The Skatteforvaltningen (the Danish Customs and Tax Administration) (SKAT) litigation, by which the Danish tax authorities have been pursuing very extensive claims of alleged tax fraud, is one of the most significant currently before the English court. It has produced scores of judgments of varying usefulness to those engaged in more constrained proceedings.

Notwithstanding the suggestion by Mr Justice Foxton in SKAT v Solo Capital Partners LLP and others [2022] EWHC 2969 (Comm) that each case turns on its own particular facts, the most recent decision in the litigation stands as an important warning to practitioners.

The issue before the judge concerned whether the usual rule for costs following amendment should apply. Contrary to CPR Part 17, the defendants contended that it was not appropriate to wait for the conclusion of the case and that the court should make an order for interim payment.

Dealing with changing circumstances

It is common for the exact factual and legal contours of a complex case to change materially as litigation progresses. Parties regularly need to amend their statements of case to diversify and expand a claim, as well as, on occasion, abandon causes of action that, on later analysis, cannot or should not be sustained to trial.

CPR Part 17 and the relevant Practice Direction state that, where an amendment to a statement of case is granted, the party applying to the court for the amendment normally bears the costs relating to and arising from the amendment.

The issue for the court here was how to do justice in circumstances that were broadly equivalent to a cause of action being abandoned: if the court awarded only the costs of striking out the relevant parts of the defence, this would not be commensurate to the costs incurred by the defendants in preparing that now obsolete defence. Such costs included making specific factual enquiries and engaging experts.

The judge had to consider if these facts fell within the recognised circumstances where going beyond those direct costs of amendment was appropriate (RG Carter Projects Ltd v CUA Property Ltd [2020] EWHC 3417 (TCC)), while keeping to the general rule that it would be a rarity for all costs potentially associated with the amendment to be recoverable (Genius Sports Technologies Limited v Soft Construct (Malta) Ltd [2022] EWHC 1067 (Ch)).

Finally, Mr Justice Foxton was careful to note that he had weighed up whether to accede to the orthodox – and no doubt attractive to any interlocutory judge – submission that this issue should simply be held over to trial (AB v Goldsmith Williams [2015] EWHC 1559 (Ch)).

Better now than later

SKAT had alleged that the relevant defendants had made a false and fraudulent representation in respect of the beneficial ownership of certain companies. This specific allegation, which had necessitated particular factual enquiries and expert consultations on the defendants’ case, had been abandoned as part of SKAT’s most recent amendment to the particulars of claim.

SKAT raised three central arguments against costs being assessed or paid now.

First, SKAT asserted that beneficial ownership issues remained live and so the amendment did not amount to an abandoned cause of action. This was not least because many of the same factual points would still arise. Mr Justice Foxton agreed with that analysis as a matter of fact but held that this was ultimately a matter relevant to the scope of a costs order, rather than whether it should be made at all. The vice that SKAT was seeking to guard against could be protected from by limiting the costs to those required for dealing with the consultation of experts, rather than making further factual enquiries.

Second, SKAT had brought the relevant claims in good faith, and it asserted that it should not be punished for having come to the conclusion that this aspect was no longer necessary for the making good of its claim. Mr Justice Foxton held that it was not necessary for him to believe that the claim was an unreasonable one originally: what mattered was that it had been a significant and discrete enough issue to engage its own (now wasted) costs.

Third, SKAT considered that the trial judge would necessarily be better placed to decide costs issues. For example, if SKAT were to succeed on the claim, the costs associated with this issue would be offset. Mr Justice Foxton considered this issue with care and concluded that there was no reason to believe that the trial judge would be better placed to assess this point. The judge was no doubt influenced by the fact he had heard half a day of argument on the topic (which is not an insignificant use of court time). He further noted that the enormous scale of the litigation and the long period of time before the trial of the proceedings, as well as the inequality of arms, all weighed in favour of ordering assessment now.

Lessons for practitioners

This latest episode in the SKAT saga contains two particular points that practitioners should keep well in mind.

First, the decision is yet another example of the clear message being sent by the judiciary that parties should abandon the ‘kitchen sink’ approach to litigation. In an era of limited court resources and seemingly never-ending series of new claims, practitioners need to focus on what claims their clients need to bring and less on formulating the same (or nearly the same) claim in as many different ways as possible. Early and careful consideration should be given to the standalone costs that each formulation will give rise to and awareness of the risks kept well in mind.

Second, the decision is an important example of the court not being overly dogmatic in terms of holding matters over to trial. While the English court is always wary not to decide issues earlier than is constructive (see the multiple judicial warnings regarding the ‘treacherous short cut’ that a preliminary issue can be), the court rightly retains flexibility in this area. Mr Justice Foxton’s sympathy for the ‘busy judge in a hurry’ who will hear the case at trial is justified and decisiveness in this way at an early stage is to be welcomed.