Test Claimants in the Franked Investment Income Group Litigation v The Commissioners of Inland Revenue & Anor

The claim concerned three components: (i) repayment of unutilised surplus ACT of about 8.8m; (ii) interest under section 35A of the Senior Courts Act 1981 (agreed to be awarded at base rate plus 2% to final judgment); and (iii) a foreign income dividend ("FID") claim for the time value of ACT paid and later reclaimed. It was common ground that the claimants were entitled to judgment on all three components but that the appropriate remedy for the FID claim was governed by section 85 of the Finance Act 2019, which provides for simple statutory interest rather than restitutionary compound interest.

The Supreme Court's decision in the Test Claimants in the FII Group Litigation v HMRC [2021] UKSC 31 ("FII SC3") set aside earlier High Court summary judgments (made on the pre-Prudential understanding of the law) and remitted quantification to the High Court. The judge rejected HMRC's submission that, because the summary judgment sums had been paid, they were automatically entitled to restitution and interest under Gibbs v Lakeside. The court held that the FII SC3 order did not require repayment and that no claim for unjust enrichment by HMRC was before the court.

The principal live issue was allocation: whether the 6.4m paid under the summary judgment orders should be allocated against the surplus ACT principal (reducing the principal) or against interest (leaving interest to accrue on the full principal). The judge declined to make that allocation on the papers and invited short written submissions (maximum five pages each) focused on allocation. He also declined to designate the allocation question as a further Group Litigation Order issue and refused to order HMRC to provide interim-payment information at this stage.

This judgment disposes of an application for a final order determining Evonik's claim following the Supreme Court's decision in the FII litigation. Evonik's claim comprised (i) repayment of unutilised surplus ACT, (ii) interest under section 35A Senior Courts Act 1981 on that surplus ACT, and (iii) an FID claim for time value of ACT advanced and later reclaimed. The parties accepted entitlement to judgment on all three heads but disagreed about quantification and the effect of payments made pursuant to earlier summary judgment orders.

Background and procedural posture:

• The High Court previously granted summary judgment on the FID claim (Henderson J [2016] EWHC 86 (Ch)) on the pre-Prudential Sempra-based understanding of restitutionary remedies including compound interest for the period of prematurity.
• HMRC paid sums under those summary judgment orders in 2016, making a net cash payment of 6.4m after withholding tax, an issue the judge treated as capable of being ignored for present purposes.
• The Supreme Court in FII SC3 [2021] UKSC 31 (and the perfected order of 13 May 2024) allowed HMRC's appeal on the Sempra-related issue and on whether interest should be simple or compound, set aside the relevant summary judgments and remitted quantification to the High Court on the basis that section 85 Finance Act 2019 provided the statutory remedy for FID claims.

Issues framed by the court:

1. Whether HMRC were entitled to restitution of the sums paid under the now-set-aside summary judgment orders and to interest thereon from date of payment (HMRC relied on Gibbs v Lakeside).
2. How to allocate the 6.4m paid in 2016 between surplus ACT principal and interest so as to determine final amounts payable to Evonik.
3. Whether the allocation question should be designated a Group Litigation Order issue and whether HMRC should be ordered to provide further interim-payment information.

Court's reasoning and decision:

• The court rejected the argument that payment under a subsequently set-aside order automatically gives rise to a restitutionary claim in the paying party. The judge held that the FII SC3 Order did not require repayment and that HMRC had not made any unjust enrichment claim before the court. The court observed it would be difficult to show Evonik had been unjustly enriched given that Evonik's overall claim remained for a larger sum.
• The proper task for the High Court was to quantify what is now owed in light of the 6.4m already received. That gave rise to an allocation question illustrated by figures for principal and competing interest claims.
• The court declined to determine allocation on the present material, declined to make the allocation a binding GLO issue because the matter appeared fact-sensitive and of uncertain wider utility, and refused to order HMRC to answer a series of interim-payment questions at this stage. Instead the court directed brief written submissions (limited to five pages each) addressing allocation and invited the parties to consider compromise positions.

The judgment therefore advances the matter towards final quantification while refusing to make further interlocutory orders sought by Evonik.

The court refused to order Evonik to repay the 6.4m paid under the summary judgment orders and rejected HMRC's contention that payment pursuant to those orders automatically gave rise to restitution and interest (there was no claim for unjust enrichment before the court and the FII SC3 Order contained no repayment requirement). The court held that the proper task was to quantify what is now owed in light of the payment and that the allocation of the 6.4m between principal and interest was a live, potentially fact-sensitive question. The court declined to designate the allocation question as a further GLO issue and declined to compel HMRC to provide interim-payment answers; it directed the parties to file short written submissions (maximum five pages each) on allocation so that the final judgment may be made consistently with the Supreme Court's findings and section 85 Finance Act 2019.

The earlier summary judgments were among the orders considered on appeal to the Supreme Court in Test Claimants in the FII Group Litigation v HMRC [2021] UKSC 31. The Supreme Court allowed HMRC's appeal on the Sempra-related point and on the question of simple versus compound interest, set aside the relevant summary judgments to the extent identified and remitted quantification to the High Court (order perfected 13 May 2024).