Skatteforvaltningen (the Danish Customs and Tax Administration) v Solo Capital Partners LLP (in special administration) and Others
| Jurisdiction | England & Wales |
| Judge | Lord Lloyd-Jones,Lord Hodge,Lord Briggs,Lord Hamblen,Lord Richards |
| Judgment Date | 08 November 2023 |
| Neutral Citation | [2023] UKSC 40 |
| Court | Supreme Court |
[2023] UKSC 40
Lord Hodge, Deputy President
Lord Lloyd-Jones
Lord Briggs
Lord Hamblen
Lord Richards
Appellants
Kieron Beal KC
Nigel Jones KC
Lisa Freeman
Laurence Page
(Instructed by Meaby & Co LLP)
Respondent
Lord Pannick KC
James Goldsmith KC
Andrew Scott KC
Jonathan Schwarz
Abra Bompas
James Ruddell
KV Krishnaprasad
(Instructed by Pinsent Masons LLP (London))
Heard on 5 and 6 July 2023
Lord Lloyd-Jones ( with whom Lord Hodge, Lord Briggs, Lord Hamblen and Lord Richards agree):
This appeal concerns the admissibility of claims made in the Commercial Court in London by Skatteforvaltningen, the Danish Customs and Tax Administration, (“the respondent”) against Mr Sanjay Shah and companies related to Mr Shah (“the appellants”). The appellants contend that the claims seek to enforce, directly or indirectly, the revenue laws or the public laws of the Kingdom of Denmark.
Dicey, Morris & Collins, The Conflict of Laws, 16 th ed (2022), states the general principle as follows (at para 8R-001):
“Rule 20 – English courts have no jurisdiction to entertain an action:
(1) for the enforcement, either directly or indirectly, of a penal, revenue or other public law of a foreign State; …”
The essential questions arising on this appeal are the scope of Rule 20(1) and whether it has any application to the facts of the present case. In its application to the tax laws of a foreign State the principle is often referred to as “the revenue rule”. For convenience, its application to public laws of a foreign State will be referred to in this judgment as “the sovereign authority rule”.
Mr Shah was a founding member of Solo Capital Partners LLP (“SCP”) which was established in 2011. SCP was until 2015 a Financial Conduct Authority-regulated custodian claiming to specialise in tax structured financial products. It purported to provide custodian services to clients including US Pension Plans (“USPPs”), companies registered in the International Business and Financial Centre, Malaysia (“Labuan companies”) and finance brokers.
The respondent is an independent ministerial authority established under Danish law. It is part of the sovereign authority of the Kingdom of Denmark which is a single legal personality. It is recognised in Danish law as having sufficient legal capacity to bring claims in its own name.
A number of other defendants to the consolidated Commercial Court claims (CL-2018-000297, 000404, 000690, CL-2019-000487 and 000369) are not appellants before the Supreme Court. The respondent accepts that, subject to the precise terms of this judgment, the claims against these other defendants will be dismissed if the appellants' appeal is allowed.
The case concerns certain applications in which claims were made for the refund of Danish dividend withholding tax (“WHT”). Non-residents of Denmark who receive dividends from Danish companies are liable to pay 27% tax which is withheld at source. Non-residents of Denmark who meet the requirements set out in the Danish Withholding Tax Act (“WHT Act”) and applicable double taxation treaties are entitled to a partial or full refund of the tax so withheld.
Non-residents of Denmark are liable to tax under either section 2 of the WHT Act or section 2 of the Danish Corporation Taxation Act on dividends they have a right to receive from Danish companies. The Danish company must withhold 27% of the dividend it has declared pursuant to section 65 of the WHT Act and pay this to the respondent pursuant to section 66 of the WHT Act, to discharge the tax liability described above. As reflected in section 69B(1) of the WHT Act, a non-resident shareholder who is liable to tax (under section 2 of the WHT Act or section 2 of the Danish Corporation Taxation Act) and who has a right to receive dividends, from which tax has been withheld by the Danish company, may claim repayment if the tax withheld exceeds the final tax that Denmark is permitted to levy in accordance with the terms of a relevant double taxation treaty.
Danish public companies distribute the dividend declared, net of tax withheld, to the accounts of custodians or individuals as designated by the Danish central securities depositary based on the information in its register. A custodian registered with the central securities depositary may have clients who are themselves custodians.
Non-residents of Denmark usually hold shares via a custodian, rather than directly with the central securities depositary.
Dividend tax refund applications were made by the USPPs and Labuan companies who were clients of SCP and three related custodians (“the Solo WHT Applications”).
At the relevant time there were various ways in which a WHT reclaim might be made. So far as relevant, a shareholder or its agent could make an application by submitting to the respondent a standardised form seeking a refund of Danish dividend tax, with accompanying documents. In this case the accompanying documents included (i) a covering letter from a tax reclaim agent acting on behalf of the relevant applicant; (ii) a credit advice note issued by a relevant custodian in respect of the purported shares, dividends and tax; and (iii) a document from the relevant foreign tax authority certifying that the applicant was resident in the relevant foreign jurisdiction.
The respondent's pleaded case is that the Solo WHT applicants owned no shares in any relevant Danish companies, received no dividends on any such shares and suffered no withholding of Danish tax in respect of any such dividends. The respondent alleges that, in respect of each of the 4,590 applications made to it by clients of the custodians in these proceedings, the representations made by the Solo WHT applicants were false and made dishonestly or recklessly. It alleges that it was fraudulently induced to make payments amounting to about DKK 12.09 billion (equivalent to about £1.44 billion) pursuant to these claims.
The defendants deny the claims against them. In particular, they maintain that the trade structures resulted in the USPPs and Labuan companies being entitled under Danish tax law to make bona fide claims pursuant to section 69B(1) of the WHT Act. Alternatively, they maintain that they had a reasonable belief that the trades were lawful and complied with Danish tax law.
The respondent has issued five sets of proceedings in England and Wales which have been consolidated. There are currently 89 defendants. The claim is put primarily on the basis of common law causes of action in the law of England and Wales. The causes of action pleaded against the defendants are principally deceit and unlawful means conspiracy. The respondent also brings claims for dishonest assistance, knowing receipt and unjust enrichment. The respondent seeks equitable relief and restitutionary remedies and asserts a proprietary interest in the sums it paid out and the traceable proceeds thereof. An alternative case is advanced under Danish private law.
At a case management hearing in July 2020 Andrew Baker J delivered a preliminary issues ruling and directed that the claim should be tried in three principal stages: (i) the trial of a first preliminary issue as to whether the claim as pleaded is inadmissible under Dicey, Morris & Collins Rule 20(1); (ii) the trial of a second preliminary issue to consider the parameters of a valid WHT application (“the validity trial”); and (iii) a main trial for the purposes of making findings on liability and quantum: [2020] EWHC 2022 (Comm).
The first preliminary issue trial took place online between 22 and 25 March 2021. On 27 April 2021 Andrew Baker J handed down his judgment on the first preliminary issue, dismissing the claims in their entirety on the basis that they were inadmissible pursuant to Dicey, Morris & Collins Rule 20(1): [2021] EWHC 974 (Comm).
The respondent appealed against the decision of Andrew Baker J on the admissibility issue in respect of all defendants except one. On 25 February 2022 the Court of Appeal (Sir Julian Flaux, Chancellor of the High Court, Phillips and Stuart-Smith LJJ) allowed the appeal: [2022] EWCA Civ 234; [2022] QB 772.
As a result, the validity trial and the main trial were reinstated. The validity trial took place before Andrew Baker J between 17 January and 10 February 2023. In a judgment handed down on 24 March 2023, [2023] EWHC 590 (Comm), the judge upheld the respondent's pleaded case as to the content of the relevant eligibility requirements under Danish law.
The main trial is listed to commence before Andrew Baker J on 15 April 2024 and to last for nearly four legal terms.
On 28 October 2022 the Supreme Court granted permission to appeal on the admissibility issue.
The editors of Dicey, Morris & Collins state (at para 8-002 ff) that there is a well-established and almost universal principle that the courts of one country will not enforce the penal and revenue laws of another country. Whether a foreign law falls within the categories of those laws which the English court will not enforce is a matter for English law. Although Rule 20 is expressed in terms of lack of jurisdiction, the editors suggest (at para 8-003) that it is the foreign State which has no international jurisdiction to enforce its law abroad and the English court will not...
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