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

Setting aside a judgment order does not automatically create an unjust enrichment claim for repayment of sums paid under it. The effect of the order must be determined in its procedural and substantive context. Where an order concerns only part of a wider claim, and the claimant remains entitled to a larger sum, repayment will not ordinarily follow unless the order or a separate claim establishes that result.

On remittal, the court should determine the claimant’s total entitlement, credit payments already made, and decide how those payments are allocated between principal and interest. Allocation may be fact-sensitive and need not necessarily place the whole payment against either principal or interest.

The proceedings concerned the final disposal of Evonik’s claim within the Franked Investment Income Group Litigation. The claim comprised surplus advance corporation tax, interest under section 35A of the Senior Courts Act 1981, and compensation for the time-value cost of advance corporation tax paid under the foreign income dividend regime.

Earlier summary judgment awarded compound interest on part of the FID claim. Following Prudential Assurance Company Ltd v HMRC [2018] UKSC 39, Parliament enacted section 85 of the Finance Act 2019. The Supreme Court subsequently allowed HMRC’s appeal on the Sempra issue and the simple-or-compound-interest issue, and remitted the relevant claims. The central issues were whether HMRC could recover sums paid under the summary judgment orders and how those payments should be allocated in the final judgment.

1. Effect of the remittal. The court held that the Supreme Court’s order set aside the summary judgments only to the specified extent and remitted the claims for determination on the correct basis. The order did not require Evonik to repay the cash paid under the earlier orders or to account for interest on it.
2. No automatic restitutionary claim. Gibbs v Lakeside Developments [2018] EWCA Civ 2874 established that a step taken in accordance with an order is lawful until that order is set aside. It did not establish that every order subsequently set aside gives rise to unjust enrichment. The meaning and effect of the order must be determined in context. A repayment claim would in any event be difficult to sustain where HMRC remained indebted to Evonik on the wider claim.
3. Final accounting and allocation. The court’s task was to determine the total amount due, deduct sums already paid, and assess the interest due in light of the payment. The payment could not simply be treated as a set-off for an unpleaded HMRC claim. The proper allocation between principal and interest was left for further written submissions. The issue could be fact-sensitive, including in light of what was said and done when payment was made, and the court saw no compelling reason why the whole payment had to be allocated to only one category.
4. Further GLO issue and interim-payment questions. The request to designate allocation as a further group litigation issue was refused because its wider utility was speculative and the issue might be fact-sensitive. An order requiring HMRC to answer questions about interim payments was also refused because the questions might prove hypothetical; HMRC’s assurance of dialogue was sufficient at that stage.

• Supreme Court: In the related appeal, HMRC’s appeal on the Sempra issue and the simple-or-compound-interest issue was allowed, and the relevant summary judgments were set aside to that extent and remitted to the High Court.
• High Court: The present court determined the effect of the remittal, declined to order repayment, refused designation of a further GLO issue, and directed brief further written submissions on allocation.