Slaughter and May has advised on a landmark tax ruling that will see hundreds of businesses receive millions in compensation from the UK Revenue & Customs (HMRC).

The firm secured victory yesterday (18 July) after a 12-year battle when the Lords ruled that companies wrongly charged advance corporation tax (ACT) should be able to recover interest on the sum on a compound interest rate rather than a lower flat rate.

Slaughters dispute resolution partner Sarah Lee led the team advising test claimant Sempra Metals, with One Essex Court's Laurence Rabinowitz QC instructed as counsel.

The dispute, which has wide implications for recovering costs in commercial litigation, is one of the most closely-watched tax cases of recent years.

Lee commented: "The Lords has acknowledged the very unsatisfactory state of English law on interest, which to date has failed to recognise that interest payments in the real world are always calculated on a compound basis. This is undoubtedly a landmark judgment of wide application."

The Lords ruled that test claimant Sempra will be entitled to claim compound interests on payment of ACT between 1974 and 1998.

The decision is encouraging for hundreds of companies facing the same issues grouped together in the ACT Group Litigation Order.

HMRC, which used in-house solicitors, instructed Rabinowitz's One Essex Court colleague Ian Glick QC.

Commenting on the case, Reynolds Porter Chamberlain tax litigation partner, Mark Whitehouse said: "Clearly this is a victory for tax-payers but they have won in a way that will give a lot of comfort to HMRC."

He added: "The House of Lords wanted to look quite carefully at how to calculate HMRC's gain, limiting the interest rate to the Government's borrowing rate. It could take a while before we know how much taxpayers can expect to get back."

The case underlines the reputation of Slaughters' contentious practice, which has handled a string of high-profile business disputes in recent years despite being smaller than many City rivals.

Notably, Lee also led Slaughters' team on the MAN vs Freightliner litigation, which in 2005 saw the magic circle law firm help to secure one of the largest pay-outs ever from UK court.