Group litigation orders: Court of Appeal considers binding effect of decisions in test cases

A recent Court of Appeal decision sheds light on how the court will determine the effect of a decision in a test case on other claims pursued under a group litigation order (GLO): Axa Sun Life Plc v Commissioners of Inland Revenue [2024] EWCA Civ 1430.

The purpose of a GLO is to allow for the efficient case management of claims which give rise to common or related issues of fact or law, known as the GLO issues. Under the relevant court rules, a judgment or order in relation to a GLO issue is binding on the parties to all other claims on the group register at the time, unless the court orders otherwise (CPR 19.23(1)(a)). Those parties may, however, apply for permission to appeal against the order (CPR 19.23(2)).

Where GLO issues are decided by reference to test cases, it can sometimes be less than straightforward to determine the impact of the court's findings on the other claims in the GLO. The Court of Appeal in this case held that the court's order on a GLO issue as to limitation was fact specific to the test claims and could not properly be interpreted as applying to all other claims on the group register. As the court commented, this case underlines the need to define GLO issues "with precision and in a way that means that they can be answered as GLO issues".

The decision also considers when it might be appropriate to order that a judgment or order on a GLO issue, which would otherwise bind all parties, should not do so. The Court of Appeal noted that in some cases it may be apparent that the facts or circumstances of different claims on the group register may warrant a different approach. Where, however, the issue in question is one of pure law, so that factual differences are not relevant, the court may "order otherwise" if there are special circumstances that would create injustice if the order were binding on all claimants. It emphasised, however, that in most cases parties to group litigation should expect to be bound by decisions on GLO issues.

Background

The present judgment was given in the context of the CFC and Dividend GLO, which was established in 2003. It relates to claims for the repayment of taxes levied by the UK in contravention of EU law, which were therefore paid under a mistake of law, giving rise to a restitutionary remedy on the part of taxpayers.

Claims by the Prudential group were selected as test cases, which were decided by Henderson J in 2013 (and ultimately by the Supreme Court in 2018).

In 2022, certain preliminary issues were directed to be tried, on the application of two other claimants on the group register (the "AXA claimants"), regarding the effect on their claims of Henderson J's decision in the test cases in relation to limitation and set-off.

Set-off issue

The set-off issue concerned unlawful advance corporation tax (ACT) that had been set off against lawfully levied corporation tax before the date of the claim, so that the claimants were seeking compensation for the time value of the ACT between the date it was paid and the date it was set off.

The GLO issues included how any compensation or relief should be assessed, and on what basis interest was payable. Before the trial of the test claims, the defendant conceded that compound interest was payable for part of the claim (category (a)) based on the House of Lords' decision in Sempra Metals Ltd v IRC [2007] UKHL 34, which had held that compound interest could be awarded in respect of money paid under a mistake.

Henderson J's judgment noted the defendant's concession and held that compound interest was payable in restitution both for the category (a) claims and for other parts of the claim (categories (b) and (c)) which he saw "no rational basis" to distinguish. Henderson J's decision on categories (b) and (c) was, however, overturned by the Supreme Court (Prudential Assurance Co Ltd v HMRC [2018] UKSC 39), which departed from the reasoning in Sempra Metals. The Supreme Court noted that the claim for compound interest under category (a) would also have been rejected if it had not been accepted by the defendant.

One of the AXA claimants contended that it was entitled to a claim in restitution for its category (a) claims in accordance with the defendant's concession in advance of the trial of the test claims. The High Court (Richards J) held that Henderson J had conclusively determined the GLO issue in relation to the category (a) claims, but that his decision had been superseded by the Supreme Court. The AXA claimants appealed.

Limitation issue

Under s.32(1)(c) of the Limitation Act 1980, the limitation period for a claim based on a mistake does not begin to run until the claimant has discovered the mistake or could with reasonable diligence have discovered it (referred to as the date of "constructive discovery"). In a decision in 2006, Deutsche Morgan Grenfell Group plc v IRC [2006] UKHL 49 (“DMG”), the House of Lords held that the date of constructive discovery was the date of the judicial ruling that established the unlawfulness of the relevant UK tax provisions.

In the present case, the GLO issue relating to limitation, as defined in a schedule to the CFC and Dividend GLO, asked from what date the applicable limitation period started to run in a claimant's claim for restitution for mistake of law. However, the list of GLO issues agreed by the parties in the run-up to trial, which was annexed to Henderson J's order, included Issue VIII, Limitation:

1. To what extent is the claim statute barred by a 6 year limitation period?
2. To what extent is the claim for recovery under a mistake of law barred by s.320 Finance Act 2004?

By the time of Henderson J's order, the Supreme Court had held that s.320 was invalid. That meant there was nothing to prevent the relevant test claimant relying on s.32(1)(c), since the defendant had not argued that the claimant could with reasonable diligence have discovered its mistake before 14 July 1998 (six years before that claimant was added to the claim). His order stated simply that the claims "are not subject to the limitation period in section 320 of the Finance Act 2004 and are in time".

In November 2020, DMG was overruled by the Supreme Court in a decision in the Franked Investment Income Group Litigation ("FII SC2") (considered here), which held that the date of constructive discovery was the date the claimant discovered, or could with reasonable diligence have discovered, that there was a “worthwhile claim”.

The AXA claimants contended that Henderson J's judgment and order had conclusively established that their claims were in time. The High Court (Richards J) disagreed, finding that the issue needed to be determined in accordance with FII SC2 (as outlined in our blog post here). The AXA claimants appealed.

Decision

The Court of Appeal (Lewison, Nugee and Falk LJJ) dismissed the Axa claimants' appeal on both the limitation issue and the set-off issue.

Set-off issue

The Court of Appeal agreed with Richards J that Henderson J had conclusively determined a GLO issue in relation to the category (a) claims. The fact that something was common ground did not prevent there being a determination of a GLO issue, which the other parties on the group register were then entitled to seek to appeal.

However, the Court of Appeal considered that Richards J was wrong to find that Henderson J's decision on category (a) was superseded by FII SC2. The Supreme Court had not reversed that decision, and so it remained in place (regardless of the fact that the Supreme Court would have reversed the decision if it had not been for the concession).

Under CPR 19.23(1)(a), therefore, Henderson J's decision was binding on all other claims on the group register at the time it was given, unless the court ordered otherwise.

The only authority the parties were able to identify touching on when it might be appropriate to "order otherwise" was AB v Ministry of Defence [2012] UKSC 9, where Lord Wilson said the court could use the power to address any “particular injustice” in visiting adverse judgments in the appeals under consideration on similar claims within the group. The Court of Appeal in the present case noted that AB v MoD involved fact specific issues, and illustrated that in some cases it may be apparent that the facts or circumstances of different claims on the group register may warrant a different approach. The set-off issue was, however, an issue of pure law, so that factual differences between cases would make no difference and it would be quite wrong to "order otherwise" merely because other claimants on the group register might have better or different arguments that could lead to a different result on the law: the proper avenue for such an objection was an appeal under CPR 19.23(2).

In considering whether it may be appropriate to “order otherwise” in relation to an issue of law, the court said, the principles of res judicata – in particular cause of action estoppel and issue estoppel – provide a helpful guide. In effect, a GLO extends aspects of res judicata to the parties to other claims on the group register. The court's determination of the GLO issues is binding on them, similar to an issue estoppel, but just like issue estoppel it is subject to the overriding consideration that it must work justice and not injustice.  

In the present case, the Court of Appeal was satisfied that Henderson J's decision on the category (a) claims should not be binding on the other claims on the group register. The highly unusual facts of this case made it appropriate to "order otherwise" because, by analogy with the principles for issue estoppel, there were special circumstances that would otherwise create injustice – including because at the time the defendant made its concession it could not have anticipated that Sempra Metals might be overruled.

Limitation issue

The Court of Appeal noted that the first debate was whether Issue VIII was a GLO issue at all. The defendant argued that the questions before Henderson J related to the specific position of the test claimants and, since they were fact specific, they could not be GLO issues. The difficulty with this, the Court of Appeal commented, is that Henderson J's order identified these issues as GLO issues, though he had observed that, with the benefit of hindsight, they may not have been suitable for determination as GLO issues. The Court of Appeal agreed with that observation.

It was clear that Henderson J's order that the claims were in time depended on the detailed procedural history of the test claims. He did not determine when the mistake was discoverable, and therefore when the test claimants' cause of action accrued. Although Issue VIII was a GLO issue, the judge's findings on that issue were fact specific to the test claims and could not properly be interpreted as applying to all claimants in the GLO. Accordingly, the defendant was not precluded from arguing that the date of discoverability was to be determined with the law as declared by FII SC2.

If the court was wrong about that, it would have "ordered otherwise", so that Henderson J's order was not binding on the other claims on the group register. It would not be right for the court to decided the remaining cases on a basis that is now known to be wrong in law.