Denmark Loses £1.4bn Tax Fraud Claim in UK High Court

 

On Thursday 2nd October Mr Justice Andrew Baker handed down a landmark decision in the case SKAT v Solo Capital Partners LLP and others at the High Court, King’s Bench Division.  After 6 years of litigation, all claims against Sanjay Shah, Mrs Shah and the other defendants were dismissed, leaving SKAT liable for a large majority of the costs relating to these extensive legal proceedings.

Since 2020, the case had already been back and forth between the High Court, the Court of Appeal and the Supreme Court prior to the Main Trial which commenced on April 9^th 2024. Lasting a total of 108 days in Court, plus an additional 30 reading days, Mr Justice Baker stated in his closing remarks that, “It may be the longest trial in the history of the Commercial Court so far, which goes back to 1895”.

Simon Bird, a founding partner of Objectivus Financial Consulting, was engaged on behalf of the so-called Shah Defendants, given his track-record of expertise in the field of dividend arbitrage trading and accompanying middle and back-office procedures that underpin the various strategies. Simon, an experienced financial market professional since the late 1980s, was posed a list of questions by Mr Justice Baker for the Main Trial regarding primarily the question of market practice during the relevant period between 2012 and 2015.

Whilst dividend arbitrage, or more specifically the Cum-Ex trading methodology, was the principal focus of the case, it was essential that Simon, supported by his team of experts, was competent in all aspects of the market “plumbing” in order to fully respond to Mr Justice Baker’s questions. His expertise was required on the following topics: dividend arbitrage, derivatives pricing, double tax treaties, equity market infrastructure, stock borrowing and lending, custody chains, middle and back-office procedures, KYC and AML checks, as well as thorough knowledge of specific EU Regulations and the FCA Handbook.

In order to fully digest the case history and deliver the appropriate responses to Mr Justice Baker, Objectivus was given access to a data-room of over 4 million documents. Our combined experience in understanding the nuances of market terminology permitted us to dissect communications (via email, Skype etc.) between key figures involved in the case. Furthermore, trade confirmations, stock borrowing arrangements and custody agreements all had to be assessed for conformity and adherence to normal market practice.

The culmination of our engagement on behalf of the Shah Defendants consisted of a Main Trial Expert Report delivered in January 2024, followed by a Joint Memorandum between the other experts (Charles River Associates for SKAT, Alvarez & Marsal for the DWF Defendants) a month later. Supplemental reports were also adduced to evidence in the run-up to the Trial, as certain issues required further expert opinion. Our small, focused team at Objectivus illustrated that agility and independence can perform alongside the more established expert consultancies, confirmed by Simon Bird’s expert testimony in the High Court in early December 2024. Commenting on the evidence provided by the expert witnesses, Mr Justice Baker, said,

“Mr Bird dealt thoughtfully and fairly with questions put to him in cross-examination…I was not troubled by placing reliance on [his] expert views.”

 

In his Press Release and Approved Judgment released on the 2nd October, Mr Justice Baker noted with regard to the Defendants, “They did not consider that anything untrue would be stated to SKAT, so they implemented the strategies, and they found that SKAT paid”, and went on to say “…greed can be a powerful motive, and finds that greed was present, but concludes that the evidence at trial did not prove SKAT’s claim”.  Finally, with regard to SKAT, “Its controls for assessing and paying dividend tax refund claims were so flimsy as to be almost non-existent”. 

These three quotes struck a chord with the Objectivus team of experts; as we ploughed through the data over several months and methodically formed an opinion on the market practice elements of the case, we correctly speculated that the defendant’s “state of mind” during the relevant period was going to be a primordial consideration.  Moreover, it was apparent to the team that a combination of “greed” of behalf of the Defendants and SKAT being effectively “asleep at the wheel” were the fundamental reasons underpinning this litigation.

SKAT now appear determined to appeal the decision, even if Mr Justice Baker denied them permission to do so during the final hearing last week. Initial commentary from the legal profession is relatively critical of SKAT’s strategy, which alleged fraudulent misrepresentation as a basis for unjust enrichment. Mr Justice Baker himself said that if the case had been pleaded differently, the outcome may also have been very different. This judgment will be seen as a further embarrassment for SKAT, both reputationally and politically back in Denmark. In our opinion there may yet be further twists to come in these already drawn-out proceedings.

From Objectivus’ standpoint, our involvement in this complex litigation has provided us with a wealth of experience in handling large data sets and the production of timely expert reports for the highest Court in the UK.  Our collaborative approach, using a small team of focused individuals to support our testifying witness has proved itself more than capable of accepting high-profile engagements alongside the more renowned and established expert consultancies. This stands us in good stead for all future engagements either for expert consultancy, pre-litigation expertise or indeed expert testimony in court.

For further information regarding Objectivus Expert Services please contact srb@objectivus.com or kmt@objectivus.com