The Court of Appeal (CoA) heard a fact-heavy case in which the Danish Tax and Customs Administration (SKAT), for a second time, tried to claim damages based on misrepresentation to refund Danish Withholding Tax (WHT) to companies which, in fact, had no entitlement to them.
Background:
Skatteforvaltningen, the Danish Tax and Customs Administration (SKAT), issued proceedings in 2018 against several defendants, including EDFM Ltd. SKAT had been induced by misrepresentations to pay out large sums of money by way of refund of Danish WHT to companies who, in fact, had no entitlement to them, wherein WHT is a tax imposed in Denmark on dividends paid by Danish companies to their shareholders.
In some instances, the misrepresentation was said to have been made fraudulently while, in others, including EDFM, fraud was not alleged, and the claim was based on misrepresentations having been made negligently. Those claims were dismissed based on the ‘foreign revenue rule’ (English courts will not entertain a claim by a foreign state to collect taxes due). While that decision was overturned against other defendants, SKAT did not appeal that point against EDFM.
In 2022, SKAT issued new proceedings against EDFM with different alleged causes of action, although relying on the same tax vouchers paid between August 2012 and July 2015, plus five additional ones for a total of DKK 596 million (c. £ 68.9 million). SKAT claims damages for deceit in the sum of c. DKK 339m (the amount paid out by SKAT by way of ostensible refund of WHT) and, in addition, in excess of £17m said to have been incurred by way of its own costs and costs paid to EDFM in respect of the 2018 proceedings.
EDFM applied to strike out the new claim in March 2023, relying on abuse of process (Henderson v Henderson abuse) and issue estoppel. The High Court dismissed the application and EDFM appealed.
Decision:
The CoA allowed the appeal and struck out SKAT’s claim. The Court started by explaining that the “general principles of issue estoppel are well established and very familiar. Issue estoppel is one branch of the principle of res judicata.”
In light of the authorities analysed, the Court was not surprised at the High Court's request for clarification of what was ‘precisely identical’ between both proceedings. The causes of action are different, being framed in deceit rather than negligence, and involve different allegations. The Judge noted, “Indeed if the causes of action had been the same, there would have been no need to consider the question of issue estoppel at all, as there would have been a cause of action estoppel.”
The CoA lists different types of issues which have been identified as capable of giving rise to estoppel such as issues of fact, issues of construction, and the “legal quality of a fact”.
Lord Justice Popplewell and Newey went further. They concluded that estoppel can arise from pure principles of law. Consequently, any claim by SKAT against EFML is barred, and the proceedings were struck out accordingly.
Implications:
This decision offers good guidance on the issue of estoppel and its limits. In this case, SKAT was bound by the previous judgement, which found that the foreign revenue rule applies. Estoppel can thus arise from pure principles of law.
This case highlights that, while English courts will not entertain a claim by a foreign state to collect its own tax (the foreign revenue rule), courts will hear a case based on misrepresentation or fraud. Based on the facts and the type of revenue at stake, the rule might be of no help. Had SKAT also appealed the 2018 proceedings against EFML, the new claim would not have been subject to estoppel.