The Claimants Listed in Class 8 of the Group Register of the CFC & Dividend Glo v Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Sir Geoffrey Vos |
| Judgment Date | 20 February 2019 |
| Neutral Citation | [2019] EWHC 338 (Ch) |
| Docket Number | Claim No: HC-2014-000553 (formerly HC03C01346) and others |
| Court | Chancery Division |
| Date | 20 February 2019 |
[2019] EWHC 338 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
REVENUE LIST
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Sir Geoffrey Vos, CHANCELLOR OF THE HIGH COURT
Claim No: HC-2014-000553 (formerly HC03C01346) and others
Mr Graham Aaronson QC, Mr Daniel Margolin QC and Ms Katherine Blatchford (instructed by Joseph Hage Aaronson LLP) appeared for the claimants
Mr David Ewart QC and Ms Barbara Belgrano (instructed by the General Counsel and Solicitor to HM Revenue and Customs) appeared for the defendants
Hearing dates: 11 th and 12 th June 2018, and 18 th January 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Index
| Section | Paragraph |
| Introduction | 1 |
| The four preliminary issues | 9 |
| The five disputed issues | 17 |
| The specific test claims | 18 |
| The most relevant statutory provisions | 19 |
| 20 | |
| Schedule 18 to the Finance Act 1998 | 25 |
| Statutory provisions relevant to the section 320 issue | 31 |
| The EU law principle of effectiveness | 34 |
| The substantive law on the recovery of wrongly paid tax | 37 |
| FII Group Litigation v. IRC (2006) | 38 |
| Haribo Lakritzen Hans Riegel BetriebsgmbH v. Finanzamt Linz (2011) | 39 |
| Test Claimants in the FII Group Litigation v. HMRC (2012) | 44 |
| The Prudential Assurance Co Ltd v. HMRC (2013) | 47 |
| The Prudential Assurance Co Ltd v. HMRC (2016) | 51 |
| Littlewoods Ltd and others v. HMRC (2017) | 53 |
| Prudential Assurance Company v. HMRC (2018) | 56 |
| The lawfulness of amendments to limitation periods and providing for exclusive remedies | 60 |
| Autologic Holdings plc v. IRC (2005) | 61 |
| Fleming (trading as Bodycraft) v. HMRC (2008) | 66 |
| Test Claimants in the FII Group Litigation v. HMRC (2012) | 68 |
| Leeds City Council v. Revenue and Customs Commissioners (2016) | 70 |
| 72 | |
| The paragraph 51(6) issue | 74 |
| The first sub-issue: Does Autologic mean that, even where there is an exclusive regime for the vindication of a statutory claim, common law rights are not altogether excluded? | 77 |
| The second sub-issue: Did Henderson J misunderstand Haribo in Portfolio Dividends HC 1, when he held that the effectiveness principle was not violated when a taxpayer had to state how much tax the foreign company had paid, but could not find out? | 81 |
| The third sub-issue: Is the relief allowed by section 790 prevented from being an effective remedy because it only applies to portfolio dividends as a result of Marleasing? | 83 |
| The fourth sub-issue: Is the relief allowed by section 790 prevented from being an effective remedy where the claimants can show that they did not actually know that they had such a remedy before their remedy had become statute barred? | 85 |
| The fifth sub-issue: Is the relief allowed by section 790 prevented from being an effective remedy because the taxpayers could not have been certain how much to claim under paragraph 54? | 98 |
| The sixth sub-issue: Are HMRC estopped from contending that section 790 provides a statutory remedy for the claimants in this case, when they had conceded the point in Portfolio Dividends HC 1 as recorded in paragraph 263 of the judgment? | 102 |
| The seventh sub-issue: Is the practice generally prevailing defence in paragraph 51A(8) to be read as excluded by the Marleasing principle so as to mean that the claimants here did have an effective claim under section 790? | 104 |
| The eighth sub-issue: Did the reduction of the limitation periods provided for by schedule 18 in some other way mean that the claimants had no effective remedy under section 790? | 108 |
| The ninth sub-issue: Can the allegedly obstructive conduct of HMRC in making it more difficult for the claimants to make their claims affect what would otherwise be the legal position? | 110 |
| Conclusion on the paragraph 51(6) issue | 116 |
| The transitional period issue | 120 |
| The section 320 issue | 122 |
| The constructive discovery issue | 125 |
| The disputed issues | 128 |
| The first disputed issue | 131 |
| The second disputed issue | 135 |
| The third disputed issue | 138 |
| The fourth disputed issue | 141 |
| The fifth disputed issue | 142 |
| Summary of conclusions | 145 |
| Schedule 1 – Agreed Statement of Facts | Page 67 |
Sir Geoffrey Vos, Chancellor of the High Court:
Introduction
This is the latest in a line of cases begun in 2003 in which commercial taxpayers seek to recover from the Commissioners for Her Majesty's Revenue and Customs (“HMRC”) overpaid corporation tax paid in respect of dividend income, together with interest. The claims are, as yet, far from concluded.
As the docketed judge (which I was at the time), I directed on 27 th November 2017 that this particular trial should determine four agreed preliminary issues, relating essentially to limitation, on a test case basis, and should also decide whether it remained open to HMRC to argue five disputed issues at trial. Falk J is now the docketed judge for the remainder of this litigation.
These proceedings are part of the Controlled Foreign Company and Dividend Group Litigation (“CFC litigation”) established by a group litigation order made by Chief Master Winegarten under CPR Part 19.12 on 30 th July 2003 (the “CFC GLO”). The CFC litigation, and the related Franked Investment Income Group Litigation (the “FII litigation”) formed by a group litigation order of 8 th October 2003 (the “FII GLO”), concern the UK's former tax treatment of dividends received by UK-resident companies from non-UK-resident companies. The relevant tax rules were contained in (i) the system of advance corporation tax (the “ACT provisions”), which has been abolished for distributions made on or after 6 th April 1999, and (ii) the taxation of dividend income from non-resident sources under section 18 and schedule D, case V of the Income and Corporation Taxes Act 1988 (“ ICTA”) (the “Case V provisions”), which have been repealed for dividend income received on or after 1 st April 2009.
The 32 claimant groups in the CFC GLO are mostly investment funds, because claims were allocated to the CFC GLO (as opposed to the FII GLO) where they concerned tax paid (i) on dividends received from companies in which the claimant held less than 10% of the shares (“portfolio dividends”), or (ii) only under the Case V provisions and not the ACT provisions. The claimants in both the CFC and FII GLOs are UK-resident corporate groups that have paid tax on foreign dividend income pursuant to the ACT and Case V provisions. In the broadest of outline, they claim that these provisions were incompatible with European Union law. It is said that they infringed articles 49 and 63 of the Treaty on the Functioning of the European Union 2012/C326/01 (“TFEU”) relating to freedom of establishment and free movement of capital, because they treated UK dividends differently from foreign dividends. The claimants seek repayment and interest on the grounds that the tax was paid under a mistake of law and under the unjust enrichment principle established in Woolwich Equitable Building Society v. IRC [1993] AC 70 (“ Woolwich”) and/or damages in respect of the overpaid tax arising from that incompatibility under the principles explained in Francovich and Others (joined cases C-6/90 and C-9/90) [1991] ECR I-5357.
The claims in the CFC GLO have been divided into classes 1–6 and 8 (there is no class 7) depending on their facts and the issues they raise, with some claims falling into multiple classes. Prudential Assurance Company Limited (“Prudential”) has been appointed as the test claimant for the portfolio dividend claims, and many issues common to all the classes have already been determined in that context. That case was, however, heard on appeal to the Supreme Court in February 2018. When I heard the first two days of argument in this trial on 11 th and 12 th June 2018, the Supreme Court's decision in Prudential Assurance Company v. HMRC [2018] UKSC 39 (“ Portfolio Dividends SC”), was expected imminently. It was ultimately handed down on 25 th July 2018. A further hearing in this trial was arranged for 18 th January 2019, after the parties had considered the details of Portfolio Dividends SC, so that my decision could be properly informed by the Supreme Court's determinations. The parties were agreed that Portfolio Dividends SC, whilst a very significant decision, had only a modest impact on the issues that I have to decide at this trial. I will, however, mention it in a little more detail when I come to the issues to which it has any relevance.
This hearing relates to the CFC GLO's class 8 claims, of which there are 15. Those claims were issued after 31 st March 2010. They raise certain limitation issues which have not yet arisen in the other classes of claim.
The background to the CFC and FII GLOs and details of the test claimants are set out in the parties' Agreed Statement of Facts, which is reproduced in Schedule 1 to this judgment.
It has been agreed that I should assume for the purposes of this decision that the claimants are entitled under EU law to recover the overpaid tax they claim, subject to the procedural impediments represented by the agreed issues.
The four preliminary issues
The agreed preliminary issues are as follows:-
i) The paragraph 51(6) issue: Are the claimants' common law claims in unjust enrichment under W...
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