AUTONOMOUS NON-COMMERCIAL ORGANIZATION “ORGANIZING COMMITTEE OF XXII OLYMPIC WINTER GAMES AND XI PARALYMPIC WINTER GAMES OF 2014 IN SOCHI” v. PICO PROJECTS (INTERNATIONAL) LTD

HCA 359/2019

[2021] HKCFI 606

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 359 OF 2019

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J U D G M E N T

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A.  Introduction

1.  There is only one issue to be determined in these proceedings, and that is whether the enforcement, in Hong Kong, of the judgment entered in favour of the Plaintiff in the Arbitration Court of North Caucasian District in the name of the Russian Federation (“the Cassation Judgment”) would amount to indirect enforcement of Russian tax law.  If it is indirect enforcement, then it would fall foul of the long established rule that foreign penal and revenue laws are not enforceable through the Hong Kong civil courts.  If it is not indirect enforcement, then the judgment would ordinarily be enforced by the Hong Kong courts according to the normal rule of enforcement of foreign judgments at common law.

2.  Subject only to the nature of a “tax agent” under Russian law, there are no disputes of fact between the parties, including as to Russian law, and I have been asked to take all matters relating to Russian law as accurately set out in the Cassation Judgment.

3.  The parties recognise that the boundaries of indirect enforcement are debatable, but it has been decided by DHCJ Whitehead SC that this case is suitable for determination under Order 14 and Order 14A (see [2020] HKCFI 955), although having decided that it is suitable to be determined, he did not go on to decide the point himself.

4.  The parties have vastly divergent views on how the law applies to these facts.  The plaintiff tells me that based on the facts as found in the Cassation Judgment and the earlier judgment of the Fifteenth Arbitration Court of Appeal dated 16 April 2018 (“the Court of Appeal Judgment” - which was the Judgment under appeal in the Cassation Judgment) and upon the common law authorities it has cited, it is clear that this does not amount to indirect enforcement of Russian revenue law.  The defendant says that, based upon the same facts and the same authorities, it is clear that it does amount to indirect enforcement.  Both cases have been put very attractively by highly articulate and persuasive advocates.  Only one of them can be right.  There is no middle ground.

5.  In order properly to decide the matter it is necessary first to understand the Court of Appeal Judgment and the Cassation Judgment, then to address the various Hong Kong and other common law authorities that establish the rule in order to work out its limits and boundaries, and then to combine those two matters so as to see which side of the line this case falls.

B.  Background

6.  The plaintiff is an autonomous non-commercial organisation registered in Moscow and it was established for the purposes of organising the XXII Winter Olympic Games and XI Paralympic Winter Games (“the Games”) held in 2014 in Sochi, Russian Federation.  The defendant is a Hong Kong company.

7.  The plaintiff and the defendant entered into two contracts in 2012 and 2013 by which the plaintiff leased tents and other structures for use by the plaintiff at what was known as the Coastal Cluster at the Games.  The contracts are long and the majority of the clauses are not relevant to the dispute.  The amount which was found to be ultimately payable by the plaintiff to the defendant under the terms of the contracts was just over US$12 million, and that amount has been paid by the plaintiff.

8.  The contracts are silent as to any obligation of either party concerning the payment of profits tax in accordance with the laws of Russia.  In fact, as will become clear from an analysis of the Cassation Judgment, a profits tax of 20% is payable and, under the provisions of the relevant applicable law in Russia, ought to have been withheld by the plaintiff from the contract price otherwise payable to the defendant.

9.  The plaintiff made an error in payment of the plaintiff, in that it failed to withhold the relevant profits tax.  The plaintiff wrote to the defendant asking for a return of an amount equal to the profits tax that should have been withheld, but the defendant refused, largely because, at that time, there was a dispute as to the amount which was due under the contracts.  That dispute has now been settled through the various court cases and is no longer an issue.

10.  On 22 April 2015 the plaintiff filed a claim at the court of arbitration for sport, pursuant to the arbitration clauses contained within the contracts.  The panel decided that the matter was outside of its jurisdiction because it related to the public obligation to pay tax and was not related to the jurisdiction granted to the court of arbitration for sport.  As a result on 1 July 2015 the plaintiff filed a new claim for return of the profits tax at the Arbitration Court of Krasnodar Region, which is part of the Russian Federation court system. 

11.  On 26 May 2017 that court gave a decision which was subsequently appealed by both parties to the 15th Arbitration Court of Appeal.  By a judgment dated 16 April 2018 (the Court of Appeal Judgment) the Court of Appeal allowed the plaintiff's appeal but dismissed the defendant's appeal, and the defendant further appealed to the Arbitration Court of North Caucasian District, the Court of Cassation in the Russian Federation court system.  The Cassation Court rendered a final judgment (the Cassation Judgment) on 16 August 2018.

12.  The essence of the Cassation Judgment is that the defendant is obliged to return the profits tax which ought to have been withheld on the basis that the plaintiff has paid that amount to the Russian Budget and the defendant has been unjustly enriched by the same amount.

C.  The Russian Judgments

13.  Much of the of the discussion in the Russian Judgments relates to quantification of the various claims, counterclaims and interest, and I do not need to deal with that.  The Court of Appeal Judgment sets out the position on profits tax as follows:

“According to para. 1, Article 310 of the Russian Tax Code, tax on income received by a foreign entity from sources in the Russian Federation is assessed and withheld by the Russian entity paying the income to the foreign entity.

According to Para. 1, Article 24 of the Russian Tax Code, persons required by the Code to assess, withhold from the taxpayer, and pay tax to the Russian Budget are classified as tax agents.

According to Para. 4, Article 24 of the Russian Tax Code, tax agents are required to pay amounts of tax, withheld from the taxpayer, according to the procedure established by the Code for the payment of tax by the taxpayer.

At the same time, pursuant to Para. 2, Article 44 of the Russian Tax Code, the taxpayer is the person incurring the obligation to pay the tax.

According to Subpara. 5, Para. 3, Article 45 of the Russian Tax Code, if the obligation to assess and withhold tax from the taxpayer’s funds is imposed by the Code on the tax agent, the obligation to pay the tax is deemed fulfilled by the taxpayer on the day when the tax agent withholds the tax amounts.

Thus, the tax agent pays to the budget the amount of tax the obligation to pay which is imposed on the taxpayer.

According to Para. 2, Article 287 of the Russian Tax Code, a Russian entity, or a foreign entity operating in the Russian Federation through a permanent representative office (tax agents), paying income to a foreign entity are required to withhold the tax amount from income received by the said foreign entity, … at each payment (transfer) of funds thereto or other receipt of income by the foreign entity, unless otherwise stipulated by this code.

The tax agent is required to pay a respective amount of tax not later than the day following the day of payment (transfer) of funds to the foreign entity or other receipt of income by the foreign entity.”

14.  The Cassation Judgment reports the position under the Russian Tax Code in almost identical terms.

15.  The only dispute between the parties as to Russian law is whether the plaintiff, as the “tax agent”, is an agent of the Russian Federation or is an agent of the taxpayer.  To support the plaintiff’s proposition that the tax agent is an agent of the taxpayer the plaintiff relies upon the first instance decision of the Russian court in which the court stated:

“ the public responsibility of the [plaintiff] to act as a tax agent for [the defendant].”

16.  The defendant, on the other hand, relies upon various provisions of the Cassation Judgment which identify that profits tax has to be assessed, calculated and withheld by the tax agent, and it also has to be paid by the tax agent to the Russian Budget.  From those propositions it draws the conclusion that the tax agent is in fact an agent of the Russian Federation for the purposes of collecting tax, and is not an agent of the taxpayer.

17.  I take the view that I am not able to determine that particular dispute.  The first instance judgment would seem to indicate fairly clearly that the tax agent is the agent of the defendant, but it is not clear that this point was discussed or analysed in any more detail other than the one sentence that I have quoted.  If one were to consider the matter by Hong Kong law it is certainly arguable that the tax agent is the agent of the Russian Federation, because withholding of profits tax by the agent is deemed to be a discharge of the taxpayer’s liability to the Federation, and that is unlikely to be the case if the tax agent were the agent of the defendant.  But such a conclusion would be inconsistent with the decision of the court at first instance in Russia.

18.  There is no basis on which I can resolve this difficulty.  Despite the normal rule that foreign law is deemed to be the same as Hong Kong law if no difference has been identified in the evidence I think it would be wrong to import Hong Kong law concepts to determine the particular status of what the Russian statutes describe as a “tax agent”.  It is certainly possible that the tax agent is some form of hybrid of what we might recognise under Hong Kong law as an agent, and the mere use of the word “agent” does not justify the proposition that the Russian tax statutes are using the word in the same manner as one would expect under Hong Kong law.  Therefore I proceed on the basis that it is unclear whose “agent” the tax agent is.

19.  The Russian Court of Appeal confirmed that the payment by the plaintiff to the Russian Budget had the effect of discharging the liability of the defendant to the Russian Federation in respect of the profits tax.  Hence the Russian Federation no longer has any debt owed to it, and on the face of it has no interest in whether the plaintiff recovers from the defendant:

“In these circumstances, the court of appeal has no reason to state that the company remains liable to pay the tax.”

20.  The Judgments make it clear that they entered judgment for the plaintiff on the basis of “unjust enrichment”.

21.  The 1^st Instance judgment sets out all that is available as to what unjust enrichment means under Russian Law:

“By virtue of the provisions of Clause 1 of Article 1102 of the Civil Code of the Russian Federation, a person who, without a basis established by law, other legal acts or a deal, has acquired or saved property at the expense of another person, is obliged to return to the latter the unjustly acquired or saved property (unjust enrichment).”

22.  The Court of Appeal confirmed the juridical basis (under Russian law) of the judgment as follows:

“Since the [plaintiff] fulfilled its obligation to make the tax payments under the [contract], which is not contested by the parties and has been confirmed by the tax authority, the [defendant] has obtained an unjustified enrichment at the expense of the [plaintiff] in the amount paid in excess, which was subject to payment as tax to the Russian budget.”

23.  That was upheld by the Cassation Judgment.

D.  The Law on Indirect Enforcement of Foreign Revenue Law

24.  Rules 3 of Dicey and Morris under the heading “The Exclusion of Foreign Law” (“Rule 3”) is in the following terms.

“English courts have no jurisdiction to entertain an action: (1) for the enforcement, either directly or indirectly, of a penal, revenue or other public law of a foreign state; or (2) founded on an act of state”

25.  The rule is well established and an almost universal principle, although the theoretical basis for it has been a matter of some controversy.  The best explanation is generally considered to be that suggested by Lord Keith in Government of India v Taylor [1955] AC 491 at 511, that such claims are an extension of the sovereign power which imposed the taxes, and “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.”

26.  Direct enforcement is self-explanatory. Indirect enforcement is less so, and may be easier to describe than to define. Dicey and Morris describe indirect enforcement in these terms:

“Indirect enforcement occurs where the foreign state (or its nominee) in form seeks a remedy, not based on the foreign rule in question, but which in substance is designed to give it extra territorial effect; or where a private party raises a defence based on foreign law in order to vindicate or assert the right of the foreign state. An example of the former is the case of a foreign company in liquidation which seeks to recover from one of its directors assets under his control which the liquidator (appointed by the court at the instance of foreign revenue authorities) would use only for the purpose of satisfying the foreign state’s unsatisfied claim for taxes due from the company.”

27.  The plaintiff relies upon the following authorities to support its proposition that Rule 3 does not apply and it is entitled to be reimbursed for tax which it has paid on behalf of the defendant:

28.  Re Reid (1970) 17 DLR. (3d) 199 BCCA, a case decided by the Court of Appeal in British Colombia, which it says has been cited in Dicey & Morris, and followed by Slade J in Lord Cable [1977] 1 WLR 7 (albeit obiter) at 25.  An English trustee of an estate of the executrix was accountable to the English Revenue for estate duty.  The estate did not have sufficient assets in England to pay the estate duty, and the trustee sought to be reimbursed the shortfall (which it had paid itself) out of the estate’s assets in British Columbia.  A remainderman under the will challenged the trustee’s entitlement, contending that since foreign revenue law could not be directly enforced in British Columbia, there was a good reason to deny the trustee’s entitlement to be reimbursed.  The remainderman’s claims were denied by the British Columbia court of appeal.  The following extracts from the judgment are relevant:

“it was a matter of no concern to the Estate Duty Office where the respondent found the money to pay the duty. ...

The Estate Duty Office was not seeking to lay its hands on any property in British Colombia or otherwise to enforce its tax claims here.  Acting in accordance with the Finance Act, 1894, it was seeking to gain from an English company the payment of duty for which the Act provided that the company should be accountable.  At the time when these proceedings were commenced, the respondent was in a position where it would soon be compelled to pay; since then it has-reasonably, in my opinion-paid.  The fact that it has paid makes no difference to the decision of this appeal.”

29.  The court then referred to various authorities including Peter Buchanan Ltd and Macharg v McVey [1955] AC 516 and Government of India, Ministry of Finance (Revenue Division) v Taylor [1955] AC 491 and continued:

“In every one of the cases I have referred to, success would have enriched the treasury of the interested state. In the case at bar, whether or not the respondent trustees indemnified cannot affect the slightest degree the amount of estate duty collected in England. Further, in each of those cases the foreign State was, in England or Eire, the plaintiff, the claimant or the instigator of the proceedings. Here the United Kingdom has nothing whatever to do with the respondent’s claim to be indemnified.”

30.  The court allowed the trustee’s claim to be indemnified and reimbursed from the assets of the estate.

31.  Williams and Humbert v W&H Trade Marks (Jersey) Limited [1986] AC 368, which although based on very different facts, still supports the proposition that where the success of the claim being considered does not affect the amount of tax collected by the foreign state it does not amount to indirect enforcement.  In particular the plaintiff relies upon the judgment of Lord Mackay of Cashfern in which he analysed various authorities including Peter Buchanan Ltd and Macharg v McVey, Government of India v Taylor, Rossano v Manufacturers Life Insurance Co [1963] 2 QB 352, Brokaw v Seatrain U.K. Ltd [1971] 2 QB 476, all of which are cases concerning the scope and effect of Rule 3, and concluded that:

“The existence of such unsatisfied claim [by the foreign state] to the satisfaction of which the proceeds of the action will be applied appears to me to be an essential feature of the principle enunciated in the Buchanan case for refusing to allow the action to succeed.”

32.  Air India Ltd v Caribjet Inc [2002] 1 Lloyds Rep 314, which the plaintiff contends is almost identical to the current facts.  Air India sought, in the English Commercial Court, a stay of an arbitration award against it in favour of Carbijet on the basis that Air India had a cross claim, under the Indian law of restitution, against Caribjet for payments that Air India had made to the Indian Revenue on behalf of Caribjet to satisfy Carbijet’s tax obligation to the Indian Revenue.  Caribjet argued, amongst other things, that Air India was not entitled to enforce the cross claim because it amounted to an indirect enforcement of Indian Revenue law.  His honour Judge Chambers QC considered various authorities, and ultimately followed the decision of Lord Mackay in Williams and Humbert v W & H Trade Marks (Jersey) Limited, as quoted above.

33.  Wahr-Hansen v Compass Trust Co Ltd 10 ITLR 283, which is a case in the Cayman Islands Grand Court.  The plaintiff was appointed by the Norwegian probate court to trace assets belonging to the estate of the deceased Mr Jahre which were alleged to have been misappropriated in a manner which was dishonestly assisted by, amongst others, the defendants.  The plaintiff took action against the defendant to recover the assets.  The action was funded, at least in part, by the Norwegian government because the estate had an outstanding tax liability, with the consequence that almost all of the proceeds of any action would be applied to satisfy that liability.  The defendant contended that action was, in substance, an action to recover unsatisfied tax liabilities and was therefore an enforcement of foreign tax law.  Thus, the case squarely raised the question of indirect enforcement.

34.  Henderson J undertook a detailed analysis of the various authorities addressing the scope and application of the rule against enforcement of foreign tax law, starting with Huntington v Attril  [1893]  AC 150, and including Peter Buchanan (which he described as the seminal case on indirect enforcement), Government of India v Taylor, Rossano  v Manufacturers Life Insurance Co [1963] 2 QB 352, [1962] 1 All ER 214, Re Reid, Williams & Humbert (which he described as deciding that an existing claim by the revenue which remained unsatisfied was essential to a claim that an action was indirect enforcement), Stringham v Dubois, and  QRS 1 APS v Frandsen (to mention only those that I have also been referred to).

35.  The judge recorded at [79] that it was agreed between the parties that there were three elements of a “tax gathering” defence.  The three agreed pre-requisites are set out in the judgment at [11]:

“(i)  that there exists an existing unsatisfied tax claim;

(ii)  that the proceeds of the litigation will go to the foreign revenue authority; and

(iii)  that the claim is in substance an attempt to collect foreign tax.”

36.  There was no dispute between the parties that the first pre-requisite was present.  The dispute was whether the second and third elements were present.  The judge concluded, at [104] that the second condition was satisfied.  At [121] and [122] he concluded that, on the facts, the third condition was not satisfied.  This was essentially a factual conclusion based upon his balancing of the various factors that he identified.

37.  The essence of his decision was that, despite the funding which the State of Norway had given to pursue the claim and despite the very close level of co-operation between Mr Wahr-Hansen and the Norwegian Revenue, the fact that the Norwegian Probate Court had a high level of involvement in the administration of the estate, that the claim was proprietary in nature, and that the defendants were not the tax payers but were third parties was sufficient to distinguish other cases and to justify the conclusion that the claim was not in substance an enforcement of the foreign tax law.

38.  The reason for setting this out in some detail is that Mr Hollander, Counsel for the defendant in this case, relies upon an “Editor’s Note” in the International Tax Law Reports, which suggests in fairly clear terms that the decision was wrongly decided.  Hence the defendant contends that the case should not offer any assistance as it is (to use Mr Hollander’s words) “manifestly perverse”.

39.  However, the analysis of the law by the judge is not criticised by the law report editor, or indeed by Mr Hollander, and neither are the three agreed pre-requisites for the establishment of the defence.  All that is criticised is the findings on the facts.  I make no comment on that criticism, but the analysis of the law by the Judge is useful, and I have no reason to consider it to be inaccurate or flawed.

40.  On the other side of the argument, the defendant suggests that the case law is not easy to reconcile, with some cases deciding the matter one way, and other cases deciding the matter the other way on very similar facts.  There is no Hong Kong case law which assists, other than to say that Hong Kong will not enforce foreign tax laws.

41.  Consequently, the defendant suggests that the court must go back to first principles and decide the matter without reference to case law.  It says that the question is entirely free from doubt – and that the claim is indirect enforcement.

42.  Notwithstanding that proposition, the defendant has referred to:

43.  Connor v Connor [1974] NZLR 632, which the defendant says identifies the question succinctly, quoting from a Scottish case, as follows:

“… what is fiscal and what would be regarded as enforcement of a revenue claim or an attempt to recover taxes due under foreign law seems to me to depend not so much upon the form which the imposition takes or the object upon or in respect of which it is levied, but upon the substance of the claim as viewed by a Scottish Court applying Scots law.”

44.  The Government of India v Taylor, including its reference to Peter Buchanan, which it describes as the locus classicus.

45.  Stringham v Dubois [1993] 3 WWR 273, a case in the Alberta Court of Appeal which did not follow Re Reid from British Columbia.

45.1.  The deceased, a Ms Sarah Dubois Cravey who was a resident of the United States with a domicile in Arizona, expressly devised her niece, Kimberly Dubois, a wheat farm in Alberta.

45.2.  A US Court ordered estate duty to be paid, and there were insufficient assets in the US to pay those duties.  Hence the US executor of the will looked to the Alberta wheat farm to make good the remaining estate duty owed in the US. The issue in the case was whether the court should authorise the transfer of the farm to Ms Kimberly Dubois or require it to be sold, and the proceeds used to pay the US estate duty.  The court recognised that the legal issue was whether, on the facts, the rule against the Alberta courts enforcing a tax claim for a foreign jurisdiction applied.  If the rule applied then the court would allow the transfer to Ms Dubois.  If the rule did not apply, then the farm would be sold and the proceeds used to pay the tax in the US.

45.3.  At [30] the court stressed that it was important to look at the substance of the claim before it, rather than its form, to determine the application of the rule, and at [32] it recognised that a claim brought by an individual could amount to indirect enforcement.

45.4.  At [34] the court discussed Re Reid. At [37] the court rejected the point made in Re Reid to the effect that the English Revenue was unconcerned as to the source of the funds, and “whether or not the respondent trustee is indemnified cannot affect to the slightest degree the amount of estate duty collected in England”, and stated that this was not a proper basis for disapplying Rule 3.

45.5.  However, that comment was clearly obiter, because as the court recognised in the very next sentence, in the Stringham case, the US tax authorities had not been satisfied. Hence there was an existing debt.  It may be relevant to note that the House of Lords decision of Williams & Humbert does not appear to have been cited to the Alberta court of appeal.

45.6.  At [38] the court rejected the proposition relied upon in Re Reid to the effect that the state itself had to be a party.  As a result, overall the court was satisfied that it was obliged to follow the rule, and it permitted the farm to be transferred to Ms Dubois.

46.  The defendant relies upon this case to suggest that there is no significance in the fact that the Russian Federation has been paid and that none of the money covered by any judgment given in this case will go to the Russian state.

47.  The defendant also relies upon Peter Buchanan and QRS 1 APS and Others v Fransden [1999] STC 616 to demonstrate that where a Liquidator has been appointed to recover tax, the rule applies. From this it draws the conclusion that there is no substantial difference between a liquidator and the plaintiff in this case.  The plaintiff has paid the tax pursuant to the Russian Tax legislation, and is now seeking to enforce that tax obligation onto the rightful party.  That, the defendant says, amounts to indirect enforcement and is indistinguishable to the factual position in both Buchanan and QRS.

48.  There are only two cases in Hong Kong which touch upon Rule 3, as far as I am aware.  Neither of them assist on the issues that are before me:

48.1.  HMRC v Shahdadpuri [2012] 1 HKLRD 223.  The court of appeal upheld a mareva injunction granted to Her Majesty’s Revenue and Customs in the United Kingdom in support of proceedings being taken in England in respect of a carousel VAT fraud, despite an objection that the mareva Injunction would infringe the rule.  The court held that the claim should not be struck out because the fraud had the effect of stealing money from HMRC, and hence was rather different to the enforcement of a foreign revenue law.  The judgment of Tang V-P discussed cases such as Government of India, Peter Buchanan, Williams & Humbert, and QRS 1 ApS v Fransden in the context of whether they prohibit the recovery by HMRC of the funds that it had been defrauded out of.  He held that they did not apply, although went on to say that if they did apply to that situation the Hong Kong courts may wish to consider whether they should be followed.  Overall the case does not assist to determine the issue before me.

48.2.  Cido Car Carrier Service Limited v Woori Bank (Hong Kong Branch) HCA 874/2001 per DHCJ Seagroat. The South Korean tax authorities had caused Woori Bank (Hong Kong Branch) to freeze an amount of approximately US$42 million held in the account of the plaintiff in Hong Kong so as to allow satisfaction of a claim by the South Korean Revenue against the plaintiff for approximately US$136 million in tax. The plaintiff applied for an injunction to prevent the bank from breaching its banking contract by using funds in the account to satisfy any part of the tax liability, and requiring it to lift the freeze on its accounts.  The judge granted the injunction on the basis that the South Korean Tax authorities were seeking direct enforcement of South Korean tax law in Hong Kong, and in doing so forcing the bank to breach its contract with the plaintiff.  This case does not assist to determine the issues that I have to decide.

E.  Analysis

49.  Ultimately the defendant is correct that I am not bound by authority to reach any particular conclusion on these facts. None of the cases cited to me are binding upon me, and I must look at the matter from first principles, and reach a conclusion as to whether allowing enforcement of the Russian Judgment obtained by the plaintiff amounts to indirect enforcement of Russian tax law.

50.  Notwithstanding that none of the cases are binding upon me, from the above it is clear that in every case (at least those to which I have been referred) in which the rule against indirect enforcement has been applied there was an outstanding debt owed to the foreign revenue.

51.  In at least one case (Wahr-Hansen v Compass Trust), the existence of that outstanding debt had been agreed by the parties as being a pre-requisite to the application of the rule.

52.  The House of Lords in Williams & Humbert has described the existence of an unsatisfied claim to which the proceeds will be applied as “an essential feature of the principle…”.

53.  The relevance of that unsatisfied claim was perhaps doubted in Stringham v Dubois, but without the Judge in that case having considered Williams & Humbert, without any detailed analysis, and anyway only in an obiter comment because on the facts an unsatisfied debt existed in that case.

54.  In Re Reid, the position under the relevant foreign tax law was perhaps the closest to the facts of this case. The trustee in Reid had an obligation under the relevant tax law to discharge the tax liability itself.  Similarly here, under the Russian tax law the plaintiff was obliged to discharge the tax liability itself, which it has done.  In Re Reid, the court used that fact to suggest that the indemnification of the trustee would have no affect at all on the English Revenue, because the English Revenue was entitled to (and ultimately had) looked to the trustee for payment of the tax.  In this case too, it makes no difference to the Russian Budget whether the plaintiff obtains reimbursement from the defendant.  The Russian Budget is entitled under its own laws to look to the plaintiff to satisfy the tax liability and it has done so.  It is, therefore, immaterial to the Russian Budget as to whether or not the plaintiff is able to recover from the defendant.  It is difficult to see how this case can be considered to be indirect enforcement of the Russian tax law in the circumstances.

55.  The court in Stringham suggested at [37] that Re Reid implies that the act of the trustee in first paying the foreign levy and then seeking reimbursement would serve to emasculate Rule 3.  But I am not sure that Re Reid does imply that.  As quoted in paragraph [28] above, the court recognised that the fact of payment made no difference to the decision it was reaching.  It reached its decision based upon the fact that the foreign state was not seeking enforcement because it was entitled to and had looked to the trustee to pay.  Thus it was not the mere fact of payment which rendered Rule 3 inapplicable, but was the concurrent obligation of the trustee to satisfy the liability.  Whether the trustee had in fact satisfied that liability or not was expressly stated by the court not to be relevant to the decision.  Whether the payment had in fact been made or not, the foreign revenue would not be enriched by any success of the plaintiff because it was always entitled to recover the tax from the trustee, irrespective of whether the trustee was entitled to be indemnified.  Notwithstanding that, it may also be said that in the light of Humbert v Williams, another basis for the decision in Re Reid might be that there was no outstanding tax claim as a result of the payment by the trustee.  But, that was not the basis of the decision.

56.  On the facts of this case, I am satisfied that the Russian Budget will not be enriched by success or otherwise of the plaintiff’s claims against the defendant.  The Russian tax laws have been written in a way such that the Russian Federation does not need to look outside Russia for satisfaction of the taxes imposed.  If a foreign entity is involved in any transaction where profits are made in Russia, the Russian Federation looks to the Russian entity involved in the transaction for satisfaction of the taxes.  Whether the Russian entity is able to recover that money from the foreign entity is of no relevance to the Russian Federation.

57.  On balance, therefore, despite the submissions to the contrary by Mr Hollander, I am not persuaded by the doubt expressed in Stringham, and I am not persuaded by the proposition made by Mr Hollander that the rule would be undermined if it was affected by the actions of a tax agent paying the tax.

58.  Further, on the facts of this case it is clear that the tax has in fact been paid, and hence there is no unsatisfied tax claim.  In the light of Humbert & Williams, I consider that the existence of an unsatisfied tax claim is an essential pre-requisite to the application of Rule 3.  Although that case is not binding upon me it is highly persuasive and must be given due weight by the Hong Kong courts.  I have not been shown a single case in which it has been said to be wrong, and it appears to have formed a significant part of the thinking in most, if not all, subsequent cases in which similar issues have arisen.  I see no reason why Hong Kong should not take a similar approach, and consequently, I think that an unsatisfied claim by the foreign Revenue is an essential element.

59.  The fact that indirect enforcement can be made by a liquidator (such as in Peter Buchanan, and other “Liquidator” cases), or could (in the right circumstances) be via a claim for dishonest assistance or other breach of obligation (such as in the way analysed in Wahr Hansen v Compass) does not alter the position.  In either case, where there is an unsatisfied debt and the factual circumstances justify a conclusion that the tax authorities are enforcing their own tax laws, the nature of the claim, and the identity of the claimant is immaterial.  But if there is no unsatisfied debt, I fail to see how it can be said that the claim is an indirect enforcement of the foreign tax law.  In its most simplistic form, all foreign tax law has already been enforced if there is no unsatisfied claim.

60.  Consequently I reject the defendant’s arguments, and I find that the claim is not seeking to enforce a foreign tax law, and does not fall foul of the rule.

61.  There has been no dispute that if I find for the plaintiff on this issue, then the Russian Judgment should be enforced at common law.

62.  Accordingly, Judgment should be entered for the plaintiff.

63.  Costs follow the event, and I make a costs order Nisi that the defendants shall pay the plaintiff’s costs of the action to be taxed if not agreed.  If either party wishes to vary this costs order Nisi it should apply in writing, limited to five pages, within 7 days of this judgment. The other party will have a reply limited to three pages within 5 days, and the applying party has a further right of rejoinder limited to 3 pages within 3 days.