The High Court has today dismissed a £1.5 billion claim by the Kingdom of Denmark (acting via its national tax authority, Skatteforvaltningen) arising from an alleged cum-ex (withholding tax reclaim) tax fraud said to have taken place between 2012 and 2015.
Adam Zellick QC and Ian Bergson acted for one of the four lead defendant teams appearing at the “Revenue Rule Trial”, securing the dismissal of the entire action on behalf of their clients (and all other defendants).
The claim – Skatteforvaltningen v Solo Capital Partners & Ors – has been described by Andrew Baker J and Foxton J respectively as “litigation on a massive scale” and “one of the largest and most complex pieces of litigation to be heard in the Commercial Court”. It involved more than a hundred defendants and over 20 separate legal teams and has been ongoing for nearly three years.
Denmark had contended that the English Court should list only a single main trial to last some 18 months and opposed a free-standing preliminary issue on the “revenue rule” i.e. the fundamental rule that the English Court has no jurisdiction for the enforcement, either directly or indirectly, of a revenue law of a foreign state. The Court, however, set down a trial of a preliminary issue on the applicability of the revenue rule. That trial, known as the Revenue Rule Trial was listed for March 2021 and was included amongst The Lawyer’s ‘Top 20’ cases of 2021.
Mr Justice Andrew Baker’s judgment today, following that trial, holds that all of the Claimant’s claims are barred by the revenue rule. The rule is set out in Dicey’s Rule 3 and reflects several hundreds of years of common law authority. The case is understood to be the first occasion the application of Dicey’s Rule 3 to tax refunds has arisen for definitive determination.
The Judge held that Dicey’s Rule 3 was engaged so as to bar all of Denmark’s claims to recover withholding tax refunds allegedly wrongly paid out by the Danish state. The claim was properly to be characterised as an attempt by the Claimant to vindicate its rights under Danish tax law and to enforce Denmark’s sovereign rights to tax Danish company dividends. The Judge held that the Claimant’s submissions on characterisation omitted a key characteristic of the case (namely the attempt to recover a tax refund) and substantially dodged the question of characterisation which has to be answered to determine the application of Dicey’s Rule 3. The central interest underlying the claims was a sovereign one, namely Denmark’s sovereign rights in respect of taxation.
The Judge rejected the Claimant’s case that cross-border instruments in the taxation field adopted by the European Union could have no possible application in this case, observing that he could not imagine Denmark wishing to argue otherwise but that it was perceived to assist the Claimant’s desire to avoid the operation of Dicey’s Rule 3. He also noted that rather starkly, the Claimant had previously obtained confirmation from the United States Inland Revenue Service to disclose information in the English proceedings on the express basis that the English proceedings concerned the administration of Danish taxes. The Judge held that it was not obvious that the IRS’s view might be wrong.
The judgment also considers whether there is an interplay between Dicey’s Rule 3 and the Brussels I Regulation. The Judge accepted the Knott & Hoogewerf Defendants’ submissions that whether or not defendants were domiciled in the European Union made no difference to the operation of Dicey’s Rule 3, which is a substantive rule of English law and which applies regardless of the law that would otherwise govern the claim.
All of the Claimant’s claims across the consolidated proceedings were therefore dismissed.
Daniel Edmonds (instructed by Stewarts Law) appeared for the PS/GoC Defendants.
A copy of the revenue rule judgment ( EWHC 974 (Comm)) is here.