The Court’s decision is of particular importance to those interested or likely to be involved in multi-claimant litigation as the sustained increase in multi-claimant litigation in the UK courts in recent years looks set to continue, making senior judicial guidance on GLOs and the operation of the GLO regime all the more welcome.

GLOs

Under a GLO, claims that give rise to common or related issues of fact or law, usually against the same defendant(s), are case-managed by the court in a coordinated manner, ensuring greater consistency of outcome and relative efficiency in the use of court resources.

A key feature of the GLO regime is the ‘test case’. A claim (or where necessary, claims) which raise issues of fact or law that are common to claims in the group are selected to be determined first by the court (with all other claims stayed in the interim). The ‘test case’ decision is binding on the other claims in the group with respect to those common factual or legal questions.

However, there is an exception to this rule, which was the subject of the appeal in AXA: under Rule 19.23(1)(a) of the Civil Procedure Rules of England and Wales, the court’s judgment or order in a test case is binding on all claims under the GLO “unless the court orders otherwise”.

The Prudential Test Case

In AXA, claims worth more than £68 million challenging HMRC’s application of certain statutory tax provisions were brought together under a GLO. One of three test cases chosen from the group was headed by Prudential Assurance Co Ltd plc (the “Prudential Test Case”).  

One of the common issues to be decided in the Prudential Test Case related to interest payable on certain sums known as the “Category A Claims”. HMRC conceded prior to trial at first instance in 2013 on the basis of case law at the time, in particular the decision in Sempra Metals Ltd v Inland Revenue Comrs [2007] UKHL 34, that compound interest at conventional government rates was payable.

However, the Supreme Court overruled Sempra when the Prudential Test Case came before it in 2018, finding that Sempra had been incorrectly decided in that it required compound interest to be paid on restitutionary awards.

The AXA Decision

The current state of the law by the time that AXA’s case came to be heard was therefore that only simple interest should be paid to claimants on “Category A Claims”. However, AXA argued that HMRC should be bound by the Prudential Test Case and that AXA should, as a “follower” claimant under the same GLO, be entitled to compound interest like Prudential was,(notwithstanding the change in the law). HMRC countered that the Court should use its discretion to “order otherwise” so that the Prudential Test Case would not be binding on HMRC with respect to that interest issue in “follower” claims which should, instead, be assessed in accordance with the current law. Agreeing with the Court of Appeal, the Supreme Court accepted HMRC’s argument.

The Power to Order Otherwise

The Supreme Court held that the guiding principle behind the exercise of the "power to order otherwise" is the avoidance of injustice. Where the legal basis of a test case judgment has been shown to be wrong, as was the case with the Prudential Test Case, a balance must be struck between "the need to maintain the integrity of the GLO regime by treating the test case as binding on follower claims" and "a party's right to have their dispute decided by the application of a correct understanding of the law as it stands at the time that the order is made".

Having noted that it was not appropriate to give an exhaustive description of the circumstances in which the power to “order otherwise” might be exercised, the Supreme Court helpfully outlined a two-stage approach:

• There must be exceptional circumstances before a court can consider whether to exercise the power.
• Even where such exceptional circumstances can be shown, the court must consider whether it would be unjust to “order otherwise”. Relevant factors include:
• Whether disapplying the test case judgment would lead to further lengthy and costly proceedings, in effect relitigating the issue that had been decided by the test case. If an order that the test case is not binding will lead to substantial additional work for the parties and for the court, that may point towards refusing to order otherwise.
• Whether disapplying the test case judgment would result in any particular unfairness to follower claimants arising from the fact that they were not chosen to be the test case in this particular GLO. The Court noted that, given that “follower” claimants’ own proceedings will have been stayed, perhaps for many years, pending the test case over which they will have had limited control, it may in some circumstances be unfair to deprive the “follower” claimant of the benefit of a test case judgment if they may be prejudiced by the lapse of time that has occurred and by the fact that they may have assumed that they did not have to progress their own claim in tandem with the test case.
• In some cases (like the present one), whether a party had sought to manipulate the proceedings by making tactical decisions (such as making a particular concession or not pursuing a particular point on appeal) in the course of the test case with a view to inviting the Court at a later date not to treat the test case judgment as binding. Where a party had made such tactical decisions, that must weigh against it being released from the consequences of that decision being effectively carried forward to the follower claims.

In practice

The AXA judgment is notable for establishing that a test case determination may not be binding where subsequent legal developments have undermined its foundation. In doing so, the Supreme Court has highlighted that test cases are not guaranteed to be binding in all circumstances and parties involved in existing or prospective GLOs should be alive to that risk, albeit a risk that will only arise in ‘exceptional’ circumstances.

It is important that parties involved in GLO proceedings actively monitor relevant developments in the law while their case is pending, seek, if they can, to distinguish the circumstances of their case from the test case, and seek early legal advice where there is any indication that the legal landscape might shift in due course or has materially shifted since the test case judgment.

Additional Contributors: Alice Konneh