High Court upholds statutory ouster of common law tax remedy

In his judgment, Sir Geoffrey Vos upheld the statutory 'ouster' for restitutionary claims based on unjust enrichment and mistakes of law set out in paragraph 51(6) of schedule 18 to the 1998 Finance Act. The judge ruled that this scheme, which came into force in March 2010, overrides the common law remedies which would otherwise have applied.

Tax expert Jake Landman of Pinsent Masons, the law firm behind Out-Law.com, said that the judgment had been delivered in the context of various historical cases to do with the UK's former tax treatment of dividends received by UK-resident companies from non-UK resident companies, which have by now substantively determined the extent to which certain tax provisions breached EU law.

"Attention has turned in follow-up litigation, including this case, to considering the extent to which HMRC can rely upon defences based largely on legislation which was introduced to try to defeat or limit certain tax claims," he said.

"Pursuing a High Court claim offered claimants a potential remedy in relation to tax which benefited from longer time limits than those which apply to statutory claims made under the various taxes acts. Over the years, however, we've seen legislation introduced which, assuming it is lawful, operates so as to exclude or limit the effectiveness of High Court claims made against HMRC."

"In this latest High Court judgment, HMRC has succeeded in relation to a number of arguments regarding the effectiveness of such legislation. The court rejected arguments, made on behalf of the test claimant, which sought to challenge the effectiveness of this legislation. An appeal is, however, likely," he said.

The case arose out of the long-running Controlled Foreign Company (CFC) and Dividend Group Litigation Order (GLO), which dates back to 2003. In this particular trial, Sir Geoffrey Vos dealt with four agreed preliminary issues, relating essentially to limitation, arising on a number of claims issued after 31 March 2010 ('class 8 claims') which have not previously been dealt with. He also had to decide whether it remained open to HMRC to argue five issues at trial which the claimants argue have already been dealt with by the Supreme Court in a related test case.

The claimants, which are a group of mostly investment funds, issued common law claims against HMRC in 2012 and 2014, based on unjust enrichment and mistake. HMRC had rejected these claims based on para 51(6) of schedule 18 to the 1998 Finance Act, which introduced a statutory rule as of April 2010 that HMRC is "not liable to relief in respect of" a claim except as specifically provided for by specified tax legislation. The claimants argued that this meant that they had no 'effective remedy', in breach of EU law.

Part of the claimants' argument was based on whether it could be said that they had an effective remedy if they did not know that the statutory scheme was available to them. Sir Geoffrey Vos, however, said that this argument, which the claimants attempted to justify with reference to previous case law, was "a misunderstanding of the EU law cases and of the EU law principle of effectiveness itself".

"It is the procedural rules that must not be framed in such a way as makes it impossible to claim," he said. "The knowledge of the claimant as to the existence of a claim is nothing to the point."

"[The previous cases] did not say … that the limitation period can only be attenuated when the claimant is show to have known that he or she had the accrued right in question. That would be contrary to principle, and would ... mean that taxpayers could have claims that had accrued in respect of many years past that would be impossible to remove until it could be shown that the taxpayers knew about them. That knowledge might not exist until the CJEU had finally ruled on the nature of the claim, which might be long in the future," he said.

The fact that the claimants did not know exactly how much they were entitled to claim was also no barrier to the remedy, the judge ruled. The wording of the legislation allowed a claimant to claim for any "quantified" amount, even if it did not know at the time of claiming exactly what they were claiming for.

"The lack of knowledge of the precise rate at which the claim should be made may make it harder to make an effective claim, but it does not make it impossible in practice, as is required for the EU law principle of effectiveness to be violated," the judge said.