GKN Holdings Plc & Ors v Inland Revenue & Anor

A non-test claimant in group litigation may seek an interim payment where the conditions in CPR rule 25.7(1)(c) are satisfied. The existence of a group litigation stay, complex unresolved issues, or pending appeals does not justify a blanket refusal to entertain the application. Those matters are relevant to whether the claimant would probably obtain judgment, the amount of the payment, and case management. An interim payment remains adjustable under CPR rule 25.8 if later events show that it was unjustified. Where the court is satisfied that a claimant would probably succeed for a substantial sum, fairness generally requires the interim-payment jurisdiction to remain available.

The claimants sought an interim payment in the Franked Investment Income group litigation after repaying part of an earlier payment following the Court of Appeal’s decision on limitation issues. The Supreme Court subsequently held that section 107 of the Finance Act 2007 was incompatible with EU law, while the position concerning section 320 of the Finance Act 2004 remained unresolved.

The Revenue applied to amend the group litigation stay so that non-test claimants could not make interim-payment applications until their claims had been fully particularised and the relevant common issues had been resolved. The court determined both the stay application and GKN’s renewed interim-payment application.

1. Stay application dismissed in its primary form. On its true construction, paragraph 12 of the FII group litigation order stayed interim applications by non-test claimants. However, the stay should be lifted to the extent necessary to permit a meritorious interim-payment application to be made and determined.
2. CPR rule 25.7(1)(c) requires the court, on the material available at the application hearing, to be satisfied on the balance of probabilities that the claimant would succeed at trial and obtain a substantial monetary judgment. It is insufficient that success or recovery is merely likely. The fact that the claim forms part of group litigation, or involves difficult and changing legal issues, does not by itself justify refusing to entertain the application.
3. Complexity and appellate uncertainty are relevant to applying the rule and assessing the amount of the payment, but refusing jurisdiction solely because the issues are difficult would abdicate judicial responsibility. The interim nature of the remedy, and the court’s power under CPR rule 25.8 to order repayment or adjustment, reduce the risk of injustice.
4. GKN established, on the balance of probabilities, a prima facie entitlement to recover ACT paid on the immediate onward distribution of relevant profits, subject to the tax credit being capped at the level of tax paid by the EU subsidiary. The court could not be satisfied about claims depending on carrying forward notional FII credits, particularly where distributions had been made under a group income election.
5. In the present state of the law, the Revenue could not rely on change of position as a defence to the relevant mistake-based San Giorgio claims. The court declined to express views on the detailed ingredients or operation of that defence because those issues did not arise for decision and would be obiter on limited argument and evidence.
6. GKN’s interim-payment application therefore succeeded, subject to the agreed recalculation and the existing discount and deductions. The parties were invited to agree the amount.

The judgment records earlier decisions in the same group litigation, including the first-instance interim-payment decision, the Court of Appeal’s dismissal of the Revenue’s appeal, and the Supreme Court’s subsequent ruling on limitation issues. No appeal from the present judgment is stated.