AXA S.A. v Genworth Financial International Holdings, LLC
| Jurisdiction | England & Wales |
| Judge | Mr Justice Bryan |
| Judgment Date | 27 July 2020 |
| Neutral Citation | [2020] EWHC 2024 (Comm) |
| Date | 27 July 2020 |
| Docket Number | Claim No CL-2017-000795 |
| Court | Queen's Bench Division (Commercial Court) |
[2020] EWHC 2024 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF
ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice
Rolls Building, Fetter Lane
London, EC4A 1NL
THE HONOURABLE Mr Justice Bryan
Claim No CL-2017-000795
Andrew Green QC, Fraser Campbell and Laura Inglis (instructed by Clifford Chance LLP) for the Claimant
Jonathan Nash QC, Michael Jones and James Potts (instructed by Sidley Austin LLP) for the Defendants
Hearing dates: 11, 15, 16, 17, 18, 22 and 23 June 2020
Approved Judgment
A. INTRODUCTION
The parties appear before the Court on the quantum hearing following the Court's judgment on various points of principle on liability handed down on 6 December 2019, and reported at [2019] EWHC 3376 (Comm) (the “Liability Judgment”).
In summary, the Claimant's (“AXA's”) claim is to recover alleged losses as a result of mis-selling of payment protection insurance (“PPI”) cover underwritten by the First and Second Third Named Parties (which I will refer to as “FICL” and “FACL”) and marketed and sold by the Third and Fourth Named Parties (referred to together as “Santander”), under Clause 10.8 and/or Clause 15.1 of a Sale and Purchase Agreement dated 27 November 2015 between, inter alios, the First Defendant (“GFIH”) (as Seller), the Second Defendant (“GFI”) (as Guarantor) (together with GFIH “Genworth”) and AXA as Purchaser (the “SPA”).
At paragraph 87 of the Liability Judgment I held that the obligation on Genworth in Clause 10.8 of the SPA is to pay on demand 90% of all “Relevant Distributor Mis-Selling Losses”, which I found to mean any costs
“incurred by FICL/FACL that relates to:
(1) a claim or complaint;
(2) regarding the selling of a PPI product;
(3) underwritten by FICL/FACL;
(4) sold by Santander;
(5) prior to 1 January 2005,”
(the “Five Criteria”).
AXA seeks a payment of just short of £500 million (£499,834,187) under Clause 10.8, and in addition it submits that on the true and proper construction of Clause 18.5 of the SPA it is entitled to a gross up payment at the UK corporate tax rate of 19% or, alternatively, at a combined rate of 32.023% in respect of French corporate income tax and social surcharge. The sum claimed does not take into account an interim payment of £100 million already made by Genworth on 3 January 2020 following the Liability Judgment (that payment was expressly in respect of the principal sum demanded under Clause 10.8, not any gross up amount).
As identified in the Updated List of Issues, the following issues arise for determination upon the quantum hearing:-
(1) Issue 1 – Whether the sums claimed by AXA reflect costs and losses that have actually been “incurred” by AXA/FICL/FACL.
(2) Issue 2 – Whether the sums claimed by AXA fall within the scope of the obligations under Clauses 10.8 and 15.1 of the SPA, in terms of satisfying the requirement that they relate to policies underwritten by FICL/FACL (i.e. the third of the Five Criteria).
(3) Issue 3(a) – Whether the words “subject to Taxation in the hands of the receiving party” in Clause 18.5:-
(i) Mean “within the scope of a Tax and not exempt” (i.e. an amount is “subject to Taxation” if it feeds into a Tax calculation of the recipient, regardless of whether that calculation results in any tax ever being payable) (as AXA contends) so that sums payable under Clauses 10. 8 or 15.1 fall to be grossed up at the date of their payment, or
(ii) Mean “actually taxed in hands of the receiving party” (i.e. the clause operates by reference to tax on the payment in question which the receiving party is under an enforceable obligation to pay, such tax having been assessed by the relevant revenue authority and determined as being due) (as Genworth contends) so that any additional amount is only payable if and when the recipient is under an enforceable obligation to pay such actual tax.
Issue 3(b) – If it is the former (AXA's construction) i.e. the obligation under Clause 18.5 operates by reference to some potential, rather than an actual, tax liability, how is that to be determined?
Issue 3(c) – To what extent, if any, does the gross up calculation need to take into account: (1) tax deductions or reliefs prospectively available to the receiving party to reduce the amount of the Tax payable on the principal payment; or (2) tax deductions or reliefs previously obtained for or in respect of the losses, costs, etc to which the principal payment relates?
Issue 3(d) – To what extent, if any, does the entitlement to a gross up under Clause 18.5 require any party to have used its reasonable endeavours to minimise the tax liability by reference to which the gross up payment is sought?
It is common ground that if Genworth's contention on Issue 3(a) is the correct construction of the words “subject to Taxation in the hands of the receiving party” in Clause 18.5 then the Court should so find, and not go on to examine or determine the tax treatment of any part of the Final Award in the hands of either AXA, AXA France IARD (“IARD”) or AXA France Vie (“Vie”) (being the transferees of, respectively, FICL's and FACL's businesses pursuant to the transfers referred to at paragraph 37 below) as in such circumstances the parties must await any actual tax liability being established. However if AXA's contention on Clause 3(a) is the correct construction, then the following further issues arise for determination at the present hearing:-
Issue 4(a) – Will such part of the Final Award as is directed by AXA to be paid to IARD and/or Vie be subject to UK corporation tax as trading income that arises directly or indirectly through or from a UK permanent establishment and is attributable to it?
Issue 4(b) – Will AXA be subject to French corporate income tax on such part of the Final Award which is paid to it?
Embedded within Issues 4(a) and 4(b) are issues as to whether there is an appropriate formula to be applied to any part of the Principal Sum paid for the purposes of determining the gross up amount payable by Genworth, and what that amount would be.
The factual background to AXA's claims is set out at length in Section B of the Liability Judgment. However in circumstances where the issues arising at the quantum hearing are also set against that same factual background, it is summarised below for ease of reference, and updated with details of factual developments since the Liability Judgment.
B. FACTUAL BACKGROUND
B.1 The Parties
AXA is a French insurance company. It is now the owner of IARD, which is the transferee of the business of FICL and Vie, which is the transferee of the business of FACL. Until 1 December 2015, FICL and FACL had been indirectly owned by GFIH. GFIH is a US company, whose ultimate parent company is GFI.
Between 1988 and 2011, FICL and FACL were engaged in the business of underwriting PPI for store cards. During that period, the Third Additional Party, Santander Cards UK Limited (“SCUK”), and the Fourth Additional Party, Santander Insurance Services UK Limited (“SISUK”) (collectively, as already defined, Santander) marketed and sold PPI on behalf of FICL/FACL, principally through retail stores.
The PPI policies were sold in connection with store credit cards, which were offered by Santander to customers of high street retailers, either via point of sale retail staff or Santander call centre staff. PPI premiums would be collected by Santander from customers' accounts and remitted to FICL/FACL, net of a commission retained by Santander.
On 1 December 2000, FICL/FACL and SCUK's predecessor GE Capital Bank, (“GECB”) entered into an Agency Agreement (“the Agency Agreement”), by which the parties formalised the historic agency arrangements under which GECB acted as agent in marketing and selling PPI products underwritten by FICL/FACL
B.2 PPI Mis-selling
The marketing and sale by Santander of PPI underwritten by FICL and FACL has given rise to extensive PPI mis-selling complaints by customers against FICL/FACL. Since around 2005, there has been a developing realisation of the scale of PPI mis-selling to consumers. On 1 August 2010, the Financial Services Authority (“FSA”) sent a letter to the relevant industry participants which identified common “point of sale” failings concerning PPI sales, including inappropriate pressuring of customers, failing to provide accurate information about the policy, failing to ensure that the customer was in fact eligible for the policy bought, and failing to disclose accurate price information. Customer complaints about PPI mis-selling have been and are continuing to be, made in respect of PPI policies underwritten by FICL/FACL and marketed by Santander, including following determinations made by the Financial Ombudsman Service (“FOS”).
Broadly speaking, the regulatory redress system for consumers is as follows: A consumer can make a regulatory complaint relating to PPI mis-selling against a regulated financial services company (“Direct Redress”). If that complaint is rejected by the company, or the customer disputes the amount of redress offered, the customer can then refer the complaint to the FOS, which may order the firm to pay redress to the customer (“FOS Redress”). The FOS was established in 2000 and given statutory powers in 2001 pursuant to the Financial Services and Markets Act 2000 (“ FSMA”). If the FOS has jurisdiction to consider the complaint, it may order the company to pay redress. Regardless of the...
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...commercial consequences investigated.” 23 Grossing up clauses are familiar provisions in commercial agreements. In AXA SA v Genworth Financial International Holdings LLC [2020] EWHC 2024 (Comm) Bryan J at paragraphs 198 and 199 dealt with a tax grossing up clause which was differently word......