Vol 7 (2010) - Issue 2

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Relfo Limited (in liquidation) v Varsani [2008] SGHC 105, [2009] WTLR 1019: A Purposive Approach to the Rule against Foreign Revenue Enforcement

The rule against foreign revenue enforcement

The principle that the courts of one country will not enforce the revenue laws of another is of long standing. Dicey, Morris & Collins on The Conflict of Laws observes that it is a well established and almost universally applied principle. Tomlin J regarded the principle as being one of considerable antiquity as long ago as 1928:
'there is a well recognised rule, which has been enforced for at least 200 years or thereabouts, under which these courts will not collect the taxes of foreign states for the benefit of the sovereigns of those foreign states.'

Most of the reported cases over the years have had an insolvency context. Lord Keith of Avonholm gave perhaps the best known articulation of the principle in his speech in Government of India, Ministry of Finance (Revenue Division) v Taylor. In that case, the Indian government proceeded against an English company’s liquidators for unpaid Indian capital gains tax. A proof had been lodged by the Indian government but it had been rejected by the English liquidator. The liquidator argued that the company’s assets could not be used to settle a foreign revenue debt. Lord Keith agreed with the liquidator, holding that:
'enforcement of a claim for taxes is but an extension of sovereign power which imposed the taxes, and that an assertion of sovereign authority by one State within the territory of another, as distinct from a patrimonial claim by a foreign sovereign, is (treaty or convention apart) contrary to all concepts of independent sovereignties.'

Both direct and indirect enforcement are prohibited. Dicey, Morris & Collins states that:
'[d]irect enforcement occurs where a foreign State or its nominee seeks to obtain money or property, or other relief, in reliance on the foreign rule in question. But indirect enforcement is also prohibited, for a foreign State cannot be allowed to do indirectly what it cannot do directly. Indirect enforcement is, however, easier to describe than to define … and it is sometimes difficult to draw the line between an issue involving merely recognition of a foreign law and indirect enforcement of it.'

In the Government of India case, the identity of the plaintiff meant that it was beyond argument that the claim represented an attempted assertion by a sovereign power of its own revenue laws within the territory of another state. The insolvency context in Government of India was provided by the defendant liquidator. However, the trend in other reported cases is for the claim to be asserted by a liquidator or trustee in bankruptcy and not by the foreign sovereign power itself. Where the party bringing the action is an insolvency practitioner discharging his or her duty to maximise the insolvent estate, the question for the court is whether or not the claim amounts to an indirect attempt by a foreign state to enforce its revenue laws through the insolvency practitioner as its nominee. What is a ‘nominee’ for these purposes? If Dicey, Morris & Collins is correct that the line is difficult to draw, what principles are to be applied in order to determine its whereabouts in each case? To what degree will the courts look to substance as opposed to form? How purposive an approach will be taken?