Prudential Assurance Company Ltd v Revenue and Customs Commissioners

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Lewison
Judgment Date19 April 2016
Neutral Citation[2016] EWCA Civ 376
Docket NumberCase No: A3/2014/0511 & A3/2015/1006
Date19 April 2016

[2016] EWCA Civ 376



(Chancery Division)

Mr Justice Henderson

[2013] EWHC 3249 (Ch) & [2015] EWHC 118 (Ch)

Royal Courts of Justice

Strand, London, WC2A 2LL


Lord Justice Lewison

Lord Justice Christopher Clarke


Lord Justice Sales

Case No: A3/2014/0511 & A3/2015/1006

The Prudential Assurance Company Limited
Commissioners for Her Majesty's Revenue and Customs

David Ewart QC, Rupert Baldry QC, Andrew Burrows QC (Hon) and Barbara Belgrano (instructed by HM Revenue and Customs Solicitor's Office) for the Appellants

Graham Aaronson QC, Tom Beazley QC and Jonathan Bremner (instructed by Joseph Hage Aaronson LLP) for the Respondent

Hearing dates: 11/03/2016 to 18/03/2016

Lord Justice Lewison



This is the judgment of the court, to which all three of us have contributed.


The issues on this appeal all relate to what have been called "portfolio holdings"; that is to say dividends paid on shares in foreign companies held as investments, where the investor holds less than 10 per cent of the voting power in the company in question.


Article 56 of the EC Treaty (now article 63 of the Treaty on the Functioning of the European Union) prohibits "all restrictions on the movement of capital between Member States and between Member States and third countries"; and also prohibits "all restrictions on payments between Member States and between Member States and third countries." It is now established by decisions of the ECJ and CJEU (to which we refer indiscriminately as the CJEU) that the UK's tax treatment of dividends received by UK companies was in breach of that article, and hence unlawful, to the extent that it discriminated between dividends paid by UK companies and dividends paid by foreign companies. Although it will be necessary to return to some of the details in due course, in very broad (and oversimplified) outline the position under EU law is as follows.


In ( Case C-446/04) Test Claimants in the FII Group Litigation [2012] 2 AC 436 (" FII (ECJ) I") the CJEU ruled that UK legislation which (a) exempted nationally sourced portfolio dividends from corporation tax, but (b) subjected foreign sourced dividends to that tax and allowed credit for no more than withholding tax levied by the state in which the paying company was resident amounted to an unjustified restriction on the freedom of establishment prohibited by article 43 EC and also on the movement of capital prohibited by article 56 EC. The illegality would be cured if the member state granted the company receiving the foreign dividend a tax credit for the "amount actually paid" by the company making the distribution in the state in which the distributing company is resident. In its reasoned order of 23 April 2008 the CJEU ruled that the rate of tax applied to foreign-sourced dividends must be no higher than the rate of tax applied to nationally-sourced dividends; and the tax credit must be at least equal to the amount paid in the member state of the company making the distribution, up to the limit of the tax charged in the member state of the company receiving the dividend. In principle the same applies to dividends received by an insurance company. Underlying both decisions was a factual assumption that nominal rates of tax and effective rates of tax were the same save in exceptional circumstances.


Where a member state unlawfully levies tax in breach of EU law the taxpayer has a right to recover the amount unlawfully levied: Amministrazione delle Finanze dello Stato v SpA San Giorgio ( Case 199/82) [1983] ECR 3595, [1985] 2 CMLR 658 at [12]. Such a claim is often known in the jargon as a San Giorgio claim. The claimant in the current action, The Prudential Assurance Company Ltd ("Prudential"), advances such a claim.


Since the CJEU gave its rulings the domestic courts have been trying, with varying degrees of success, to work out what it decided and how its decisions should be applied.

This litigation


Prudential issued its claim form on 8 April 2003; so this litigation has now been going on for over 13 years. Whether the final end is in sight after all this time remains to be seen. However, in view of some of the issues that have been debated on this appeal it is necessary to recapitulate some of the course of the litigation. A Group Litigation Order ("GLO") was first made on 30 July 2003; and it has since been amended on a number of occasions. Park J was the first of the management judges appointed under the GLO.


When Park J made his order for directions on 12 December 2003 it was envisaged that a trial of the issues would take place for 10–15 days early in 2004. One of the issues that he ordered to be determined at the trial was described in his order as "quantum". He did however envisage that there would be two stages, because paragraph 3.4 and 3.5 of his order provided:

"3.4 The trials of all test claims are to be heard together.

3.5 Save for the quantification of the amount of damages and compensation or restitution all issues in the test claims including liability for restitution shall be heard together…. The parties have liberty to apply for directions for the determination of any matters which remain in contention regarding the quantification of the amount of damages and compensation … following the trial of the test claims."


The precise difference between "quantum" which was to be determined at stage one and "quantification" which was to be determined at stage two was not defined further. Although the trial began on 24 January 2005 it was overtaken by an order for a reference to the CJEU in March 2005 for a decision on preliminary issues. The national proceedings were stayed in the meantime. Three years later, on 23 April 2008, the CJEU gave its decision on the preliminary issues by way of a reasoned order. Armed with the answers to the preliminary issues, the case returned to the Chancery Division; and on 5 November 2008 Henderson J gave directions for trial. Those directions included (a) the grant of permission to HMRC to serve an amended Defence (b) disclosure (c) directions for the exchange of evidence and (d) an envisaged trial date in the summer or autumn of 2009. Further directions for amended statements of case were given on 12 March 2009, with further directions for disclosure and exchange of evidence. The trial took place on 18 and 19 November 2009.


However before judgment could be delivered, on 23 February 2010 the Court of Appeal handed down its judgment in Test Claimants in the FII Group Litigation v HMRC [2010] EWCA Civ 103 (" FII (CA)") which necessitated a delay in the finalisation of the judge's judgment and a resumption of the trial. Henderson J's order of 29 March 2010 ordered the trial to be resumed on 20 May 2010, and gave directions for further submissions. Although the trial resumed on that day, it was adjourned yet again. The decision of the Court of Appeal went on appeal to the Supreme Court, which handed down its own judgment on 23 May 2012 ( [2013] UKSC 19, [2013] 2 AC 337). The Supreme Court found it necessary to make a further reference to the CJEU. The CJEU gave a ruling in ( Case C-35/11) Test Claimants in the FII Group Litigation v HMRC on 13 November 2012 (" FII (ECJ) II"); and the case came back before Henderson J. On 20 December 2012 Henderson J gave further directions for trial, this time to begin on the earliest date after 4 March 2013. He also gave directions about the exchange of yet further witness statements and for the agreement of a list of issues. The trial finally resumed on 15 July 2013, over 10 years after the claim form had been issued, and after two trips to Europe and an outing in the Supreme Court. Since the judge's judgment in the present case the CJEU has delivered a third ruling.


Henderson J's judgment is a masterpiece of exposition and reasoning. It contains a comprehensive analysis of all the issues canvassed before him. He now has more experience of the interaction between EU law and the interstices of the UK system of taxation than anyone else; and his views are entitled to great weight. A previous judgment of his in a related action was described in this court as a tour de force. This one deserves the same accolade. It is to be found at [2013] EWHC 3249 (Ch), [2014] STC 1236. This is the main judgment under appeal, which is to be read with the consequential judgment on relief at [2015] EWHC 118 (Ch) ("the Second Judgment").


There is one important feature of the litigation (apart from the inordinate length which it has taken) which is contrary to the usual practice. Although Prudential pleaded a claim in its Particulars of Claim (subsequently amended to introduce a claim relating to advance corporation tax ("ACT")) it did so only in very general terms without any of the factual allegations that one would expect in more conventional litigation. Equally, although HMRC pleaded a defence, it too did so in very general terms. In both cases important matters of contention were simply not identified in the pleadings, so that anyone reading them would have had very little idea about what was actually in issue. Very surprisingly, although HMRC pleaded that the claims were statute-barred by the Limitation Act 1980, Prudential did not serve a Reply raising any countervailing argument, despite the fact that it apparently wished to assert that the limitation period had been extended under section 32 (1)(c) of the Act as a result of its mistake. One might have gathered inferentially from HMRC's defence that section 32(1)(c) was potentially...

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