Chan Sek Keong CJ (delivering the grounds of decision of the
court):
Introduction
This was an appeal against the decision of the High Court judge (“the Judge”) in Her Majesty’s Revenue & Customs v Hashu Dhalomal Shahdadpuri and another [2011] 2 SLR 967 (“the GD”), in which he: struck out, pursuant to O 18 r 19 of the Rules of Court (Cap 322, R 5, 2006 Rev Ed) (“the Rules”) and the inherent jurisdiction of the court, the claim of the appellant, Her Majesty’s Revenue & Customs (“the Appellant”), against the respondents, Hashu Dhalomal Shahdadpuri and Notandas s/o Premchand Jamnadas Udasi @ Nari Premchand (referred to hereafter as, respectively, “the First Respondent” and “the Second Respondent”, and collectively as “the Respondents”); and discharged the Mareva injunction which the Appellant had obtained against the Respondents on 18 May 2010 (“the Singapore Mareva Injunction”). At the conclusion of the hearing, we allowed the appeal. We now give our reasons.
Facts
The parties to the dispute
The Appellant is an entity of the UK government and is responsible for, inter alia, collecting, accounting for and otherwise managing customs and excise revenue, as well as collecting and managing value added tax (“VAT”) in the UK. The Respondents, who are Singapore residents, are the alleged officers and agents of PT Naina Exim Indo (“PT Naina”), a company incorporated in Indonesia.
Background to the dispute
The Appellant’s claim is in respect of conspiracy by unlawful means (“unlawful means conspiracy”) by the Respondents (acting in concert with other parties) to defraud the Appellant through a form of fraud known as missing trader intra-community (“MTIC”) fraud, and to conceal such fraud and the proceeds of such fraud from the Appellant.
The Appellant commenced an action in England against the Respondents for unlawful means conspiracy to commit MTIC fraud (“the English Action”) and obtained a worldwide Mareva injunction against them in that action. Thereafter, the Appellant commenced simultaneous actions in Singapore against the Respondents (“the Present Action”) and in Hong Kong against, among others, the First Respondent (“the Hong Kong Action”).
The conspiracy pleaded by the Appellant in the Present Action arose in the following manner: A Danish company (“Sunico”) was alleged to have been the chief perpetrator of a series of MTIC frauds committed against the Appellant. Sunico had supplied goods to several suppliers in member states of the European Union (“EU Suppliers”). The EU Suppliers had in turn sold the goods to a trader registered in the UK for VAT (a “UK Importer”). Under Art 28c(A)(a) of the Sixth Council Directive of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes (EEC Council Directive 77/388/EEC) and s 30 of the Value Added Tax Act 1994 (c 23) (UK) (“the UK VAT Act”), the UK Importer was not required to pay VAT on the goods imported from the EU Suppliers as such imports were zero-rated. The UK Importer then sold the goods to another party registered for VAT in the UK (a “Buffer”). The UK Importer charged VAT on the goods sold (“output tax”), but directed the Buffer to pay the purchase price of the goods, together with the output tax payable thereon, to a third party outside the UK’s jurisdiction (a “Third-Party Recipient”). In the present action, the Third-Party Recipient is Sunico, which is situated in Denmark. The UK Importer deliberately failed to account to the Appellant for the output tax on the goods sold to the Buffer and subsequently “went missing” (so to speak). The Buffer sold the goods directly or via a chain of traders to an exporter (an “Exporter”), who paid VAT thereon (“input tax”) and exported the goods out of the UK. The Exporter claimed reimbursement from the Appellant of the input tax which he paid on the exported goods. PT Naina allegedly introduced some of the EU Suppliers to Sunico and was paid a percentage of Sunico’s profits as commission pursuant to a commission agreement. Specifically, Sunico was alleged to have paid some US$14,764,612 as commission to PT Naina between October 2002 and July 2006. The Appellant claimed that the commission agreement and the commission payments to PT Naina were “not genuine commercial transactions, but instead a mechanism for the division of the proceeds of MTIC fraud amongst co-conspirators”, and that the effect of the conspiracy was to “unlawfully divert monies properly payable to the [Appellant] principally to Sunico and thereafter … to its co-conspirators”. The Respondents were alleged to be the representatives of PT Naina, which had concealed the proceeds of the conspiracy. On this basis, the Respondents were said to be jointly and severally liable to the Appellant for damages for conspiracy. The Exporter, however, was not alleged to be a party to the conspiracy.
On 18 May 2010, the Appellant obtained the Singapore Mareva Injunction against the Respondents. In June 2010, the Respondents applied to discharge the Singapore Mareva Injunction; they also applied to strike out the Appellant’s claim under O 18 r 19 of the Rules as well as pursuant to the inherent jurisdiction of the court.
On 23 September 2010, the Appellant filed its amended statement of claim (“the Appellant’s amended SOC”). On 28 September 2010, the Judge allowed the Respondents’ striking-out applications and struck out the Appellant’s amended SOC on the ground that the Appellant’s claim offended what he termed “the revenue rule” (ie, the rule that “[the] courts will not collect the taxes of foreign states for the benefit of the sovereigns of those foreign states” (see Dicey, Morris and Collins on The Conflict of Laws (Sir Lawrence Collins gen ed) (Sweet & Maxwell, 14th Ed, 2006) at vol 1, para 5-029)) as it was, in substance, a claim to recover uncollected output tax. Subsequently, the Appellant requested a further hearing before the Judge. After hearing the Appellant’s further arguments on 3 November 2010 and 2 December 2010 (in the latter instance, consequent upon the decision of the Hong Kong Court of First Instance (“the Hong Kong CFI”) in Her Majesty’s Revenue & Customs v Shahdadpuri [2010] 5 HKLRD 690 (“Shahdadpuri (HK)”) vis-à-vis the Hong Kong Action, where the Appellant had made a similar claim based on similar allegations against the First Respondent as the allegations made in the Present Action), the Judge affirmed his decision of 28 September 2010 to strike out the Appellant’s claim.
The decision below
The Judge held that it was plain and obvious that the Appellant’s claim in the Present Action was “in substance and in effect an attempt to recover the uncollected VAT (output tax) … extra-territorially” (see the GD at [30]). As such a claim was contrary to considerations of public policy, the Judge struck out the Appellant’s amended SOC pursuant to O 18 r 19 of the Rules (with emphasis on O 18 r 19(1)(d)) and the inherent jurisdiction of the court (see the GD at [30] and [41]).
The Judge also discharged the Singapore Mareva Injunction on the ground that it was not for the purpose of rendering any assistance to the English Action, and regarded the Appellant’s argument to the contrary as “a mere attempt to delay the application of the revenue rule at the expense of the [Respondents]” [emphasis in original omitted] (see the GD at [32]).
The parties’ arguments on appeal
The Appellant’s case
The Appellant’s contentions on appeal may be summarised as follows: A conspiracy claim for MTIC fraud was not a prerogative claim for tax (which would offend the revenue rule), but a private law claim (in tort) for damages for conspiracy. In this regard, the Appellant advanced the following arguments: The majority of the House of Lords decided in Revenue and Customs Commissioners v Total Network SL [2008] 1 AC 1174 (“Total Network”) that the Appellant’s conspiracy claim in that case for what was termed “carousel fraud” (a form of fraud similar to MTIC fraud) was not a prerogative claim for tax, but a claim for damages for conspiracy. As between the Appellant and the First Respondent, the Hong Kong CFI decided in Shahdadpuri (HK) that the Appellant’s claim in the Hong Kong Action was not a claim for tax and, consequently, did not offend the revenue rule. The Appellant’s claims in Total Network and Shahdadpuri (HK) could not be distinguished from the Appellant’s claim in the Present Action. The Appellant’s claim against the conspirators (including the Respondents) remained a private law claim for damages in respect of out-of-pocket losses sustained by the Appellant. It was not a claim for tax, irrespective of whether the Exporter was innocent of or party to the conspiracy. Although the Appellant’s losses were measured with reference to payments and/or claims purportedly made in relation to tax, that did not make the Appellant’s claim a claim for tax. With the Appellant’s claim properly characterised as a private law claim for damages for conspiracy, the claim did not offend the revenue rule. Granting the Singapore Mareva Injunction to aid or assist the English Action would not offend the revenue rule because substantive determination of the Appellant’s claim in the English Action would take place only in the UK.
The First Respondent’s case
The First Respondent’s arguments before this court may be summarised as follows: The law on the revenue rule was clear: the Singapore courts would not enforce the revenue law of a foreign state. In this respect, it was for the Singapore courts to decide whether the Appellant’s claim in the Present Action infringed the revenue rule, without having regard to how UK law (the UK being the foreign state concerned in this case) viewed the claim. The Appellant’s claim as pleaded in the Appellant’s amended SOC was a claim for unpaid output tax, which the Singapore courts would not enforce, and was thus bound to fail....
