Factual and Procedural Background
This appeal arises from a decision by Judge Richards on three preliminary issues affecting two claimants, AXA Insurance UK plc and AXA Insurance plc (referred to as "AXAIUK" and "GREA" respectively), collectively the "Claimants". The Claimants, alongside other members of the AXA Sun Life group, brought claims under a group litigation order (GLO) known as the CFC and Dividend Group Litigation Order (the "CFC/Dividend GLO"), established in 2003. The claims concern alleged breaches of EU law by the UK corporation tax and advance corporation tax (ACT) regimes, specifically discriminatory treatment of dividends from non-UK resident companies compared to UK resident companies.
AXAIUK's claims pertain to the corporation tax regime and dividends from portfolio investments dating back to 1992, initially brought in 2003. GREA's claims relate to the ACT regime, dating back to 1997, and GREA was joined as a claimant in 2009. The Prudential group’s claims were selected as test cases for portfolio holdings and resolved through litigation culminating in Supreme Court decisions between 2018 and 2021. Concurrently, overlapping litigation proceeded under another GLO, the Franked Investment Income Group Litigation Order ("FII GLO"), which involved references to the European Court of Justice and Supreme Court decisions relevant to the issues in this appeal.
The litigation established that the UK tax regimes discriminated unlawfully against dividends from non-UK resident companies, entitling claimants to restitutionary remedies either under the Woolwich principle or on a mistake of law basis, with the latter allowing extension of limitation periods under section 32(1)(c) of the Limitation Act 1980.
The GLO regime, governed by Part III of CPR 19, provides that decisions on "GLO issues" in test cases are binding on other claims on the group register, subject to the court's power to "order otherwise". The Prudential test case was designated as a test claim for all GLO issues, with management of claims allocated to Henderson J. The three preliminary issues before Judge Richards were: (a) Limitation - whether the Claimants' claims were within the limitation period based on prior Prudential decisions or should be determined under later Supreme Court authority; (b) Set-off - whether GREA was entitled to restitutionary claims for unlawful ACT that was set off against lawful tax; and (c) Pleading - whether AXAIUK had pleaded a restitution claim for unlawful tax paid due to inability to offset unused double tax relief (DTR) credits, including sub-issues on assessment, statutory remedies, and income tax set-off.
Judge Richards ruled in favour of the tax authority on Limitation and Set-off issues and in favour of AXAIUK on the Pleading issue (except for one sub-issue). Both parties appealed certain aspects of these decisions.
Legal Issues Presented
- Whether the Claimants’ claims fall within the limitation period, considering prior judgments and subsequent developments in case law.
- Whether GREA is entitled to restitutionary claims, including compound interest, for unlawful ACT that was utilised (set off) before the claim was issued.
- Whether AXAIUK adequately pleaded a restitution claim for unlawful tax paid due to inability to offset unused DTR credits, including related assessment and statutory ouster issues.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Prudential Assurance Co Ltd v HMRC [2018] UKSC 39 |
Supreme Court decision on the lawfulness of UK tax treatment of dividends and interest awards in restitution claims. |
Used to assess whether prior High Court decisions on compound interest remain binding and the impact on Set-off issue. |
| Prudential Assurance Co Ltd v HMRC [2013] EWHC 3249 (Ch) |
High Court decision on the availability of restitutionary claims and interest for unlawfully levied tax. |
Determined that compound interest was payable on utilised ACT; found binding as a GLO issue. |
| Prudential Assurance Co Ltd v HMRC [2016] EWCA Civ 376 |
Court of Appeal decision on restitution and interest issues in tax claims. |
Referenced as part of the litigation history but not central to the appeal’s key determinations. |
| Test Claimants in the FII Group Litigation v HMRC [2020] UKSC 47 (FII SC2) |
Supreme Court ruling on limitation periods and discovery in mistake-based tax claims. |
Overruled prior authority on date of discovery, influencing Limitation issue analysis. |
| Test Claimants in the FII Group Litigation v HMRC [2021] UKSC 31 (FII SC3) |
Supreme Court ruling on remedies and interest for unlawfully levied ACT and economic double taxation. |
Clarified that no restitutionary remedy exists for compound interest on prematurely paid tax; relevant to Set-off and Pleading issues. |
| Woolwich Equitable Building Society v IRC [1993] AC 70 |
Principle allowing restitution for tax unlawfully exacted. |
Foundation for claimants’ restitution claims for unlawfully levied tax. |
| Deutsche Morgan Grenfell Group plc v IRC [2006] UKHL 49 |
Date of discovery for limitation purposes in mistake of law claims. |
Initially held date was judicial ruling; overruled by FII SC2, relevant to Limitation issue. |
| Sempra Metals Ltd v IRC [2007] UKHL 34 |
Availability of compound interest as restitutionary remedy for unlawfully charged ACT. |
Superseded by Prudential SC; concession relevant to category (a) claims. |
| Littlewoods Retail Ltd v HMRC [2015] EWCA Civ 515 |
Approach to awarding compound interest under section 35A Senior Courts Act 1981. |
Referenced in context of interest awards in Prudential CA. |
| Littlewoods Ltd v HMRC [2017] UKSC 70 |
Simple interest sufficient for adequate indemnity under EU law. |
Supported Supreme Court’s departure from compound interest in Prudential SC. |
| Investment Trust Companies v HMRC [2017] UKSC 29 |
Development of unjust enrichment law affecting restitutionary claims. |
Applied in Prudential SC to reject compound interest claims based on unjust enrichment. |
| AB v Ministry of Defence [2012] UKSC 9 |
Power to "order otherwise" in GLO context to address particular injustice. |
Guided court’s exercise of discretion to depart from binding GLO decisions in exceptional cases. |
| Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46 |
Principles of res judicata and issue estoppel. |
Used to analyze whether to "order otherwise" on Set-off issue based on estoppel principles. |
| Arnold v National Westminster Bank plc [1991] 2 AC 93 |
Explanation of cause of action estoppel and issue estoppel. |
Supported reasoning on finality and exceptions in estoppel doctrine. |
| Goldtrail Travel Ltd v Grumbridge [2020] EWHC 1757 (Ch) |
Requirement to plead limitation defences properly. |
Referenced in Limitation issue analysis regarding failure to plead extended limitation cases. |
| Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349 |
Cause of action accrual in restitution claims. |
Used to explain accrual of cause of action at payment time relevant to Pleading issue. |
| Salinen (Joined Cases C-436/08 and C-437/08) [2011] STC 917 |
EU law on economic double taxation and tax credit carry-forward. |
Applied to explain the basis for restitution claims for tax paid due to inability to carry forward unused DTR credits. |
| Belgium v NV Cobelfret (Case C-138/07) [2009] STC 1127 |
Principle against economic double taxation. |
Referenced in reasoning on economic double taxation in Salinen. |
| Belgium v KBC Bank NV (Joined Cases C-439/07 and C-499/07) [2009] ECR I-4409 |
Principle against economic double taxation. |
Referenced in reasoning on economic double taxation in Salinen. |
| Test Claimants in the FII Group Litigation v HMRC [2010] EWCA Civ 103 |
Rejection of claims for restitution of reliefs used. |
Referenced in Pleading issue to reject certain claims for restitution of reliefs. |
| Sans Souci Ltd v VRL Services Ltd [2012] UKPC 6 |
Interpretation of judicial orders. |
Applied to construe Henderson J’s order in relation to limitation issues. |
| Capital Insurance Co Ltd v Samsoondar [2020] UKPC 33 |
Elements required in unjust enrichment claims. |
Referenced in Pleading issue to explain necessary factual pleading. |
| Eshelby v Federated European Bank Ltd [1932] 1 KB 263 |
Amendment of claims to add causes of action accruing after claim issued. |
Used as analogy in Pleading issue discussion on claims for future payments. |
| Alfred C Toepfer v Peter Cremer [1975] 2 LLR 118 |
Flexibility in amending claims. |
Referenced in Pleading issue discussion on amendments. |
| Maridive & Oil Services (SAE) v CAN Insurance Co (Europe) Ltd [2002] EWCA Civ 369 |
Modern practice on amendments to claims. |
Referenced in Pleading issue discussion on amendments. |
Court's Reasoning and Analysis
The court began by examining the binding nature of decisions on GLO issues and the power under CPR 19.23(1)(a) to "order otherwise". It emphasized the importance of finality, economy, and efficiency in GLO litigation, noting that departures from binding decisions should be exceptional and justified by special circumstances.
On the Set-off issue, the court found that Henderson J’s 2014 High Court decision awarding compound interest on utilised ACT was a binding GLO issue. However, the Supreme Court’s later decision in Prudential SC rejected compound interest claims based on unjust enrichment, limiting restitutionary awards to simple interest under statutory provisions. The court concluded that although the Set-off issue had been determined against HMRC in Prudential, it was appropriate to "order otherwise" in this case due to exceptional circumstances: the timing and evolution of the law, the stay in GREA's claim, and the injustice of applying outdated legal reasoning to unresolved claims. The court relied on principles of res judicata and issue estoppel but recognized exceptions where justice requires departure from prior rulings.
Regarding the Limitation issue, the court analyzed the limitation periods applicable to restitution claims under the Limitation Act 1980 and the impact of section 32(1)(c) extending limitation where a mistake is involved. It found that Henderson J’s order did not definitively fix the date of discovery applicable across the group register and that subsequent Supreme Court authority (FII SC2) altered the legal test for discovery. The court held that HMRC should be permitted to argue the limitation point consistent with current law and ordered otherwise accordingly.
On the Pleading issue, the court considered whether AXAIUK had pleaded restitution claims for tax paid due to inability to offset unused DTR credits, including claims for payments made in 1996-1999 and 2017-2018. The court explained that a claim in restitution requires pleading actual payments made, and claims for future payments cannot be pleaded before those payments occur. It concluded that the pleadings did not sufficiently cover the payments made in 2017-2018 or 1996-1999, as those claims were not pleaded with the necessary specificity before 2010. The court rejected the argument that claims for "monies liable to be paid" suffice to plead future payments. It also addressed statutory ouster provisions and declined to resolve complex income tax set-off issues, noting these did not arise given its conclusions on pleading.
Holding and Implications
The court made the following rulings:
- The Claimants’ appeal on the Limitation issue is dismissed. The court upheld the judge’s conclusion that claims fall outside the extended limitation period as currently understood.
- The Claimants’ appeal on the Set-off issue is dismissed. Although the issue was previously determined against HMRC in the Prudential test case, the court exercised its power to "order otherwise" due to exceptional circumstances, leaving the judge’s ruling in place.
- HMRC’s appeal on the Pleading issue is allowed. The court held that AXAIUK had not pleaded restitution claims for certain unlawful tax payments adequately, precluding those claims.
The direct effect is that the Claimants’ claims on limitation and set-off grounds fail, and HMRC succeeds on the pleading point. The decision clarifies the application and limits of binding GLO decisions, emphasizing the court’s discretion to depart from such decisions in exceptional cases to prevent injustice. No new precedent beyond the case’s facts is established for the broader application of GLO binding principles.