Judgments - Autologic Holdings plc and others (Respondents) etc. v. Her Majesty's Commissioners of Inland Revenue (Appellants)

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    29.  I am unable to agree. The taxpayers' reliance on this ruling in the present cases is misplaced. The taxpayers are seeking to apply the European Court ruling out of context. In the Hoechst case this ruling was directed at rejecting a governmental defence based on the taxpayers' alleged lack of reasonable diligence in pursuing its claims. The Hoechst ruling was not directed at a situation where, as here, the claimants' claims have yet to be decided by the national court and there exists a statutorily prescribed route by which the claimants are able to obtain the tax relief they say is their entitlement under Community law. Which court or tribunal has jurisdiction to hear disputes involving rights derived from Community law is a matter for determination by each member state: see, for instance, Dorsch Consult Ingenieurgesellschaft mbH v Bundesbauesellschaft Berlin mbH (Case C-54/96) [1997] ECR I-4961, 4996, para 40.

    30.  Of course, to be compliant with Community law the remedial route prescribed by the legal system of a member state must be such that the rules 'are not less favourable than those governing similar domestic actions (principle of equivalence)' and, additionally, the rules must not render 'practically impossible or excessively difficult the exercise of rights conferred by Community law (principle of effectiveness)': see the Hoechst case, para 85. The statutory route prescribed for group relief claims was not designed for claims in respect of non-resident companies. So, as United Kingdom law presently stands, at the initial step a taxpayers' group relief claim will inevitably be refused by the revenue. Further, as already noted, some statutory requirements will need adaptation to accommodate claims in respect of non-resident companies. But neither of these features should present any major problem. Neither of them renders the statutory route 'practically impossible or excessively difficult'. Adaptation of the formal requirements will be needed whichever route is followed, and the appropriate adaptation is a matter on which the Special Commissioners' practical expertise will be invaluable.

    31.  Mr Aaronson QC advanced further arguments on the inconvenience of requiring claimant companies to follow the statutory route. He submitted that in cases where no claim for group relief has yet been made a claimant should not have to incur 'up front' expenses unnecessarily. A claim for group relief must quantify the amount of relief claimed. The revenue require that companies' accounts be drawn in accordance with United Kingdom accounting principles and adjusted for UK tax rules. If the claimants proceed in the High Court the expense of complying with these requirements can be postponed until the European Court has ruled on the Community law problems.

    32.  The force of this argument is difficult to evaluate. That some expense will be involved is clear. That this will be substantial is not self-evident. Since the revenue are insisting on taxpayers following the statutory route even though this was not designed for non-resident companies, it behoves the revenue to exercise their dispensing powers with appropriate regard to the circumstances. I consider that, looking at matters in the round, the House should proceed on the footing that, at least in general, the 'up front' expenses involved will not be a significant factor in the context of individual company claims.

    33.  One other general point calls for brief mention. Unlike the High Court the appeal commissioners have no power to co-ordinate proceedings by making a group litigation order or the equivalent. I doubt whether in practice this should prove a significant handicap in marshalling the mass of appeals involved in this litigation. I see no reason to doubt that the parties will co-operate in making sensible practical arrangements.

    34.  Thus far I have been dealing with the category (1) claims. I turn now to the claims in categories (2) to (4) in this class of case. The appeal commissioners have no jurisdiction to decide these 'satellite' claims. The taxpayers, understandably, rely heavily on the practical undesirability of severing the category (1) claims from the satellite claims. At first sight there is force in this point. Indeed, the existence of these satellite claims is perhaps the strongest point in favour of the claimant companies on these appeals.

    35.  However, the claims in categories (2) to (4) are not without their own difficulties. They are all based on the assumption that the claimant companies have been unable to obtain the group relief to which they are entitled under Community law. But in the class of case now under consideration this is not so. Group relief claims in this class of case are still capable of being allowed in full. The difficulties do not stop there. For instance if, as the category (4) claims suggest, the practice is that surrendering companies are paid the value of the reliefs they surrender, the United Kingdom companies which surrendered their reliefs presumably were paid accordingly. This would undermine the category (3) claims. In the case of the category (4) claims, the loss-making non-resident subsidiaries may not have been paid for surrendering their reliefs but they still have those reliefs which may still be capable of being turned to account within the group.

    36.  The House is not in a position to reach any conclusions on these matters. But the House is entitled to take note of the potential difficulties confronting these claims. I consider significant weight should not be attached to the existence of these claims when deciding the appropriate course for resolving the category (1) claims in this class of case. In my view the existence of the satellite claims is not sufficiently weighty to displace the prima facie conclusion that the category (1) claims in the High Court in this class of case should be regarded as an inappropriate use of the court's process. So far as this class of case is concerned Park J was entitled, and right, to decline to permit the category (1) claims to proceed in the High Court as sought by the claimant companies.

    37.  Underlying this conclusion is a point of general policy concerning cases where an applicant claims he has been wrongly deprived of benefits to which he is entitled under directly applicable provisions of Community law. Where Parliament has assigned to a specialist tribunal responsibility for adjudicating on disputes over the payment of such benefits, and an application to that tribunal is not time-barred, in the ordinary course the primary remedy for non-receipt of such benefits is to have recourse to that tribunal. That tribunal will give effect to the applicant's rights under directly enforceable provisions of Community law as well as his rights under domestic law. The tribunal will afford him the benefits to which he is properly entitled. In such cases, where that course is still available to an applicant, claims in the High Court founded on an alleged breach of Community law will not normally be appropriate.

    38.  No doubt in such cases there may have been a violation of Community law. Community law requires that national law must ensure rights conferred on individuals by Community law are fully effective in each member state. This obligation can hardly be said to be fulfilled when and so long as national authorities, such as government departments, rely on the terms of the national legislation as the reason for declining to afford an individual benefits to which he is entitled under directly applicable provisions of Community law. The right of individuals to rely on directly applicable provisions of the EC Treaty before national courts is not sufficient in itself to ensure full and complete implementation of the Treaty: Brasserie du Pêcheur SA v Federal Republic of Germany and R v Secretary of State for Transport, Ex p Factortame Ltd (No 4) (Joined Cases C-46 and 48/93) [1996] QB 404, 495, para 20. But a claim for damages for breach of Community law is not, in general, the appropriate remedy when currently it is still open to an applicant to obtain the benefits to which he is entitled by making an application to the specialist tribunal: provided always that the statutory route accords with the Community law principles of equivalence and effectiveness.

Claimant companies which cannot now obtain group relief

    39.  Thus far I have been considering cases where the subject matter of the category (1) claims in the High Court is group relief claims which can still be allowed by the appeal commissioners if the claimants' Community law contention is correct. I now turn to the other class of cases, where this is not so. The most obvious example is where it is now too late, in respect of the relevant accounting periods, for a claimant to make a group relief claim to the revenue or to appeal to the appeal commissioners. The claimant is outside the prescribed time limits. The Paribas group is an instance of this, where the claim advanced in the High Court relates to group relief for an accounting period ending 31 December 1998. No group relief claim in respect of the losses in question has been made.

    40.  Time bars of this character are commonplace. I see no reason to suppose the statutory time bars applicable to group relief claims are in themselves inconsistent with Community law: cf. Steenhorst-Neerings v Bestuur van de Bedrijfvereiniging (Case C-338/91) [1993] ECR I - 5475 and Johnson v Chief Adjudication Officer (Case C-410/92) [1995] ICR 375. This means that, in respect of this class of cases, it is now too late for the taxpayers to obtain group relief by following the statutory route. A similar view has, rightly, been expressed by the Court of Appeal in respect of an employment tribunal's jurisdiction to entertain claims for unfair dismissal involving directly applicable Community rights outside the statutory time limits: see Biggs v Somerset County Council [1996] ICR 364.

    41.  In such cases the taxpayers' remedy necessarily lies elsewhere. In such cases the taxpayer's remedy is of a different character. The taxpayer's remedy lies in pursuing proceedings claiming restitutionary and other relief in respect of the United Kingdom's failure to give proper effect to Community law. The appeal commissioners have no jurisdiction to hear such claims. Such claims are outside the commissioners' statutory jurisdiction, and the commissioners have no inherent jurisdiction. Claims in this class should therefore proceed in the High Court. Difficult questions, both of domestic law and Community law, may arise about the time limits applicable to High Court claims of this character. Some of these questions were explored recently by the Court of Appeal in Commissioners of Inland Revenue v Deutsche Morgan Grenfell Group plc [2005] EWCA Civ 78. Those are not matters arising on these appeals.

    42.  I add one caveat. The revenue and the appeal commissioners have power to extend time limits for late amendments and late appeals. Before proceeding with their High Court claims claimant companies in this class of cases should therefore take the simple step of inviting the revenue or the appeal commissioners to extend the time limits appropriately. If this invitation is accepted, the claimants should proceed along the statutory route. If the invitation is declined, or if the revenue and the appeal commissioners have no power to grant the necessary extensions, the way will be clear for the High Court proceedings to continue.

    43.  I recognise there may be instances where a claimant company has claims in both the classes I have described. In respect of some accounting periods a company may have made a group relief claim or still be in a position to make such a claim, in respect of more distant accounting periods it may now be too late for the company to put forward such a claim. The need for one company to pursue proceedings before the appeal commissioners and separately and additionally in the High Court is unfortunate. But this possibility is inherent in the distinction between the two classes of case: the distinction between obtaining the tax relief to which the claimant is entitled and obtaining damages for unlawful failure to make such relief available. Unless the circumstances are exceptional, having claims in both classes is not a sufficient reason for a company declining to make a group relief claim in respect of accounting periods where this can still be done.


    44.  I would therefore allow these appeals. The parties' arguments have been much more fully developed before the House than was possible in the limited time available in the Court of Appeal. I would set aside the orders of the Court of Appeal. The cases falling within the first class described above ('claimant companies which can still obtain group relief') should be stayed. They should be stayed until further order rather than struck out the more readily to accommodate any unforeseen turn of events. And the stay should not preclude the court referring questions to the European Court if practical convenience so dictates. The cases in the second class ('claimant companies which cannot now obtain group relief') should proceed in the High Court. These six test cases should be remitted to the Chancery Division to give effect to the judgment of the House.

    45.  Mr Aaronson formulated a question he submitted should be referred to the European Court in the event of the House being minded to allow these procedural appeals. In my view, on this procedural issue there is no question which calls for a reference. The applicable principles of Community law are clear. The differences between your Lordships arise from the application of these principles in the particular circumstances of these cases.

    46.  The loss relief group litigation order includes cases where it is said that the statutory group relief provisions regarding residence offend the non-discrimination articles in double taxation conventions entered into between the United Kingdom and other states. In most of these cases this discrimination claim is coupled with claims for breach of Community law. In a handful of cases the discrimination claim is the sole issue. None of these cases was the subject of separate argument. It is common ground that on the jurisdictional point now in issue the outcome, so far as domestic law is concerned, should be the same as in the other cases comprised in this group litigation order. Having regard to the conclusion I have reached it is not necessary to deal separately with these double taxation cases.


My Lords,

    47.  I have had the advantage of reading the opinion of my noble and learned friend, Lord Nicholls of Birkenhead. I agree with it. I would also make the order which Lord Nicholls proposes.


My Lords,

    48.  I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Walker of Gestingthorpe, in which he has so carefully and fully set out the background to this appeal. I agree with his analysis, and for the reasons that he gives I would dismiss the appeal.

    49.  This is a dispute about jurisdiction. The respondents are seeking relief in the High Court in respect of corporation tax which they say was wrongly paid because of the unlawful restriction of group relief to UK resident companies. This is said to have been unlawful in the case of some of the respondents because it was contrary to article 43 EC, which prohibits restrictions on the freedom of establishment, and article 56 EC, which prohibits restrictions on the movements of capital and on payments between member states of the EU. In other cases it is said to have been unlawful because of prohibitions on discrimination contained in double taxation agreements between the United Kingdom and other countries outside the EU. As Lord Walker has explained, their claims fall into four distinct categories. The jurisdictional dispute relates only to claims for relief which fall within the first category, where a UK company is said to have sustained loss of profits which should have been relieved by the losses of a non-UK resident company. It is conceded that claims falling within the other three categories are outside the jurisdiction of the special commissioners.

    50.  Claims which fall within the first category are presented in the statements of claim as claims for restitution at common law on the ground of unjust enrichment. The argument is that the public purse has been unjustly enriched at the expense of these taxpayer companies. This was because they paid more corporation tax than they should have done, as the legislation that was in force for group relief in the United Kingdom did not accord treatment to subsidiaries in other states which was equivalent to that given to subsidiaries resident or carrying on trade in the United Kingdom through a branch or agency. They are not, on this presentation of the claim, seeking repayment of corporation tax. They are seeking payment of an amount of money that will reimburse them, by way or restitution or damages, for the amount of corporation tax that they wrongly paid to the revenue.

    51.  There is no doubt that the High Court has jurisdiction to entertain restitutionary claims presented to it under the common law principle of unjust enrichment. The revenue say nevertheless that the High Court does not have jurisdiction to hear these claims and that in any event, if it does have jurisdiction, it should decline to exercise it. They contend that these are in essence claims about the amount of group relief and that they should be brought under the statutory procedure for the determination of disputes about tax. They say that the claims should be made by the appropriate company to the appropriate inspector of taxes and, if they are disallowed, the decisions should then be appealed to the special commissioners.

    52.  In my opinion there would be no room for argument if the claims that the respondents were seeking to make fell fairly and squarely within the statutory code which Parliament has laid down for group relief in paras 66 to 77 of Schedule 18 to the Finance Act 1998. The current legislation lacks the clear and unequivocal declaration that was contained in section 5(6) of the Taxes Management Act 1964 and re-enacted in section 29(6) of the Taxes Management Act 1970, that after the notice of assessment has been served the assessment shall not be altered except in accordance with the express provisions of the Taxes Acts. The only place where these words are now to be found is in para 47(2) of Schedule 18. There is no equivalent provision in the group of paragraphs dealing with group relief in that Schedule. Mr Aaronson QC for the respondents submitted that, as the overriding declaration was no longer present, dicta by Lord Wilberforce and Lord Diplock in In re Vandervell's Trusts [1971] AC 912, 939 and 944, that the power to alter an assessment once it has been made is conferred to the exclusion of any court of law on the special commissioners are no longer strictly applicable. In my opinion however the plain inference that the statutory code gives rise to is that it is the statutory procedure only that may be used where issues are raised as to the correctness of an assessment.

    53.  Had these claims involved the amendment or alteration of assessments, therefore, I would have thought that there was no answer to the revenue's argument that they ought to have been made under the statutory procedure and that the High Court has no jurisdiction to deal with them.

    54.  The crucial point which emerged from Mr Aaronson's argument however and was at no point, as it seemed to me, effectively answered by Dr Plender QC for the revenue is that these claims are made at common law and not with a view to obtaining any statutory remedy. They do not require any amendment or alteration of the assessments that were made under the relevant paragraphs of Schedule 18 to FA 1998. The whole point of these claims is that the relevant paragraphs did not provide for the group relief that, under Community law and the double taxation agreements, ought to have been available. The statutory procedure for the obtaining of group relief, which would have been subject to appeal to the special commissioners had it applied, was not available in the case of any of the claims falling within the first category.

    55.  It would perhaps be possible - this has yet to be tested - for the statutory code to be construed in a way that conformed with the United Kingdom's obligations under the EC Treaty and the Double Taxation Agreements: Pickstone v Freemans plc [1989] AC 66; Litster v Forth Dry Dock and Engineering Co Ltd [1990] 1 AC 546; Imperial Chemical Industries plc v Colmer (No 2) [1999] 1 WLR 2035. But Community law provides that the appellants are entitled to an effective remedy, and they are not to be forced to go down that route if to do so would be impossible or excessively difficult: Metallgesellschaft Ltd v Inland Revenue Commissioners; Hoechst AG v Inland Revenue Commissioners (Joined Cases C-398/98 and 410/98) [2001] Ch 620, para 106. The fact that the strict rules which the code lays down were not designed for this exercise suggests strongly that the appellants are entitled to seek relief instead by way of the common law remedy.

    56.  That is the context in which the appellants seek an effective remedy at common law to obtain reimbursement of or compensation for the loss which they say they have sustained and from which the state has unjustly benefited. The amount of the appellants' loss due to the state's unjust enrichment cannot, of course, be established without re-examining the assessments. There will have to be set against the tax paid the amount of the group relief in respect of losses sustained by the non-resident subsidiaries that would have been available had the legislation made provision for it. This is an exercise in quantification that will have to be done. But it does not follow that the issuing of fresh assessments will be necessary.

    57.  It is in this context that the following observations in Lord Wilberforce's speech in Vandervell at p 939 become relevant:

    "There may be questions, in form suitable for decision by the court, which are in fact so close to the question of the assessment itself that the court ought not to entertain them but leave them to the statutory procedure. And nothing that I have said must be taken to imply that either the Crown, or the taxpayer, may not be entitled to insist that a particular question, as between them, be so decided. But I find nothing in the income tax legislation to justify the comprehensive proposition for which the appellants contend, namely, that the High Court is absolutely excluded from a vast range of issues of a kind normally justiciable by it, just because those questions arose between the taxpayer and Crown and form a basis, even a necessary basis, for an income tax assessment."

    58.  In my opinion there is no doubt that the common law unjust enrichment claim which the appellants seek to make is of a kind normally justiciable by the High Court. The re-issuing of an assessment is not a necessary part of it, because the court's order will do all that is needed to provide the appellants with their remedy once the amount of the loss has been quantified. On these short and simple grounds I would, in agreement with the Court of Appeal, reject the revenue's argument that the High Court has no jurisdiction to deal with it.

    59.  My noble and learned friend, Lord Nicholls of Birkenhead, sees the appellants' claims as falling into two broad classes: one where it is still open to the UK company to obtain in full the group relief to which it claims to be entitled, the other where it is not because the claim is outside the prescribed time limits. For the reasons which I have given, I am unable to agree with him that the appellants must follow the statutory route with regard to claims falling within the first class. But I agree with his conclusion that the appellants' remedy with regard to claims falling within the other class lies in pursuing proceedings for relief in the High Court. My grounds for taking this view differ from his. But I would be content to make the same order that he proposes with regard to them on the alternative basis that, for the reasons that he has given, these claims are outside the statutory jurisdiction of the special commissioners.

    60.  I cannot part with case without noting that the hearing of this appeal took place on the eve of the 200th anniversary of the creation of the special commissioners by William Pitt the Younger on 5 June 1805. The history of this most distinguished body has been traced by Dr J F Avery Jones in two articles which he has contributed to a special issue of the British Tax Review marking the bi-centenary: [2005] BTR 40 and 80. The very high standing which the special commissioners have earned for themselves and their ability to deal with cases of the greatest complexity is not in issue here. The answer to the issue of jurisdiction does not depend on an assessment of the relative skills of the special commissioners on the one hand or of the judges of the High Court on the other. So I mean no disrespect to the special commissioners when I say that in my opinion all these claims belong to the High Court and not to them.


My Lords,

    61.  I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Nicholls of Birkenhead, with which I am in complete and respectful agreement. I had prepared a short speech of my own which reached the same conclusion; but in the light of the masterly analysis of Lord Nicholls I consider that no useful purpose would be served by delivering it.

    62.  It is sufficient to say that three propositions are well established. First, it is for the legal system of each member state to identify the court or tribunal which has jurisdiction to determine disputes involving individual rights derived from Community law, provided that full effect is given to such rights; secondly, in the United Kingdom the computation of a taxpayer's taxable profits for the purpose of determining his liability to tax is within the exclusive jurisdiction of the commissioners; and thirdly, owing to the primacy and direct effect of Community law, the commissioners, in exercising their jurisdiction, are not only entitled but bound to give effect to Community law, disregarding any provisions of domestic law which are inconsistent with it or which make it impossible or excessively difficult to apply. Accordingly, where it is still possible for a claim to group relief to be made, waiving or extending time limits and other conditions or requirements where necessary, the taxpayer must have recourse to the statutory machinery and not to the courts. Only where this is no longer possible, (for example where the commissioners or the revenue refuse to extend a time limit when it is within their power to do so or where the relevant assessment has become final and conclusive so that the commissioners have no jurisdiction to reopen it), may the taxpayer bring proceedings of the kind contemplated in the High Court.

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