HM Revenue and Customs v The GKN Group

Under rule 25.7(1)(c) of the Civil Procedure Rules 1998, an applicant for an interim payment must satisfy the court, on the balance of probabilities, that it would actually obtain judgment for a substantial sum. A finding that success is merely likely does not suffice.

The court should ordinarily order an interim payment once that threshold is met, unless a sufficient specific reason points against doing so. Participation as a non-test claimant in group litigation, difficult questions elsewhere in the litigation, and the reversal of earlier rulings do not constitute bars where they do not affect the restricted claim. The payment must be a reasonable proportion of the court’s assessment of the likely final judgment, rather than of the claimant’s own estimate.

Companies in the GKN group participated as non-test claimants in group litigation concerning corporation tax and advance corporation tax levied contrary to European Union law. After Henderson J determined common liability issues, Sir Andrew Park ordered HMRC to make an interim payment of £4.4 million under rule 25.7(1)(c) of the Civil Procedure Rules 1998.

Following a separate Court of Appeal judgment on the common issues, GKN repaid most of the interim payment. It retained £1,490,932 relating to loss of the use of foreign income dividend advance corporation tax paid within the applicable six-year period. HMRC appealed against the interim-payment order in principle.

The central questions were the threshold for concluding that a claimant would obtain judgment for a substantial sum, whether group litigation or difficult and evolving legal issues prevented an order, and how the court should determine a reasonable proportion of the likely final judgment.

1. Appeal dismissed unanimously. GKN had established that it would obtain judgment for £1,490,932 on the restricted part of its claim. The interim-payment order was to be amended so that it applied only to that amount.
2. Rule 25.7(1)(c) of the Civil Procedure Rules 1998 places the burden on the applicant. The applicable standard is the ordinary civil standard, namely the balance of probabilities. Describing the burden as a high one risks confusing the burden of proof with the standard of proof.
3. The judge must assume the position of the trial judge and ask whether, on the material then available, the claimant would actually succeed and obtain judgment for a substantial amount. It is insufficient to find merely that success or recovery of a substantial amount is likely. A substantial amount means more than a negligible amount and must be assessed in the context of the total claim.
4. The rule does not confine applications to the period before any issue has been tried. Nor does it prevent an application concerning only part of a claim. Participation as a non-test claimant in a group litigation order is not itself a bar, although the terms of a particular order might provide otherwise.
5. Once the conditions in rule 25.7(1)(c) are established, the court should ordinarily make an interim-payment order unless there is a sufficient specific reason not to do so. Difficult questions elsewhere in the litigation and the reversal of Henderson J on other issues did not affect GKN’s restricted claim. That claim had been framed to exclude the controversial issues.
6. Under rule 25.7(4), the relevant starting point is the court’s assessment of the likely amount of the final judgment, not the claimant’s calculation of its entitlement. The unchallenged material supported a likely recovery of £1,977,623.60. The retained £1,490,932, representing 75.4% of that figure, was a reasonable proportion.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously. The interim-payment order was amended to reflect GKN’s repayment of part of the original award and its retention of £1,490,932: [2012] EWCA Civ 57 .
2. High Court, Chancery Division: Sir Andrew Park, sitting as a deputy judge, ordered HMRC to make an interim payment of £4.4 million plus interest. He held that the requirements of rule 25.7(1)(c) of the Civil Procedure Rules 1998 were satisfied and selected approximately 85% of the claimants’ calculated entitlements.