Tag: Article 16

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Milis Energy: CJEU confirms inapplicability of ECT in intra-EU relations, shields volatile energy subsidies from property rights, freedom of enterprise assault.

In Case C-306/19 Milis Energy the CJEU addresses on of the elephants in the energy transition room namely the support measures given by Member States to renewable energy installations, in particular photovoltaic energy, and the legality of reducing those support measures (a phenomenon which is to be expected seeing as the variety of energy transition measures gradually make renewable energy move from an infant industry to a mature industry).

As readers will know, reduced support and the sometimes capricious development of national energy subsidies has landed many an EU government in court, including in investor-State dispute settlement. Those latter cases often involve the controversial Energy Charter Treaty (ECT), and in current case the CJEU, not unexpectedly given its Komstroy case-law, holds that Milis, being incorporated in Italy, cannot call upon the ECT in its dispute with a Member State.

Articles 16 (freedom of enterprise) and 17 (property rights) of the EU Charter of Fundamental Rights were held not to protect Milis. With respect to Article 17, the CJEU emphasised that Member States enjoy a wide margin of discretion in the context of renewable energy subsidies and that both EU law and Italian law being subject to such volatility, an economic operator active in the sector necessarily must assume a regulatory and subsidy environment subject to frequent change, hence ruling out the qualification of enviseaged State subsidies in the sector as being a ‘good’ protected by Article 17 [41 ff]. With respect to Article 16, the Court emphasises the great discretion State enjoy to regulate economic enterprise [54 ff].

Geert.

 

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Skat v Solo Capital Partners. When faced with Dicey rule 3, I’ll see your tax claim and raise it to a fraud one.

Update 17 April 2023 there is an echo of the issues in SKAT in the judgment in The Bangkok of Commerce Public Company Ltd, The Official Receiver of v Saxena & Ors [2023] EWHC 521 (Comm): Moulder J holding that a Thai judgment is enforceable in E&W despite the Thai Advocate-General holding that the order, as matter of Thai law, is criminal in nature: English courts generally do not enforce a foreign penal order: Dicey Rule 20. Claimant’s case is that the exclusionary rule is engaged where the claim amounts to an attempt by a foreign state to exercise its sovereign authority in England but that this case is a claim to enforce in substance a claim for damages which in England might have been brought in a civil case. The judge holds ia ([67]) that whether the exclusionary rule is engaged in a question for the English court to determine and that the English court is not bound by the characterisation applied by the foreign jurisdiction.

Update 24 03 2023 Appeal by the Sanjay Shah Defendants will be heard by the UKSC in July 2023. Against other defendants, meanwhile, a trial of preliminary issues defined to determine foundational aspects of SKAT’s allegations that the tax refund claims it says it should not have paid were not valid claims under Danish tax law, was held in March 2023:  Skatteforvaltningen v Solo Capital Partners LLP [2023] EWHC 590 (Comm).

I reviewed the first instance judgment in Skat v Solo Capital Partners here and concluded that it endangered the effet utile of Brussels Ia (and Lugano). Justice Baker had concluded that all SKAT’s claims were inadmissible as a consequence of Dicey Rule 3. The Court of Appeal has now largely reversed, [Skatteforvaltningen v Solo Capital Partners Llp [2022] EWCA Civ 234] thereby resurrecting a £1,4 billion claim.

SKAT (Danish customs and excise) seeks the return of amounts it says it was wrongly induced to pay out as tax refunds. SKAT is not seeking to recover due and unpaid dividend tax or indeed any tax, because the foundation of its argument is that in the case of the alleged fraud defendants there was no liability to pay tax, no shares, no dividends, no tax and no withholding tax. There was never a taxpayer/tax authority relationship between the Solo etc Applicants or the alleged fraud defendants and SKAT. The mere fact that the alleged fraud is committed in the context of taxation or against a foreign tax authority is insufficient to bring the matter within the rule [SKAT’s counsel arguments, [30]-[31]). To allow the defendants to escape their liability, not in a tax fraud but in a general conspiracy, would also run counter the fraus omnia corrumpit principle [ditto, 62], a point which Flaux C agrees with obiter [146] in a case of a major international fraud..

Flaux C is much less verbose than the submissions before him. Yet again a jurisdictional point was allowed to be litigated to great length – albeit one may appreciate counsel and clients’ energy on those issues given the value of the claim.

[127] the basis of the claim is fraudulent misrepresentation. It is not a claim to unpaid tax or a claim to recover tax at all. It is a claim to recover monies which had been abstracted from SKAT’s general funds by fraud [128]. Even though SKAT may be an emanation of the Danish state, the Dicey revenue rule does not apply [128], neither does the wider sovereign powers rule within Dicey Rule 3:

‘In bringing a claim to recover the monies of which it was defrauded, SKAT is not doing an act of a sovereign character or enforcing a sovereign right, nor is it seeking to vindicate a sovereign power. Rather it is making a claim as the victim of fraud for the restitution of monies of which it has been defrauded, in the same way as if it were a private citizen.’ [129]

This latter reasoning falls short I find of proper criteria to guide its future application, although more is said at [130]: the claim to recover the money is at the core of the Chancellor’s reasoning here and that claim is a straightforward money claim, and [133] ‘the claims are ones which could just as well be brought by a private citizen’. That is the kind of argument which echoes CJEU authority on civil and commercial and to my mind the Court of Appeal could have helped us all by pointing out more specifically to what degree Dicey Rule 3 be informed by CJEU authority on ‘civil and commercial’, regardless of Brexit.

That there would be a detailed examination of the Danish tax regime and possible criticism of it and of SKAT’s systems and control, does not somehow convert the claim into one to enforce that tax regime. Recognition of foreign revenue laws is permissible under Dicey Rule 3 [138].

The position of one of the defendants, ED&F Man, is different in the sense that there is no allegation that they were implicated in a fraud. Although it is alleged that misrepresentations were made by them, the misrepresentations are said to have been negligent.

SKAT has to accept that as against those defendants the claim is inadmissible by virtue of Dicey Rule 3 unless it can satisfy the Court: (i) that the claim is a “civil and commercial matter” not a “revenue matter” for the purposes of Article 1(1) of the Brussels Recast Regulation; and (ii) that the operation of Dicey Rule 3 is precluded because, contrary to the judge’s analysis, it would impair the effectiveness of the Brussels Recast Regulation.

Contrary to the conclusion the judge reached the Court of Appeal finds that the claim against ED&F Man is a “revenue matter” falling outside the Brussels Recast Regulation. Here the Court of Appeals applies parity of reasoning with its assessment of the other claims: [150]:

Whilst the test for the application of Dicey Rule 3 may not be identical to that for determining what is a “revenue etc matter” for Article 1(1) of the Brussels Recast Regulation, it can be seen that its application leads to the same answer. If Dicey Rule 3 applies (as SKAT has to accept it does in relation to the claim against ED&F Man) then by the same reasoning, the basis for the claim by SKAT against those defendants is either a right which arises from an exercise of public powers or a legal relationship characterised by an exercise of public powers, from which it necessarily follows that the claim is a revenue matter outside the Brussels Recast Regulation.

Unfortunately therefore the effet utile argument (that application of Dicey rule 3 impairs the effectiveness of BIa /Lugano, as I had argued in my earlier post) is not discussed [153].

The title of this piece of course hints at the relevance of claim formulation. It is also exaggerated: SKAT cannot conjure up fraud elements out of nowhere to reinvent a tax claim as one in mere tortious and fraudulent misrepresentation. However it is clear that in cases that are somewhat murky, claim formulation will be crucial to navigate Dicey Rule 3.

Geert.

EU Private International Law, 3rd ed. 2021, para 2.28 ff.

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Skatteforvaltningen v Solo Capital Partners. Unfinished business on endangering Brussels Ia’s effet utile, ‘civil and commercial’ in revenue matters, enforcing foreign public law and Dicey Rule 3.

At issue in Skatteforvaltningen (The Danish Customs And Tax Administration) v Solo Capital Partners LLP & Ors [2021] EWHC 974 (Comm)  is ‘Dicey Rule 3’ which states that “English courts have no jurisdiction to entertain an action: (1) for the enforcement, either directly or indirectly, of a penal, revenue or other public law of a foreign State; or (2) founded upon an act of state“. The assertion of such claims is an extension of a sovereign power of taxation and, per Lord Keith of Avonholm in Government of India v Taylor [1955] A.C. 491, 511: “an assertion of sovereign authority by one State within the territory of another, as distinct from a patrimonial claim by a foreign sovereign, is (treaty or convention apart) contrary to all concepts of independent sovereignties“.

By its claims, SKAT (Danish customs and excise) seeks the return of amounts it says it was wrongly induced to pay out as tax refunds.

Brussels Ia and Lugano (the latter viz a number of defendants domiciled in Lugano States) feature in the discussion because SKAT argue that [22] ‘: (i) this is a ‘civil and commercial matter’, not a ‘revenue, customs or administrative matter’, under A1(1) BIa; and (ii) it is therefore not possible to invoke Dicey Rule 3 to dismiss its claims against Brussels-Lugano defendants, because to do so would be to decline to exercise a jurisdiction conferred by the Brussels-Lugano regime otherwise than in accordance with its rules.’

If the argument were upheld, any claims falling within Dicey Rule 3 would proceed against Brussels-Lugano defendants while being dismissed against other defendants. 

Dicey Rule 3 is not a jurisdictional rule: it is a substantive rule of English law. Yet SKAT’s argument in my view essentially means that an application of Dicey Rule 3 to the matter, would deprive A1(1) BIa of its effet utile.

Logically the BIa /Lugano argument would have had to have been considered first. Baker J does the opposite (his thinking process, unlike writing up, may of course first have considered the BIa argument) and holds at 120 after thorough consideration of the authorities on Dicey Rule 3, that the rule applies: SKAT’s claims seek indirectly to enforce in E&W, Danish revenue law.

In an interesting Coda at 121 ff, he also considers obiter the argument that, in essence, was that in line with a long public international law history, the cross-border recovery of tax refunds wrongfully procured is seen as or assumed to be a matter of revenue law requiring to be dealt with (if at all) by supranational legal instrument. Refence here is made ia to 1925 League of Nations reports.

Justice Baker starts [132] the BIa /Lugano argument along familiar lines: need for autonomous interpretation. QRS 1 ApS et al v Frandsen [1999] EWCA Civ 1463 is English authority under the Brussels Convention, and CJEU C-49/12 Sunico (to which both the AG and the CJEU refer in C-73/19 Belgische Staat v Movic BV et al) CJEU authority.

[142] In Sunico, the CJEU considered claims brought by HMRC alleging missing trader VAT carousel frauds. The substantive claims, for damages at common law for an alleged tortious conspiracy to defraud, were pursued in E&W against defendants domiciled in Denmark. HMRC also brought ancillary  proceedings in Denmark to attach assets with a view to enforcing any damages judgment obtained in England. Those Danish proceedings were objected to on the basis that they were a ‘revenue [etc] matter’ excluded from BI.

[144] The CJEU concluded at [41]-[43], essentially, that because the claim was framed in tort and not as a claim under a tax law, the proceedings were a ‘civil and commercial matter’ and not a ‘revenue [etc] matter’ for the purpose of Article 1(1) of the Brussels Regulation, so long as “the commissioners were in the same position as a person governed by private law in their action against Sunico and the other non-residents sued in the High Court of Justice” (ibid at [43]).

At 149 Baker J concedes that the decision of the Court of Appeal in Frandsen was incorrect per Sunico, however then holds that the result would be the same: the classification of proceedings as a ‘civil and commercial matter’ or a ‘revenue [etc] matter’ for the purpose of applying the Brussels-Lugano regime does not touch the question whether Dicey Rule 3 applies so as to defeat the claim. He suggests [149] a search for the lex causae under Rome II would be largely irrelevant for per A16 Rome II Dicey Rule 3 qualifies as lois de police, and finds support for his view that despite scholarly suggestion (i.a. by prof Briggs), Frandsen must not be displaced, in The Law Debenture Trust Corporation [2017] EWHC 655 (Comm) [and in Andrew Dickinson’s reporting on same], in which the English Act of State doctrine was upheld despite Rome II’s classification of the matter as civil and commercial.

At 165 ff he, somewhat superfluously still considers the more recent CJEU authority of Buak and the aforementioned Movic, and decides at 174 that per BUAK and Movic (on the use of evidence etc.) that SKAT was neither attempting nor able to change the rules of the litigation game, either as to the substantive rules of law that would apply in determining its claims, or as regards the procedural rules applicable in the litigation, or as regards the status or effect of any of the evidence it might deploy or disclose. SKAT was not by this litigation pursuing public law proceedings, in which liabilities are determined as if this were a judicial review of SKAT’s actions, decisions or exercise of public law powers.

Yet that the matters are of a civil and commercial nature, in the end does not matter at all: [176]

To the extent that SKAT relied on the Brussels-Lugano regime as the basis for this court having jurisdiction over the Brussels-Lugano defendants that have been sued, including it may be for serving proceedings out of the jurisdiction, in my judgment it was right to do so. But its having been entitled to do so did not oust or disapply Dicey Rule 3 in respect of those defendants.

Using prof Dickinson’s words (26-27), there is a dissonance here between Brussels Ia and the applicable law. One that, I would suggest, endangers the effet utile of Brussels Ia. Dicey Rule 3’s character as a substantive rather than a jurisdictional rule, does not to my mind save that.

Geert.

EU Private International Law, 3rd ed. 2021, para 2.28 ff.

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KMG v CHEN. The common law reflective loss rule held as being substance, not procedure, and not qualifying as either lois de police or ordre public under Rome II.

KMG International NV v Chen & Anor [2019] EWHC 2389 (Comm)  entertains a claim made in tort, based on a breach of duties allegedly owed as a matter of Dutch or alternatively English law. The wrongful acts of the Defendants are said to have resulted in a diminution of the assets of DPH, against which KMG had won a substantial arbitration award. It is asserted that the Defendants caused the DP Group to part with a valuable asset, namely the shares in a German company, which company was part of the DP Group. It is asserted that the purpose of the transfer was to disable DPH from satisfying the arbitration award.

The core legal issue that would apply under English law are the principles of reflective loss (‘RL’). Defendants argue that the English law rules as to reflective loss barred the Claimant’s claims, even under Dutch law, because: (1) The RL rule was a rule of procedure and not substance and was accordingly governed by the lex fori and not the lex causae; (2) The RL rule was a mandatory overriding rule of English law within the meaning of Article 16 of Rome II; (3) Any derogation from the RL rule would be manifestly incompatible with English public policy within the meaning of Article 26 of Rome II.

A first issue is whether the English RL rule is one of procedure that would fall outside the scope of Rome II. Reference is made on this issue to Actavis v Eli Lilly, with Hancock J at 36 deciding the RL rule is one of substance. I would agree with his suggestion that unlike the discussion of DNI requirements in Actavis, the RL ‘is not a precondition to an action, but is a bar to recovery of a particular type of loss. In my judgment, the RL rule is clearly one which affects the substantive rights and remedies of the Claimant and is not a procedural rule.’ However I disagree with his suggestion (for which he finds support in EC suggestions made in the travaux) that the procedural provision in A1(3) needs to be applied restrictively: A1(3) is not an exception: it is a determination of scope.

Attention then turns at 45 ff to whether the RL could count as overriding mandatory law under A16 Rome II. At 50 Hancock J holds that there is simply no support in any authority for holding that that the RL would meet the high bar of qualifying as lois de police. At 57 he then judges that the RL rule does not meet the requirements to qualify as ordre public either, with due refence to CJEU authority on the exceptional nature of ‘ordre public’ under EU conflict of laws.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 4, Heading 4.8, Heading 4.10.

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Do single internet transactions lead to multiple jurisdictions for consumer contracts? The ECJ in Maletic

In Case C-478/12 Maletic, plaintiffs (the Maletics) are domiciled in Bludesch (Austria), which lies within the jurisdiction of the Bezirksgericht Bludenz (District Court, Bludenz, Austria). They had booked and paid for themselves, as private individuals, a package holiday to Egypt on the website of lastminute.com. On its website, lastminute.com, a company whose registered office is in Munich (Germany), stated that it acted as the travel agent and that the trip would be operated by TUI, which has its registered office in Vienna (Austria). The booking was made for a particular hotel, the name of which was correctly communicated to TUI by lastminute.com, however the former had mismanaged the booking. Upon their arrival in Egypt, the Maletics discovered the mix-up, stayed at the hotel which they had intended, and subsequently sued for the recovery of the extra costs. They brought an action before the Bezirksgericht Bludenz seeking payment from lastminute.com and TUI, jointly and severally.

The Bezirksgericht Bludenz dismissed the action in as far as it was brought against TUI on the ground that it lacked local jurisdiction. According to that court, Regulation 44/2001 was not applicable to the dispute between the applicants in the main proceedings and TUI as the situation was purely domestic. It held that, in accordance with the applicable provisions of national law, the court with jurisdiction was the court of the defendant’s domicile, that is, the court having jurisdiction in Vienna and not that in Bludenz. As regards lastminute.com, the court held that it had jurisdiction to hear the substantive proceedings on the basis of Article 15 of the Jurisdiction Regulation.

The booking transaction therefore was a single transaction, even if it led to two separate contracts. Assessed separately, one of those clearly leads to application of the Brussels I-Regulation. The other one does not for it is purely domestic. Does the latter become ‘international’ by association?

The ECJ held that it did, for two reasons. Firstly, it referred to its judgment in Owusu in which it held (under the Brussels Convention but with no less relevance for the Brussels I Regulation) that the mere domicile within an EU Member State of just one of the parties involved, is enough to trigger the application of the Regulation. In Owusu, that finding was not affected by the remainder of the parties and fact being external to the EU. The ‘international’ element required to trigger the application of the Jurisdiction Regulation can therefore be quite flimsy indeed. The Court does not refer to Lindner (Case C-327/10) however that case in my view is an even stronger indication of the relaxed attitude of the Court vis-a-vis the international element required. In Maletic, the Court held that the second contractual relationship cannot be classified as ‘purely’ domestic since it was inseparably linked to the first contractual relationship which was made through the travel agency situated in another Member State.

Further, the Court referred to the aim of the consumer title of the Regulation, in particular recitals 13 and 15 in the preamble to Regulation No 44/2001 concerning the protection of the consumer as ‘the weaker party’ to the contract and the aim to ‘minimise the possibility of concurrent proceedings … to ensure that irreconcilable judgments will not be given in two Member States’. Those objectives, the Court held, ‘preclude a solution which allows the Maletics to pursue parallel proceedings in Bludenz and Vienna, by way of connected actions against two operators involved in the booking and the arrangements for the package holiday at issue in the main proceedings.’

I suppose what the Court meant but did not say is that the alternative would not so much ‘allow’ the Maletics to pursue the case in two different courts but rather would oblige them do so. Moreover of course in the case at issue, the parallel proceedings would not concern two different Member States but rather two different courts in one Member State. National joinder and lis alibi pendens rules presumably would go a long way to avoid irreconcilable judgments – not enough, so it would seem, to satisfy the ECJ.

The case was heard without Opinion by the Advocate General. I think it may have warranted such: for the outcome I would suggest is not necessarily straightforward.

Geert.

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