Six Continents Ltd and Another v Inland Revenue Commissioners and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henderson |
| Judgment Date | 14 October 2015 |
| Neutral Citation | [2015] EWHC 2884 (Ch) |
| Docket Number | Case No: HC03C00446 |
| Court | Chancery Division |
| Date | 14 October 2015 |
[2015] EWHC 2884 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building
Royal Courts of Justice
Fetter Lane, London, EC4A 1NL
Mr Justice Henderson
Case No: HC03C00446
Mr Jonathan Bremner (instructed by Joseph Hage Aaronson LLP) for the Claimants
Mr Rupert Baldry QC and Mr Oliver Conolly (instructed by the General Counsel and Solicitor for HMRC) for the Defendants
Hearing date: 20 July 2015
Introduction
This is an application for summary judgment, or alternatively for an interim payment, brought by the second claimant Six Continents Overseas Holdings Limited ("Six Continents") against the Defendants ("HMRC" or "the Revenue").
Six Continents is enrolled as a member of the Controlled Foreign Company ("CFC") and Dividend Group Litigation Order ("GLO"), but the CFC component of its claim was settled in 2012, and the claim in its present form relates only to certain dividends paid to Six Continents in the accounting periods ending 30 September 1993, 1996 and 1997 respectively ("the Dividends") by its wholly-owned Dutch subsidiary, Six Continents International Holdings BV ("SCIH"). More specifically, Six Continents seeks to recover corporation tax under Case V of Schedule D which it says was levied on the Dividends in breach of EU law, together with compound interest from the dates when the tax was paid until judgment. The claim relies on the Woolwich and mistake-based restitutionary causes of action in English law, as they have been developed and applied in the context of the Franked Investment Income ("FII") group litigation over the last decade so as to provide the test claimants in that group litigation with an effective remedy for recovering tax which the Court of Justice of the European Union ("the ECJ") has held to be unlawfully levied.
Six Continents is not, as it happens, enrolled in the FII GLO, but HMRC no longer argue that this disentitles Six Continents from relying on the principles established in the FII group litigation in relation to the Dividends, or that it gives rise to any kind of procedural impediment. An argument to this effect was considered and rejected by Sir Andrew Park on an earlier application for an interim payment in the present case in 2009: see Six Continents Ltd and others v HMRC [2009] EWHC 1822 (Ch) at [11] to [15]. Nor is any point now taken by the Revenue about the jurisdiction of the High Court, rather than the Tax Chamber of the First-tier Tribunal, to entertain the claim, given that Six Continents' appeals to the Tribunal for the three relevant accounting periods have long since been finally determined and the years in question are therefore now "closed".
This judgment assumes familiarity with the complex history of the FII group litigation, including in particular the decisions of the ECJ upon the first and second references, the English liability proceedings in the High Court, Court of Appeal and Supreme Court, and the lengthy quantification trial in which I handed down judgment on 18 December 2014: see Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2014] EWHC 4302 (Ch), [2015] STC 1471 ("FII (High Court) II"). In general, I will without further explanation use the same definitions, abbreviations, and so forth as I have adopted in earlier cases in the series.
At the hearing of the application on 20 July 2015 Six Continents was represented by Mr Jonathan Bremner, while Mr Rupert Baldry QC leading Mr Oliver Conolly appeared for HMRC. I am grateful to counsel on both sides for their clear and concise submissions.
Background
There is no dispute about the factual background, which is conveniently summarised in Mr Bremner's skeleton argument upon which the following account is largely based.
Six Continents was incorporated in England and Wales in 1991. In March 1992, it changed its name to Bass Overseas Holdings Limited, and in August 2001 it acquired its present name. Together with its immediate UK parent, Six Continents Limited, it is a member of the InterContinental Hotels Group of companies ("the IHG Group"). The IHG Group operates in the international hotel business across nearly one hundred countries. In the UK, the IHG Group is a successor to the Bass Plc group.
Between 1989 and 1991, the Bass Plc group expanded into the international hotel business with the acquisition of the Holiday Inn Group. Six Continents (under its then name of Bass Overseas Holdings Limited) was the UK holding company for this international group. It was arranged that SCIH (then known as Bass International Holdings BV) would hold the non-UK interests.
At the material times, dividend income of a UK-resident parent company (such as Six Continents) from subsidiaries resident outside the UK (such as SCIH), including those resident in other EU Member States, was subject to UK corporation tax under Case V of Schedule D. In contrast, dividend income received by a UK parent company from its UK-resident subsidiaries was exempt from corporation tax: section 208 of ICTA 1988. This was the basic feature of the UK corporate taxation regime which (as the ECJ held in the FII group litigation) led to Six Continents being subjected to discriminatory treatment in comparison to a UK-resident parent company with UK-resident subsidiaries.
During the three accounting periods which I have mentioned, Six Continents received the Dividends from SCIH. The source of the Dividends was a mixture of SCIH's own profits and dividends received from its Dutch-resident subsidiaries, Holiday Inns International BV and Bass Continental Finance NV. It is agreed that all of the relevant profits were of either Dutch or Belgian origin.
The Belgian profits were those of a Belgian coordination centre, which was a branch of Holiday Inns International BV. For the nature of Belgian coordination centres, and the computation of the appropriate tax credit at the Belgian nominal rate of tax on their distributed profits, see FII (High Court) II at [82] to [90]. There is now no dispute between the parties about how the income of the Belgian coordination centre in the present case should be treated.
The claim form was issued on 3 February 2003, and the claim in its present form is set out in the fourth amended particulars of claim dated 7 December 2012. Six Continents seeks to recover the unlawfully levied Case V tax which was paid in respect of the Dividends. By May 2009, Six Continents' advisers considered that it was bound to succeed on this part of its claim, and that it would therefore obtain judgment for a substantial sum of money against HMRC. Accordingly, on 11 May 2009, Six Continents issued an application for an interim payment in relation to that part of its claim. The application was granted by Sir Andrew Park, who by his order dated 22 July 2009 ordered HMRC to pay Six Continents the aggregate amount of approximately £13.55 million.
Following the judgment of the Court of Appeal in FII (CA) in February 2010, which referred the question of the lawfulness of the Case V charge to the ECJ, and also reversed my conclusions on limitation in FII (High Court) I, Six Continents voluntarily repaid to HMRC the entire interim payment together with compound interest between the date of payment and the date of repayment.
In May 2012, the Supreme Court reversed the Court of Appeal's judgment on various limitation issues and concluded that for claims issued before 8 September 2003 (which therefore included Six Continents' claims) a claimant could rely upon the extended limitation period in section 32(1)(c) of the Limitation Act 1980. The impact of this reversal in the present case is in fact relatively limited, because only the first of the Dividends (in 1993) was paid more than six years before the issue of the claim form, and the amount claimed in relation to that dividend is only £177,366.37 (together with interest).
More importantly for present purposes, on 13 November 2012 the ECJ handed down its judgment on the second reference in FII (ECJ) II. In broad outline, it held that the Case V charge infringed EU law and was therefore unlawful, but that the UK system for taxing foreign dividends might have been lawful if it had provided (at least) for a credit at the relevant foreign nominal rate ("FNR") of tax. I have subsequently done my best to interpret and apply the ruling of the ECJ, both in relation to portfolio dividends (in Portfolio Dividends (No 2), The Prudential Assurance Co v HMRC, [2013] EWHC 3249 (Ch), [2014] STC 1236), and in relation to dividends received from subsidiaries (in FII (High Court) II).
In the light of the judgments of the Supreme Court and of the ECJ on the second reference, on 13 May 2013 Six Continents issued an application for an interim payment in the amount of £12,870,000. In effect, this application sought to reinstate the original 2009 interim payment ordered by Sir Andrew Park, upon the same terms as it had been granted. The application pre-dated the entry into force (with effect from 26 June 2013) of the restriction now contained in section 234 of the Finance Act 2013 on interim remedies against HMRC relating to a tax matter.
HMRC responded to the application in letters of 1 August and 25 September 2013, setting out a number of objections and a number of points upon which they required further information and evidence. These requests were answered on 28 October 2013. Six Continents then formed the view that HMRC had no reasonable grounds upon which to resist the application, and on 13 September 2013 the application notice was amended so as to apply, in the alternative, for...
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