Denmark lost its £1.4 billion ($1.9bn) legal claim against scores of traders and financial institutions over a cum-ex tax fraud it said was orchestrated by a convicted UK hedge fund trader, reported Law360.
Quillon partner Nicola McKinney examined the recent ruling in Skatteforvaltningen v Solo Capital Partners & ors, in which Denmark’s tax authority suffered a “bruising” defeat in its efforts to recover monies from the sprawling cum-ex tax fraud scandal.
She was cited in Law360 stating: “Mr. Justice Andrew Baker’s extraordinary 300-page judgment is a devastating blow for SKAT. He stopped short of exonerating the defendants, but found that Sanjay Shah and others were able to ‘help themselves to a fortune’ not because of fraud, but because SKAT’s tax refund system was ‘so flimsy as to be almost non-existent’. Taking advantage of a lax system, and engaging in “collateral dishonesty”, did not amount to a fraud upon SKAT.
“The effect is that the defendants walk away with a huge windfall. Questions will inevitably arise around how the judgment sits against a background where Sanjay Shah has been imprisoned in Denmark for dishonesty offences, and where courts in New York and Dubai have made awards in favour of SKAT, all arising broadly out of the same fact matrix. Legally those outcomes stand alone, but the contrast creates troubling optics and real concerns about the ability of the English courts to deal effectively with complex international fraud.
“There are likely to be questions about the limits of the law of fraudulent misrepresentation, and the scope of SKAT’s claim. Alongside the claim for fraudulent misrepresentation, SKAT also made claims in unjust enrichment, knowing receipt and dishonest assistance – all important claims in the fraud lawyer’s arsenal. Because SKAT had tied these claims to proving misrepresentation, once one fell, they all collapsed. Whether there was a less narrow way to pursue those claims is bound to be scrutinised.
“With £1.4 billion at stake, years of litigation and criticism of its internal controls, this is a bruising defeat for SKAT. But the epic is far from over, and an appeal looks inevitable.”
Stokoe Partnership partner Richard Cannon said to Law360: “In a brutal blow for the Danish authority, the court accepted that every one of the 4,170 refund claims was invalid under Danish law, yet still dismissed the case as SKAT could not show it had been induced by any misrepresentation.
“Put simply: fraud may have taken place, but the legal claims failed because SKAT’s controls were so poor that it could not successfully argue it had been misled.
“For financial institutions across Europe, this judgment sends a clear message – even in billion-pound cases where fraud may well have occurred, the entire claim can crumble if processes are weak. This is a sobering reminder that civil recovery depends upon meeting the exact legal tests of causation and reliance.”