Skatteforvaltningen (the Danish Customs and Tax Administration) v Solo Capital Partners LLP (in special administration) and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Foxton |
| Judgment Date | 06 August 2020 |
| Neutral Citation | [2020] EWHC 2161 (Comm) |
| Date | 06 August 2020 |
| Docket Number | Case Nos: CL-2018-000297; C-2018-000404; CL-2018-000590; CL-2019-000487 |
| Year | 2020 |
| Court | Queen's Bench Division (Commercial Court) |
[2020] EWHC 2161 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Foxton
Case Nos: CL-2018-000297; C-2018-000404; CL-2018-000590; CL-2019-000487
James Ruddell (instructed by Pinsent Mason LLP) for the Claimants
Nigel Jones QC, Lisa Freeman and Laurence Page (instructed by Meaby & Co Solicitors LLP) for the Sanjay Shah Defendants
Hearing date: 31 July 2020
Draft judgment to the parties: 3 August 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This is the application of the Sanjay Shah Defendants for an order that a substantial sum currently held in court should be paid out for the purposes of enabling them to pay their legal fees to the end of this litigation.
The sums in court are monies in which both SKAT and the Sanjay Shah Defendants claim a proprietary interest. It is common ground that both proprietary claims are arguable in the sense that they are not susceptible to summary judgment in either direction, but will have to be determined at trial.
I have set out the background to the application in a previous judgment which is reported at [2020] EWHC 1658 (Comm).
The issues raised by this application are difficult ones, but not unfamiliar:
i) SKAT claims it has been the victim of a huge fraud perpetrated by the Sanjay Shah Defendants, among others, and wishes to maximise its prospects of recovering the proceeds of that fraud. It is therefore reluctant to allow monies in which it claims a proprietary interest to be spent on the Defendants' legal expenses.
ii) The Sanjay Shah Defendants deny the allegations of fraud, but say that their ability to defend those allegations and vindicate themselves is being severely impaired by steps taken to seize what they say is their property, both in this action and in criminal and regulatory investigations outside it, and that if they are prevented from using property to which SKAT has only an arguable proprietary claim, their ability to defend themselves will be severely compromised.
iii) The Court cannot decide at this stage whether SKAT are right that they were defrauded by the Sanjay Shah Defendants, or whether the Sanjay Shah Defendants are right and SKAT's claims are without merit.
The principles which the Court applies in these circumstances are those set out in Marino v FM Capital Partners Ltd [2016] EWCA Civ 130 and Kea Investments Ltd v Watson [2020] EWHC 472 (Ch).
In such circumstances, the first thing which the Court will seek to ascertain is whether there are other assets in which the claimant does not assert an interest which the defendant can use to meet its legal fees, a matter on which the party seeking to use the identified funds bears the burden of proof. If that burden is met, the court must then ask whether the apparent injustice of allowing the defendant to use the funds is outweighed by the possible injustice to the defendant if he is denied the opportunity of advancing what may in due course be a successful defence.
In this case it is common ground that the Sanjay Shah Defendants have very substantial assets to which SKAT does not assert a proprietary claim and which are not subject to a proprietary or similar injunction. I am going to refer to these as the Unclaimed Assets. I understand that Mr Shah has valued the Unclaimed Assets at a figure significantly in excess of the amount which the Sanjay Shah Defendants seek to withdraw from court, although of course it is less clear what the realisable value of these assets might be, particularly in these turbulent times. However, as matters stand, the Unclaimed Assets are subject to criminal restraints which prevent their use, or they are illiquid assets, with it being unclear precisely when, or for what amounts, the assets can in due course be realised.
It is, accordingly, common ground that, as matters stand, the Sanjay Shah Defendants have access to no other assets than the funds in court to meet their legal liabilities. There are, however, Unclaimed Assets which are not subject to legal restraint which may be liquidated over the next 18 months:
i) There is what is described as a “box option” investment due to be redeemed on 11 January 2021.
ii) There is a loan due to be repaid in June 2021, with a related right to shares.
iii) There is a larger loan due to be repaid in December 2021.
The value of the loan covenants is presently uncertain. By contrast, the funds in court are liquid cash of fixed value. The Sanjay Shah Defendants have offered undertakings with a view to providing SKAT with a charge over or otherwise securing the Unclaimed Assets to replace the proprietary interest claimed over the sums currently in court. I return to this issue below.
The structure of the proceedings
The SKAT litigation, for which Mr Justice Andrew Baker is the designated judge, is one of the largest and most complex pieces of litigation to be heard in the Commercial Court. At a CMC in July 2020, Mr Justice Andrew Baker gave directions for the trial of the action as follows:
i) There will be a one week trial, referred to as the Revenue Rule Trial, which has been fixed for 22 March 2021. This will consider the argument advanced by all of the Defendants that SKAT's claims must fail because they involve an attempt by a foreign state to recover tax or revenue.
ii) If the action progresses beyond the Revenue Rule Trial, there will be a 6-week “Validity Trial” fixed for 25 October 2021, which will be “definitional”, and significantly shape the future of the litigation, but will not be legally dispositive, however decided.
iii) There will be a Main Trial commencing in Hilary Term 2023 and concluding by Easter 2024.
The Sanjay Shah Defendants' costs arrangements
The Sanjay Shah Defendants have retained their legal team on a “whole case fee” basis under which it has been agreed that an agreed total discounted base fee will be paid for representation for the entire trial. That amount became due immediately on the signing of a Conditional Fee Agreement (“the CFA”). The CFA contains two termination dates for the members of the legal team. There is a right of termination if about 35% of the total is not paid by 1 October 2020, and a further right of termination if the balance is not paid by 1 March 2021. The CFA does not cover disbursements (other than counsels' fees), for which the Sanjay Shah Defendants seek a further payment on this application, although Mr Jones QC made it clear that in his opinion the amount sought was unlikely to be enough.
The Sanjay Shah Defendants say that the amounts payable under the CFA fall very substantially below the reasonable value of the work which will be necessary to complete the Main Trial. Given the gargantuan scale of this litigation, and the amounts which I am told SKAT has estimated it will have to spend, that may very well be right. However, there remains the possibility that the litigation may not run its full course, or a particular legal representative may not for any reason run the full course of the litigation. For example, a member of the legal team who was paid their part of the first instalment but not the second would be able to terminate the retainer, but keep the first instalment regardless of its connection to the reasonable value of work...
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Skatteforvaltningen (Danish Customs and Tax Divisions) v Solo Capital Partners LLP (in special administration)
...4 WLR 98Skatteforvaltningen v Solo Capital Partners LLP [2020] EWHC 2022 (Comm)Skatteforvaltningen v Solo Capital Partners LLP [2020] EWHC 2161 (Comm); [2020] Costs LR 1101Skatteforvaltningen v Solo Capital Partners LLP [2021] EWHC 1222 (Comm); [2021] Costs LR 585Slovak Republic v Achmea BV......
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Skatteforvaltningen (Danish Customs and Tax Divisions) v Solo Capital Partners LLP (in special administration)
...4 WLR 98Skatteforvaltningen v Solo Capital Partners LLP [2020] EWHC 2022 (Comm)Skatteforvaltningen v Solo Capital Partners LLP [2020] EWHC 2161 (Comm)Skatteforvaltningen v Solo Capital Partners LLP [2021] EWHC 1222 (Comm)Slovak Republic v Achmea BV (Case C-284/16) EU:C:2018:158; [2018] 4 WL......