Aegis Group Plc & Ors v Inland Revenue

A claimant who has an existing civil claim within group litigation should normally challenge the validity of legislation in that claim rather than by judicial review. A statutory provision said to terminate or limit the civil claim does not prevent the claimant from arguing that the provision is inapplicable or invalid. Where a claimant discontinues misconceived judicial review proceedings, the usual costs rule applies in principle. However, a defendant’s failure to engage promptly with the judicial review pre-action protocol may justify a proportionate reduction, assessed in light of the clarity of the proposed claim, the likely effect of an earlier response, and any later corrective response.

The claimants had brought civil proceedings concerning tax recovery and were test claimants on an issue concerning the compatibility of amendments introduced by the Finance Act 2004 with Community law. They nevertheless issued a separate application for permission to seek judicial review of the legislation. The judicial review proceedings were transferred to the Chancery Division and discontinued after it was agreed that the statutory issue would be determined within the existing group litigation.

The remaining dispute concerned costs. The Revenue sought their procedural costs. The claimants argued that the Revenue’s failure to respond promptly to their pre-action protocol letter justified withholding costs or awarding costs to the claimants.

1. The judicial review proceedings were misconceived. Issue (Q) in the existing group litigation provided a natural and proper procedural setting for determining whether section 320 of the Finance Act 2004 was invalid under Community law. If the application had continued, permission would have been refused because the claimants had an alternative and more appropriate remedy in the Chancery Division proceedings.

2. The concern that section 320(3) prevented the claimants from raising the validity of section 320 in the civil proceedings was plainly wrong. If section 320 was inapplicable because of Community law, section 320(3) was likewise inapplicable. The provision could not prevent the claimants from arguing in the existing action that section 320 did not apply.

3. The normal consequence of discontinuance under rule 38.6(1) of the Civil Procedure Rules was that the claimants were liable for the defendant’s costs. The court’s decision was not based only on that default rule. It reflected the conclusion that the judicial review application would have failed at the permission stage.

4. The Revenue had failed to respond within the period contemplated by the judicial review pre-action protocol, despite two chasing letters and a telephone enquiry. Although the claimants’ correspondence was unclear about the measure challenged and the relief sought, the Revenue should at least have explained promptly why it could not provide the expected response.

5. The appropriate sanction was proportionate. The court considered that an earlier response was unlikely to have prevented the proceedings, because the claimants already knew of the existing group litigation and had independently formed their mistaken view about section 320(3). The Revenue’s later letter substantially identified the alternative-remedy objection before the claim was issued. The claimants were therefore ordered to pay 85 per cent of the Revenue’s assessed procedural costs, rather than the whole amount.

The judgment records the transfer of the discontinued judicial review proceedings from the Administrative Court to the Chancery Division. No appellate history is stated.