Case Comment: Hastings v Finsbury Orthopaedics Ltd and Anor [2022] UKSC 19

In this post, Sophie Malley, a trainee solicitor at CMS, comments on the decision in Hastings v Finsbury Orthopaedics Ltd and Anor [2022] UKSC 19, the first product liability case to reach the UK Supreme Court.

On 29 June 2022, the Supreme Court unanimously dismissed the appeal in Hastings v Finsbury Orthopaedics Ltd and Anor [2022] UKSC 19. The Supreme Court adhered to the findings of the lower courts in Scotland (previewed here) that the metal on metal prosthesis used for Mr Hastings’ total hip replacement was not defective under the Consumer Protection Act 1987 (the “CPA”), s 3. The decision, in favour of the manufacturers, was handed down approximately two months after the case was heard by the Supreme Court.

Background

Mr Hastings underwent a metal on metal total hip replacement (the “MoM THR”) in March 2009 which was revised in October 2012. The prosthesis used comprised of compatible component parts manufactured by each of the respondents (the “Mitch/Accolade product”). Mr Hastings subsequently brought a claim under the CPA, s 2 for personal injury allegedly caused as a result of the Mitch/Accolade product being defective.

Decision of the lower courts

At first instance, the Outer House of the Court of Session considered whether the inherent propensity of MoM prostheses to shed metal debris once implanted rendered the Mitch/Accolade product defective (that being less safe than persons generally are entitled to expect) under the CPA, s 3. Lord Tyre, the Lord Ordinary, clarified that in order for the Mitch/Accolade product to meet the entitled expectation, “its level of safety would not be worse, when measured by appropriate criteria, than existing non-MoM products that would otherwise have been used”. With reference to the statistical evidence presented to the court, Lord Tyre found that Mr Hastings failed to prove that the product was defective.

Mr Hastings appealed to the Inner House of the Court of Session. The Inner House noted that in order to reverse a determination of fact, it must be satisfied that the Lord Ordinary erred in law, made a finding not based on the evidence or clearly misunderstood, or disregarded, relevant evidence. As none of these requirements were met, the Inner House upheld the first instance decision.

Supreme Court decision

Mr Hastings proceeded to appeal to the Supreme Court. The legal issues concerning the application of the CPA were largely agreed between the parties. The appeal was essentially an attempt to appeal against the Lord Ordinary’s findings of fact. Mr Hastings was previously found to have failed to prove his case on a statistical basis. Therefore, the question for the Supreme Court was whether there was additional evidence Mr Hastings could use to prove that the Mitch/Accolade product did not meet the entitled expectation in terms of the CPA.

The evidence relied on by Mr Hastings comprised the response of: (1) the orthopedic community; (2) the national regulator; and (3) the manufacturers withdrawing the Mitch/Accolade product from the market. The Supreme Court addressed each category of evidence in turn.

Concerns of the orthopedic community

In July 2008, orthopedic surgeons began to express serious professional concerns about high revision rates (the percentage chance that revision surgery will be required to replace a prosthesis) and potential difficulties in performing operations in cases of MoM prostheses. This concern was, however, expressed in relation to MoM prostheses generally and as the Lord Ordinary observed, there was “huge variation in the reported revision rates amongst different brands of MoM Hips”. Taking this into account and the fact that revision rates for MoM prostheses tended to be higher than those for non-MoM prostheses, the Supreme Court held that “the generalised expressions of professional concern” did not assist Mr Hastings in establishing that the Mitch/Accolade product was defective.

Withdrawal of the Mitch/Accolade product

Mr Hastings sought to argue that the manufacturers’ withdrawal of the Mitch/Accolade product from the market was a “calculated action” which prevented him from proving his case by reference to statistical evidence. The court held that this assertion lacked foundation. This was based on the Lord Ordinary’s finding that the withdrawal of the Mitch/Accolade product was based on commercial considerations such as low sales in comparison to rival products, the failure of the manufacturers to renew their supply agreement and the sharp decline in sales of MoM prostheses by 2010. The Supreme Court found that such circumstances and reasoning for withdrawing the Mitch/Accolade product from the market did not support Mr Hastings’ case that the product was defective.

Notices issued in relation to the Mitch/Accolade product

The Medicines and Healthcare Products Regulatory Agency and the manufacturers respectively issued a Medical Device Alert and Field Safety Notice with regard to the Mitch/Accolade product in 2012 (the year after it was withdrawn from the market). These were based on statistical evidence that the revision rate for the Mitch/Accolade product was higher than anticipated, that being 10.7% at four years. This was compared with the guidance issued by the National Institute for Health and Clinical Excellence in 2000 which stated that the best prostheses had a revision rate of 10% at ten years. The manufacturers, therefore, accepted that these notices appeared to support arguments that the Mitch/Accolade product failed to meet the entitled expectation.

The Supreme Court disagreed and stated that “these notices and statistics cannot of themselves be determinative of the issue whether there was a breach of an entitled expectation”. The Supreme Court clarified that in assessing whether an entitled expectation has been met, it should “have regard to material available at the time of proof which was not available in 2012 when the notices were issued”. Therefore, the notices were considered by the Supreme Court in light of the uncontested statistical analysis presented to the Lord Ordinary by an expert witness for the defenders. This evidence was found to contradict the information forming the statistical basis of the notices and therefore undermined Mr Hastings’ ability to rely on them to demonstrate that the product was defective.

Comment

The decision of the Supreme Court confirms the Scottish Courts’ approach to the entitled expectation test. The Court ruled that “there can be no entitlement to an absolute level of safety” for MoM prostheses. This is due to the natural tendency of a MoM prosthesis to shed metal debris that can cause soft tissue damage which cannot, in itself, be classified as a defect.

This judgment will be welcomed by medical device manufacturers. The importance placed on statistical evidence throughout the history of this case highlights the uphill struggle claimants face when attempting to prove a product is defective within the terms of the CPA.

New Judgment: Harpur Trust v Brazel [2022] UKSC 21

On appeal from [2019] EWCA Civ 1402

This appeal concerned the calculation of annual leave and holiday pay entitlements for workers who work for varying hours during only certain weeks of the year but have a contract throughout that year (“part–year workers”).

The Respondent is a music teacher at a school run by the Appellant. Ms Brazel works a variable number of hours each week and is only paid for the hours that she teaches during term time.

As a “worker” within the meaning of the Working Time Regulations 1998 (“the WTR”), Ms Brazel is entitled to 5.6 weeks of paid annual leave. She takes this leave during the school holidays, but because she is not required to work at all during the school holidays, in practice there are more than 5.6 weeks each year in which she does not work at all.

Before September 2011, Ms Brazel’s holiday pay for the 5.6 weeks was determined by calculating her average week’s pay in accordance with section 224 of the Employment Rights Act 1996 (“the 1996 Act”) and multiplying that by 5.6. At the relevant time section 224 defined a “week’s pay” as the amount of a worker’s average weekly pay in the period of 12 weeks ending with the start of their leave period, ignoring any weeks in which they did not receive any pay (“the Calendar Week Method”).

From September 2011, however, the Harpur Trust changed its calculation method. In line with Acas guidance, they calculated Ms Brazel’s hours worked at the end of each term, took 12.07% of that figure and then paid Ms Brazel her hourly rate for that number of hours as holiday pay (“the Percentage Method”). 12.07% is the proportion that 5.6 weeks of annual leave bears to the total working year of 46.4 weeks. The Harpur Trust therefore treated Ms Brazel as entitled to 12.07% of her pay for the term, reflecting only the hours she actually worked.

The effect of this change was that Ms Brazel received less holiday pay. She brought a claim before the Employment Tribunal for unlawful deductions from her wages by underpayment of holiday pay. The Employment Tribunal dismissed her claim but the Employment Appeal Tribunal allowed her appeal holding that the statutory regime required the use of the Calendar Week Method. The Court of Appeal dismissed the Harpur Trust’s appeal.

 

HELD – The Supreme Court unanimously dismissed the Harpur Trust’s appeal.

 

The Harpur Trust argue that a part–year worker’s leave must be pro–rated to account for weeks not worked. The Harpur Trust contend they must apply what they refer to as the “conformity principle” arising from the EU case law on the Directive.

The Supreme Court concluded, however, that European law does not prevent a state from making a more generous provision than the “conformity principle” would produce. The amount of leave to which a part–year worker under a permanent contract is entitled is therefore not required to be, and under domestic law must not be, pro–rated to be proportional to that of a full–time worker.

The Harpur Trust suggested two alternative methods for calculating holiday pay arguing that adopting one of these is necessary because although Ms Brazel is better off under the Calendar Week Method, other hypothetical workers working other irregular hours patterns would be worse off under that approach than under the Harpur Trust’s suggested methods.

The Supreme Court identified multiple problems with the Harpur Trust’s proposed methods. First, they were directly contrary to the statutory method set out in the WTR in a number of ways. The incorporation into the WTR of the definition of an average week’s pay in the 1996 Act for the purposes of determining holiday pay – including for those who work very irregular hours – was a choice made by Parliament.

Secondly, the two methods proposed by the Harpur Trust would require complicated calculations requiring all employers and workers to keep detailed records of every hour worked, even if they were not paid at an hourly rate.

The Supreme Court also rejected the Harpur Trust’s contention that the Calendar Week Method leads to an absurd result whereby a worker in Ms Brazel’s position receives holiday pay representing a higher proportion of her annual pay than full time or part time workers working regular hours. A slight favouring of workers with a highly atypical work pattern is not so absurd as to justify the wholesale revision of the statutory scheme which the Harpur Trust’s alternative methods require.

 

For the judgment, please see:

Judgment (PDF)
Judgment on The National Archives (HTML version)
Judgment on BAILII (HTML version)

For the Press Summary, please see:

Press summary (HTML version)

Watch hearing

9 November 2021
Morning session
Afternoon session

New Judgment: HA (Iraq) (Respondent) v Secretary of State for the Home Department (Appellant) RA (Iraq) (Respondent) v Secretary of State for the Home Department (Appellant) AA (Nigeria) (Respondent) v Secretary of State for the Home Department (Appellant) [2022] UKSC 22

On appeal from: [2020] EWCA Civ 1176 and [2020] EWCA Civ 1296

These three conjoined appeals concern the statutory regime governing the deportation of foreign criminals under section 117C of the Nationality, Immigration and Asylum Act 2002 (“the 2002 Act”). A “foreign criminal” for the purposes of these appeals is a person who is not a British citizen, is convicted in the UK of an offence, and who is sentenced to a period of imprisonment of at least 12 months. The 2002 Act divides foreign criminals who have been sentenced to terms of imprisonment into two categories. Those sentenced to at least 12 months, but less than four years (“medium offenders”), can avoid deportation if they can establish that its effect on a qualifying child or partner would be “unduly harsh” (“the unduly harsh test”). This is known as Exception 2. Exception 1, which relates to length of lawful residence and integration, is not in issue in this appeal. Those sentenced to at least four years (“serious offenders”) can avoid deportation if they establish that there are “very compelling circumstances, over and above those described in Exceptions 1 and 2” (“the very compelling circumstances test”). Whether deportation would produce unduly harsh effects for a qualifying partner/child is relevant there too.

It was common ground before the Court that a medium offender who cannot satisfy the unduly harsh test can nevertheless seek to show that the very compelling circumstances test is met. The very compelling circumstances test requires a full proportionality assessment to be carried out, weighing the interference with the rights of the potential deportee and their family to private and family life under article 8 of the European Convention on Human Rights against the public interest in their deportation. This proportionality assessment will be carried out in all foreign criminal cases unless the medium offender can show that either of Exceptions 1 or 2 apply.

HA and RA were medium offenders, whilst AA was a serious offender. In each appeal, the Secretary of State ordered deportation and the First–tier Tribunal allowed the appeal from that decision. The First–tier Tribunal’s decision was then set aside by the Upper Tribunal, which remade the decision and dismissed the appeal. The Court of Appeal allowed the appeal from the Upper Tribunal’s decision. The Secretary of State now appeals to the Supreme Court.

HELD- All three appeals dismissed

 

The Unduly Harsh Test

The meaning of the unduly harsh test was previously considered by the Supreme Court in KO (Nigeria) v Secretary of State for the Home Department [2018] UKSC 53, which the Secretary of State submitted the Court of Appeal failed to follow in HA/RA. In particular, it was submitted that the court wrongly disapproved of comparing the degree of harshness experienced by a qualifying child to that which would necessarily be involved for any child – the “notional comparator” baseline against which undue harshness is to be evaluated – and wrongly lowered the threshold approved in KO (Nigeria).

Lord Hamblen rejects these submissions for, amongst others, the following reasons. The judgment in KO (Nigeria) considered as a whole makes clear no notional comparator test was intended. Such a suggested baseline read literally would include children for whom a parent’s deportation would be of no real significance, despite having a real and subsisting relationship with that parent, leading to a low baseline level of “due” harshness, contrary to the high standard envisaged in KO (Nigeria). There are too many variables in the suggested baseline characteristics for any comparison to be workable. Such an approach is potentially inconsistent with the statutory duty to have regard to the “best interests” of the affected child.

The correct approach is to follow the guidance which was stated to be “authoritative” in KO (Nigeria), namely the direction in the Upper Tribunal case of MK (Sierra Leone) v Secretary of State for the Home Department [2015] INLR 563 (“MK”). That direction said: “… ‘unduly harsh does not equate with uncomfortable, inconvenient, undesirable or merely difficult. Rather, it poses a considerably more elevated threshold. ‘Harsh’ in this context, denotes something severe, or bleak. It is the antithesis of pleasant or comfortable. Furthermore, the addition of the adverb ‘unduly’ raises an already elevated standard still higher”. This recognises both that the level of harshness which is “acceptable” or “justifiable” is elevated in the context of the public interest in the deportation of foreign criminals and that “unduly” raises that standard still higher. It is then for the tribunal to make an evaluative judgment as to whether that elevated standard has been met on the facts and circumstances of the case before it.

 

The Very Compelling Circumstances Test

With regards to the very compelling circumstances test, the principal legal issues concern the relevance and weight to be given to rehabilitation and the proper approach to assessing the seriousness of the offending. In general, the very compelling circumstances test requires all the relevant circumstances of the case to be considered and weighed against the very strong public interest in deportation. Relevant factors will include those identified by the European Court of Human Rights as being relevant to the article 8 proportionality assessment, although the weight to be given to the factors falls within the margin of appreciation of national authorities.

The relevant statutory scheme explicitly requires the court to consider the seriousness of the offence in the proportionality assessment. The Secretary of State criticised the Court of Appeal’s judgment in HA/RA for placing undue emphasis on the sentence imposed as the criteria for establishing seriousness.

A sentence imposed by a court may well reflect various considerations other than the seriousness of the offence. Where, however, an immigration tribunal has no information about an offence other than the sentence imposed, that will be the surest guide to the seriousness of the offence. Even if it has the remarks of the sentencing judge, in general it would only be appropriate to depart from the sentence as the touchstone of seriousness if the remarks clearly explained whether and how the sentence had been influenced by factors unrelated to the seriousness of the offence. In relation to credit for a guilty plea, that will or should be clear. If so, then in principle that is a matter which can and should be taken into account in assessing the seriousness of the offence, contrary to the view of the Court of Appeal.

The other issue raised in relation to the seriousness of the offence is whether it is ever appropriate to place weight on the nature of the offending in addition to the sentence imposed. Whilst care must be taken to avoid double counting, in principle this can be a relevant consideration and this is supported by the Strasbourg jurisprudence.

 

HA (Iraq)

HA is a citizen of Iraq born in 1980. He arrived in the UK clandestinely in July 2000 and claimed asylum. His asylum claim was refused, and he exhausted his appeal rights in February 2004. HA nonetheless continued to live here unlawfully. In 2006 he began a relationship with a British citizen, NT. They have since had three children together, born in 2011, 2014, and 2016. HA, NT and their three children live together. In May 2010 HA was convicted of offences including assisting unlawful immigration and sentenced to 16 months’ imprisonment. In May 2017, the Secretary of State made a deportation order.

The Secretary of State accepted that HA has a genuine and subsisting relationship with his partner and children. The issue was whether it would be unduly harsh for them to remain in the UK without him. Having analysed the decisions of the Upper Tribunal and the Court of Appeal, Lord Hamblen agrees with the Court of Appeal that the Upper Tribunal applied the notional comparator test. For the reasons set out above, that is not the appropriate test. The Upper Tribunal therefore erred in law in deciding whether the unduly harsh test was satisfied, and the case will have to be remitted for fresh consideration.

 

RA (Iraq)

RA came to the UK clandestinely in 2007, aged 14. His claim for asylum was refused in October 2009, but he was given discretionary leave until 1 September 2010. After an application to extend his leave was refused in July 2011, he remained in the UK without leave. In 2012, RA married a British citizen, and they have a British daughter. In August 2016, RA was convicted of an offence for presenting a forged Iraqi passport when trying to visit his mother in Iraq and he was sentenced to 12 months’ imprisonment. In September 2016, the Secretary of State made a deportation order.

The Upper Tribunal and the Court of Appeal considered both the “go” (RA’s daughter lives with him in northern Iraq) and “stay” (RA deported and his wife and daughter stay in the UK) scenarios. The Court of Appeal was right that there was an error of law in relation to the very compelling circumstances test. The Upper Tribunal wrongly stated that the sentencing judge had described the offence as “serious” and rehabilitation was not addressed, although it was a relevant factor. Given that the overturning of the Upper Tribunal’s decision on the “go” scenario has not been challenged, it will have to be reconsidered, and findings made in relation to it may impact on whether there are very compelling circumstances.

 

AA (Nigeria)

AA is a citizen of Nigeria, born in 1988. He arrived in the UK in 1999 (aged 11) with his mother, who abandoned him shortly thereafter, leaving him with an aunt. In 2010 he was issued with a residence card based on his marriage to an EEA national that was valid until July 2015. AA was convicted in November 2013 of two counts of conspiracy to supply class A drugs and sentenced to four and a half years’ imprisonment. At the time of his sentence, AA had met his current partner, C, who is a British citizen. Before this relationship, AA had a daughter, K, born April 2006 with a previous partner. The daughter lives with AA’s former partner. AA and C have a son, A, born February 2014, who lives with them. Another child was born in February 2019. The Secretary of State made a deportation order in June 2017.

The First–tier Tribunal made no error of law, and it was rationally entitled to conclude that the effect of AA’s deportation on C and the children would be unduly harsh, and that there were very compelling circumstances that outweigh the public interest in AA’s deportation. The Upper Tribunal therefore erred in setting the First–tier Tribunal’s decision aside and the Court of Appeal was correct to restore it.

 

To view the judgment, please see:

Judgment (PDF)

Judgment on The National Archives (HTML version)

Judgment on BAILII (HTML version)

 

For the Press Summary, please see:

Press summary (HTML version)

 

Watch hearing

17 May 2022      Morning session               Afternoon session

18 May 2022      Morning session               Afternoon session

 

New Judgment: R v Luckhurst [2020] UKSC 23

On appeal from: [2020] EWCA 1579

This case concerns whether the Proceeds of Crime Act 2002 (POCA) permits a variation to a restraint order to cover reasonable legal expenses in respect of civil proceedings founded on the same or similar allegations or facts as those giving rise to the making of the restraint order.

POCA gives the courts the power to make a restraint order freezing the assets of an alleged criminal, with the overall aim of ensuring that the proceeds of crime can be confiscated by the State in the event a crime has been committed. A variation to a restraint order may be made to allow an alleged criminal to cover reasonable legal expenses except, as set out in section 41(4) of POCA, where those legal expenses “relate to an offence” which gave rise to the restraint order. As a result, alleged criminals cannot seek a variation of a restraint order to meet the legal costs of defending against criminal prosecution for the offence that gave rise to the restraint order, or for instance, in proceedings resisting the imposition of the restraint order.

Andrew Luckhurst, a former professional sportsman, is charged with offences of fraud and theft relating to his alleged involvement in a Ponzi scheme, and his assets are subject to a restraint order under POCA. He is due to stand trial in October 2022. Separately, Mr Luckhurst also faces civil proceedings brought by investors in the alleged Ponzi scheme. Mr Luckhurst applied for a variation to the restraint order so that he could pay £3,000 for legal representation in respect of the civil proceedings. The Crown Prosecution Service (CPS) opposed this variation, arguing that section 41(4) does not permit a variation to cover such legal expenses where the civil proceedings arose from the same or similar facts or allegations as the criminal offence that gave rise to the restraint order.

At first instance, the judge found that such a variation was not permitted by section 41(4) as the civil proceedings did “relate to” the offence giving rise to the restraint order. Mr Luckhurst appealed. The Court of Appeal disagreed with the judge, finding that section 41(4) does not prevent the variation requested by Mr Luckhurst. The CPS then appealed to the Supreme Court.

 

HELD – The Supreme Court unanimously dismissed the appeal.

 

The Supreme Court found that the correct interpretation of section 41(4) of POCA does not prevent a variation of a restraint order to meet reasonable legal expenses in civil proceedings, even in circumstances where those civil proceedings arise from the same or similar facts or allegations as the offence that gave rise to the restraint order.

Lord Burrows sets out the correct modern approach to statutory interpretation, which is that the court is concerned to identify the meaning of the words used by Parliament, and in so doing, the context and purpose of the provision or provisions are important. On a natural reading of the words in their context, legal expenses in civil proceedings do not “relate to” a criminal offence. Any attempt to link legal expenses in civil proceedings to a criminal offence requires reading into the statute a test which is not found in the words of the statute itself.

The purpose behind the relevant statutory provisions is to balance the goal of enabling the confiscation of proceeds of crime with the need to ensure that the alleged criminal can apply for a variation of the restraint order to meet certain types of expenses. Allowing a variation to cover reasonable legal expenses incurred in relation to civil proceedings does not contradict this policy. Therefore, the natural meaning of the words in the light of their context and purpose indicates that legal expenses incurred in respect of civil proceedings are not subject to a blanket prohibition, but rather a variation to a restraint order to cover such expenses is controlled by the courts’ discretion in the same way as other permissible variations, such as living expenses.

For the Judgment, please see:

Judgment (PDF)
Judgment on The National Archives (HTML version)
Judgment on BAILII (HTML version)

For the Press Summary:

Press summary (HTML version)

To watch the hearing:

Watch hearing

7 June 2022
Morning session
Afternoon session

This Week in the Supreme Court – week commencing 18th July 2022

Hearings in the Supreme Court are now shown live on the Court’s website.

On Tuesday 19th July, the Court will hear the Reference by the Attorney General for Northern Ireland – Abortion Services (Safe Access Zones) (Northern Ireland) Bill. The Court will consider whether clause 5(2)(a) of the Abortion Services (Safe Access Zones) (Northern Ireland) Bill is outside the legislative competence of the Northern Ireland Assembly because it disproportionately interferes with the rights of persons who wish to express their opposition to the provision of abortion treatment services in Northern Ireland. The hearing will take place at 10:30 in Courtroom One.

On Wednesday 20th July, the Supreme Court will hand down three judgments:

Harpur Trust v Brazel [2022] UKSC 21- on appeal from [2019] EWCA Civ 1402

The judgment will consider whether a worker’s right to paid annual leave is accumulated according to the working pattern of the worker and/or is pro-rated.

AA (Nigeria), RA (Iraq) and HA (Iraq) v Secretary of State for the Home Department [2022] UKSC 22 – on appeal from [2020] EWCA 1296 and [2020] EWCA 1176.

There are several issues in this combined appeal, including the correct approaches to several provisions in the Nationality, Immigration and Asylum Act 2002. These include the test for whether “the effect of [a foreign criminal]’s deportation on [their] partner or child would be unduly harsh” within the meaning of section 117C(5), and the test for “very compelling circumstances” for not deporting a foreign criminal under section 117C(6). The Court will also consider the conflicting approaches in  Binbuga v Secretary of State for the Home Department [2019] EWCA Civ 551 and HA (Iraq) v Secretary of State for the Home Department [2020] EWCA Civ 1176 as to the relevance of evidence in relation to the foreign criminal’s rehabilitation and how much weight should tribunals accord to such evidence in the context of the above tests.

R v Luckhurst [2022] UKSC 23 – [2020] EWCA 1579

The proposed appeal relates to the scope of permitted legal expenditure as an exception to a restraint order granted pursuant to section 41 of the Proceeds of Crime Act 2002 (POCA). The Supreme Court is asked to decide whether section 41(4) prohibits an exception for reasonable legal expenses in respect of civil proceedings relating to the same or similar facts as those of the offence(s) giving rise to the restraint order.

The following Supreme Court judgments remain outstanding: (As of 20/7/22)

The Law Debenture Trust Corporation plc v Ukraine (Represented by the Minister of Finance of Ukraine acting upon the instructions of the Cabinet of Ministers of Ukraine) Nos. 2 and 3, heard 9-12 December 2019
BTI 2014 LLC v Sequana SA and Ors, heard 4 May 2021
East of England Ambulance Service NHS Trust v Flowers and Ors, heard 22 June 2021
Guest and another v Guest heard 3rd December 2021
Fearn and others v Board of Trustees of the Tate Gallery heard 7th December 2021
Stanford International Bank Ltd (in liquidation) v HSBC Bank PLC, heard 19th January 2022
Commissioners for Her Majesty’s Revenue and Customs v NCL Investments Ltd and another, heard 25th January 2022
DCM (Optical Holdings) Ltd v Commissioners for Her Majesty’s Revenue and Customs (Scotland), heard 8th February 2022
Commissioners for Her Majesty’s Revenue and Customs v NHS Lothian Health Board, heard 8th June 2022
Canada Square Operations Ltd v Potter, heard 14th June 2022
R v Andrewes, heard 21st June 2022
Hillside Parks Ltd v Snowdonia National Park Authority, heard 4th July 2022
DB Symmetry Ltd and another v Swindon Borough Council, heard 12th July 2022
Reference by the Attorney General for Northern Ireland – Abortion Services (Safe Access Zones) (Northern Ireland) Bill, heard 19th July 2022.

Case Preview: Commissioners for Her Majesty’s Revenue and Customs v NHS Lothian Health Board

In this post, Jack Prytherch, Of Counsel in the Tax team at CMS, previews the decision awaited from the Supreme Court in Commissioners for Her Majesty’s Revenue and Customs v NHS Lothian Health Board [2020] CSIH 14. The appeal was heard by the Supreme Court on 8 and 9 June 2022. The Supreme Court was asked to consider the correct approach that should be taken by HMRC and the courts to evidence, and the burden and standard of proof, in historical claims for the recovery of overpaid VAT.

Background

The law in relation to VAT broadly confers a right to deduct the amount of any VAT on input expenditure for business activities. Where such ‘input tax’ is unrecovered so that VAT has been overpaid, it is possible to make a claim for prior periods (subject to any applicable statutory time limits).

Claims for overpaid VAT, potentially going back as far as the inception of VAT in 1973, are known as ‘Fleming claims.’ They are so called after the decision of the House of Lords in Fleming (trading as Bodycraft) and Condé Nast Publications Ltd v Commissioners for Her Majesty’s Revenue and Customs [2008] UKHL 2, which concerned the way in which the then UK statutory time limit on making claims for overpaid VAT had been introduced. Finance Act 2008, s 121 was subsequently introduced to limit the scope for making such claims by introducing a new transitional period ending 1 April 2009, before which any such claims had to be made.

The taxpayer, NHS Lothian Health Board (“NHS Lothian”), is an NHS trust responsible for the provision of health services within the Lothian area of Scotland. Together with its predecessors, NHS Lothian operated scientific laboratories during the period between 1974 and 1997. Most of the work performed in the laboratories was carried out for the clinical purposes of the taxpayer and therefore consisted of non-business activities for VAT purposes. Nevertheless, NHS Lothian also carried out work for persons outside the NHS, including local authorities and pharmaceutical companies, which constituted business activities for VAT purposes (meaning that input tax incurred for the purposes of such activities should have been recoverable). Unfortunately, prior to 1994, the VAT liability of NHS boards such as NHS Lothian was handled by the Scottish Office, and during that period (and until the year 1995/1996) it was the general practice of public bodies not to make claims to recover input tax on business activities.

Against that background, NHS Lothian made a global Fleming claim for the period from 1 April 1974 to 30 April 1997 which included the business activities of its laboratories. That claim was rejected by HMRC and NHS Lothian appealed to the First-tier Tribunal (Tax Chamber) (“FTT”).

Decisions of the Tribunals

The primary issue in Fleming claims is often not the existence of the taxpayer’s claim to recover overpaid VAT but instead whether that claim can be quantified with sufficient accuracy to permit an order for repayment to be made. The reason for this is that historical financial records are likely to have been destroyed or otherwise lost over time. Taxpayers are therefore reliant on some other evidence to support historical claims.

For the purposes of its Fleming claim, NHS Lothian had based its calculations on a separate claim made for the year 2006/2007 in respect of which financial records remained available and for which HMRC had agreed that the recoverable amount should be 14.7% of the total costs of the laboratories. NHS Lothian sought to extrapolate that same agreed percentage backward to earlier years and also presented detailed evidence, accepted by the FTT, that the activities of the laboratories had not changed significantly throughout the relevant period.

However, the FTT held that the evidence presented by NHS Lothian was not sufficiently precise to use as a basis for the quantification of the claim. For example, while NHS Lothian had presented witness evidence confirming that there had been no changes to the general pattern of activity over the relevant period, there had not been any reference to reliable primary data (e.g., sales ledgers or copy tax invoices), and the time-scale involved undermined the likely accuracy of the proposed extrapolation as amounts were bound to fluctuate. The FTT therefore dismissed NHS Lothian’s claim in its entirety, and that decision was subsequently upheld by the Upper Tribunal.

Decision appealed

On appeal to the Inner House of the Court of Session, two principal questions arose:

firstly, whether the fundamental right to repayment of overpaid VAT, guaranteed by EU law and the principle of effectiveness, means that, if the taxpayer’s methodology for calculating the amount of repayment were rejected, HMRC and the Tribunals were not permitted to reject completely the taxpayer’s claim solely on the basis of difficulties with identifying a satisfactory methodology or difficulties of proof; and

secondly, whether, having regard to the fundamental EU law requirement that the right to recover overpaid VAT should not be rendered excessively difficult or impossible in practice under domestic law (the principle of effectiveness), HMRC and the Tribunals should adopt a flexible approach to the burden and standard of proof in connection with historical claims for repayment.

The Inner House answered both questions in the affirmative and allowed NHS Lothian’s appeal, setting aside the FTT’s decision and remitting the case to a differently constituted FTT for reconsideration. It is that decision of the Inner House that is the subject of the appeal to the Supreme Court.

According to the Inner House, the FTT had imposed too high a test on NHS Lothian as the taxpayer. The existence of a claim to recover overpaid VAT was not in issue; all that was in dispute was the quantum. That meant that some amount of input tax must be due to the taxpayer (whereas, if the FTT were correct, none of that amount would be recovered). As such, where it is clear that some repayment of tax is due, the Inner House considered that it should normally be possible to arrive at some sort of quantification of the amount due and “exceptional circumstances” would be required to render such quantification impossible. If necessary, the FTT should perform the appropriate calculations itself or at least state the principles by reference to which the calculation should be made. As a last resort, it should also be possible to discount an estimated amount to reflect the uncertainty.

In this case, the reason for the lack of primary evidence was the historical nature of the claim, which the Inner House noted was in large part caused by the failure of the UK to properly implement the EU law right to reclaim input tax and also by the fact that NHS Lothian’s VAT affairs were at one time under direct government control. In such circumstances, a “reasonably generous approach” should be taken to historical claims and the failure of the taxpayer to produce primary evidence could not be given the level of significance as attributed by the FTT.

The Inner House determined, therefore, that the critical question should be whether, in the light of the absence of sufficient primary evidence, the taxpayer has succeeded in proving the quantification of its claim on the balance of probabilities by using such secondary evidence as exists and drawing inferences from that evidence. According to the Inner House, that is not a test of certainty or even near certainty, but instead a question of whether the taxpayer’s calculation of the repayment due is more likely to amount to a proper quantification of its claim than the alternative (i.e., no input tax being repayable whatsoever).

Comment

This case highlights the difficulties that can be faced by taxpayers in evidencing historical Fleming claims for overpaid VAT, as well as the tough approach taken by HMRC in respect of such claims. The number of outstanding Fleming claims, for obvious reasons, is diminishing. However, the upcoming decision of the Supreme Court should also have relevance to other situations where the taxpayer is required to produce evidence to quantify a claim for repayment and the general principles that should be applied by HMRC and the FTT in such circumstances.

 

This Week in the Supreme Court – w/c 11th July 2022

Hearings in the Supreme Court are now shown live on the Court’s website.

On Tuesday 12th July, the Court will hear the case of DB Symmetry Ltd and another v Swindon Borough Council at 10:30am in Courtroom Two. The UKSC will hear submissions on whether the principle enunciated by the Court of Appeal in Hall & Co Ltd v Shoreham by Sa Urban DC [1964] 1 WLR 240 is correct in law. The judgment being appealed is [2020] EWCA Civ 1331.

The following Supreme Court judgments remain outstanding: (As of 6/7/22)

The Law Debenture Trust Corporation plc v Ukraine (Represented by the Minister of Finance of Ukraine acting upon the instructions of the Cabinet of Ministers of Ukraine) Nos. 2 and 3, heard 9-12 December 2019
BTI 2014 LLC v Sequana SA and Ors, heard 4 May 2021
East of England Ambulance Service NHS Trust v Flowers and Ors, heard 22 June 2021
Harpur Trust v Brazel, heard 9th November 2021
Guest and another v Guest heard 3rd December 2021
Fearn and others v Board of Trustees of the Tate Gallery heard 7th December 2021
Stanford International Bank Ltd (in liquidation) v HSBC Bank PLC, heard 19th January 2022
Commissioners for Her Majesty’s Revenue and Customs v NCL Investments Ltd and another, heard 25th January 2022
DCM (Optical Holdings) Ltd v Commissioners for Her Majesty’s Revenue and Customs (Scotland), heard 8th February 2022
HA and RA (Iraq) v Secretary of State for the Home Department, heard 17th May 2022
AA (Nigeria) v Secretary of State for the Home Department, heard 17th May 2022
R v Luckhurst, heard 7th June 2022
Commissioners for Her Majesty’s Revenue and Customs v NHS Lothian Health Board, heard 8th June 2022
Canada Square Operations Ltd v Potter, heard 14th June 2022
R v Andrewes, heard 21st June 2022
Hillside Parks Ltd v Snowdonia National Park Authority, heard 4th July 2022
DB Symmetry Ltd and another v Swindon Borough Council, heard 12th July 2022.

Case Preview: Hillside Parks Limited v Snowdonia National Park Authority

In this post, Sam Porter, an Associate in the Planning team at CMS, previews the upcoming Supreme Court hearing in the case of Hillside Parks Limited v Snowdonia National Park Authority UKSC 2020/0211. The case was heard on 4 July 2022.

Background

Hillside Parks Limited (“HPL”) is the owner of an approximately 30-acre site in Aberdyfi, Snowdonia, which it acquired in the late 1980s. In 1967, planning permission was granted for a large housing development on the site (“1967 Permission”). The approved plan (“Original Master Plan”) identified the proposed location of the buildings and roads which comprise the development.

From 1967 to 1974, eight further planning permissions were granted which permitted the development to be constructed in a manner that differed from the Original Master Plan. Some of these permissions were implemented.

High Court proceedings were first brought in 1985. At this point, a small number of buildings had been constructed, all of them pursuant to the permissions granted after the 1967 Permission, rather than under the 1967 Permission itself. The landowner sought declarations regarding the status of the 1967 Permission (and in particular whether it had lapsed). In his judgment, Drake J granted four declarations, the third of which is most relevant. In summary, this declaration was that the development pursuant to the 1967 Permission had commenced and could be lawfully completed at any time in the future (the “Third Declaration”).

Following the 1987 judgment, Snowdonia National Park Authority (“Snowdonia”) became the local planning authority for the site. A series of further planning permissions were granted by Snowdonia in the period from 1996 to 2011 which permitted additional changes from the Original Master Plan. From 1987 onwards, the developments carried out at the site were all pursuant to the permissions granted following the 1967 Permission.

In 2017, Snowdonia informed HPL that it considered that it was no longer possible to implement the 1967 Permission. This was on the basis that it was no longer physically possible to build the development in a manner which was consistent with the Original Master Plan.

Procedural History

The present proceedings began as a claim under Part 8 of the Civil Procedure Rules. HPL sought declarations that:

1. Snowdonia was bound by the judgment and declarations of Drake J;

2. the 1967 Permission is valid and extant; and

3. the development may be carried out under the 1967 Permission until completion, except to the extent that any development has been carried out or is carried out pursuant to subsequent planning permissions.

In Hillside Parks Limited v Snowdonia National Park Authority [2019] EWHC 2587 (QB), HHJ Keyser QC considered that there were two issues. Firstly, whether Drake J’s Third Declaration was wrong in law, and secondly, whether Snowdonia remained bound by the Third Declaration.

In respect of the first issue, the judge found no error in law. He considered that future development carried out under the 1967 Permission could no longer be lawful as the development carried out pursuant to the permissions granted since 1967 now made it physically impossible to develop the site in accordance with the Original Master Plan. In particular, some of the homes are not built in the position shown on the Original Master Plan and, indeed, are in some cases located where the Original Master Plan stipulated that roads and footpaths should be built. Therefore, development which had occurred since 1987 meant that Snowdonia could no longer be bound by the Third Declaration.

The case was appealed to the Court of Appeal, where Singh LJ gave the leading judgment. Singh LJ found that the High Court judge had been entitled to reach the view that it was no longer physically possible to implement the 1967 Permission.

HPL also argued that the judge had been wrong to rule that F. Lucas & Sons Ltd v Dorking and Horley Rural District Council (1966) 17 P & CR 111 did not apply. The Lucas judgment indicates that planning permissions may, in some circumstances, be construed as authorising a series of independent acts. Following this approach, although it may be physically impossible to carry out the development permitted by the original permission on part of a site, this would not render it unlawful to carry out independent acts of development under that permission elsewhere on the site. The Court of Appeal said that Hillside was not a Lucas case and observed that Lucas was “a highly exceptional case”.

HPL also contended that the proceedings represented an abuse of process. The doctrine of abuse of process requires that once an issue has been fully and finally decided by the courts, the parties cannot normally raise subsequent legal arguments which could have been raised in the initial proceedings. HPL argued that it was an abuse of process for Snowdonia to make arguments based on Pilkington v Secretary of State for the Environment [1973] 1 WLR 1527 (which relates to the incompatibility of planning permissions) when that case had been decided in 1973 and yet had not been raised by Snowdonia’s predecessor in title in the High Court proceedings in the 1980s.

In considering whether an abuse of process had occurred, Singh LJ explained that a “merits-based assessment” of all the facts was required, including both the public and private interests affected. As well as HPL’s commercial interests, there were also “important public interests at stake”, including preventing inappropriate development in a National Park. Singh LJ considered it relevant that Snowdonia had apparently, for some time prior to 2017, maintained that the 1967 Permission could be implemented on areas of the site which had not been developed pursuant to subsequent permissions; but this factor was not conclusive. The factual and legal developments since 1987 meant that Snowdonia’s arguments were not an abuse of process. Notably, the Court of Appeal stated that subsequent case law, including Sage v Secretary of State for the Environment [2003] UKHL 22, has placed greater emphasis on the need to view planning permissions as a whole rather than as consent for delineable acts of development.

Issues on Appeal

There are two main issues before the Supreme Court:

(1) Can the court to take into account the public interest in not permitting inappropriate development in a National Park, when deciding whether it would be an abuse of process for a party to make an argument which it failed to make in earlier legal proceedings?

(2) Where there are successive planning permissions relating to the same site, and the later permissions are for changes to one part of a wider development approved under the original planning permission, does the implementation of the later permission(s) render the original permission completely unimplementable? Or, in the alternative, could development pursuant to the original permission still be carried out in areas of the site which have not been developed under the later permission(s)?

The Supreme Court considered these issues during a one-day hearing on 4 July 2022.

Comment

The Supreme Court’s judgment will confirm whether it is lawful to continue development under an earlier permission once there has been a “drop-in” or “slot-in” planning permission covering part of a scheme authorised by the earlier consent. Drop-in permissions are quite common and have often been used by developers to change discrete parts of a development. Therefore, this judgment is significant and will be of great interest to developers and those with an interest in sites built under a drop-in permission. The Court of Appeal declined to express a view on whether the implementation of drop-in permissions would render development already carried out under the original permission unlawful. It will be interesting to see how the Supreme Court approaches this complexity. In addition, it will be interesting to see if the Supreme Court differentiates between the position where there is an outline or a detailed planning permission.

The Supreme Court will also have the opportunity to provide further guidance on the doctrine of abuse of process and which factors may be taken into account when the issue of abuse is considered. This will have ramifications for civil litigation more broadly.

New Judgment: Basfar v Wong [2022] UKSC 20

On appeal from [2020] UKEAT/0223/19

The Appellant (a national of the Philippines) is a migrant domestic worker who worked in the household of the Respondent, a diplomat representing the Kingdom of Saudi Arabia in the United Kingdom. Ms Wong claims to be a victim of human trafficking who was forced to work for Mr Basfar and his family in circumstances of modern slavery after they brought her with them to the UK in August 2016.

Ms Wong brought a claim against Mr Basfar in an employment tribunal for wages and breaches of employment rights. Mr Basfar applied to have her claim struck out on the ground that he has diplomatic immunity from suit. Under article 31 of the Vienna Convention on Diplomatic Relations 1961 (the “Diplomatic Convention”), diplomatic agents enjoy complete immunity from the criminal jurisdiction of the receiving state and are also generally immune from its civil jurisdiction. There is, however, an exception for civil claims relating to “any professional or commercial activity exercised by the diplomatic agent in the receiving State outside his official functions.”

The issue is whether the conduct alleged constitutes a “commercial activity exercised” that is outside official functions.

The employment tribunal declined to strike out Ms Wong’s claim. The Employment Appeal Tribunal allowed Mr Basfar’s appeal but issued a certificate that the case was suitable for an appeal directly to the Supreme Court, “leapfrogging” the Court of Appeal.

 

HELD – By a majority of three to two, allowing the appeal and deciding that, if the facts alleged are proved, Mr Basfar does not have diplomatic immunity in relation to the claim.

 

Diplomatic immunity is a fundamental principle of national and international law. Its purpose is to ensure the efficient performance of the functions of diplomatic missions as representing States. Article 31 of the Diplomatic Convention provides for only limited exceptions from immunity, one of which is the “commercial activity” exception. Also relevant is article 42, which states that a diplomatic agent “shall not in the receiving state practise for personal profit any professional or commercial activity.”

The majority agreed with Mr Basfar’s contention that the ordinary employment of a domestic worker by a diplomat does not constitute a “commercial activity” within the meaning of the exception. As a matter of language, hiring a domestic worker is capable of being described as exercising a “commercial activity”. But the scope of the exception cannot be determined just by interrogating the ordinary meaning of the words used: it is also necessary to consider the purpose of the provision. It would be contrary to the purpose of conferring immunity on diplomatic agents to interpret the words “any … commercial activity” as including activities incidental to the ordinary conduct of daily life of diplomats and their families in the receiving state, such as purchasing goods and services for personal use.

However, Lord Briggs and Lord Leggatt reject Mr Basfar’s contention that the same is true of the trafficking and exploitation of a domestic worker by a diplomat. Exploiting a domestic worker by compelling her to work in conditions of modern slavery is not comparable to an ordinary employment relationship that is incidental to the daily life of a diplomat. There is a material and qualitative difference between these two activities: employment is a voluntary relationship, entered into freely and governed by the terms of a contract, whereas the essence of modern slavery is that work is extracted by coercing and controlling a victim.

The extent of control over Ms Wong’s person and dominion over her labour exercised by Mr Basfar on the assumed facts of this case was so extensive and despotic as to place her in a position of domestic servitude. Further, on the assumed facts Mr Basfar gained a substantial financial benefit by deliberately and systematically exploiting Ms Wong’s labour for almost two years, initially for a fraction of her contractual entitlement to wages and latterly for no pay at all. This conduct is accurately described as a commercial activity practised for personal profit.

In the view of the majority, the appropriate criteria for distinguishing between (i) ordinary domestic employment arrangements that are incidental to the daily life of a diplomat in the receiving state and are covered by immunity, and (ii) exploitation of a domestic worker for profit which falls within the exception for any “commercial activity” exercised by a diplomatic agent, are the concepts of servitude, forced labour and human trafficking recognised in international law and now often grouped together under description “modern slavery”. On the assumed facts, this case falls within all these categories and is a paradigm example of domestic servitude.

The majority concludes that, if the facts alleged by Ms Wong are proved, Mr Basfar does not have immunity from the civil jurisdiction of the UK courts. However, unless admissions are made, a hearing is required to determine the truth of the allegations.

Lord Hamblen and Lady Rose dissent. Although they agree with the majority on the principles of interpretation and that the normal employment of a domestic worker does not amount to “commercial activity” within the exception, they disagree with the majority’s conclusion that the conditions under which a person is employed or how they came to be employed can convert employment which is not of itself a “commercial activity” into such an activity falling within the exception. Modern international instruments designed to eliminate the abhorrent practices of trafficking, modern slavery, forced labour and domestic servitude contain nothing suggesting that the meaning of the term “commercial activity” has been expanded now to include trafficked employment. The majority’s expansion of the commercial activity exception risks seriously undermining the scope of diplomatic immunity by creating an uncertain boundary between what is and is not covered, as well as exposing the UK’s diplomats overseas to formal or informal retaliatory measures.

To view the judgment, please see:

Judgment (PDF)
Judgment on The National Archives (HTML version)
Judgment on BAILII (HTML version)

For the Press Summary, please see:

Press summary (HTML version)

Watch hearing

13 Oct 2021
Morning session
Afternoon session

14 Oct 2021
Morning session
Afternoon session

This Week in the Supreme Court – Week Commencing 4th July 2022

Hearings in the Supreme Court are now shown live on the Court’s website.

On Monday 4th July, the Court will hear the case of Hillside Parks Ltd v Snowdonia National Park Authority, on appeal from [2020] EWCA Civ 1440. The issue in this case relates to successive planning permissions granted over the same site, and how they should be implemented. The hearing will begin at 11:00 in Courtroom One.

On Wednesday 6th July, the Court will hand down judgment in Basfar v Wong [2022] UKSC 20. The Court will decide on the scope of diplomatic immunity in relation to a trafficked individual employed at a UK residence, and the current law in relation to immunity as a whole. Hand down will take place at 09:45 in Courtroom One.

The following Supreme Court judgments remain outstanding: (As of 6/7/22)

The Law Debenture Trust Corporation plc v Ukraine (Represented by the Minister of Finance of Ukraine acting upon the instructions of the Cabinet of Ministers of Ukraine) Nos. 2 and 3, heard 9-12 December 2019
BTI 2014 LLC v Sequana SA and Ors, heard 4 May 2021
East of England Ambulance Service NHS Trust v Flowers and Ors, heard 22 June 2021
Harpur Trust v Brazel, heard 9th November 2021
Guest and another v Guest heard 3rd December 2021
Fearn and others v Board of Trustees of the Tate Gallery heard 7th December 2021
Stanford International Bank Ltd (in liquidation) v HSBC Bank PLC, heard 19th January 2022
Commissioners for Her Majesty’s Revenue and Customs v NCL Investments Ltd and another, heard 25th January 2022
DCM (Optical Holdings) Ltd v Commissioners for Her Majesty’s Revenue and Customs (Scotland), heard 8th February 2022
HA and RA (Iraq) v Secretary of State for the Home Department, heard 17th May 2022
AA (Nigeria) v Secretary of State for the Home Department, heard 17th May 2022
R v Luckhurst, heard 7th June 2022
Commissioners for Her Majesty’s Revenue and Customs v NHS Lothian Health Board, heard 8th June 2022
Canada Square Operations Ltd v Potter, heard 14th June 2022
R v Andrewes, heard 21st June 2022
Hillside Parks Ltd v Snowdonia National Park Authority, heard 4th July 2022

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