Skatteforvaltningen (The Danish Customs And Tax Administration) v Solo Capital Partners LLP & Ors

Dicey Rule 3 is a substantive and mandatory rule of English law. It requires the court to examine the substance of a claim rather than its pleaded form. A claim is inadmissible where its central purpose is directly or indirectly to enforce a foreign sovereign’s revenue law or other sovereign right. A claim to recover a tax refund wrongly paid may therefore be a revenue claim, even when framed in tort, restitution or proprietary terms and brought against parties other than the taxpayer. The Brussels-Lugano classification of proceedings as civil and commercial does not disapply the rule.

The Danish tax authority brought consolidated claims against numerous defendants, alleging that it had been induced to make wrongful Danish withholding-tax refund payments. The claims included deceit, conspiracy, negligence, unjust enrichment and proprietary remedies. The defendants contended that the claims were inadmissible under Dicey Rule 3 because they sought, in substance, to recover Danish dividend tax or enforce Danish sovereign taxation rights.

A further issue concerned whether the Brussels-Lugano regime prevented dismissal of claims against defendants domiciled in participating states, and whether the use of investigative powers made the proceedings public-law rather than civil and commercial proceedings.

1. All claims dismissed. The claims were, in substance, attempts to enforce the Kingdom of Denmark’s sovereign right to tax dividends declared by Danish companies. Dicey Rule 3 therefore applied.

2. Dicey Rule 3 is a substantive rule of English law and an overriding rule of the lex fori. It is not a rule of jurisdiction or forum conveniens. The court must identify the central interest served by the claim and examine the mechanism by which the alleged loss was suffered.

3. The withholding-tax system and its refund machinery formed one exercise of Danish sovereign taxation. A claim to recover a refund wrongly paid was conceptually and functionally equivalent to a claim for tax due and unpaid. The private-law causes of action pleaded, the alleged dishonesty or negligence, and the identity of defendants did not alter that characterisation.

4. The proprietary claims also fell within the rule. They sought remedial equitable ownership in assets representing the proceeds of payments which could only be recovered after establishing personal liabilities that were themselves inadmissible under Dicey Rule 3.

5. The rule was not avoided by the possibility that the applicants had no primary tax liability, by allegations that the underlying transactions were fictitious or sham, or by the voluntary submission of refund applications. Those matters did not change the central sovereign interest in recovering dividend tax which Denmark had failed to retain.

6. The proceedings were nevertheless a civil and commercial matter for the purposes of the Brussels-Lugano regime. Following Revenue and Customs Commissioners v Sunico ApS, classification depended principally on the form and legal basis of the proceedings. The use of public investigative powers did not alter that classification unless it changed the substantive or procedural rules governing the litigation.

7. The Brussels-Lugano regime did not disapply Dicey Rule 3. The former concerned jurisdiction and recognition and enforcement; the latter was a mandatory substantive rule of English law. Article 16 of the Rome II Regulation also preserved its operation.

8. The act of state doctrine did not provide an additional defence. The claims were dismissed under Dicey Rule 3 alone.

First-instance decision. The judgment determined a preliminary issue in consolidated Commercial Court proceedings.