Test Claimants In the Loss Relief Group Litigation v Inland Revenue

Domestic procedural rules cannot defeat a claim based on directly effective Community rights where compliance would be practically impossible or excessively difficult. The principles of equivalence and effectiveness require national courts to protect those rights and set aside conflicting national rules. Where tax legislation denies mixed resident and non-resident groups a benefit available to wholly resident groups, a claimant need not first use a statutory tax procedure which national law would inevitably reject. The High Court must entertain the Community-law claim, subject to its merits and any applicable limitation issues.

Six test claimants in the Loss Relief Group Litigation brought High Court proceedings against the Commissioners of Inland Revenue, seeking group loss relief and related restitution or damages. They alleged that the United Kingdom group loss relief rules contravened Articles 43 and 56 of the EC Treaty and relevant non-discrimination provisions. The Revenue applied to strike out the direct group loss relief claims, arguing that they had to proceed through claims to the Inspector of Taxes and appeals to the Commissioners. Park J granted the application and refused permission to appeal: [2004] STC 594. The central issue was whether the decision in Hoechst required the High Court to entertain the claims without prior use of the statutory tax procedure.

Lord Justice Peter Gibson delivered the leading judgment, and Lord Justice Longmore agreed. The Court of Appeal allowed the appeal, discharged Park J’s order and dismissed the Revenue’s strike-out application.

1. The applicable Community-law framework was the principle of effectiveness, alongside equivalence. National procedural rules must not be less favourable than those governing similar domestic claims and must not make the exercise of Community-law rights practically impossible or excessively difficult. The duty applies to every national court with jurisdiction to apply Community law: Metallgesellschaft Ltd v CIR and Hoechst v CIR [2001] ECR I-1727 and Amministrazione delle Finanze dello Stato v Simmenthal [1978] ECR 629.
2. Under Hoechst, a national court cannot refuse or reduce a claim for restitution or compensation solely because the claimant failed to seek a tax benefit which national law denied it, or failed to use statutory remedies to challenge the inevitable refusal. The same reasoning applied to group loss relief.
3. The formal regime in the Income and Corporation Tax Act 1988, including the residence or branch requirements and the requirements for quantified claims and United Kingdom tax inspectors, created a very serious difficulty, if not an impossibility, for non-United Kingdom companies. Requiring the claimants first to pursue that procedure would undermine the effectiveness of their Community-law rights. The High Court was therefore obliged to entertain the claims and determine them on their merits.
4. The court indicated that a reference to the ECJ could be made without full quantification where the factual and legislative context was sufficiently defined and the dispute was not hypothetical. This was guidance on a possible reference, not a determination of the merits or of limitation issues.
5. Having resolved the appeal under Hoechst, the court declined to decide the alternative questions of domestic jurisdiction and discretion. Permission to appeal to the House of Lords was refused. Costs were awarded to the claimants here and below.

1. High Court of Justice, Chancery Division: Park J granted the Revenue’s application to strike out the direct group loss relief claims and refused permission to appeal: [2004] STC 594.
2. Court of Appeal (Civil Division): Permission was granted at the outset of the hearing. The appeal was allowed, the judge’s order discharged and the Revenue’s application dismissed with costs here and below.
3. House of Lords: Permission to appeal was refused by the Court of Appeal.