Test Claimants In the Franked Investment Income Group Litigation v Inland Revenue & Anor

Permission to amend or withdraw an admission is discretionary. The court must consider all the circumstances, including new evidence, the parties’ conduct, prejudice, the stage of proceedings, prospects of success and the administration of justice. Precise pleadings are especially important in complex litigation, even where parties are not generally required to plead points of law. A party cannot use amendment to reopen an issue conclusively determined between the parties. An admission should not be withdrawn where the proposed replacement is vague, incomplete or leaves the opposing party and the court uncertain about the case to be tried.

This was an application by HMRC for permission to re-amend its defence in long-running group litigation concerning the compatibility of the advance corporation tax and foreign income dividend regimes with EU law, and the availability of restitutionary remedies. The claimants opposed amendments said to withdraw admissions or reopen issues already determined by earlier domestic and European decisions.

The court considered whether HMRC could revise its pleaded position on the unlawfulness of ACT, withdraw admissions concerning FIDs, rely again on the standstill provision, maintain a denial concerning section 107 of the Finance Act 2007, and alter its alternative case on restitution.

1. Withdrawal of admissions. Under CPR Rule 14.1(5) and PD 14 paragraph 7.2, permission to amend or withdraw an admission is discretionary. The court must consider all the circumstances, including the grounds for withdrawal, new evidence, the parties’ conduct, prejudice, the stage of the proceedings, prospects of success and the interests of justice. The principles were usefully distilled in Kojima v HSBC Bank Plc [2011] EWHC 611 (Ch).
2. Although parties are not generally obliged to plead points of law, complex litigation requires the pleadings to define and confine the issues clearly. Worked examples cannot replace a properly pleaded positive case. HMRC’s proposed pleading on the unlawfulness of ACT and its replacement admission concerning FIDs were vague and incomplete. Permission to withdraw the existing admissions was refused unless and until HMRC fully pleaded its primary and fallback contentions.
3. The proposed amendments concerning reliance on the standstill provision were disallowed. The issue had already been conclusively determined against HMRC, and Arnold v NatWest Bank Plc [1991] 2 AC 93 confirmed that issue estoppel may be displaced only in special circumstances where its application would cause injustice. No such circumstances were suggested.
4. HMRC were technically entitled to maintain a denial concerning section 107(1) of the Finance Act 2007, but were bound by the Supreme Court’s decision on that issue and could not argue the contrary at trial. The proposed change to the alternative restitution pleading was acceptable, subject to HMRC fully pleading its case on the unlawfulness of ACT.
5. The application was allowed only to the limited extent identified. HMRC were required urgently to produce a revised draft defence.