Changes in law can justify deviation from GLO test case judgments

The Supreme Court clarified the point (71-page / 526KB PDF) in a case involving two companies seeking recovery of tax paid and compensation for UK tax they paid more than 20 years ago under statutory provisions which are now accepted to have been incompatible with EU law.

In England and Wales, courts have powers to make GLOs to enable the more efficient case management of multiple claims that give rise to common or related issues of fact or law. Where a GLO is made, a "group register" must be established, on which details of all claims to be managed under the order must be entered. The GLO must specify the "GLO issues" which will identify whether a claim falls under the GLO.

Often, courts will hear one or more GLO claims as a test case. In general, any judgment given in the test case on the "GLO issues" binds all the parties to claims on the group register. However, Civil Procedure Rule (CPR) 19 provides scope for the court to ‘order otherwise’ when considering further claims falling within the GLO.

The case before the UK Supreme Court concerns a GLO made in 2003. Broadly, that GLO covered claims against HM Revenue and Customs (HMRC) pertaining to the payment of UK tax concerning controlled foreign companies and non-UK dividend receipts. At that time, when the UK was still part of the EU, a number of companies argued that the relevant UK tax legislation was incompatible with EU legislation.

A number of test cases proceeded in which the lawfulness of the taxing provisions and the consequences of any incompatibility were examined. One of the test cases involved claims brought by companies in the Prudential group. That case involved a referral to the EU’s highest court, the Court of Justice of the EU (CJEU), and was litigated all the way to the Supreme Court, which issued a final ruling in 2018.

Two companies within the Axa group are among other companies to have made ‘follower’ claims falling within the GLO. Their claims were able to proceed following the judgment in the Prudential test case and it is those claims that the Supreme Court considered in its latest ruling relating to the GLO.

In the Axa case, HMRC argued that a ruling made by the Supreme Court in a separate case in 2021 justified an ‘order otherwise’ in respect of the Axa claims. The 2021 ruling overturned a point of law related to restitution and entitlement to compound interest that had been relevant to determining the Prudential test case. In addition, HMRC said that a key limitation finding in the Prudential test case had not been determined as a GLO issue. Therefore, HMRC argued that this justified deviation from the test case judgment on both these issues in respect of the follower claims. In 2024, the Court of Appeal sided with HMRC on the point.

Before the Supreme Court, the Axa companies argued that it would be unfair if it could not benefit from the test case judgment whilst Prudential did, given the claims fell within the same GLO. However, the Supreme Court agreed with the Court of Appeal that the issues should be determined in accordance with the current law.

“It would be a serious injustice for the Revenue if they now have to meet claims valued at many millions of pounds when there is no legal basis for them,” the Supreme Court said.

As a result, the Supreme Court rejected the Axa companies’ claims that the Prudential test case judgment supported their position that they had brought the claims in their case in time – within the applicable limitation period. The Supreme Court further decided that Axa was not entitled to compound interest in the way that Prudential had been.

Tax law expert Jake Landman of Pinsent Masons said: “This decision reinforces that the success of a GLO depends on careful selection of both the issues to be determined and the test cases chosen to determine them. Where questions are not clearly framed as GLO issues, parties may find that important points remain open for later litigation.”

“Perhaps most significantly, the decision confirms that the circumstances in which the courts will exercise their power to 'order otherwise' and depart from the normal binding effect of a GLO judgment remain exceptional. It emphasises that this is not a general discretion to revisit issues whenever a different outcome might be thought preferable, but a limited safeguard for rare cases where applying the earlier judgment would produce an unjust result,” he said.

Dispute resolution specialist Mike Hawthorne of Pinsent Masons added: “The court uses the GLO process flexibly to accommodate the case needs of each group action, but always with a view to the test cases deciding the rest of the cases in their cohort, so it is as expected the Supreme Court would stress the importance of using test case findings robustly. That said, a change in the law after the test case decision, such that it would no longer be decided in the same way, creates a conflict between robust application of test case findings and doing justice to the parties, which was resolved in favour of applying the current law.”