Skatteforvaltningen v Solo Capital Partners LLP (in special administration) and others

The foreign revenue rule applies only where a foreign tax authority seeks, directly or indirectly, to recover an unsatisfied demand for tax. It does not bar an ordinary private law claim to recover money obtained from a foreign state by fraud where no tax was ever due, unpaid or evaded.

English courts may recognise and examine foreign tax law where this does not amount to enforcement and does not conflict with public policy. The wider sovereign authority rule likewise permits claims which could equally be brought by a private person and which neither assert nor vindicate sovereign rights.

The Danish tax authority alleged that applications supported by false representations induced it to pay about DKK 12.09 billion in purported withholding-tax refunds. It pleaded English private law claims including deceit, unlawful means conspiracy, dishonest assistance, knowing receipt and unjust enrichment.

The Commercial Court held the claims inadmissible under the rule against enforcing foreign revenue or public laws: [2021] EWHC 974 (Comm). The Court of Appeal reversed that decision: [2022] EWCA Civ 234; [2022] QB 772.

The Supreme Court had to determine whether the claims sought directly or indirectly to enforce Danish revenue laws, or otherwise asserted or vindicated Danish sovereign authority.

1. Appeal dismissed unanimously. Lord Lloyd-Jones, with whom Lord Hodge, Lord Briggs, Lord Hamblen and Lord Richards agreed, held that neither the revenue rule nor the wider sovereign authority rule made the proceedings inadmissible.

2. The revenue rule is limited to proceedings in which there is an unsatisfied demand for tax which a foreign tax authority seeks directly or indirectly to recover. That limitation formed part of the ratio of Williams & Humbert Ltd v W & H Trade Marks (Jersey) Ltd [1986] AC 368. It accords with the rule's rationale: preventing one state from asserting its sovereign taxing authority within another state's territory.

3. The substance of the pleaded claims was the recovery of money obtained by fraud, not the collection of tax. On the assumed pleaded facts, the refund applicants had owned no relevant shares, received no dividends, suffered no withholding and incurred no tax liability. The Danish authority had already received all tax properly due from genuine shareholders. The applicants could not create a taxpayer relationship by relying on their own allegedly false applications.

4. Fraud does not itself displace the revenue rule. A claim to recover tax fraudulently evaded remains within it. This case was different because no tax was ever payable by the appellants. The Danish tax system supplied the context and opportunity for the alleged fraud, but English courts may recognise and examine foreign tax law without enforcing it.

5. Under the sovereign authority rule, the court examines the substance of the claim. A claim is excluded if bringing it involves an act of sovereign character, the exercise or assertion of a sovereign right, or the vindication of sovereign acts. A foreign state may, however, pursue a right which could equally belong to a private person.

6. The restitutionary and private law claims were available to any person defrauded in the same way. They did not depend on Danish legislation creating a repayment obligation and did not seek to vindicate the original payments. The prior operation of Denmark's tax system and the authority's use of investigatory powers were contextual or peripheral and did not alter the character of the claims.

7. International tax-recovery arrangements were irrelevant. They confer additional means of collecting sums due; they do not prevent other forms of recovery. The proceedings were therefore admissible and could continue.

1. United Kingdom Supreme Court: Dismissed the appellants' appeal and upheld the Court of Appeal's conclusion that the claims were admissible: [2023] UKSC 40.

2. Court of Appeal: Allowed the Danish tax authority's appeal from the preliminary-issue decision and reinstated the validity and main trials: [2022] EWCA Civ 234; [2022] QB 772.

3. Commercial Court: Andrew Baker J dismissed the consolidated claims as inadmissible under the rule against enforcement of foreign revenue and public laws: [2021] EWHC 974 (Comm). An earlier case-management ruling was reported at [2020] EWHC 2022 (Comm).