The Court of Appeal has today handed down its judgment in the long running Marks & Spencer group relief litigation. The judgment of the Court of Appeal has dismissed the entirety of HMRC's appeal, thereby verifying the decision of the Upper Tribunal. The Court of Appeal also upheld the decision of the Upper Tribunal in relation to the validity of out of time claims made by M&S for pay and file periods.
In view of the history of this litigation, it seems likely that HMRC will wish to appeal this judgment to the Supreme Court. Applications for the grant of permission could take until the end of the year to determine. If denied the M&S litigation will likely end here. If granted it could take another year to be heard by the Supreme Court,
An important issue considered by the Court of Appeal was whether this second Court of Appeal was bound by the previous decision of the Court of Appeal in this same litigation in February 2007 (the First Appeal). In the First Appeal, the date for testing whether the no possibilities test was met was held to be the date on which the claim was made (rather than the end of the accounting period in which the losses arose, as had been argued by HMRC). HMRC argued that the Court of Appeal was not bound by the First Appeal because subsequent decisions of the ECJ demonstrated that the First Appeal was incorrectly decided. The Court of Appeal reviewed the subsequent case law and found no reason to justify a departure from the decision in the First Appeal. HMRC’s appeal on this point was accordingly dismissed.
The Court of Appeal also had to consider whether M&S was entitled to make sequential claims for group relief. The Court of Appeal upheld the Upper Tribunal and determined that M&S was permitted to make successive claims. The Court also found that M&S would be at an “unjustifiable disadvantage” if it were not permitted to withdraw any earlier claims.
In relation to claims for losses arising in Pay and File periods, M&S had argued that the principle of effectiveness required it to be afforded a reasonable amount of time after the ECJ released its decision to demonstrate that it satisfied the no possibilities test. This is relevant where ordinary time limits had expired prior to the release of the ECJ’s judgment. The Upper Tribunal found that the principle of effectiveness was not invoked and accordingly found in favour of HMRC for claims made in Pay and File periods. The Court of Appeal has come to the same conclusion.
On quantification the Court of Appeal agreed with the Upper Tribunal and accepted M&S's alternative method which takes the losses adjusted for UK tax and deducts (on a FIFO basis) those losses which were used on a local basis ("Method E").