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.

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.

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.