The Court of Appeal confirmed that the principles to be derived from the decisions in Mitchell([2013] EWCA Civ 1537) and Denton ([2014] EWCA Civ 906) applied to applications for extensions of time for filing a notice of appeal.
The Applicants had each failed to file a notice of appeal within the time prescribed by CPR r 52.4(2) and sought extensions of time. The Applicants argued that since applications for extensions of time were neither applications for relief from sanctions under CPR r 3.9 nor sufficiently analogous, the court’s jurisdiction was untrammelled by the Mitchell/Dentonprinciples and the court should make whatever order it considered just.
Whilst the Court of Appeal accepted that the applications were not formally applications for relief from sanctions under r 3.9, it held that applications for extensions of time for filing a notice of appeal should be approached in the same manner because the implied sanction of the loss of the right to pursue the appeal meant they were analogous. Therefore the Mitchell/Denton principles apply to such applications (paragraph 36).
The Court of Appeal confirmed the implied sanction basis upon which the courts had proceeded since Sayers v Clarke Walker ([2002] EWCA Civ 645) and had continued following the Mitchell decision. Moore-Bick LJ reaffirmed certain established rules and made some general observations on the Mitchell/Denton approach, which included:
(i) For the purposes of r 52.4(2), time runs from the date on which the court pronounces its decision. Where determination of application for permission to appeal is adjourned, the judge could be asked to extend time.
(ii) In most cases the merits of the parties’ respective cases will have little to do with whether it is appropriate to grant an extension of time. Only in cases where the court can assess without much investigation that the merits are very strong or very weak will they have a significant part.
(iii) The litigant’s shortage of funds or a lack of representation does not provide a good reason for non-compliance.
(iv) There are no special rules for appeals from the Administrative Court or for public authorities. The nature of proceedings (including issues which are in the public interest) may, however, be a relevant factor.
Regina (Hysaj) v Secretary of State for the Home Department [2014] EWCA Civ 1633, 16 December 2014
France and Germany have taken a cautious approach to EU sanctions against Russia.
The French president, François Hollande, has suggested lifting the EU sanctions on Russia ahead of a multinational summit on the situation in Ukraine, which is due to take place on 15 January. The current sanctions regime is due to expire in March and requires renewal. France is particularly concerned about the adverse effects of continued sanctions on EU-Russian relations, in the light of issues such as energy security.
The German Vice-Chancellor, Sigmar Gabriel has also spoken against imposing further sanctions against Russia. Gabriel has opined that renewed restrictive measures would bring with them the risk of Russia’s political and economic destabilisation, which would be counterproductive to the country’s willingness to engage in international cooperation and potentially very dangerous for Europe.
France seeks end to Russia sanctions over Ukraine
Whether a claimant can enforce an eventual judgment may depend on the defendant having insurance. Finding out about insurance can be relevant to whether to pursue proceedings. However, the case law shows that it can be difficult to obtain disclosure about whether the defendant has effective insurance cover.
Dowling v Bennett Griffin concerned an agreement made in 2001 between a company (APAL) controlled by Alan Phillips (AP), an architect, and the Dowlings, under which APAL agreed to perform architectural and design services on a development project in Hove. The terms of the contract included the following:
“We confirm that we maintain Professional Indemnity Insurance cover of £250,000.00 for any one occurrence … arising out of one event and this will be the maximum of our liability arising out of this agreement.”
The project did not go according to plan, and the Dowlings fell out with AP. County Court proceedings were brought by APAL in 2003 for outstanding fees. The Dowlings counterclaimed for negligence. AP decided not to notify the insurers in order to avoid any increase to insurance premiums and because he was confident that there was no negligence.
The Dowlings succeeded at trial in 2005 both on the fee claim and on their counter-claim. It was not until 2006 that AP notified the professional indemnity insurers of the claim, and by then it was too late. APAL went into insolvent liquidation. The insurers avoided the contract of insurance on the grounds of non-disclosure, misrepresentation and late notification. APAL’s directors and shareholders were AP, who was a chartered architect and a member of the RIBA, and his wife. APAL in liquidation may perhaps have had a claim against its directors for allowing the insurance cover to lapse thereby leaving it with no assets to satisfy the claim. A third party costs order was made against Mr Phillips personally, but the Dowlings only managed to recover £95,000 from him.
The Dowlings then sued their solicitors for negligence in failing to ensure that APAL’s insurance cover was in place. Lewison LJ (with whom the other members of the court agreed) said of the conduct of AP in not notifying the claim that “[s]uch behaviour is, in my view, both irrational and probably dishonest…”. As to what was apparent to the Dowlings’ solicitors in the county court proceedings he said: “I do not think that it would have occurred to a reasonably competent solicitor that an insured professional being sued for negligence would deliberately decide not to notify his insurers of the claim. Still less would it have occurred to him if he had recently been told by his opposite number that a suspicion that APAL was not insured was groundless and that the question itself was malicious.”
Whether APAL had insurance cover was not relevant to the substantive issues in the county court proceedings, and so disclosure would not have been ordered for the purpose of resolving those substantive issues: West London Pipeline and Storage Ltd v Total (UK) Ltd[2008] EWHC 1296 (Comm) declining to follow Harcourt v FEF Griffin [2007] EWHC 1500; XYZ v Various [2013] EWHC 3643 (QB). In XYZ it was decided that CPR part 3.12 (m) enables the court to order disclosure of information about insurance so as to enable the court to manage a case. This did not help the Dowlings because insurance was not relevant to case management of the county court proceedings and the possibility of using CPR part 3.12 (m) was only apparent from the XYZ case.
In the Court of Appeal the principal way in which the Dowlings argued their professional negligence case was that there was an implied term to the effect that APAL would promptly notify its insurers of any claim made against it which could and should have been enforced by injunction. Lewison LJ said that “..[i]n order to persuade the court that a mandatory injunction should be granted there would have to be placed before the court some evidence that the term in question had been breached but there was no such evidence…”. The result was that the Dowlings failed to establish any negligence, and their claim against their solicitors was dismissed.
When judgment has been obtained for a liquidated sum which is covered by insurance the judgment creditor can use section 1 of the Third Parties (Rights against Insurers) Act 1930 (which is still in force and has not replaced by the 2010 Act) to enforce payment from the insurers. Under section 2 there is also a statutory duty to give information to third parties, which arises in the event of bankruptcy or a winding-up order, or following the other events set out in the section. Transfer of the insurance rights occurs on the happening of a section 2 event. This is so regardless of whether judgment has been obtained: Re OT Computers (In Administration) [2004] EWCA Civ 653. None of those events had occurred prior to the insolvent liquidation of APAL.
One has to say that the Dowlings were not served well by the legal system. After 11 years of litigation they had not recovered their losses because of the conduct of the architect described as “..irrational and probably dishonest..”, which was concealed from them.
Was there a remedy? The words “We confirm that we maintain Professional Indemnity Insurance cover of £250,000.00 for any one occurrence…” are a contractual assurance that the maintained insurance cover is effective. The words commencing “we maintain” mean not just that an insurance policy had been taken out, but also that insurance “cover” was being maintained. The contract promised effective continuing insurance cover. That promise included within it a promise to do what was necessary to maintain effective cover. This included (but was not limited to) notification of the claim to the insurers. In principle this contractual promise was capable of specific performance. It was a key to obtaining satisfaction of a judgment, and damages against APAL would not have been an adequate remedy: Beswick v Beswick [1968] AC 58. The risk was of being left with a useless judgment for damages which could not be enforced. The act of notification is a single act capable of being specifically enforced: Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] UKHL 17.
In these circumstances the Dowlings could have included as part of their counterclaim for damages a claim for specific performance of the promise to maintain insurance cover. Summary judgment could have been sought together with an inquiry as to what steps needed to be taken to maintain effective insurance cover. There would also have been available disclosure under CPR in relation to the claim for specific performance so as to ascertain the form of order to be made on the application.
In paragraph 65 Lewison LJ said: “..In order to persuade the court that a mandatory injunction should be granted there would have to be placed before the court some evidence that the term in question had been breached..”. In the case of quia timet relief it is necessary to show a real threat of a wrong being done. There would have been jurisdiction to entertain an application for an interim injunction on the grounds that a wrong was threatened, but that would have required some evidence of a real threat to break the contract. In contrast the specific performance route does not seek an interim mandatory injunction. Whilst there can be interim mandatory injunctive relief in aid of a claim for specific performance (see Astro Exito Navegacion SA v Southland Enterprise Co Ltd [1983] 2 AC 787) this does not affect the analysis that specific performance is itself final relief granted to carry into performance promises made in the contract. There was no clear evidence that the promised effective insurance cover was in place, and there was some indication that it may not be (paragraph 44 CA Judgment: no contact from the insurers, and no expert appointed for APAL to deal with the counter-claim). On a claim for specific performance there can be an issue of whether the contract has been performed and there can be disclosure ordered in relation to that issue.
There was also another route available on the facts once it came to light that AP had not or may not have notified the insurers. The insurance was an asset of APAL. The non-notification made irrationally and probably dishonestly threatened to destroy that asset which was a valuable asset against which a judgment could be enforced. In principle Mareva jurisdiction applied to prevent destruction of the asset. This could have been prevented by appointment of a receiver under section 37 of the Senior Courts Act 1981 to give notice on behalf of the company. Alternatively there could have been an injunction under the Mareva jurisdiction compelling maintenance of the insurance cover by the company.
The Court of Appeal held that, while section 9 of the Arbitration Act 1996 did not apply to require the stay of a winding-up petition, it would be appropriate to dismiss or stay a petition pending resolution of a dispute over the petition debt where such dispute was within the scope of an arbitration agreement.
The Appellant petitioned to wind up the Respondent. The Appellant and the Respondent were the lessor and lessee respectively under a lease of commercial property. The Appellant claimed that the Respondent owed sums due to it under the lease. The lease contained an arbitration agreement. The Respondent objected to the petition on the grounds that the debt due was disputed and the dispute had to be referred to arbitration. (It was not in issue that the disputed debt fell within the arbitration agreement.)
On the application of the Respondent, the court ordered that the petition be stayed under section 9 of the Arbitration Act. The Appellant appealed.
The Court of Appeal dismissed the appeal, holding that:
(1) The mandatory stay provisions in section 9 of the Arbitration Act 1996 did not apply to the petition to wind up the Respondent on the ground of its inability to pay its debts and where the issue in dispute was whether the debt under the petition was due (Paragraphs 26, 38).
(2) As a matter of the exercise of its discretionary power to wind up a company under section 122(1) of the Insolvency Act 1986, it was right in the present case to dismiss or stay the petition so as to compel the parties to resolve their dispute by their chosen method of dispute resolution. It was entirely appropriate for the court, save in exceptional circumstances, to exercise its discretion consistently with the policy of the Arbitration Act (Paragraphs 39-41).
The Chancellor balanced the court’s statutory discretion to wind up companies in the public interest where they are not able to pay their debts with upholding the parties’ agreement and respect for the policy of the Arbitration Act. As the Chancellor noted, parties to an arbitration agreement would otherwise be encouraged to by-pass that agreement and the Arbitration Act by presenting a winding-up petition or to use the threat of liquidation to apply pressure on the alleged debtor.
Salford Estates (No 2) Ltd v Altomart Ltd [2014] EWCA Civ 1575, 8 December 2014
On 18 December 2014 the High Court (Henderson J) gave judgment on the quantification issues arising in the FII group litigation following a hearing in May and June of this year. In relation to the Schedule D Case V tax charge on EU-source dividends, Henderson J confirmed the finding in his judgment in Prudential (2013) that effect was to be given to the ECJ’s judgments in FII (ECJ) I and II by granting a foreign underlying tax credit at the higher of the nominal and actual rates. However, whereas Prudential’s dividends were from portfolio holdings for which there was no underlying tax information, the FII claimants’ dividends were from holdings in group companies. They could therefore be expected to make proportionate inquiries into the actual and nominal tax rates applicable in the State in which the profits were earned. The nominal rate credit was to be calculated by following as closely as possible the existing statutory machinery; in particular, where dividend income passed through a mixer company a blended nominal rate had to be determined (rather than disaggregating the income as HMRC had argued). The Judge also gave provisional views on two situations which did not arise on the test cases: first, where EU-source income was taxed in an intermediate company on its way to the UK, the relevant nominal rate was that of the intermediate company (if higher than that of the ultimate source country); secondly, while in principle a nominal rate credit was not required for income originating in a third country (even where it was paid to the UK via an EU mixer company), where the income was taxed in the EU on its way to the UK the income would attract a nominal rate credit at the rate of the intermediate company.
The judgment also deals with detailed issues relating to the quantification of the Claimants’ ACT claims. Here again Henderson J followed the principle that the solution adopted should do as little violence as possible to the UK machinery, upholding the Claimants’ methodology based on an adaption of the ACT return (CT61) system. The Judge held further that HMRC had failed to demonstrate that on the facts they had changed their position so as to make restitution unconscionable: there was no short term relationship between taxation and spending and even in the longer term no causal relationship had been shown. The Judge also confirmed his rulings in Prudential that restitution should be by way of compound interest (the parties having agreed that the appropriate rate was the ten year moving average of the yield rate on ten year gilts).
The Test Claimants in the FII Group Litigation v HMRC [2014] EWHC 4302 (Ch), 18 December 2014
Originally printed in International Tax Review, 16 September 2014
By Nicola Hine
On 2 September 2014, the Court of Appeal handed down its latest judgment (the third from the Court of Appeal) in the long running Franked Investment Income Group Litigation (“FII GLO”) case. This particular appeal dealt with an important point of principle: that taxpayers should be entitled to have finality in long running cases. If HMRC were allowed to re-open arguments which had been decided against them, it could increase the uncertainty of litigation and the protracted nature of tax disputes.
The Court of Appeal decided the UK tax authorities should not be allowed to change their defence in the Franked Investment Income Group Litigation on the issue of liability as that aspect of the case has already been finalised. As a result, the appeal was dismissed.
This is a further success for the Claimants in this action and, hopefully, brings the case closer to reaching its conclusion.
Continue reading on International Tax Review.
Originally printed inInternational Tax Reviewon 4 April 2014
By Robert Waterson & Samantha Wilson
The taxpayer can claim a resounding victory in the third round of the long-running Littlewoods interest case in which judgment was handed down in the High Court in London on March 28 (Littlewoods Retail Limited and others v Commissioners for HMRC [2014] EWHC 868 (Ch)).
Though the background to Littlewoods is concerned with the recovery of unlawfully levied VAT, the decision is rooted in the application of general principles of EU law. The judgment therefore has important and positive implications for all taxpayers who have sought recovery of taxes paid but not due under rights derived from, or freedoms guaranteed by, the European Treaty.
Continue reading on International Tax Review (subscription required).
Originally printed in Tax Journal on 4 April 2014
Robert Waterson considers the High Court decision in Littlewoods concerning the recovery of compound interest on overpaid VAT, which was handed down on 28 March 2014 in the High Court. This substantial judgment represents a comprehensive win for the taxpayer and is relevant to the many hundreds of companies which have claims pending for the recovery of compound interest in respect of overpaid VAT (as well as certain direct tax disputes concerning EU law).
Continue reading on Tax Journal (subscription required).
By Nicola Hine
The ECJ has delivered judgment today in Case C-80/12 Felixstowe Dock and Railway Company and Ors, a consortium relief case referred from the FTT. The ECJ ruled that legislation which disallowed consortium relief in circumstances where a link company was based in Luxembourg breached the freedom of establishment.
The claimants were UK resident companies who were part of a Hong Kong owned group. Consortium relief had been claimed for losses of a UK resident consortium company. The “link company” (being the company common to both the consortium and the group within the meaning of s406(1)(a) ICTA 1988) was Luxembourg resident. The loss making consortium company elected to surrender its losses to the UK claimant group in order to off set those losses against the group’s taxable profits. HMRC rejected the claims on the basis that the link company was neither UK resident nor did it carry on a trade in the UK through a permanent establishment, as required by the legislation.
The claimants appealed and the FTT referred the matter to the ECJ for preliminary ruling. The ECJ found that the UK legislation produced a difference in treatment as between domestic link companies and those based in other Member States. Such a disparity may only be permissible where it may be justified by an ‘overriding reason in the public interest’ or where the circumstances are not objectively comparable. As to the latter, the Court found that the comparability of a domestic and cross-border situation was undisputed. On the former, no reasons of public interest were advanced by the UK government, and the question of whether such a justification was left for the national court to decide. Although this point was remitted to the FTT, the ECJ made it clear that the restriction created by the legislation could not be justified by “overriding reasons in the public interest relating to the objective of preserving a balanced allocation of powers of taxation between the Member States or to combating purely artificial arrangements”.
The important feature of the judgment is that, the presence of intermediate companies, or parent companies, based outside the EU/EEA did nothing to affect this analysis. The Court ruled that neither the residence of a company’s shareholders, nor the residence of ultimate parent and intermediate companies, had any bearing on the unlawfulness of the consortium relief provisions or the rights of EU resident companies to rely on the freedom of establishment. The freedom of establishment was already engaged by the residence of the link company; the claimant companies can rely on this restriction themselves as they are linked to the company and the restriction affects their own taxation.
This decision is useful in the context of claims by corporate groups engaging EU law where the ultimate parent is not EU resident.
This article appears in the JHA April 2014 Tax Newsletter.
The Trustees of the BT Pension Scheme v HMRC [2014] EWCA Civ 23
By Alice McDonald
The BT Pensions Scheme case concerns claims by a large number of pension funds to recover credits under section 231 ICTA 1988 upon the receipt of non-resident dividends in circumstances where such credits were received on dividends from UK resident companies. The current litigation concerns whether or not the claims were not made in time.
Claims could be made for the payment for tax credit within 6 years under section 43 TMA 1970. Claims were also made as High Court claims in restitution.
The previous courts and tribunals who have heard this case have all concluded that all of those claims which were not made as claims for tax credits under s43 TMA within the six year period were out of time.
Two issues have reached the Court of Appeal. The first is whether the six year time period under s43 TMA properly applied to these claims as a matter of statutory construction. The Court of Appeal has now held that it clearly does. The second is whether the imposition of the six year period is contrary to EU law on grounds of legal certainty. A further hearing will now be listed in the Court of Appeal to determine that second issue.
This article appears in the JHA January 2014 Tax Newsletter, which also features:
FII and Dividend Tax Update
Exit Taxes by Amita Chohan
Unjust Enrichment Defence Compatible with Equal Treatment by Alice McDonald
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