CA-2024-001898 - [2025] EWCA Civ 1392

Discussion

The essential dispute

By the end of the hearing I understood that there was no disagreement about the effect of the FII SC3 Order on the Summary Judgment Orders, and in particular the impact of the words “to that extent only” (see [13] above). It was or at least became common ground that the effect of the FII SC3 Order was to maintain the Summary Judgment Orders insofar as they gave judgment on liability in respect of the FID claim, but set them aside insofar as they ordered money payment. In other words, summary judgment continued to be granted on the FID claims in respect of the time value of money for the period between the date of payment of the ACT and its repayment (which was the effect of the first order, dated 22 January 2016), but the obligation under the order dated 16 March 2016 to pay £6.4m to Evonik was set aside in its entirety. Neither party sought to maintain that the effect of the FII SC3 Order was that Henderson J’s order should be treated as varied to substitute the revised amount due under s.85 FA 2019 of (again using a rounded figure) £2.3m.

A further, important, point was also helpfully clarified during submissions. Mr Bremner confirmed that his substantive objection to HMRC’s argument that the judge was wrong to hold that HMRC had no entitlement to restitution related not so much to the principle of restoration (although he maintained his written submissions to that effect). Rather, the key point was HMRC’s argument that they were entitled not only to restitution of the £6.4m but to interest on that sum.

This exposes the real dispute. HMRC’s primary argument (ground 1) is that the setting aside of the order to pay £6.4m gave rise not only to a right to restitution of that amount but to an entitlement to interest from 23 March 2016, which HMRC also say should be calculated at the same rate as interest payable to Evonik under s.35A SCA 1981, namely bank base rate plus 2%. On the assumption that the rate is indeed the same, setting the resultant sum against the amount due to Evonik in 2024 (or today) would have the same economic result as HMRC’s fallback approach of treating the £6.4m payment as having discharged part of the £8.8m of surplus ACT in 2016. Effectively, interest on that element would be cancelled out as from March 2016 by interest owed in the opposite direction.

It is not obvious that much ultimately turns on the precise nature of HMRC’s rights in respect of the £6.4m, which is the subject of ground 1. Both parties accept that the payment was validly made and remained so until that element of the Summary Judgment Orders was set aside in May 2024. Both parties accept that, once set aside, the legal basis on which it was made no longer exists and that credit in some form should be given for it. The only issue is whether HMRC should benefit from some kind of interest element.

Nevertheless, in order to answer that question and so determine whether the judge made a material error as HMRC maintain he did, I should make some observations about the legal effect of setting aside Henderson J’s order to pay the £6.4m.

Before doing so, I should clarify that Mr Wilmot-Smith accepted in oral argument that the notion of “entitlement” to interest should not be taken to connote an absolute right, but rather a policy objective in favour of awarding interest, departure from which would require very strong countervailing reasons.

The effect of setting aside an order

It cannot seriously be disputed that, where a payment is made pursuant to a court order that is subsequently set aside, there is at least a prima facie entitlement to recovery of that sum. As Mr Wilmot-Smith pointed out, the existence of such a right was sufficiently established to have been referred to by Sir Edward Coke without question: Dr Drury’s Case (1610) 8 Coke Reports 141b, 143a, 77 ER 688, 691. There is however scope for debate about the juridical basis for the entitlement: see for example C Mitchell, P Mitchell and S Watterson (eds) Goff & Jones (10th edition), which refers at 26-05 to unjust enrichment, mistake or failure of basis before going on to suggest at 26-06 that a better explanation is found in broader policy considerations, and specifically that a necessary concomitant of a right of appeal is the right to recover money paid if the appeal is successful. As the editors point out, that approach is consistent with the approach of Lord Nicholls in the House of Lords decision in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd [1997] UKHL 53, [1997] 1 WLR 1627 (“Nykredit”), in the passage set out below at [49].

It is not necessary to reach a final decision as to the precise nature of the entitlement, about which some aspects remain obscure and unsettled (see for example D.M. Gordon QC, “Effect of Reversal of Judgment on Acts Done Between Pronouncement and Reversal” (1958) 74 LQR 517), but I would tend to agree with the editors of Goff & Jones that the form of restitution required following an order being set aside is sui generis, based on the simple fact that an appellate court has decided that the order should not have been made. This was certainly the approach of Lord Leggatt in the Delta Petroleum case discussed below. On that basis it would not, for example, necessarily require the normal elements of an unjust enrichment claim to be established (being a) enrichment, b) at the expense of the claimant, and c) the enrichment being unjust – although in many cases these would no doubt be satisfied in any event), or mean that the defences available to an unjust enrichment claim, such as change of position, are necessarily available.

What the authorities do not support, however, is HMRC’s claim that it is “entitled” to the benefit of interest on the £6.4m it paid (or at least that there is a very strong presumption in favour of that: see above). Rather, the question to be asked is what justice requires in the particular case.

The starting point is that it is well established that an order remains valid until it is set aside: see, for example, Gibbs v Lakeside Developments Ltd [2018] EWCA Civ 2874, [2019] 4 WLR 6 at [12]-[18], per David Richards LJ. Once it is set aside, one would ordinarily expect the relevant appellate court to make orders consequential upon that, or to remit that question to the court below. Failing that, it would obviously be open to a litigant who has succeeded on an appeal either to make an application for the appropriate order or indeed to bring a fresh claim to recover the sum paid.

In Rodger v The Comptoir d’Escompte de Paris (1871) LR 3 PC 465 (“Rodger”) the Privy Council had previously allowed an appeal against a judgment of the Supreme Court of Hong Kong that had been satisfied. The Supreme Court of Hong Kong was required to give effect to the decision. It ordered repayment but considered that it had no power to award interest. That decision was also reversed by the Privy Council.

Lord Cairns observed at pp.475-476 that if interest could not be recovered then it was:

“…obvious… that injury, and very grave injury, will be done to the Petitioners. They will by reason of an act of the Court have paid a sum which it is now ascertained was ordered to be paid by mistake and wrongfully. They will recover that sum after the lapse of a considerable time, but they will recover it without the ordinary fruits which are derived from the enjoyment of money. On the other hand, those fruits will have been enjoyed, or may have been enjoyed, by the person who by mistake and by wrong obtained possession of the money under a judgment which has been reversed. So far, therefore, as principle is concerned, their Lordships have no doubt or hesitation in saying that injustice will be done to the Petitioners, and that the perfect judicial determination which it must be the object of all Courts to arrive at, will not have been arrived at unless the persons who have had their money improperly taken from them have the money restored to them, with interest, during the time that the money has been withheld.”

In concluding that interest should have been awarded, Lord Cairns again emphasised “what the justice of such a case demands” (p.476).

The question of whether there was jurisdiction to award interest also arose in Nykredit, where Rodger appears not to have been drawn to their Lordships’ attention. Lord Nicholls, with whom Lord Goff, Lord Jauncey, Lord Slynn and Lord Hoffmann agreed, had no doubt that there was power to do so, on the following basis (p.1637):

“…when ordering repayment the House is unravelling the practical consequences of orders made by the courts below and duly carried out by the unsuccessful party. The result of the appeal to this House was that, to the extent indicated, orders made in the courts below should not have been made. This result could, in some cases, be an idle exercise unless the House were able to make consequential orders which achieve, as nearly as is reasonably practicable, the restitution which this result requires. This requires that the House should have power to order repayment of money paid over pursuant to an order which is subsequently set aside. It also requires that in suitable cases the House should have power to award interest on amounts ordered to be repaid. Otherwise the unravelling would be partial only.

This power seems to me to fall squarely within that range of powers which are necessarily implicit if a court of law possessed of appellate functions is to carry out its prescribed functions properly. It is, as such, a power derived from what is usually referred to as the inherent jurisdiction of the court…”

Both Nykredit and Rodger were considered by Lord Leggatt in Delta Petroleum (Caribbean) Ltd v British Virgin Islands Electricity Corp [2020] UKPC 23, [2021] 1 WLR 5741 (“Delta Petroleum”) at [47]-[51]. He referred at [47] to the appellate court’s inherent jurisdiction to direct the respondent to restore money paid or property transferred under an order which is reversed on appeal, and clarified at [49] that the references by Lord Cairns to “mistake” and “wrong” should not be taken to indicate wrongdoing or that the basis for the right of repayment is money paid under a mistake: rather it was the judgment of the lower court that was wrong. Further:

Although such an order for repayment is restitutionary, there is no need to look for any reason to justify restitution beyond the fact that the appellate court has decided that, on a true view of the law and the facts, the order appealed from should not have been made. To give practical effect to that decision, it is necessary to reverse transfers of money or other property which have been made pursuant to the order set aside on appeal. The position is analogous to that which obtains where, for example, a contract is rescinded and there is required to be a giving back and a taking back on both sides.

Such restitution may not compensate the successful appellant for all the loss which it has suffered as a result of complying with the order of the lower court. There is in the Board’s view no injustice in that. On the one hand, the process of appeal would be nugatory if the losing party was not required to return money or property transferred under the judgment set aside on appeal…”

Lord Leggatt went on to observe that the reversal of an order of specific performance in that case “would not be complete unless interest is also awarded on the principal sum payable” ([54]).

I draw the following conclusions from these authorities:

If money is paid pursuant to an order that is set aside, the payer is in principle entitled to restitution of that amount (Delta Petroleum at [50]).

The court also has power under its inherent jurisdiction to award interest on that amount (Rodger and Nykredit).

There is however no entitlement to interest as HMRC maintain. Interest will be awarded “in suitable cases” (Nykredit), but it all depends on what justice requires (Rodger).

It may also be worth clarifying that it is the court’s inherent jurisdiction that is relied on, rather than s.35A SCA 1981, as the source of the power to award interest. I would observe that it is not obvious that the wording of s.35A(1) is apt to cover a situation where an order is set aside and no fresh proceedings are instituted for the recovery of the amount paid under the order.

Application to this case

It follows from what I have said, and the point that it is now common ground that the order to pay £6.4m was set aside by the FII SC3 Order, that I do not agree with the judge that HMRC obtained no entitlement to restitution as a result of that order. In principle there was such an entitlement.

I would also interpret the FII SC3 Order as having remitted to the High Court the claims that form the subject of the summary judgments for determination in accordance with the Supreme Court’s findings. I would respectfully disagree with the judge insofar as he suggested that what was remitted was the resolution of Evonik’s entire claim. The appeal to the Supreme Court concerned only the FID element of the claim, and at that stage the remainder of Evonik’s claim remained stayed. In Evonik’s case the stay was only lifted in order for Evonik to participate in the limitation trial referred to at [14] above.

Further, HMRC were not prevented from relying on an entitlement to restitution because they had not made a formal claim (a claim which could in any event only have been brought once the relevant order was set aside in May 2024, shortly before the hearing before the judge). The remittal was intended to deal with matters consequential upon the setting aside, and HMRC made their position clear.

However, ultimately none of this is material. What is critical is not whether HMRC had some entitlement to restitution, but the position in relation to interest. The judge’s approach was to determine what he considered to be the fair outcome, taking account of the fact that it had by that stage become clear that the £6.4m had been paid at a time when Evonik was owed a considerably larger sum by HMRC, totalling around £22.6m.

The judge was entitled to take the approach that he did. As already discussed, an entitlement to restitution following the setting aside of an order does not carry with it any automatic right to interest. It all depends on what justice requires. The (implicit) premise of ground 1 of HMRC’s appeal, which is that there was such an entitlement, is therefore not made out.

The judge was entitled to take a realistic approach. By the time he made his decision it was established that Evonik’s overall claim had succeeded to a far greater extent than the £6.4m paid in 2016. Evonik had also achieved complete success in the limitation trial – the last major hurdle from its perspective – such that none of its claim was time barred. Further, its claim related to events many years ago. ACT was abolished in 1999. On any basis Evonik had therefore been waiting a long time for its money. True it is that, if it had been understood that Sempra might be departed from, Henderson J would not have granted summary judgment and Evonik would not have had the benefit of any payment in 2016, but it does not follow that the court is required to attempt to put Evonik in the same position as if it had had to wait until 2024 for judgment on any part of its claim.

In essence, HMRC’s position is that Evonik is confined to simple interest under statutory provisions that have been found to provide an adequate remedy under EU law, and the effect of the judge’s order would be to provide Evonik with more than its entitlement, in effect by allowing an element of compounding from 2016. The judge was entitled not to be persuaded by this argument. While it is correct that Evonik is confined to simple interest on its claim, it was also entitled to have its claim met. The fact that it has taken so long for its overall claim to be finally established is a matter of regret rather than a reason to depart from the judge’s approach.

In the circumstances the judge’s approach was both fair and reasonable. He was entitled to treat the £6.4m as a credit against, or part payment towards, the claim as it is now established to have been at the time that payment was made. Having done so he was also entitled to have regard to the “rule of thumb” that the credit should be made against interest in priority to principal (see [34] above). That rule is itself a rule of obvious fairness, as the example used by the judge well illustrates. As Rigby LJ observed in Parr’s Banking at p.466, it is “only common justice” to allocate payments to simple interest in priority to principal.

One way of testing the position is this. Suppose A has an outstanding claim against B and, before it is determined, B makes a payment to A in an amount less than the amount of the claim. The payment is made in error. It is by no means obvious that a court would have ordered that sum to be repaid by A in circumstances where A’s overall claim remained to be resolved, but in any event the closer analogy with this case is that B appreciates its mistake and seeks credit for the amount only when the final amount of A’s claim is established. At that stage, the court must do its best to achieve justice between the parties. The obvious way of doing so is to do what the judge did here, namely to treat the amount as a partial satisfaction of the entire claim.

I am also not persuaded by ground 2 of the appeal, that there was no liquidated claim to interest until 2024. HMRC’s argument is based on the fact that both s.35A SCA 1981 and s.85 FA 2019 require an order to be made. However, the judge was conducting his appraisal when making his order in 2024, by which time the entitlement to interest was clearly established, and not in 2016. In my view that is a complete answer, but in any event it is worth recalling that interest under those provisions is required to be awarded to Evonik in order to provide it with an adequate remedy under EU law. It is not a matter of simple judicial discretion.

I therefore conclude that neither ground 1 nor ground 2 of the appeal are made out, such that it is unnecessary to consider the Respondent’s Notice.