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The Supreme Court has held that the illegality defence did not bar a claim by the liquidators of a company used for VAT fraud against its former directors.

The respondent company was alleged to have been the vehicle for VAT carousel fraud in the context of transactions involving EU emissions allowances. After the company went into liquidation, the liquidators brought proceedings against its former directors and the appellant company, contending that the directors had breached their fiduciary duties and that the appellant had dishonestly assisted them. The appellant argued that the claim was precluded by an illegality defence, and that s. 213 of the Insolvency Act 1986 (under which the liquidators sought contributions from the directors and the appellant) did not apply extra-territorially.

The Supreme Court held as follows:

• Lords Neuberger, Clarke, Carnwath, Mance, Toulson and Hodge: the proper approach to the defence of illegality required timely examination by the Supreme Court. However, the present case was not the opportunity to do this since the nature of the defence was not determinative of the outcome here.
• Lords Toulson and Hodge: the doctrine of illegality had been developed by the courts on the ground of public policy. There was a public interest underlying the fiduciary duties owed by the directors of an insolvent company to its creditors. To allow the directors to escape liability (i.e. to be “let off the hook on the ground that their illegality tainted the liquidators’ claim”) because they were in control of the company would undermine those duties.
• Contrast with Lord Sumption, disagreeing with the statutory policy approach above: “the illegality defence is based on a rule of law on which the court is required to act, if necessary of its own motion, in every case to which it applies. It is not a discretionary power on which the court is merely entitled to act, nor is it dependent upon a judicial value judgment about the balance of the equities in each case”
• A company had separate legal personality, though it acted through its directors and agents. Whether their actions could be attributed to the company depended on the particular context. Here, in the context of an alleged breach of directors’ duties (namely using the company to commit fraud and thereby allegedly causing loss to the company), it was inappropriate to attribute to the company the fraud to which the alleged breach of duty related. “[A]s between the company and the defrauded third party, the company should be treated as a perpetrator of the fraud; but … in the different context of a claim between the company and the directors, the defaulting directors should not be able to rely on their own breach of duty to defeat the operation of the provisions of the Companies Act in cases where those provisions were intended to protect the company”.
• S. 213 of the Insolvency Act 1986 had extra-territorial effect. Its context was the winding up of a British company, where the effect of such an order was worldwide. S. 213 provided a remedy against any person who had knowingly become a party to the carrying on of that company’s business with a fraudulent purpose. The persons against whom the provision was directed were (a) parties to a fraud and (b) involved in the carrying on of the (insolvent) company’s business. “It would seriously handicap the efficient winding up of a British company in an increasingly globalised economy if the jurisdiction of the court responsible for the winding up of an insolvent company did not extend to people and corporate bodies resident overseas who had been involved in the carrying on of the company’s business”.

Jetivia SA and anor v Bilta (UK) Ltd (in liquidation) and ors [2015] UKSC 23, 22 April 2015

The CJEU has confirmed the sanctions imposed on a number of Zimbabwean officials, including the Attorney-General, rejecting an application for annulment of their listing.

The Council had imposed sanctions (freezing of funds and ban on entry into or transit through EU territory) on Zimbabwean individuals and corporations in view of the alleged human rights infringements of the country’s government. Mr Tomana (the Attorney-General of Zimbabwe), 109 other individuals and 11 companies applied for annulment of their listing. The reasons for the listings generally ran along the lines of allegedly undermining democracy, respect for human rights and the rule of law.

The CJEU held as follows:

• As to the absence of an adequate legal basis for the listing, the measures were imposed because of alleged conduct which was part of a strategy of intimidation and systematic violation of the fundamental rights of the Zimbabwean people, responsibility for which the Council assigned to the leaders of that country. Moreover, the majority of the applicants occupied positions which characterised them as leaders of Zimbabwe or associates of those leaders. That ground alone justified their listing.
• As to the infringement of the obligation to state reasons, with respect to the majority of the applicants the reference to the posts which they were occupying when the contested acts were adopted (or which they had occupied in the past) was in itself sufficient to justify their listing. With respect to the others, a reference to specific conduct imputed to them was required, and this had been provided here.
• As to a manifest error of assessment, it was not correct to state that the measures could be imposed only on individuals or companies whose activities seriously undermined human rights in Zimbabwe. The measures were also directed against “members of the Government of Zimbabwe” and “any natural or legal persons, entities or bodies associated with them”. Such a status was therefore in itself sufficient to justify the listing.

Case T‑190/12 Tomana v Council and Commission, 22 April 2015

On 16 April 2015 the CJEU ruled in favour of the Commission in Case C-591/13 Commission v Germany.

Under the German tax rules, tax on capital gains realised upon the sale of certain capital assets (“the replaced assets”, which include mostly land and buildings) can be deferred by transferring those capital gains to newly acquired or produced capital assets (“the replacement assets”) until the sale of those replacement assets, provided certain conditions are fulfilled. The replacement assets must be acquired within a certain time period and must be held as a fixed asset of a domestic permanent establishment. The European Commission brought the present case against Germany asking the CJEU to rule that the latter condition restricts the freedom of establishment as it discourages German businesses from carrying out activities through permanent establishments located in other Member States.

Germany disputed the admissibility of the proceedings on two grounds, first that there was a delay in bringing the action, and secondly, that the subject-matter of the action has been altered. With regard to the first ground, the CJEU held that the Commission is not obliged to act within a specific period. The considerations which determine the Commission’s choice of time cannot affect the admissibility of the action, subject to situations in which the excessive duration of the pre-litigation procedure can make it more difficult for the Member State concerned to refute the Commission’s argument and thus infringe the rights of defence of that Member State. The CJEU also found that the subject-matter of the action has not been altered.

Germany also argued that the legislation is justifiable on the basis of the balanced allocation of the power to impose taxes, coherence of the tax system and that it provides for a tax benefit for natural or legal persons.

The CJEU rejected all the justification grounds that were raised and found that immediate taxation on gain reinvested in a Member State other than Germany is discriminatory in comparison to the roll-over relief available on reinvestment in Germany and is a restriction on the freedom of establishment.

Case C-591/13 Commission v Germany, 16 April 2015

The Master of the Rolls, Lord Dyson, announced on 17 April 2015 that there would be no changes to the Guideline Hourly Rates (GHRs) for litigation costs, and that the existing rates would remain in force for the foreseeable future.

The GHRs had originally been set in 2010. According to Lord Dyson, these rates will remain a component in the assessment of costs, along with the application by the judiciary of proportionality and costs management.

Lord Dyson stated that there was no funding available for undertaking the requisite in-depth survey which could act as an adequate evidence base for amending the GHRs. Moreover, even if such funding were available, it was doubtful whether sufficient firms would be willing to participate and provide the level of detailed data required to produce accurate and reasonable GHRs.

On 31 March 2015 the VAT Expert Group adopted an Opinion on the Cross-Border Rulings, welcoming the extension of the EU pilot project until September 2018.

The VAT Cross Border Rulings (CBR) is a project to allow taxable persons to obtain advance rulings on the VAT treatment of complex cross-border transactions. 15 EU Member States have agreed to participate in a test case for private VAT ruling requests relating to such transactions. The relevant tax authorities will then consult each other with a view to delivering a common view of how the VAT rules apply to the transaction. The current list of cross-border rulings is available here.

The initiative is regarded as a first step towards better cooperation and discussion between Member States at tax administration level on real life cross-border VAT technical issues. The aim is to improve the coordination of the application and interpretation of the common EU VAT System, so that situations of double taxation can be eliminated.

The High Court has held that it has no discretion to extend the time for appealing the registration of a Cypriot judgment for enforcement in England.

Cypriot proceedings against the appellant had been compromised by a consent order made by the Cypriot Court holding that the appellant should pay certain sums to the respondent bank. The appellant claimed that she first learned of the proceedings when she was served with notice of registration of the order for enforcement in England. She appealled the registration of the order, contending that the English court should not have recognised it pursuant to Article 34(2) of the Judgments Regulation (44/2001). She served the appeal 22 days outside the two-month limit in Article 43(5) of the Judgments Regulation and CPR 74.8(4)(a)(ii).

Andrews J held as follows:

• The court could not extend the two-month limit for appealing, which, according to the language of the Judgments Regulation, was intended to be mandatory. The Regulation “established an autonomous and complete system for the recognition and enforcement of judgments, including for appeals, which excludes the possibility of any separate challenges to an enforcement order under domestic law”. For defendants domiciled in an EU state outside the state of enforcement (as the appellant was) the time limit was two months (as opposed to one month for those domiciled in the state of enforcement). Moreover, time did not start to run until there had been actual service of the order for enforcement. The extended time limit and the service rule struck the balance between giving the appellant fair opportunity to prepare the appeal and the need for uniformity and expeditious enforcement.
• Whether CPR 74.8 gave the court power to extend time otherwise than on account of distance did not have to be decided here, as that rule only applied to persons domiciled in a non-EU state. Citibank v Rafidian Bank and another [2003] EWHC 1950 (QB) was not authority for the proposition that the time limits for EU defendants in the Regulation were not mandatory, as this question did not have to be decided in the case.
• Even if the court had power to extend the two-month limit, it would not have exercised it here. The delay was serious, and there was no good excuse for it. The justice of the case did not require an extension. Guidance given in cases concerning the normal rules pertaining to appeals in English law could not be applied in the context of a complex international treaty or directly effective EU regulation, which involved policy considerations going beyond case management.

Christofi v National Bank of Greece (Cyprus) Ltd [2015] EWHC 986 (QB), 14 April 2015

The Commission has announced that it has opened a formal investigation against Google regarding its Android mobile operating system, and that it has sent Google a statement of objections on comparison shopping services.

First, the Commission intends to investigate whether Google’s conduct in relation to its Android mobile operating system and applications and services for smartphones and tablets has breached EU competition rules, namely Articles 101 (anticompetitive agreements) and 102 (abuse of a dominant position) TFEU. In particular, the investigation will examine the following allegations:
Second, the Commission has sent a statement of objections to Google alleging that in its general search results pages Google treats more favourably its own comparison shopping service (“Google Shopping”) and its predecessor service (“Google Product Search”) compared to rival comparison shopping services. Google’s conduct may therefore artificially divert traffic from rival comparison shopping services and hinder their ability to compete, to the detriment of consumers, as well as stifling innovation. The Commission’s key preliminary conclusions are as follows:

• whether Google has illegally hindered the development and market access of rival mobile applications or services by requiring or incentivising smartphone and tablet manufacturers to exclusively pre-install Google’s own applications or services;
• whether Google has prevented smartphone and tablet manufacturers wishing to install Google’s applications and services on some of their Android devices from developing and marketing modified and potentially competing versions of Android on other devices, thereby illegally hindering the development and market access of rival mobile operating systems and mobile applications or services;
• whether Google has illegally hindered the development and market access of rival applications and services by tying or bundling certain Google applications and services distributed on Android devices with other Google applications, services and/or application programming interfaces of Google.

• Google systematically positions and prominently displays its comparison shopping service in its general search results pages, irrespective of its merits.
• Google does not apply to its own comparison shopping service the system of penalties, which it applies to other comparison shopping services on the basis of defined parameters, and which can lead to the lowering of the rank in which they appear in Google’s general search results pages.
• As a result of Google’s systematic favouring of its subsequent comparison shopping services (“Google Product Search” and “Google Shopping”), both experienced higher rates of growth, to the detriment of rival comparison shopping services.
• Google’s conduct has a negative impact on consumers and innovation. Users do not necessarily see the most relevant comparison shopping results in response to their queries. Rivals’ incentives to innovate are lowered as they know that however good their product, they will not benefit from the same prominence as Google’s product.

The Organisation for Economic Co-operation and Development (OECD) has published a discussion draft on mandatory disclosure rules in instances of tax avoidance.

In particular, the draft deals with Action 12 (Mandatory Disclosure Rules) of the Base Erosion and Profit Shifting (BEPS) Action Plan. Action 12 of the BEPS Action Plan recognises the benefits of tools designed to increase the information flow on tax risks to tax policy makers and tax administrations and identifies three key outputs:
The OECD draft addresses the first two of the outputs. The design of enhanced models of information sharing will need to take into account other elements of the Action Plan that also involve the sharing of information between tax authorities.

• recommendations for the modular design of mandatory disclosure rules to provide flexibility for country specific needs;
• a focus on international tax schemes and consideration of a wide definition of tax benefit to capture relevant transactions; and
• designing and putting in place enhanced models of information sharing for international tax schemes.

The draft provides an overview of the key features of a mandatory disclosure regime and considers the effectiveness based on available data from those countries with such regimes (Chapter II). It sets out a modular framework and options for the design of a mandatory disclosure regime (Chapter III) and considers how international transactions could best be captured by a mandatory disclosure regime (Chapter IV).

The Action Plan calls for the OECD’s project to be completed by September 2015. Comments on the draft should be submitted to the OECD by 30 April 2015.

The Commercial Court has ordered that the claimants should give advance notice to the defendant if they proposed to make collateral use of documents already disclosed.

The proceedings in question had been settled in July 2014. The Serious Fraud Office (“SFO”) subsequently applied for an order pursuant to CPR 31.22(2) restricting or prohibiting the use of certain documents previously disclosed in the proceedings. CPR 31.22(1) provides that a party to whom a document has been disclosed may use the document only for the purpose of the proceedings in which it is disclosed, except where the document has been read to or by the court, or referred to, at a public hearing which has been held in public. No party had indicated an intention to use the documents for any collateral purpose. However, the SFO wanted the claimants to notify it of any such intention, arguing that this was due to the strong public interest against collateral use of the documents, which were part of the SFO’s criminal investigation.

Eder J held as follows:

• The present situation was unusual, since none of the parties had indicated an intention to use the documents for a collateral purpose, and the documents did not fall within the “read to or by the court, or referred to, at a public hearing” exception in CPR 31.22(1).
• However, under CPR 31.22(2) the court could make make an order restricting or prohibiting the use of a document which had been disclosed, even where the document had been read to or by the court, or referred to, at a hearing which has been held in public. “CPR 31.22(2) is in wide terms. In particular, the only pre-condition to the making of an Order restricting or prohibiting the use of a document is that such document “has been disclosed”. As it seems to me, there is no requirement on any applicant under that rule to show that any such document has been read to or by the Court, or referred to, at a hearing which has been held in public”.
• If the court did not make the order, and the claimants wanted to obtain the benefit of the exception in CPR 31.22(1), they would themselves have to carry out the exercise of identifying what particular documents had been read to or by the court, or referred to, at a hearing which had been held in public. The SFO would take the risk of such exercise being carried out properly by the claimants, as the exception in CPR 31.22(1) did not depend on the court’s permission, but operated automatically.
• If the court did not make the order, the SFO would have to incur substantial and unnecessary costs. In view of the overriding objective (CPR 1.1: dealing with cases justly and at proportionate cost), this was to be avoided.
• The court would make the order subject to the requirement that, once the claimants had given notice to the SFO of their intention to use the documents for a collateral purpose, the SFO should not notify any relevant third parties about such intended use.

Rawlinson and Hunter Trustees SA v Tchenguiz and others [2015] EWHC 937 (Comm), 01 April 2015

Amnesty International, Liberty and Privacy International have made an application to the European Court of Human Rights alleging that the UK’s mass surveillance practices are in breach of human rights.

The application follows a decision by the Investigatory Powers Tribunal (IPT) on 6 February 2015 whereby it was found that British intelligence services had acted unlawfully in accessing personal communications collected by the US National Security Agency (NSA). Prior to December 2014, the practice of intelligence sharing between the UK and the US was held to be in breach of Articles 8 (right to respect for private and family life) and 10 (freedom of expression) of the European Convention on Human Rights. The practice was unlawful because the rules governing the UK’s access to NSA information were secret. The IPT further ruled that post-December 2014 the UK’s access to NSA data was lawful. Previously, on 5 December 2014, the IPT had held that as of the date of the judgment there had been no breach of Articles 8 and 10 (because some of the UK-US intelligence sharing arrangements had been made public), but left open the question whether such breach had taken place before than date.

The applicant organisations disagree with the IPT’s finding of legality and argue that the UK’s bulk surveillance practices continue to breach Articles 8 and 10, as well as Articles 6 (the proceedings before the IPT breached the applicants’ right to a fair hearing) and 14 (the statutory framework governing bulk interception is indirectly discriminatory on grounds of nationality and national origin because it grants additional safeguards to people known to be in the British islands, but denies them to people abroad).

The European Court of Human Rights application: 10 Human rights organisations v United Kingdom: Additional submissions on the facts and complaints, 8 April 2015