Revenue And Customs v MCX Dunlin (UK) Ltd

The Court of Appeal allowed HMRC's appeal against the Chancery Division's declaration that the repayments made in 2015 to former participators in the Dunlin oil field were repayments of petroleum revenue tax (PRT) carrying interest. The court held that where APRT (advance petroleum revenue tax) has been set off under section 139(3) of the Finance Act 1982 against PRT charged "in an assessment", the extent of that set-off is capable of being revisited when the PRT liability is reduced or extinguished by a later valid assessment (for example under section 7(3) of the Oil Taxation Act 1975 and the consequential powers in schedule 2). As a result, the sums HMRC had refused to carry interest on were repayments of APRT (repayable under paragraph 14 of schedule 19 to the Finance Act 1982) and not PRT attracting interest.

Procedurally, the court held the respondent's claim under CPR Part 8 was an abuse of process because the statutory appeal route against assessments (to the tax tribunal) was the appropriate mechanism to resolve disputes about the character of tax repayments.

Background and parties: The dispute concerned refunds made in 2015 to the old participators in the Dunlin oil field after loss carry back extinguished assessable profits from the 1980s. The purchaser and eventual sole owner, MCX Dunlin (UK) Ltd (MCX), received those refunds by contract from the old participators and brought Part 8 proceedings in the Chancery Division seeking a declaration that the whole repayment was overpaid PRT carrying interest. HMRC treated part of the repayments as APRT, repayable under the APRT regime and not carrying interest.

Procedural posture: The case was an appeal from the High Court (Fancourt J) where the judge had granted MCX the declaration it sought: that the total sums repaid were overpaid PRT and carried interest. HMRC appealed to the Court of Appeal. (See Fancourt J [2020] EWHC 11 (Ch) and this appeal [2021] EWCA Civ 186.)

Nature of the claim: MCX sought a declaratory judgment that the amounts repaid in 2015 were repayments of PRT (and therefore carried interest) rather than repayments of APRT. It also relied on CPR Part 8 procedure.

Issues framed: (i) Whether the repayments on which HMRC had declined to pay interest were repayments of APRT or of PRT; and (ii) whether MCX was entitled to bring its claim by way of CPR Part 8 rather than by the statutory appeal route in the tax regime.

Statutory context considered: The court analysed section 139(3) and (4) and schedule 19 of the Finance Act 1982 (APRT regime), section 7(3) and schedule 2 (including paragraphs 10, 12, 13, 14, 15-17) of the Oil Taxation Act 1975 (PRT regime), paragraph 15 of schedule 17 to the Finance Act 1980 (terminal losses on transfers), and the corporation tax consequences under section 17 of OTA 1975.

Court's reasoning on characterization of repayments: The Court of Appeal concluded that section 139(3) sets APRT off against the participator's liability to PRT "charged in an assessment" and that when that assessment is validly revised downwards (for example, because later losses are carried back under section 7(3)), the APRT effectively becomes available for carry forward and, if unused by the relevant time, repayable under the APRT repayment provisions (schedule 19 para 14). The court rejected MCX's position that an earlier set-off of APRT against PRT is irreversible and that any later repayment must be treated as repayment of PRT carrying interest. The court considered authorities cited by the parties (including Elf, Procter & Gamble, Prudential) to provide some support for the view that set-offs can be revisited, but treated them as indicative rather than determinative.

Court's reasoning on procedure: The court held that where Parliament had provided a statutory appeal mechanism against assessments or determinations under the PRT/APRT code, it was an abuse of process to seek in the ordinary civil courts, by Part 8 proceedings, to secure the effectively same outcome. The correct route for disputing the character and quantum of tax set out in assessments was the statutory appeal process to the tribunal (and thereafter by way of case stated or judicial review in the limited circumstances allowed), as explained in authorities such as Knibbs and Autologic.

Outcome: The Court of Appeal allowed HMRC's appeal: the repayments on which HMRC declined to pay interest were APRT repayments (not PRT repayments carrying interest), and MCX's Part 8 claim was an abuse of process because the statutory appeal route was available.

Appeal allowed. The Court of Appeal held that the repayment sums which HMRC had refused to carry interest on were repayments of APRT rather than repayments of PRT. The court explained that section 139(3) FA 1982 applies to APRT set against PRT "charged in an assessment" and that where a later valid assessment reduces or extinguishes the earlier PRT liability (eg by loss carry back under section 7(3) OTA 1975 and related provisions), the extent of APRT treated as set off may be revisited, with unused APRT carried forward and (if later repayable under schedule 19) repaid without interest. The court also held that MCX's Part 8 claim was an abuse of process because the statutory appeal route against assessments was the appropriate remedy and should have been used.

Appeal from the High Court of Justice, Business and Property Courts (Revenue List, ChD) (Fancourt J) [2020] EWHC 11 (Ch) to the Court of Appeal [2021] EWCA Civ 186. The High Court had granted the declaration sought by MCX; the Court of Appeal allowed HMRC's appeal and reversed that declaration.