High court dismisses Denmark鈥檚 拢1.5bn cum-ex case against Sanjay Shah
27 April 2021 UK
Image: chris2766/adobe.stock.com
British hedge fund manager Sanjay Shah has won a landmark dismissal of the Danish tax agency鈥檚 拢1.5 billion cum-ex claim as a high court judge rules the case is not in the right jurisdiction.
Shah is accused of masterminding a cross-border, multi-billion pound tax fraud that leveraged cross-border securities lending transactions and involved banks, pension funds and brokers. He denies any wrongdoing.
In a 鈥渕ajor blow鈥� to all active cum-ex cases, judge Andrew Baker today ruled Denmark鈥檚 claims are barred because foreign countries are not allowed to enforce their laws in English courts.
Justice Baker dismissed the entirety of the case against all defendants on the basis that the Danish state was not entitled to enforce its own tax laws in an English court.
It means that the main trial against Solo Capital Partners and 91 other defendants, which was due to start in January 2023 and last an entire calendar year, will no longer go ahead.
The Danish tax agency is appealing the decision, according to Bloomberg.
It has been widely acknowledged that the agency鈥檚 claim would be the most expensive commercial court litigation in UK court history.
Shah鈥檚 lawyer Chris Waters says: 鈥淭his is not a jurisdictional matter but one of admissibility. He [Andrew Baker] has rightly concluded that the English courts cannot be used to recover a foreign state鈥檚 taxes.鈥�
Shah is understood to now be seeking damages from Denmark for the 鈥渧ery significant financial loss and damage鈥� incurred from the tax agency campaign against him.
Syed Rahman, partner at law firm Rahman Ravelli, which is involved in several different cum-ex cases, says: 鈥淕enerally when foreign law applies, the law must be pleaded and proved as a fact to the satisfaction of the judge by expert evidence or other means.
鈥淚n the absence of foreign law, the court will apply English law to such a case. Here the court needed to assess whether foreign law should apply 鈥� and its ruling is hugely significant.鈥�
The judgment will be a major blow to cum-ex investigations where UK traders may be involved, Rahman notes.
鈥淚t highlights one of the dangers in cross-border cases in particular when dealing with issues relating to artificial share transactions which enabled multiple improper claims for tax rebates to be made in Europe,鈥� he adds.
Rahman predicts the ruling will have a serious knock-on effect on any investigations into institutions and individuals who operated out of London and carried out dividend arbitrage schemes in European countries.
The UK鈥檚 Financial Conduct Authority is currently investigating eight individuals and 14 firms for cum-ex tax fraud as of 24 February.
Shah, as the founder of now-defunct UK-based hedge fund Solo Capital, is at the centre of a web of dividend tax fraud scandals centred on several European countries including Germany, France and Denmark, which is understood to have deprived authorities of an estimated 鈧�55 billion.
Denmark鈥檚 tax agency is among the most proactive in attempting to recoup losses and has pursued Shah for several years with claims that his fund was prolific in the illegal dividend arbitrage strategy in the years before it closed in 2016.
Although the vast majority of tax revenue losses were suffered by a few EU authorities, a significant percentage of the actual dividend arbitrage trading is understood to have taken place in London.
Shah, who now resides in Dubai, has previously said he would not fight extradition to face tax fraud charges but no such order has been issued.
Shah is accused of masterminding a cross-border, multi-billion pound tax fraud that leveraged cross-border securities lending transactions and involved banks, pension funds and brokers. He denies any wrongdoing.
In a 鈥渕ajor blow鈥� to all active cum-ex cases, judge Andrew Baker today ruled Denmark鈥檚 claims are barred because foreign countries are not allowed to enforce their laws in English courts.
Justice Baker dismissed the entirety of the case against all defendants on the basis that the Danish state was not entitled to enforce its own tax laws in an English court.
It means that the main trial against Solo Capital Partners and 91 other defendants, which was due to start in January 2023 and last an entire calendar year, will no longer go ahead.
The Danish tax agency is appealing the decision, according to Bloomberg.
It has been widely acknowledged that the agency鈥檚 claim would be the most expensive commercial court litigation in UK court history.
Shah鈥檚 lawyer Chris Waters says: 鈥淭his is not a jurisdictional matter but one of admissibility. He [Andrew Baker] has rightly concluded that the English courts cannot be used to recover a foreign state鈥檚 taxes.鈥�
Shah is understood to now be seeking damages from Denmark for the 鈥渧ery significant financial loss and damage鈥� incurred from the tax agency campaign against him.
Syed Rahman, partner at law firm Rahman Ravelli, which is involved in several different cum-ex cases, says: 鈥淕enerally when foreign law applies, the law must be pleaded and proved as a fact to the satisfaction of the judge by expert evidence or other means.
鈥淚n the absence of foreign law, the court will apply English law to such a case. Here the court needed to assess whether foreign law should apply 鈥� and its ruling is hugely significant.鈥�
The judgment will be a major blow to cum-ex investigations where UK traders may be involved, Rahman notes.
鈥淚t highlights one of the dangers in cross-border cases in particular when dealing with issues relating to artificial share transactions which enabled multiple improper claims for tax rebates to be made in Europe,鈥� he adds.
Rahman predicts the ruling will have a serious knock-on effect on any investigations into institutions and individuals who operated out of London and carried out dividend arbitrage schemes in European countries.
The UK鈥檚 Financial Conduct Authority is currently investigating eight individuals and 14 firms for cum-ex tax fraud as of 24 February.
Shah, as the founder of now-defunct UK-based hedge fund Solo Capital, is at the centre of a web of dividend tax fraud scandals centred on several European countries including Germany, France and Denmark, which is understood to have deprived authorities of an estimated 鈧�55 billion.
Denmark鈥檚 tax agency is among the most proactive in attempting to recoup losses and has pursued Shah for several years with claims that his fund was prolific in the illegal dividend arbitrage strategy in the years before it closed in 2016.
Although the vast majority of tax revenue losses were suffered by a few EU authorities, a significant percentage of the actual dividend arbitrage trading is understood to have taken place in London.
Shah, who now resides in Dubai, has previously said he would not fight extradition to face tax fraud charges but no such order has been issued.
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