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On 3 March 2015 HM Treasury published notices regarding updated EU sanctions against Somalia, the Central African Republic and Belarus.

Following the UN Security Council’s delisting of Mohamed Sa’id on 19 December 2014 from its sanctions in respect of Somalia, Sa’id was also removed from the EU sanctions list against the country.

Following the UN Security Council’s delisting of Levy Yakete on 31 December 2014 from its sanctions in respect of the Central African Republic, Yakete was also removed from the EU sanctions list against the Republic.

Following the General Court’s judgment in Case T-438/11 BelTechExport v Council of 9 December 2014, published in the Official Journal on 2 February 2015, EU sanctions in force against BelTechExport, a Belarus entity, were annulled. BelTechExport had been listed for providing assistance (including military assistance) to the Lukashenka regime.

On 12 February 2015 the Court of Appeal gave judgment in Investment Trust Companies (in liquidation) v Commissioners for HMRC. This was an appeal from Henderson J’s two previous judgments in this matter.

In brief, the Court of Appeal has held that:
What was the Court of Appeal hearing about?

• Investment Trust Companies (“ITCs”) can recover from HMRC, by way of restitution, the amount of the VAT actually paid to HMRC by their managers (the “75s”) in the “dead period”.
• ITCs cannot however recover from HMRC the amount of any input tax set against the manager’s VAT liability in any period (the “25s”). Instead, ITCs would have to bring separate claims against their managers for these amounts.

This case involved the payment of unlawful VAT by investment trusts (“ITCs”) to their managers for management services. The managers then paid a proportion of the VAT (the “75s”) to HMRC and set the remaining proportion (the “25s”) against an input tax which the managers had paid to their third party suppliers. The managers successfully recovered the “75s” for certain periods from HMRC (and passed this to the ITCs) under s. 80 VATA. However, that section prevented recovery of the “25s” and restricted recovery to a 3 year limitation period which created a statutory “dead period”. The ITCs sought restitution directly from HMRC of the full VAT paid by them to their managers in the “dead period” and the “25s” in the other periods.

Henderson J, in two separate judgments, found that ITCs:
Both parties appealed Henderson J’s judgments.

• could not recover, from HMRC, any amounts of VAT paid to HMRC by their managers in the “dead period”; but
• could recover, from HMRC, the amounts set against input tax which the managers could not recover from HMRC under s. 80 VATA (i.e. the “25s”) for periods other than the “dead period”.

We discuss below the key issues in the Court of Appeal’s judgment. For ease of reference, we have adopted the Court of Appeal’s notional claim values of:
How much can the ITCs recover from HMRC under UK domestic law?

1. £100 being the full VAT liability paid by the ITCs to the managers;
2. £25 being the amount of VAT paid by the managers to their third party suppliers and set against the managers’ VAT liability collected from the ITCs; and
3. £75 being the amount of VAT paid by the managers to HMRC from the amount collected from the ITCs.

This involves determining the value of HMRC’s unjust enrichment (i.e. the value of VAT in principle recoverable from HMRC). Henderson J found that this was the £100 VAT liability which was incompatible with EU law. HMRC argued that its enrichment was only the £75 actually paid to HMRC (the “75s”) and not the £25 set against input tax (the “25s”).

The Court of Appeal agreed with HMRC. It found that whilst the primacy of EU law required disapplication of national legislation by national courts it did not involve the national court treating the incompatible national legislation as a nullity. As a result, the effect of the UK legislation if it were compatible with EU law was that no VAT was payable by the managers to HMRC at all, and similarly, the managers would not have had the right to deduct any input tax either. HMRC therefore would have had no obligation, even in the dead periods, to allow the deduction of input tax. This was because the HMRC was entitled to £25 from the managers’ suppliers and overcharged tax could never be more than £75. Therefore, neither the managers nor the ITCs could recover more than £75 from HMRC. However, the managers were enriched by the £25 and the ITCs have a claim against them instead.

The Dead Periods

Henderson J found that claims in respect of the dead periods by the ITCs were prevented. His reasoning was that any claim by the ITCs should be analogous to that provided to the managers under s. 80 VATA. Since the managers were not entitled to recover for the dead period because of the exclusive nature of s. 80 imposed by s. 80(7), so the ITCs should be subject to the same limitation.

The Court of Appeal disagreed. It agreed that the effect of s. 80(7) was that s. 80 was the only remedy available to the taxpayer (i.e. the managers). However, s. 80(7) did not apply to other parties seeking recovery. It therefore could not prevent the ITCs from bringing a UK domestic law mistake claim against HMRC for the dead periods.

Can the ITCs recover the 25s from HMRC under EU law?

Henderson J found that the ITCs were permitted to recover the 25s from HMRC under EU law because the managers could rely on change of position to defend a claim against them for the 25s. HMRC argued that change of position was not available to the managers and therefore, they were the proper defendants to a claim for the 25s not HMRC.

The Court of Appeal agreed with HMRC. It found that EU law principles allowed (i) a two-stage recovery (i.e. against the State and the taxpayer); and (ii) recovery by the ultimate consumer against the State only where it was “impossible or excessively difficult” for the consumer to recover from the taxpayer. The Court found that it was not “impossible or excessively difficult” for the ITCs to recover the 25s from the managers because the evidence showed that the managers could not take advantage of the change of position defence in respect of the 25s.

Investment Trust Companies (in liquidation) v Commissioners for HMRC [2015] EWCA Civ 82, 12 February 2015

The Civil Procedure (Amendment) Rules 2015 were published on 26 February 2015 and came into force on 27 February 2015. They amend the Civil Procedure Rules 1998 for the purpose of implementing certain provisions of the Counter-Terrorism and Security Act 2015.

The amendments are as follows:

• The insertion of a new Part 88 containing rules about proceedings in relation to temporary exclusion orders, particularly where sensitive material is in issue, and it is necessary to ensure that such material is not disclosed where such disclosure would be contrary to the public interest. This includes modification of the application of other Parts of the CPR for the purposes of those proceedings; and
• The amendment of rule 1.2 (application by the court of the overriding objective), so that it is subject to rule 88.2 (modification to the overriding objective). Rule 88.2 modifies the overriding objective for the purposes of Part 88 by placing a duty on the court to ensure that information is not disclosed where such disclosure would be contrary to the public interest and by requiring that the overriding objective be read and given effect in a way which is compatible with that duty. This, and the rest of Part 88, is, however, subject to paragraph 5(1) of Schedule 3 to the 2015 Act, which provides that nothing in the relevant provisions of the 2015 Act or in rules made by virtue of them is to be read as requiring the court to act in a manner inconsistent with Article 6 of the European Convention on Human Rights.

The Civil Procedure (Amendment) Rules 2015 (SI 2015/406)

On 26 February 2015 the US Treasury, Office of Foreign Assets Control (OFAC) announced that it had placed a number of individuals alleged to be connected with Hezbollah on its sanctions list.

According to the official press release, the following actions have been taken:

• Mustapha Fawaz, Fouzi Fawaz and Abdallah Tahini have been designated pursuant to Executive Order (EO) 13224 for acting for or on behalf of Hezbollah;
• Amigo Supermarket Limited, Wonderland Amusement Park and Resort Ltd, and Kafak Enterprises Limited have also been designated pursuant to EO 13224 for being owned or controlled by Mustapha Fawaz and Fouzi Fawaz; and
• Any property or interests in property that the aforementioned individuals or entities may have within the US have been frozen, and US persons have been generally prohibited from dealing with them.

The Specially Designated Nationals List Update of 26 February 2015 has been made availablehere.

On 21 January 2015 the Administrative Court (Laing J) dismissed an application for disclosure by the National Crime Agency (NCA) of letters of request for mutual legal assistance from the US.

The letters of request concerned fraud proceedings against a number of Nigerian defendants. The US had obtained a prohibition order (under Part 4A of the Proceeds of Crime Act 2002 (External Requests and Orders) Order 2005/3184) freezing assets in the UK belonging to the defendants. The defendants applied for disclosure of the letters and argued that the letters lay at the heart of the NCA application; without them the application could not have been pursued at all, and they were therefore disclosable under CPR 31.14.

Laing J held as follows:

• The expectation was that communications between foreign states were confidential for reasons of international comity. It had been confirmed by the US Department of Justice that it wished to maintain the confidentiality of these letters of request. The reason for not ordering disclosure of letters of request, though in some cases it might yield to considerations of justice, was that such letters were confidential.
• There was no legislative requirement that letters of request should be disclosed. The question was whether inspection was necessary for the fair disposal of the action. The defendants had all the material that they needed in order to challenge the order.

National Crime Agency v Abacha [2015] EWHC 357 (Admin), 21 January 2015

On 20 February 2015 the Commercial Court (Leggatt J) emphasised the need for concise documents for the court and the correct nature and content of statements of case.

The case concerned allegations that the defendants conspired to induce the Serious Fraud Office (SFO) to investigate the claimants on a false basis by making statements to the SFO which the defendants did not believe to be true.

Leggatt J held as follows:

• “Statements of case must be concise. They must plead only material facts, meaning those necessary for the purpose of formulating a cause of action or defence, and not background facts or evidence. Still less should they contain arguments, reasons or rhetoric”.
• According to the Commercial Court Guide (8th edition, 2009), statements of case should be limited to 25 pages in length (with extensions to be granted by the court exceptionally and based on good reasons provided by the requesting party). Contentious headings, abbreviations and definitions should not be used. Particulars of primary allegations should be stated as particulars and not as primary allegations. Substantial factual information or lengthy particulars relied on should be set out in schedules or appendices. Evidence should not be included.
• “The particulars of claim which have been served in the present case flout all these principles. They are 94 pages in length. They include background facts, evidence and polemic in a way which makes it hard to identify the material facts and complicates, instead of simplifying, the issues. The phrasing is often not just contentious but tendentious”.
• “…unless adverse costs orders are made in cases of flagrant non-compliance, practitioners who are well aware of the principles of pleading and the provisions of the Commercial Court Guide will continue to overlook them, as happened here. In my view, the appropriate order in this case, and the order which I will make, is that the particulars of claim are struck out, the costs of drafting the particulars of claim are disallowed, and fresh particulars of claim no longer than 45 pages and otherwise complying with Appendix 4 of the Commercial Court Guide should be served within 21 days”.

Tchenguiz & ors v Grant Thornton UK LLP & ors [2015] EWHC 405 (Comm), 20 February 2015

On 20 February 2015 the EU Council issued a joint proposal for a Decision on the EU position regarding an EU-Ukraine Association Agenda.

The proposal sets out a list of priorities for the implementation of the 2014 EU-Ukraine Association Agreement. The draft Association Agenda is annexed to the proposed Decision.

The draft Association Agenda comments on the situation in Crimea (page 15), whereby the EU and Ukraine agree to maintain dialogue and co-operation covering areas including:

2.3: Foreign and Security Policy

(i) Enhancing the co-operation within the CFSP area

Consult and coordinate on actions taken at bilateral and multilateral levels in the framework of international efforts with the joint aim of finding a sustainable political solution to the situation in some regions of Donetsk and Luhansk Oblasts of Ukraine, caused by the illegal activities of the Russian Federation.

On 13 February 2015 the Commercial Court (Richards J) granted the claimants (who were investment funds interested in euro-denominated debt securities issued by Argentina) a declaration that €225 million interest due on debt securities was subject to a trust governed by English law.

The case concerned certain euro exchange bonds governed by a trust indenture and English law. The indenture provided that Argentina irrevocably submitted to the jurisdiction of the English and Argentine courts with respect to any proceedings arising out of or in connection with the indenture as it related to debt securities governed by English law. In the indenture, Argentina also covenanted to pay the principal of and interest on the exchange bonds to the trustee, at the places and times and in the manner provided in the debt securities and the trust indenture.

Richards J held as follows:

• In circumstances where there was so much dispute surrounding the attempt by Argentina to pay sums due on the exchange bonds, a declaration authoritatively stating the position under the governing law of the trust indenture and the euro debt securities was helpful.
• The court was concerned not to intrude improperly into matters before the US courts. However, the making of a declaration in the terms sought by the claimants would not do so. The declaration would establish the status of the funds held by the trustee as a matter of English law. A declaration as to the effect of a trust indenture governed by English law was within the proper jurisdiction of the court.
• A second declaration sought by the claimants, to the effect that a US freezing injunction did not prevent the trustee from paying out of the trust account, was however denied. A declaration in those terms served no useful purpose. It would be a declaration that the trustee would be in breach of trust unless it had a defence.

Knighthead Master Fund LP and others v The Bank of New York Mellon and another [2015] EWHC 270 (Ch), 13 February 2015

The Export Control (Various Amendments) Order 2015 is due to come into force on 24 February 2015. It amends the Export Control (Russia, Crimea and Sevastopol Sanctions) Order 2014 (as well as current Syrian trade restrictions, which are not covered here)

In respect of Russia, Crimea and Sevastopol, the principal amendments are as follows:

• relating to the sale etc. of items listed in Annex II of Council Regulation (EU) No 1290/2014 (the Russia Sanctions Regulation) and related technical assistance, brokering services and financial assistance;
• relating to the provision of certain associated services for certain types of oil exploration and production, as regards Russia;
• a ban on all foreign investments and related investment services in Crimea or Sevastopol;
• a broadening of the former export prohibition on goods and technology suited for use in the sectors of transport, telecommunications, energy and the prospection, exploration and production of oil, gas and mineral resources, and associated technical assistance, brokering services and financial assistance;
• a ban on the provision of technical assistance, or brokering, construction or engineering services relating to infrastructure in Crimea or Sevastopol in those sectors; and
• a ban on the provision of services directly related to tourism activities in Crimea or Sevastopol, including a ban on ships providing cruise services and flying a Member State flag or owned or operated by a Union shipowner calling at certain ports in the Crimean Peninsula.
• the creation of offences and the provision of penalties for contravention of the updated prohibitions in Council Regulation (EU) No 1290/2014 (the Russia Sanctions Regulation) and Council Regulation (EU) No 1351/2014 (the Crimea and Sevastopol Regulation).

The Export Control (Various Amendments) Order 2015, in force 24 February 2014

On 12 January 2015 the Irish High Court (Cregan J) held that the court could consider whether there was an arbitration agreement on a “full judicial consideration” basis rather than on a prima facie basis.

The case concerned an issue of contract formation and incorporation of an arbitration clause between the parties. The key question was whether such issue was for the London arbitration tribunal or whether it could be considered by the Irish courts.

Cregan J held that:

• It was unsatisfactory that a court, having heard the matter, should only consider on a prima facie basis whether an arbitration agreement existed. It would be leaving open the essential question of whether there was an arbitration agreement between the parties on a final and conclusive basis. A finding that an arbitration agreement existed on a prima facie basis meant that the issue may have to be re-argued before the arbitrator as to whether an arbitration clause existed on a conclusive basis. This was unsatisfactory for the court, the arbitrator and the parties, and was wasteful of costs.
• If the court only conducted the analysis to a prima facie review level, and left the matter open to the arbitrator, and if the arbitrator decided whether or not there was an arbitration agreement, that decision was open to challenge by way of appeal on a point of law. The courts could therefore be faced with the prospect of having to decide the issue again. Moreover, in a worse case scenario the parties might have to fight the issue on no less than three separate occasions. This could not be in the interests of proper case management.
• The question of whether there was an arbitration agreement was a question of law which was best decided by a court. The Irish (and other national) courts were well used to considering whether on the basis of the affidavit evidence before them there was a valid and concluded contract in existence between the parties. Moreover, if there were disputed facts on affidavit then oral evidence could be heard before a court to resolve such conflicts of facts.
• Consequently, the court could give “full judicial consideration” to the issue of contract formation at stake in the present case.

The Lisheen Mine v Mullock & Sons (Shipbrokers) Ltd & others [2015] IEHC 50, 12 January 2015