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

The judge’s judgments

There are two relevant judgments, dated 18 June and 1 August 2024 respectively, which I need to summarise in some detail.

In the first ([2024] EWHC 1671 (Ch)), the judge considered the effect of FII SC3 and the FII SC3 Order and then, at [18], rejected HMRC’s argument that they became entitled to restitution when the FII SC3 Order was made, on the basis that what needed to be determined was the meaning of the order. The judge observed at [19] that there was no claim for unjust enrichment and that:

“…it would be difficult to see how Evonik have been ‘unjustly’ enriched by receiving £6.4m of HMRC’s money in 2016 when it is common ground that the value of Evonik’s total claim against HMRC both in 2016 and today is much greater than this sum.”

The judge went on to observe that the Supreme Court could have ordered Evonik to repay the £6.4m and interest but had not done so, and there was no need for it to do so “since, taking into account the Supreme Court’s judgment in FII SC3, HMRC are still debtors to Evonik in relation to Evonik’s claim” (see at [20]). At [21] he concluded as follows as to the effect of the order:

“In my judgment, the true effect of the FII SC3 Order is that it remits the matter back to the High Court to decide how much Evonik is owed based on the correct principles as to the quantification of its entire claim against HMRC. The Supreme Court was not saying that HMRC did not owe Evonik £6.4 million as it would have been well aware that that was just a payment of part of a wider claim.”

The judge then observed:

Nor is there any need for me, sitting as a judge of the High Court, to make any order requiring Evonik to repay HMRC £6.4m plus interest. As I have said, it is common ground that HMRC owe Evonik a greater sum than this…

I therefore do not accept that I should proceed on the basis that an amount that HMRC owe to Evonik should be netted off against a ‘claim’ by HMRC which (i) has not been made, (ii) whose existence is not borne out by the terms of the FII SC3 Order and (iii) would be difficult to sustain in circumstances where HMRC owe money in connection with Evonik’s wider claim rather than the other way round. Rather, in my judgment, my task is to determine what is owed now in the light of the fact that Evonik has had £6.4 million of HMRC’s money since the Summary Judgment Orders were made. That leads to the question of apportionment that I now describe.”

Turning to the topic of apportionment (which the judge also referred to as allocation), the judge directed himself that he was being asked to enter a final judgment in favour of Evonik, and that to do so he needed to determine first what Evonik was due, secondly how much had been paid and thirdly (and in the light of the £6.4m already paid) what interest was due ([24]). The judge observed at [32] and [33] that the “real battleground” lay in Evonik’s argument that the economics of HMRC’s approach were fundamentally unfair because it would receive interest on £2.4m rather than £8.8m (see [24] above); HMRC’s counter-argument that Evonik had had the use of £6.4m since 2016; and Evonik’s response that that was only part of the picture since it should have had over £13m of interest in 2016, which HMRC had had the use of.

The judge recognised that he had not received submissions from HMRC on this issue because they had approached the matter as one of set-off, and provided an opportunity for further written submissions. He also declined Evonik’s request to designate the question of allocation as a further GLO issue (meaning an issue which could bind parties to other claims on the GLO register, see CPR 19.23) on the basis that the utility of doing so had not been demonstrated and the question could be fact-sensitive.

The judge’s second judgment ([2024] EWHC 2897 (Ch)) determined the apportionment issue. The judge concluded that the £6.4m should be allocated entirely against interest accrued at the date of the Summary Judgment Orders. He rejected HMRC’s reasons for allocating that sum to principal (that is, the £8.8m of surplus ACT). The first of these, that Evonik had no liquidated right to interest in 2016, was essentially rejected on the basis that the position had to be assessed in the present rather than in 2016.

The second of HMRC’s arguments was that allocation to interest would result in Evonik receiving more than an “adequate” indemnity under EU law because it would enjoy a benefit in the nature of compound interest from having had use of the £6.4m from 2016. The judge observed that there was no guarantee that Evonik had enjoyed such an effect (there being no relevant evidence), but further any such effect was not “excessive”, bearing in mind that Evonik should never have been required to pay the £8.8m of ACT. While the law did not permit it to claim compound interest, the judge did not accept “that Evonik has somehow obtained an unprincipled windfall benefit simply because HMRC paid part of the sum due to it in 2016” ([6]).

The judge went on to observe that, while he had not found much assistance from authorities on the allocation of payments due under a contract, he was more attracted by arguments based on fairness and common-sense, using the following example at [8]:

“Suppose that a defendant owes a claimant £100 but having steadfastly refused to pay the sum due, interest of £100 has accrued on a simple interest basis so that the total amount due is £200. Suppose that the defendant then pays £100. In that case, the claimant may benefit from the ‘compounding effect’ to which HMRC refer. However, in my judgment it would make no sense to allocate the part payment of £100 to the principal amount of the debt. That would produce the anomalous result of excusing the defendant any further interest consequence from a continued refusal to pay the balance due since, in a simple interest environment, unpaid interest would not itself accrue interest.”

The judge noted the “rule of thumb” developed by the courts with this kind of example in mind that, where simple interest accrues, payments should be allocated against interest rather than principal (see, for example In Re Morley’s Estate [1937] 1 Ch 491 and Parr’s Banking Company Ltd v Yates (1898) 2 QB 460 (“Parr’s Banking”)) and concluded that HMRC had not provided a sufficiently good explanation of why that rule should not apply ([9] and [11]).