QRS 1 ApS v Frandsen

English courts will not enforce a foreign state’s revenue laws, either directly or indirectly. Indirect enforcement occurs where a foreign state or its nominee seeks a remedy which, in substance, gives extraterritorial effect to its revenue law.

A company’s claim falls within this narrow rule where an outstanding foreign tax claim is its only relevant liability, the foreign revenue authority controls and funds the proceedings, and the proceeds will be applied solely to that liability. Such a claim is a revenue matter excluded from the Brussels Convention. The rule is also objectively justified under Community law by considerations of sovereignty and the impropriety of scrutinising another state’s revenue laws.

The appellants were Danish companies in compulsory liquidation. Their only creditor was the Danish tax authority, which had appointed the liquidator and funded an English action against their former owner. The companies alleged that he had used their assets to finance the purchase of his own shares and claimed restitution or damages limited to their outstanding Danish tax liability.

Sullivan J struck out the action under RSC Order 18 rule 19. He held that it amounted to indirect enforcement of foreign revenue law and was bound to fail.

The companies appealed. The central questions were whether the claim was a revenue matter excluded by Article 1 of the Brussels Convention, whether it could be struck out if the Convention applied, and whether Community law independently precluded application of the foreign-revenue rule.

1. Appeal dismissed unanimously. Simon Brown LJ delivered the judgment, with which Auld and Thorpe LJJ agreed. The companies’ action was, in substance, an attempt to enforce Danish revenue law indirectly. It was materially indistinguishable from Peter Buchanan Ltd v McVey [1954] IR 89. The Danish tax authority was the only creditor, had appointed the liquidator and was funding the proceedings. The proceeds would satisfy its outstanding tax claim and no other interest was involved.

2. The rule against indirect enforcement is narrow. It applies where a foreign state or its nominee seeks a remedy designed to give extraterritorial effect to foreign revenue law. An outstanding revenue claim, to which the proceeds will be applied, is an essential feature of the Buchanan principle.

3. The claim was a “revenue matter” within Article 1 of the Brussels Convention. The exclusion was declaratory of the distinction between private-law matters and public-law matters. The rule against enforcing foreign revenue laws was deeply embedded in both common-law and civil-law systems. There was no basis for treating an indirect claim of this kind as civil merely because it took the form of a company’s private-law action.

4. If the Convention had applied, however, the action could not properly have been struck out by invoking the foreign-revenue rule. That would have impaired the Convention’s effectiveness and substantially derogated from the jurisdiction conferred by it.

5. Community law did not otherwise require the English court to entertain the claim. Assuming that the liquidator was providing a cross-border service within Article 59 of the Treaty of Rome, the restriction was objectively justified. A claim brought in substance for a foreign state raised the same concerns about sovereign authority and judicial scrutiny of foreign revenue laws whether enforcement was direct or indirect.

6. The action was not excluded as a proceeding relating to the winding-up of insolvent companies under Article 1.2 of the Convention. Such proceedings must derive directly from the winding-up. These causes of action relied on no special power of the liquidator and could have been brought by the companies before liquidation.

The appeal was dismissed with costs. Leave to appeal was refused.

• Court of Appeal: The appeal was dismissed unanimously, with costs. The court upheld the striking out of the action and refused leave to appeal.
• Queen’s Bench Division: Sullivan J struck out the action under RSC Order 18 rule 19 because it amounted to indirect enforcement of Danish revenue law and was bound to fail.