147 above).