Skatteforvaltningen (Danish Customs and Tax Divisions) v Solo Capital Partners LLP (in special administration)
| Jurisdiction | England & Wales |
| Judgment Date | 25 February 2022 |
| Neutral Citation | [2022] EWCA Civ 234 |
| Year | 2022 |
| Court | Court of Appeal (Civil Division) |
Sir Julian Flaux, Chancellor of the High Court, Lord Justice Phillips and Lord Justice Stuart-Smith
Court of Appeal (Civil Division)
Danish tax fraud – Whether claims can be brought by the Danish Tax Authority in English Courts – Scope of Dicey Rule 3 – Held yes – Appeal allowed.
In Skatteforvaltningen (The Danish Customs and Tax Divisions) v Solo Capital Partners LLP [2022] BTC 6, the Court of Appeal overturned the decision of the High Court in Skatteforvaltningen (Danish Customs and Tax Administration) v Solo Capital Partners LLP [2021] BTC 35, deciding that the Danish tax authority could pursue claims before the English courts in respect of alleged fraudulent withholding tax claims.
The Danish tax authority (“SKAT”) brought a claim to recover £1.44bn of Danish withholding tax (WHT) from 114 defendants. SKAT alleged that the WHT was paid out as the result of English based Solo Capital Partners LLP (the defendants) claiming that they were shareholders in Danish companies which had tax withheld from them on dividend payments for which they sought a refund. Whereas SKAT’s case was that it was the victim of fraud as the defendants had never in fact been shareholders in the companies, had never received dividends from the companies and had therefore never had any tax withheld and accordingly there was no tax to refund.
In the High Court ([2021] BTC 35), it was decided that the claim was not admissible before the English courts because of what is known as “Dicey Rule 3” which provides that the courts of one country will not enforce the penal and revenue laws of another country.
SKAT appealed to the Court of Appeal, which allowed its appeal. The Court of Appeal held that although SKAT was persuaded by the fraud to believe that what it was refunding was WHT, in reality the “refunds” were not of tax at all, but were the removal of SKAT's funds in the same way as if the defendants “had broken into the safe in SKAT's office and stolen the money”. Therefore, the claim was not a claim to unpaid tax or a claim to recover tax at all, but a claim to recover monies which had been abstracted by fraud. Accordingly, the claim was not inadmissible by virtue of Dicey Rule 3.
In respect of other defendants, known as “ED&F Man”, SKAT did not seek to appeal on the Dicey Rule 3 issue, and the claims against them remained inadmissible by virtue of that rule, although not for the reasons given by the High Court but because those claims were a revenue matter so that the Brussels Recast Regulation did not apply to them.
Given this judgment, there will now be another preliminary trial, this time to determine whether as SKAT contends the claims to refunds made by the defendants were not valid claims under Danish tax law.
Comment by Meg Wilson, Senior Tax Writer at Croner-i.
Lord Pannick QC, Michael Fealy QC, Jamie Goldsmith QC, Jonathan Schwarz, Abra Bompas, Andrew Scott and KV Krishnaprasad (instructed by Pinsent Masons LLP) appeared for the Claimant / Appellant
Nigel Jones QC, Kieron Beal QC, Lisa Freeman and Laurence Page (instructed by Meaby & Co) appeared for the Sanjay Shah Defendants / Respondents
Ali Malek QC and George McPherson (instructed by Rosenblatt) appeared for ED&F Man Capital sMarkets Ltd
Alison Macdonald QC, Tom De Vecchi, Luke Tattersall and Sophia Dzwig (instructed by DWF Law LLP) appeared for the DWF Defendants
Adam Zellick QC and Ian Bergson (instructed by Reed Smith LLP) appeared for Messrs Knott & Hoogewerf
Daniel Edmonds (instructed by Stewarts) appeared for the PS/GoC Defendants
Robert Palmer QC, Christopher Vajda QC and Conor McCarthy (instructed by SMK & SMB) appeared for the SMB Defendants
John Devonshire appeared in person
Alexander Korner / Korner Unternehmensgruppe GMBH (formerly CEKA INVEST GMBH) were represented by their solicitors Penningtons Manches Cooper Alba Brown and Gavin Brown appeared in person
Guenther Klar was represented by solicitors Howard Kennedy LLP
North Channel Bank was represented by solicitors BDB Pitmans LLP
Anthony Mark Patterson was represented by solicitors Cadwalader, Wickersham & Taft LLP
[1] This appeal concerns whether the claims made in these proceedings by the claimant, which is the Danish tax authority (to which I will refer as “SKAT”), are not admissible before the English courts by reason of Rule 3(1) of Dicey, Morris & Collins on the Conflict of Laws 15th edition (to which I will refer as “Dicey Rule 3”) which provides:
English courts have no jurisdiction to entertain an action:
- for the enforcement, either directly or indirectly, of a penal, revenue or other public law of a foreign State;
[2] SKAT appeals, with the permission of the judge below in relation to Ground 2 and of Males LJ in relation to Ground 1, against the Order of Andrew Baker J dated 27 April 2021, dismissing SKAT's claims on the basis that Dicey Rule 3 was applicable.
[3] SKAT brought five separate claims in the Commercial Court (now consolidated) against 114 defendants for some £1.44 billion seeking to recover refunds made by it to the defendants or as directed by them of Danish withholding tax (“WHT”). In simple terms, WHT is a tax of 27% on dividends paid by Danish domiciled companies to their shareholders which the companies are obliged to withhold from the shareholders and pay over to SKAT. SKAT routinely refunds some or all of that WHT to foreign recipients of the dividends where the WHT exceeds the permissible taxation on the recipient under a relevant double taxation treaty (“DTA”).
[4] SKAT made such refunds under a variety of schemes. This case concerns the “Forms Scheme” which operated by reference to a standard paper form produced by SKAT, Form No 06.003, which had to be completed and submitted with supporting documentation for approval by SKAT's accounting 2 department.
[5] Against the defendants other than the so-called “ED&F Man” SKAT alleges that the refunds that were paid out were induced by fraudulent misrepresentations by foreign entities (“the Solo etc Applicants”) that they were shareholders in Danish companies which had withheld tax in respect of dividends paid to them in respect of which they sought a refund from SKAT. SKAT's case is that it was a victim of a sophisticated fraud in that the Solo etc Applicants never in fact held any shares in any of the relevant Danish companies, never received dividends from those companies and therefore had never had any tax withheld from them on those dividends so that there was no tax for SKAT to refund.
[6] This alleged fraud is said to have been principally orchestrated from or carried out through entities based in England. With a handful of exceptions the claims are not brought against the Solo etc Applicants themselves but against the individuals and corporate entities who are said to have procured or otherwise been involved in the making of the relevant applications for refunds and who received the bulk of the sums which were extracted from SKAT. The claims against these defendants (to whom I will refer, as do the SKAT pleadings, as “the alleged fraud defendants” without any question of pre-judging matters which are for a subsequent trial) are brought for damages for deceit, fraudulent misrepresentation and unlawful means conspiracy, together with equitable claims for dishonest assistance, knowing receipt and equitable compensation together with other private law claims. For the purposes of this appeal, the detail of the claims does not matter. All that it is important to note at the outset is that the basis for all these claims is not that that there is outstanding tax which SKAT is seeking to recover, because, by definition, the Solo etc Applicants and the alleged fraud defendants were never liable to pay and never did pay WHT. Rather the claims are to recover sums which were wrongfully extracted from SKAT by the fraud.
[7] The position of ED&F Man is different in the sense that there is no allegation that they were implicated in a fraud. Although it is alleged that misrepresentations were made by them, the misrepresentations are said to have been negligent. I will return to their position later in the judgment but simply note that so far as they are concerned, SKAT accepted for the purposes of this appeal that, subject to its contentions as to the effect of the Brussels Recast Regulation and the Lugano Convention, Dicey Rule 3 applies to preclude the claims against them.
[8] Andrew Baker J is the designated or docketed judge in respect of all the SKAT claims in this jurisdiction. It should be noted that SKAT has brought similar claims in other jurisdictions in respect of alleged fraud by other defendants, principally in New York and Malaysia. So far as the claims here are concerned, at a case management conference in July 2020, Andrew Baker J determined that there should be three trial hearings:
- A trial of a preliminary issue as to whether SKAT's claims offend Dicey Rule 3. The preliminary issue as ordered by the judge was:Are any of SKAT's claims, as alleged, inadmissible in this court under the rule of law stated, e.g., as Dicey Rule 3 (Dicey, Morris & Collins on the Conflict of Laws, 15th Ed., para 5R-019)? If so, which claims are inadmissible and why?It is the judgment and Order made following that trial which is the subject of the appeal.
- The so-called Validity Trial, a trial of other preliminary issues defined to determine whether as SKAT contends the claims to refunds made by the defendants were not valid claims under Danish tax law. This was originally fixed for trial for 4–6 weeks in Michaelmas Term 2021, but has inevitably been adjourned pending this appeal.
- The so-called Main Trial of all other issues which was originally fixed to be heard for the whole...
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