High Court emphasises the need to give notice of claims
A recent decision of the High Court emphasised the need to comply with the exact terms of any agreement when giving notice of a claim under a tax indemnity. It would not be possible to rely on the conduct of the counter-party to the agreement in assuming that formal notice did not have to be given.
The High Court decision of Almacantar (Marble Arch) SARL and another v Railway Pension Exempt Unit Trust (acting by its trustee BNY Mellon Trust & Depositary (UK) Ltd)  EWHC 2385 involved an application for summary judgment (a procedure by which the court may decide a claim without a trial in order to achieve a swift resolution) in respect of a claim under a tax indemnity.
Railway Pension Exempt Unit Trust (“RailPen”) had sold Marble Arch Tower to Almacantar (Marble Arch) SARL (“Almacantar”) in a transaction that completed on 23 June 2011. The transaction involved a complicated structure to try and reduce the liability to stamp duty land tax (“SDLT”) by using provisions relating to partnerships. The uncertainty over the SDLT arrangements may have been a reason why RailPen agreed to indemnify Almacantar for 50% of the SDLT liability plus any interest and costs, subject to a financial cap of £1.6m.
The tax indemnity contained the usual provisions including a seven-year time limit for notifying claims and a “conduct of claims” clause whereby RailPen could be consulted and have input into any correspondence or litigation with HM Revenue & Customs (“HMRC”) concerning the tax liability.
A SDLT return was submitted on the basis of a £79,815 liability. HMRC issued an assessment for £3,1192,600 plus interest of £368,942 in May 2015, so comfortably above the £1.6m indemnity limit and a copy was sent to the advisers for RailPen.
Throughout the period of time from June 2011 to the issue of the assessment and beyond to 2018, lawyers for RailPen were involved in discussions with advisers to Almacantar regarding the approach to take with HMRC concerning the SDLT liability.
The deadline for issuing formal notice of the assessment passed on 23 June 2018 and the lawyers for RailPen then declined to comment on the correspondence with HMRC. Formal notice of the claim was sent in September 2019 after RailPen had pointed out that the time limit for notifying claims had expired.
The judge found for RailPen in that Almacantar would have no real prospect of success in bringing the claim. The activities of RailPen in commenting on the correspondence were in accordance with the terms of the sale agreement. The actions did not give Almacantar the right of estoppel and therefore prevent RailPen on relying on the strict notification time limits. The judge applied the law on estoppel set out by the Supreme Court in Tinkler v Commissioners for HMRC  UKSC 39.
Points to take away
It is critical to ensure that any time limits (and any other provisions relating to the giving of a notice) are complied with in full. If Almacantar had given formal notice of the claim before 23 June 2018, it is likely that RailPen would have had to pay up under the tax indemnity. It is not possible to rely on the co-operation of the seller in commenting on correspondence with HMRC regarding a tax liability in assuming that no formal notice has to be given.