Anonymised Summary of the Opinion

Factual and Procedural Background

This appeal concerns the approach to awards of interest where an earlier summary judgment order in favour of a taxpayer was subsequently set aside on appeal, but the taxpayer's overall claim as finally determined exceeds the amount paid under the earlier order. The dispute arises from long-running group litigation concerning advance corporation tax ("ACT") and related interest claims.

Company A and other members of its corporate group commenced claims against the Defendant in 2002 alleging that certain elements of the ACT regime were unlawful. The cases were managed as part of a group litigation order and various test-case and appellate decisions shaped the litigation over many years.

In 2016 a judge (Judge Henderson) granted summary judgment in favour of Company A in respect of the element of its claim relating to foreign income dividends ("FIDs") and ordered payment. The Defendant paid a net sum of approximately £6.4 million on 23 March 2016 pursuant to those summary judgment orders. The summary judgment related to liability and part-quantification of amounts, although debates about interest (simple v compound) remained the subject of later appeals.

The Defendant successfully appealed on the interest issue to the supreme appellate court (the Court). The Court set aside the summary judgment orders insofar as they ordered money payment and remitted the matter to the High Court for further determination in light of the Court's findings. By the time the matter returned to the High Court, Company A had also succeeded on a separate limitation issue such that its overall claim was finally established and exceeded the amount previously paid by the Defendant.

The High Court judge (Judge Richards) determined that the £6.4 million paid in 2016 should be allocated entirely against interest accrued as at the date of the summary judgment orders, rather than applied against the principal amount of ACT. The Defendant appealed this apportionment decision on two grounds: (1) that the judge was wrong to hold the Defendant had no entitlement to restitution when the order was set aside, and (2) that it was incoherent to apply the payment to interest because Company A had no liquidated claim to interest until 2024.

Legal Issues Presented

1. What is the correct approach to awarding interest and allocating a prior payment when (a) a summary judgment payment was made pursuant to an order that was subsequently set aside on appeal, and (b) the claimant's overall claim as finally established exceeds the amount paid under the set-aside order?
2. Does the setting aside of an order that required payment give the payer an entitlement to restitution including interest from the date of the original payment, and if so on what basis and at what rate?
3. When allocating a prior partial payment made under an order that is subsequently set aside, should that payment be applied first to interest (accrued or to be taken as accrued at the time of assessment) or to principal, given statutory schemes for interest (notably s.35A Senior Courts Act 1981 and s.85 Finance Act 2019)?
4. Was it coherent to allocate the 2016 payment to interest when the right to interest arguably crystallised only when the final judgment was entered in 2024?

Arguments of the Parties

Appellant's Arguments (the Defendant)

• The setting aside of the 2016 payment order gave the Defendant an entitlement to restitution of the £6.4 million and to interest on that amount from 23 March 2016.
• If interest is awarded to the Defendant on the repayment, that interest should be calculated at the same rate as interest payable to Company A under s.35A SCA 1981 (bank base rate plus 2% from February 2009), which would economically offset the interest otherwise payable to Company A.
• As a fallback, if restitution with interest is not available, any credit from the 2016 payment should be allocated against the principal amount (the surplus ACT of about £8.8 million) because Company A had no liquidated entitlement to interest in 2016.
• Allocating the 2016 payment to interest would be incoherent because Company A had no liquidated claim to interest until the judge made orders in 2024.

Respondent's Arguments (Company A)

• Company A sought to preserve the benefit of having received £6.4 million on 23 March 2016; its approach before the judge was to offset that figure against interest accrued in its favour as at that date and thereby allow the surplus ACT to accrue interest thereafter under s.35A.
• Company A contended that applying the 2016 payment as a credit against interest was fair and consistent with established principles and with judicially developed "rule of thumb" that, where simple interest accrues, payments should be allocated against interest in priority to principal.
• Company A also argued that the Defendant had not shown sufficiently strong reasons to displace the fair outcome reached by the judge, and that it should not be required to repay sums it had lawfully received pursuant to an order that remained valid until set aside.
• Company A filed a fallback position (Respondent's Notice) that, if the judge's primary allocation were not upheld, the £6.4 million should be allocated first to the FID claim and the balance pro rata to principal and interest.

Table of Precedents Cited

Court's Reasoning and Analysis

The court's analysis proceeded in stages, and the following steps reflect only the content and reasoning set out in the opinion:

1. Identify the central factual matrix: a 2016 payment of approximately £6.4 million was made to Company A pursuant to summary judgment orders; a later Supreme Court decision set aside the payment component of those orders and remitted matters to the High Court; by the time of the High Court determination Company A's overall claim had been finally established and exceeded the paid sum.
2. Characterise the legal starting points on restitution and interest:
   • It is well established that where a payment is made pursuant to an order that is subsequently set aside, the payer has, in principle, a right to restitution of that sum. Authorities such as Dr Drury's Case, Rodger, Nykredit and Delta Petroleum confirm the principle and the appellate court's inherent jurisdiction to order repayment and, in suitable cases, interest.
   • However, those authorities also show that there is no automatic entitlement to interest: whether interest should be ordered depends on what justice requires in the particular case and whether the case is "suitable" for interest to be awarded.
3. Interpret the operative appellate order: The Court interpreted the FII SC3 Order as remitting the relevant FID claims to the High Court for determination in accordance with the Supreme Court's findings. The remittal concerned the FID element in particular; the High Court should determine quantification consequences consequential upon the set-aside.
4. Analyse the parties' competing propositions about allocation and restitution:
   • The Defendant argued (ground 1) that the setting aside gave rise not only to restitution of the £6.4 million but to a right to interest on that sum from 23 March 2016, calculated at the same rate as s.35A SCA 1981. If that interest were credited against Company A's eventual entitlement it would have the economic effect of treating the 2016 payment as discharging part of principal from that date.
   • Company A argued that, given the final quantification at the time the judge assessed the claim (2024), the fair approach was to treat the £6.4 million as a part payment of the established claim and, applying the established "rule of thumb", allocate the payment against interest in priority to principal.
5. Apply the law to the facts and address the specific questions:
   • The court accepted that the Defendant had, in principle, an entitlement to restitution in respect of the 2016 payment but emphasised that entitlement to interest is not automatic; it is discretionary based on what justice requires (relying on authorities including Rodger, Nykredit and Delta Petroleum).
   • The judge below (Judge Richards) had to decide what justice required having regard to the present position: by 2024 Company A's overall claim had succeeded to a much greater extent than the 2016 payment, Company A had succeeded in the limitation trial, and ACT had been abolished many years earlier. These facts informed the judge's assessment of fairness.
   • The judge's allocation of the £6.4 million entirely against interest as at the date of the Summary Judgment Orders was found to be within the range of reasonable judicial decision-making. The court endorsed the judge's reliance on the "rule of thumb" that where simple interest accrues, payments should be allocated against interest before principal, and agreed that HMRC (the Appellant) had not provided sufficiently good reasons to displace that rule in this case.
   • Regarding the second ground, that it was incoherent to allocate the payment to interest because the right to interest crystallised only in 2024, the court held the judge was making his appraisal in 2024 and was entitled to treat the matter prospectively on that basis. The statutory provisions requiring interest were relevant to ensuring Company A had an adequate remedy under EU law; the timing of crystallisation did not prevent allocation to interest in the judge's assessment.
6. Conclude that neither ground of the Defendant's appeal succeeded: the judge had been entitled to conclude that justice required treating the 2016 payment as a credit against interest and that there was no automatic entitlement to interest for the Defendant simply because the order was set aside.

Holding and Implications

APPEAL DISMISSED.

Holding (core ruling): The appellate court dismissed the Defendant's appeal. It concluded that, while the Defendant had a prima facie entitlement to restitution when an order is set aside, there is no automatic entitlement to interest as of right; whether interest is awarded depends on what justice requires. The High Court judge's allocation of the £6.4 million paid in 2016 entirely against interest as at the date of the summary judgment orders was a lawful and reasonable exercise of judicial discretion in the circumstances.

Implications:

• Direct effect on the parties: Company A's position and the judge's allocation (crediting the 2016 payment against interest) are upheld. The Defendant does not obtain interest on the 2016 payment as it had sought, nor a reallocation of the payment entirely to principal.
• On the law: The opinion reiterates established principles that (a) restitution of payments made under an order subsequently set aside is available in principle and (b) appellate and High Courts have inherent jurisdiction to order repayment and, in suitable cases, interest. The opinion emphasises that the award of interest in such cases is governed by justice and discretion rather than by an automatic entitlement. The judgment applies existing authorities to the facts but does not announce a novel general rule beyond that analytical framework.

Outcome

The appeal is dismissed and the High Court's allocation decision stands.

Note on anonymisation: All parties, judges and corporate entities referenced in this summary have been replaced by consistent generic placeholders (for example, "Company A", "Defendant", "Judge [Last Name]") to preserve anonymity, while faithfully summarising the content and reasoning of the provided opinion.