QRS 1 Aps and Others v Frandsen
| Jurisdiction | England & Wales |
| Judge | Lord Justice Simon Brown,Lord Justice Auld,Lord Justice Thorpe |
| Judgment Date | 21 May 1999 |
| Judgment citation (vLex) | [1999] EWCA Civ J0521-4 |
| Docket Number | QBENI 98/1598 |
| Court | Court of Appeal (Civil Division) |
| Date | 21 May 1999 |
[1999] EWCA Civ J0521-4
Lord Justice Simon Brown
Lord Justice Auld
Lord Justice Thorpe
QBENI 98/1598
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(MR JUSTICE SULLIVAN)
Royal Courts of Justice
Strand
London WC2
MR C VAJDA QC and MR C QUIGLEY (Instructed by Eversheds, 58 Queen Victoria Street, London EC4V 4JL) appeared on behalf of the Appellant
MR T IVORY and MR P BAKER (Instructed by Osborne Clark, Hillgate House, 26 Old Bailey, London EC4M) appeared on behalf of the Respondent
Introduction
It is a fundamental principle of English law that our courts will not directly or indirectly enforce the penal, revenue or other public laws of another country—see rule 3 of Dicey & Morris, The Conflict of Laws, and the comment upon it in the 12th (1993) edition of that work.
On the English authorities it is clear that the present action falls foul of that rule: in substance it involves the indirect enforcement of Denmark's revenue law.
Do the authorities on indirect enforcement, however, survive the UK's accession (in 1972) to the Treaty of Rome, and more particularly the UK's implementation (in 1982) of the Brussels Convention on jurisdiction and the enforcement of judgments (the Convention)? That is the central question raised on this appeal. Sullivan J below held that they do and in the result struck out this action under RSC Order 18 rule 19 on the ground that it was bound to fail. The appellants contend that such a conclusion is contrary to Community law.
The first paragraph of Article 1 of the Convention provides:
"This Convention shall apply in civil and commercial matters whatever the nature of the court or tribunal. It shall not extend, in particular, to revenue, customs or administrative matters."
Is the claim which the appellants seek to advance here a revenue matter within the meaning of Article 1? That is the critical first issue which arises.
Even if it is not—even, that is, if the Convention applies—does that nevertheless leave the English courts free to strike out the claim—not, of course, for want of jurisdiction, but rather because ultimately it cannot succeed? The respondent so contends and this, indeed, was the primary holding of the judge below. That is the second issue.
Before us the appellants for the first time raised a third issue. They contend that even if this claim is properly to be regarded as a revenue matter and thus excluded from the Convention, nevertheless Community law precludes the English courts from declining to hear it on its merits and to enforce it if it succeeds. In other words, they contend that insofar as rule 3 extends to indirect enforcement, it is incompatible with the Treaty irrespective of what the Convention may say.
The Facts
The appellants are all Danish companies in compulsory liquidation. The respondent is domiciled (within the meaning of the Convention) and resident in the United Kingdom. Until 1992 he owned the companies either directly or indirectly. In November 1992 the entire assets of the companies were disposed of for cash which the following month was used to acquire the respondent's shares. In July 1994 the companies were put into liquidation on the ground that they had been engaged in asset-stripping. In March 1995 the Danish tax authorities claimed against them corporation taxes of some 30 million Danish kroner together with some 10 million Danish kroner interest, a total tax claim of some 40 million Danish kroner (nearly £4 million). The companies have no assets and the only creditors are the Danish tax authorities. It was those authorities who appointed the liquidator and who are funding this action by the companies against the respondent. Their claim against him is limited to the principal sum, together with interest, claimed by the Danish tax authorities against them. The nature of the claim is summarised in the appellants' evidence as follows:
"The claim against the defendant arises out of his involvement in the stripping of the plaintiffs' assets. In essence, the plaintiffs submit that the purchase price for the defendant's shares in each of them was paid, at the defendant's instance, from their own funds or using their assets. The plaintiffs' claims are for, in the first instance, restitution of the value of their assets which were disposed of in order to finance the purchase of the defendant's shares and, in the alternative, damages arising out of the defendant's negligence and/or reckless default in allowing the plaintiffs to suffer loss as a result of the asset-stripping in which he was involved."
The basis of the restitution claim is a provision in Danish company law prohibiting companies from providing financial assistance for the acquisition of their own shares.
Binding Authority in point
These facts are in all material respects indistinguishable from those in Peter Buchanan Limited and Macharg v McVey [1954] IR 89 (also in [1955] AC 516), the leading authority on this aspect of indirect enforcement, an Irish decision approved by the House of Lords in Government of India v Taylor [1955] AC 491—where Lord Keith of Avonholm described Kingsmill Moore J's judgment as "admirable" and containing "an able and exhaustive examination of the authorities"—and again in In re State of Norway's application (Nos 1 & 2) [1990] AC 723. The facts in Buchanan can conveniently be taken from Lord Keith's summary of the case in Government of India v Taylor at page 510:
"The plaintiff company was a company registered in Scotland which had been put into liquidation by the revenue authorities in Scotland under a compulsory winding-up order in respect of a very large claim for excess profits tax and income tax. The liquidator was really a nominee of the revenue. … The defendant having realised the whole assets of the company in his capacity as a director and having satisfied substantially the whole of the company's indebtedness, other than that due to the revenue, by a variety of devices had the balance transferred to himself to his credit with an Irish bank and decamped to Ireland. The action was in form an action to recover this balance from the defendant at the instance of the company directed by the liquidator. … The judge held that the transaction was a dishonest transaction designed to defeat the claim of the revenue in Scotland as a creditor … On the other hand, he held that although the action was in form an action by the company to recover these assets it was in substance an attempt to enforce indirectly a claim to tax by the revenue authorities of another State. He accordingly dismissed the action."
There can be no distinction between the defendant's sale of the company's assets and his pocketing of the proceeds in Buchanan and the respondent's sale of the companies' assets and use of the proceeds to fund their purchase of his own shares in the present case. It can, therefore, equally be said of the appellants' claim here as was said of the liquidator's claim in Buchanan,
"that the whole object of the suit is to collect tax for a foreign revenue, and … this will be the sole result of a decision in favour of the plaintiff."
(per Kingsmill Moore J at p.529)
The appellants, indeed, do not seriously seek to distinguish Buchanan on the facts. Certainly they made no such attempt below and, although Mr Vajda QC at one stage of his argument suggested possible differences between the cases, these appeared to dissolve on further consideration and were not, I think, ultimately pursued. Nor does Mr Vajda contend that as a matter of domestic law this court could do otherwise than apply Buchanan (although he leaves open the possibility of the House of Lords wishing to revisit this area of indirect enforcement). Rather, as stated, the appellants contend that the principle cannot apply in the Community law context. I come, therefore, to the three issues earlier identified.
Issue 1: What are "revenue matters" within the meaning of Article 1?
Section 3 of the Civil Jurisdiction and Judgments Act 1982 provides that the Convention shall be interpreted "in accordance with the principles laid down by and any relevant decision of the European Court", and also that regard may be had inter alia to Professor Peter Schlosser's report on the Accession Convention (the Convention by which in 1978 the UK, Ireland and Denmark acceded to the Brussels Convention).
The second sentence of Article 1—stating that the Convention "shall not extend, in particular, to revenue, customs or administrative matters"—was added by the Accession Convention. That, states Dicey at page 276, was "following the request of the United Kingdom in the accession negotiations. The exclusion of revenue and customs matters reflects the general principle found in most countries that foreign tax laws will not be enforced."
As, however, Professor Schlosser's report makes plain, the inclusion of this second sentence was purely declaratory. It did not purport to reduce the scope of Article 1, only to clarify it. As Professor Schlosser said:
"The distinction between civil and commercial matters on the one hand and matters of public law on the other is well recognised in the legal systems of the original [six] Member States …
In the United Kingdom and in Ireland the expression 'civil law' is not a technical term and has more than one meaning. It is used mainly as the opposite of criminal law. Except in this limited sense, no distinction is made between 'private' and 'public' law which is in any way comparable to that made in the legal systems of the original...
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