CL-2018-000297, CL-2018-000404, CL-2018-000590, - [2025] EWHC 2364 (Comm)

Turning then to SKAT’s final alternative case of systemic reliance, the first thing to say is that the cover letters remain irrelevant. SKAT’s system did not require a cover letter at all, let alone a cover letter with some specified content about which a view might have been taken that if that content was present, some material representation would result. SKAT recognised this in closing, as the argument on this last alternative was put exclusively on the basis of a systemic requirement of Form plus CAN.

SKAT opened no factual case and led no evidence on the design of the Form Scheme generally, or as to the information it was intended or thought that a completed Form and CAN would convey in particular. SKAT’s positive case was essentially an optimistic submission that the presumption of inducement would suffice, on an argument of the type identified in paragraph 533 above: Form plus CAN was required; Form plus CAN could not fail to make the representations alleged (considering the matter objectively); therefore the court should conclude that the system was “designed to ensure that a successful application made the Core Representations, which corresponded to the essential elements of a valid WHT refund application under Danish tax law. Indeed, it is hard to see that less could have been represented to SKAT by the required documents filed in support of a claim for the refund of withheld Danish dividend tax. Further, the requirement of a DCA from the relevant custodian was designed to ensure that applications were made honestly and therefore necessarily made the [honest custodian representation] to SKAT.” It is no coincidence that SKAT cited no evidence in support of those contentions about system design. It was not asking for a finding of fact derived from witness testimony or documentary evidence that SKAT had in fact designed the system with those intentions or understandings as to what it was doing. SKAT was in substance contending that the presumption arose, and resting on that.

As a result, defendants were left to make the running as best they could from the documentary evidence in the case, cross-examination of SKAT’s witnesses (none of whom could speak to system design first hand), and expert evidence. In the event, that running was done mostly by the Shah Ds and the DWF Ds, especially the latter.

The DWF Ds submitted that in a governmental authority of SKAT’s size and status, there must have been senior individuals who could have provided the court with full and informed explanations of SKAT’s policy decisions in the design and operation of the Danish dividend WHT and tax refund claim system during the relevant period. I agree. The DWF Ds said that SKAT’s failure to provide such evidence in a case of such large dimensions was disrespectful to the court. That is not a characterisation I would adopt. I am not exercising any public law jurisdiction (not that I would have any in relation to SKAT). SKAT owed the court no duty of candour in respect of the evidence it chose to lead. However, SKAT’s failure to call evidence it must have been in a position to obtain, if so advised, properly weighs against it in judging whether on the evidence as a whole inducement is not established, even having had due regard to the existence and strength of the presumption of inducement weighing in SKAT’s favour.

Ms Rømer said in her evidence that Form 06.003 was created by SKAT’s Legal Department and approved by Head Office, but I make no finding to that effect. I accept it as a statement of what Ms Rømer thinks likely to be true, but I do not think she knows now, or knew at the time, anything more than that the design and approval of the Form, likewise any policy decisions involved (explicit or implicit) were not matters for Accounting II, let alone for her personally.

Ms Rømer also said (both at this trial and in a deposition for the proceedings before Judge Kaplan in New York) that it was a Danish government priority to encourage foreign investors to invest in Denmark, and the tax system had been made as simple and user-friendly as possible to serve that purpose. Ms Rømer extended that thought, when asked about SKAT’s failure to supplement its process by requiring information about underlying trading, by saying that “it might be that the government chooses not to introduce matters or to change matters that might prove complex.” That was speculation, an example of Ms Rømer’s willingness to say things she imagined might be true, thinking that to be helpful. It seems to me a plausible possibility, but it was not evidence of fact (except in so far as it evidenced indirectly Ms Rømer’s perspective at the time, corroborating her and Mr Nielsen’s evidence generally that the processing and approval of tax refund claims by Accounting II did not involve consideration of whether they were valid claims as a matter of fact and Danish tax law).

Before 2002, dividend tax had been dealt with in a regional office of SKAT. In 2002, various departments merged to form a new Dividend Tax Department, led by Ms Rømer, which was the first time she had any involvement with dividend tax. The scope of work and the reporting lines were continuous thereafter, although in 2009 the Dividend Tax Department became part of the Accounting Department under the name Accounting II. Ms Rømer continued as head until she retired in December 2013. She was succeeded by Dorthe Pannerup Madsen (or possibly first by Hanne Held and soon thereafter by Ms Madsen, which was Mr Nielsen’s recollection). I did not have any evidence from Ms Madsen or Ms Held, or from Laurits Cramer, who was immediately senior to Mr Nielsen, reporting to Ms Rømer. Mr Cramer worked with Mr Nielsen in the development of SKAT’s 3S data system, into which Mr Nielsen entered details of the tax refund claims he approved, but he was not involved in the processing of individual claims.

The head of the Accounting Department was Lars Nørding, then René Frahm Jørgensen (from the end of 2012), from neither of whom I had any evidence. Ms Rømer told the court she had little contact with either of them.

The Accounting Department was one of four departments that in turn reported to SKAT’s director for Central Jutland, Mr Sørensen. He was part of a senior level of management, referred to informally within SKAT as “Head Office” (or strictly, I assume, some Danish equivalent), which sat above what Ms Rømer described as the day-to-day “production” level of “departments dealing with the work”, like Accounting II, but still below the top tier of management within SKAT, the “Board”, above which again sat the “Department”, i.e. the Danish Ministry of Taxation. Until 2012 or 2013, Mr Sørensen reported to Board directors Ole Kjær and Steffen Normann Hansen (Mr Kjær being the “top director” responsible for SKAT as a whole), neither of whom gave evidence. From 2012 or 2013 onwards he reported to a new “top director” Jesper Rønnow Simonsen, who did not give evidence.

Mr Sørensen had remarkably little knowledge of the work of Accounting II or the administration of dividend tax. He had no contact with Mr Nielsen and no knowledge of what he did, or of the tax reclaim Form or how it was prepared or processed. He never discussed dividend tax even with Ms Rømer, although she had meetings with him. He had no responsibility for dividend tax matters prior to 2009, and thereafter nothing was reported to him about it (aside from periodic internal accounting reports), and he had no involvement with it, prior to the summer of 2015. From 2013 he was almost wholly focussed on developing an IT system within SKAT that had nothing to do with dividend tax; and dividend tax was simply not a priority of his.

When considering the context in which SKAT’s dividend tax reclaim system was set, I identified in paragraphs 450 to 454 above various matters that SKAT would reasonably have been expected to appreciate. Even though SKAT did not provide evidence from the senior individuals who must exist who could have spoken directly to this, I was satisfied from the documents and Ms Rømer’s evidence (where she was able to assist) that SKAT was aware of all of those matters during the relevant period.

SKAT knew share trading could be complex and might affect tax refund entitlements. It knew about stock lending, short selling and deferred settlement as widespread practices. SKAT knew that it could require those seeking refunds to provide information about their trading, or documentary evidence of it, if it wanted to assess their entitlement, and that it did not do so under the Form Scheme. That was not just an audit weakness of failing to interrogate or check, or seek better evidence of, information provided by the documents required by and routinely submitted under the Form Scheme. It extended to an appreciation by SKAT that what it required, and received, under that Scheme, did not give it information that, if accurate, established entitlement. SKAT was aware, in short, that a completed Form 06.003 accompanied by a CAN did not involve the Tax Agent stating to SKAT that the client had been a shareholder as a matter of Danish tax law (or at all) on the dividend declaration date (or on any other date), or that the client had, for Danish tax law purposes, received a dividend by being the tax law shareholder on the dividend declaration date (or a payment, net of tax, in respect of such an entitlement), or that the Danish company had withheld tax from a payment received by the client (in the sense relevant to SKAT’s claims (paragraphs 509 to 512 above)).

In closing argument, it was submitted that SKAT adopted a general trust-based approach, believing that those who claimed to be taxpayers, or to be acting on behalf of taxpayers, would “do the right thing”. There was some support for that in SKAT’s witness evidence. Mr Sørensen said in his witness statement that SKAT’s approach, in general, was “to inform the taxpayer about how to do things right, and then trust the taxpayers to do things right.” Ms Rømer said in hers that SKAT “trusted the applicants, as verified by the banks” (by which she meant the “bank or institution that had provided the dividend advice”). In a deceit claim, generalised ideas like those are no substitute for reliance on the particular representations alleged in the claim. (It was not alleged that there was any implied, general representation of honesty.)

In any event, I do not consider that witness evidence to be a reliable guide to SKAT’s approach. In the relevant passage of her witness statement, Ms Rømer said that at the time her approach was that: “If the bank confirmed that the amount claimed was all true and accurate, we were instructed by Head Office to process the payment to the applicant. If we thought the bank might have made a mistake, we could ask the bank that had provided the dividend advice about it; if the bank said that the information was correct, we accepted that the application was valid and had to pay. … If the applicant did not own shares or did not receive a dividend, they were not entitled to a refund of withheld dividend tax and should not have been applying to SKAT for a refund in the first place. If the form and the dividend advice said that the applicant owned the shares, had received the dividend and was certified as resident in a country that had a DTA giving the applicant the right to a reduced rate of tax, then we trusted those documents and took the view that the applicant was entitled to a refund of withheld dividend tax.” (my emphasis). In fact, as I find, Accounting II (and Ms Rømer personally) did not have that approach. The Form Scheme did not call for, and SKAT routinely did not receive, any confirmation from a bank or other financial institution of information that, if accurate, would establish any tax refund entitlement. There was no instruction from Head Office to the effect suggested by Ms Rømer. It was no part of Accounting II’s function to consider whether a Form and CAN, as received by SKAT, said that the applicant (strictly, the applicant’s client, where the applicant was a Tax Agent) owned shares and had received the dividend, and Mr Nielsen did not do so, not that a statement that the client “owned the shares [and] received the dividend” would translate to the representations alleged by SKAT anyway.

Mr Sørensen had no knowledge of SKAT’s approach to dividend tax refund claims (and should not have suggested otherwise, as he did in his witness statement). He may have been senior enough to be able to speak to a general approach to things at SKAT, expressed at the high level of abstraction of his comment quoted in paragraph 574 above. If so, particularly when read with the sentence from Ms Rømer emphasised in paragraph 575 above, that only revealed that SKAT’s claims pursued at trial lacked substance. If SKAT’s approach was to assume that a Tax Agent’s client was entitled to a refund, because otherwise the Tax Agent would not be putting in a claim, that might have assisted if the claim was of reliance on a representation, express or implied, of entitlement; but no representation to that effect was alleged by SKAT.

Furthermore, on the evidence as a whole, in my judgment it was clear that SKAT was not operating a dividend tax reclaim process on a trust-based approach like that suggested by Ms Rømer and Mr Sørensen. Rather, it was operating a system well knowing that it did not involve the provision to SKAT, in any form, of evidence that, taken at face value, established entitlement; and appreciating as a result that it was very likely accepting and paying claims where there was no entitlement, to an extent and value it was not in a position to assess. That is why I said in paragraph 573 above that this was not just an audit weakness. It was a more fundamental tax control weakness that was apt to be exploited, and came to be exploited at great cost to SKAT during the relevant period.

Those conclusions are, in particular, the only sensible way to explain the striking matters established by the evidence summarised in the remainder of this section of the judgment.

The sheer volume, and value, of claims approved and paid by SKAT during the relevant period is remarkable. I summarised some of the available data on that in paragraphs 553 to 555 above. That summary is already striking, and telling as to the nature of Mr Nielsen’s task. But in addition:

There is no evidence that SKAT monitored what was happening at Accounting II such that features and trends of that kind were identified. The point is not that SKAT in fact identified them prior to September 2015 (I could not find that it did), nor is it a question of criticising SKAT for failing to do so, since it is no defence to a deceit claim to show that the victim should have spotted the fraud, if there was one. Rather the point is a specific factual one for this case. Those extraordinary outcomes are explicable only on the basis that SKAT’s approval and payment of claims simply did not have reference to, and so was not influenced at all by, the matters about which it claimed in this litigation that the tax reclaims made representations. In my judgment it is impossible that SKAT’s processes could have resulted in those outcomes if those processes were looking for tax ownership of shares, tax entitlement to dividends, or a transmission of the burden of the tax deduction at source, before paying out.

SKAT was well aware during the relevant period that ‘dividend’ advices were issued, in form and content indistinguishable inter se, to parties who might or might not have been shareholders (either at all, or from the perspective of Danish tax law in particular).

Telling evidence on that came from SKAT’s disclosure concerning an episode in 2006-2007 in which Ms Rømer had an involvement, so that she was able to assist the court in relation to it in cross-examination although she had not been asked by SKAT to say anything about it in chief. Bankers Trust Opera Trading SA (‘BT Opera’), a French entity in some way associated with Deutsche Bank (London), sought and ultimately obtained from SKAT a dividend tax refund relating to dividends declared by TDC (at the time still called TeleDenmark). In the course of dealing with the BT Opera claim, SKAT recognised and discussed at senior levels:

SKAT did not redesign or tighten up its system, for example by amending the Form to require statements to be made, or evidence to be provided, about share ownership, dividend entitlement, or related trading. In fact, it did the opposite, simplifying from Form 06.008 to Form 06.003, dropping the requirement for the Danish company to certify tax deduction, and stipulating nothing about the material to be provided (so far as might be pertinent) except that there be a ‘dividend advice’. The BT Opera episode, and other evidence, showed that SKAT appreciated when doing so that the ‘Form + CAN’ document set it would thus normally receive would not make statements to it of the kind alleged in the litigation to have been representations always made.

For present purposes, the BT Opera episode begins with an internal memo dated 29 September 2006 prepared by Ms Rømer. On BT Opera’s behalf, Deutsche Bank had claimed just over DKK405m from SKAT in connection with TDC’s dividend of c.DKK2.576bn on which TDC had withheld c.DKK721m by way of dividend tax (the WHT rate was 28% at the time). Ms Rømer had noted that this meant BT Opera was seeking payment equal to more than 50% of the total tax due on the dividend. She noted that given the lack of visibility over foreign shareholders, and the use of cross-border share lending and nominee accounts, SKAT could not say from the information provided whether the refund, if paid, would be going to the dividend recipient, and it could be that it would “thereby secure a refund that is not really in accordance with the [DTT] and the legislation”. Her initial proposal was to pay the claim anyway, in view of the then requirement on SKAT to pay within 30 days (rather than 6 months as during the relevant period), “but that a similar situation be prevented by making changes to the relevant regulatory framework”.

Ms Rømer’s concerns were escalated, and on 17 October 2006, Leif Jeppesen, a Legal Services Director at Head Office, passed her memo to colleagues in an email expressing concern about speculating on Danish shares by moving them between jurisdictions for short periods, for example by a purchase and next-day sale, around the dividend date, so as to use the France-Denmark DTT to obtain a refund. He considered it possible that there was trading that would be considered pro forma under Danish law: see SKAT (Validity Issues), supra, at [83], [225]. I could not say that Mr Jeppesen had in mind a doctrine articulated exactly similarly; his later correspondence suggests that he viewed as pro forma a purchase just before the dividend date, with sale back immediately after, and that he was troubled, given the language of Form 06.008 (then current) that perhaps BT Opera had “simply ‘bought’ the dividend right without any connection to the right of ownership”. Ms Rømer rightly took him, on any view, to be concerned that there may have been a structured trade or series of trades intended to bring about a particular consequence, trading around the dividend date in an artificial way simply to generate a tax refund claim.

Mr Jeppesen suggested that underlying documents should be checked; and Ms Rømer agreed that the only way SKAT could learn what the trading had been was to ask for the detail, and so further documents were sought from BT Opera and Danske Bank. Mr Jeppesen noted that according to TDC’s website, Nordic Telephone Co ApS at the time owned 88.2% of TDC’s shares (which obviously rendered it prima facie implausible that BT Opera had a 56% shareholding).

Ms Rømer’s first request for additional documents was in fact very limited. On 30 November 2006, by email she asked Deutsche Bank for “a signed letter from the beneficial owner” (stating what, she did not say), and “the dividend note issued by the paying bank along with the payment of the dividend”. She told Deutsche Bank that would “satisfy the Danish Tax Authorities and refund will be prosecuted”. In cross-examination, Ms Rømer said that was not her decision, it was what she had been told to do by Head Office.

On 20 December 2006, SKAT received a “Month-to-Date Cash Statement” as of 28 April 2006 for an account of BT Opera’s at Deutsche Bank (London), showing credit entries apparently referable to dividends declared by TDC; and on 12 January 2007 SKAT received a declaration of beneficial ownership “of the underlying Danish equities at the time of the entitlement to the relevant dividend” from BT Opera, Deutsche Bank having given a similar confirmation on behalf of BT Opera in its letter enclosing the cash account statement.

On 16 January 2007, Ms Rømer wrote to Mr Jeppesen (among others) proposing that SKAT now could not refuse to pay the claim; but he disagreed, protesting that to follow the transactions SKAT should have asked for “both purchase and sale documents, copies of settlements for purchases and sales and detailed explanations of the terms and conditions”. He noted that the declaration of beneficial ownership said nothing about the basis of the claimed interest (including whether it was under Danish, German or French law), or for how long any interest was held, and considered that varying treatments of stock lending in different jurisdictions might be relevant.

On 18 January 2007 Mr Jeppesen followed up internally by email, attaching a draft early warning notice in relation to stock lending and suggesting disclosure of documents going to beneficial ownership and stock loans. It discussed the tax treatment of stock loans, the possibilities of stock lending without the knowledge of the owner in the custody chain and of multiple holdings of the same shares, and the need to review the form and content of claim forms “so that it is clear what requirements we have for ownership, etc. and documentation for this in order to get a refund of dividend tax”. In reply, on 19 January 2007, Ms Rømer agreed that stock loans were “a serious problem” and said that the BT Opera claim met “the requirements we set out in our forms” and that those forms “have been sought to be changed for several years as they are insufficient”. (On the basis of Ms Rømer’s oral evidence, I find that even prior to the BT Opera episode, SKAT had identified that the declarations made to SKAT by tax refund claimants were inadequate, that there were discussions and working groups, but that no change of process so as to require informative declarations by claimants was ever made. She said her efforts in that regard were not always well received by Head Office or SKAT’s Legal Department, and that even Mr Jeppesen’s suggestions for systematic change were resisted.)

The documentary evidence now available about the BT Opera claim is more limited thereafter. By early July 2007, Mr Jeppesen appears to have relinquished responsibility for the unit dealing with the case; and SKAT eventually received what was described internally within SKAT as “comprehensive documentation” that included “further documentation regarding BT Opera Trading’s purchase of shares”, following which, on 7 August 2007, SKAT decided to pay out. Ms Rømer was unable to help as to what the further documentation showed, or was thought by SKAT at the time to show, that unlocked the payment.

Ms Rømer’s oral evidence also showed that SKAT was aware, during the relevant period, of key matters of market practice in the context of which tax refund claims might be made to it, and that they meant that statements of the type SKAT has wished to say in the litigation were made to it simply were not made by the basic Form 06.003 plus CAN document sets that SKAT received. I accept Ms Rømer’s evidence on those aspects, despite my concerns about her as a witness, because it was all plausible, in the light of the expert evidence, it was adverse to SKAT in the case, and SKAT adduced no contrary evidence from any potentially more reliable source, e.g. contemporaneous documents or witness evidence from better informed, more senior personnel. Thus:

In mid-February 2012, just as Mr Klar was preparing to engage in the earliest Klar Model trading in respect of Danish shares, which came first in time out of all the trading with which I am directly concerned, and as Sanjay Shah, Mr Horn and Rajen Shah were working up the first iteration of Solo Model trading, Ms Zester emailed Ms Rømer, in the context of possible reform of financial reporting, to get her best estimate of the financial impact in relation to dividend tax administration. In Ms Rømer’s absence, Ms Zester asked Mr Cramer to respond, and he replied that ongoing reporting would provide “better opportunities to ensure that refund applications are from dividend recipients who have had dividend tax withheld at a percentage that entitles them to reimbursement. I dare not quantify our losses from reimbursement to unjustified refund applications” (my emphasis).

Mr Nielsen confirmed that it had been Mr Cramer’s view, voiced at SKAT at the time, that indeed SKAT must be paying out unjustified claims to an extent he could not quantify. Ms Rømer said she did not recall the particular exchange of emails or, therefore, that particular example of Mr Cramer expressing concern, but volunteered that “we had been concerned for a long time”, it had been discussed many times whether SKAT could or should seek further documentation or information about underlying trading, and that the decision at a top level (she could not say by whom exactly) had been to wait for what the OECD came up with (which, in the event, was nothing, during the relevant period). In that passage of evidence, Ms Rømer also referred to SKAT standing on the “three legs” of “the declaration, the signature of the tax authorities, and the justification from the bank”. However, that was argumentative. Ms Rømer knew that no relevant ‘declaration’ was made by or on behalf of the claimant, the only tax authority signature received concerned the tax status of the claimant in its home jurisdiction, and a CAN in typical form was not a ‘justification’ of anything. Pressed to agree that she understood at the time that the terms of the underlying trading might mean the claimant was not entitled, Ms Rømer said, “I prefer to think that people are doing what is right, but of course there is a risk that it is not the case”, which was still a touch argumentative but in my judgment contained within it a possible grain of truth, namely that she may perhaps have imagined that refund claims would only be made by those who thought themselves entitled. If that was her view at the time, it had no influence on any of the decisions Mr Nielsen made to approve the tax reclaims with which I am concerned; and it would not have been evidence of reliance on any of the representations alleged by SKAT, even if it had influenced anything.

In my judgment, in the light of the matters of context of which SKAT was well aware, and the BT Opera episode a few years previously, the matters summarised above did not evidence trusting reliance on statements being made to SKAT of the kind from which SKAT sought to construct its claims in this litigation (or anything similar). Rather, it demonstrated or confirmed awareness within SKAT that statements of that kind were not made, that it therefore had no idea whether they would or might be true or false for any given tax reclaim, and that its system, by design and in practice, paid out anyway.

That is illustrated (and further confirmed) for the tax ownership representation in particular by a draft report circulated within SKAT (but not to anyone who gave evidence) at the end of September 2015, on the handling of dividend tax refund claims. It concluded generally that control (as regards whether only valid claims were paid) was flimsy. It suggested that SKAT had no real possibility to check whether the refund claimant was the rightful owner other than by asking that claimant. I do not agree with that, but what matters for present purposes is that the report recommended that refund claimants be required to declare that they were shareholders when the dividend was distributed, in substance on the basis that no such statement was being made to SKAT under the system as it stood.

In closing, SKAT argued that the core representations were so simple as to go without saying, such that it was impossible to make a tax refund claim without making them. It submitted the Form Scheme was “designed to ensure that a successful application made the Core Representations”, so they could not have been missed by SKAT. Defendants submitted to the contrary; by way of example, the DWF Ds suggested that “This ambitious argument is to equate the Core Representations … with examples of very straightforward implied representations mentioned in the authorities, e.g. … bidders at auction or diners in a restaurant who impliedly represent that they have funds to pay. It rests on an unrealistic reading of the authorities and in any event has no sensible application to the present facts.” Save that it is unnecessary to pass comment on whether SKAT was misreading the case-law, I agree with the DWF Ds.

SKAT’s final alternative case on reliance, a case of systemic reliance, therefore also fails on the facts.

That conclusion on systemic reliance is further reinforced, although it would have been my conclusion without this, by the indifference of SKAT’s process, as designed and as then duly operated by Mr Nielsen, to any narrative language in the reclaim documents. It would be very surprising if a system designed to be influenced by statements made by Tax Agents in support of tax refund claims did not require those operating the system to pay close attention to what was said in those Agents’ covering letters, or to notice narrative wording such as in the SCP CANs. I found, above, that the Tax Agents’ cover letters may as well have said nothing. Further than that, however, I was satisfied on the evidence as a whole that it would have made no difference if those letters had said “Please find attached a claim relating to a dividend compensation payment [or manufactured dividend or payment in lieu of dividend] received by our client”, or if a CAN had stated, in terms, that it concerned such a receipt.

Having rejected the suggested case of systemic reliance on the facts, although I took the view that such a case could be sound in principle (paragraphs 531 to 535 above), it is not necessary to deal with an argument developed by Mr Jones KC on behalf of the Shah Ds that it was not fairly open to SKAT to ask for liability to be found on the basis of systemic reliance, because of the way it had pleaded its case on inducement.