Adrian Charles Hyde v Sukhwinder Todd

Hearing date: 26 th April 2024

Remote hand-down: This judgment was handed down remotely at 11.00am on Tuesday, 11 ^th June 2024 by circulation to the parties and their representatives by email and by release to the National Archives.

Introduction

This is my reserved judgment on an appeal against an order of Chief Insolvency and Companies Court Judge Briggs ( “the Judge”) made on 24 ^th November 2022. By that order ( “the Order”) the Judge dismissed the application of the Appellants/Applicants for summary judgment on their claim against the Respondent pursuant to Section 214 of the Insolvency Act 1986 ( “Section 214”). The Judge also awarded the Respondent his costs of the application, and directed that the claim be listed for a CCMC.

The Order was made pursuant to and for the reasons set out in an unreserved judgment ( “the Judgment”) delivered by the Judge at the conclusion of the hearing of the application for summary judgment ( “the Application”).

The Appellants/Applicants appeal against the Order pursuant to a permission to appeal which I granted, following an oral hearing of the permission application, by an order made on 18 ^th January 2024.

On the hearing of the appeal ( “the Appeal”) the Appellants/Applicants were represented by Andrew Mace, counsel. The Respondent was represented by Maxwell Myers, also counsel. Both counsel also appeared at the hearing of the Application before the Judge. I am grateful to both counsel for their assistance at the hearing of the Appeal, by their written and oral submissions.

The conventions of this judgment

All references to Paragraphs in this judgment are, unless otherwise indicated, references to the paragraphs of the Judgment. Italics have been added to quotations.

The parties

The Appellants/Applicants, to whom I will refer as “the Appellants” in the remainder of this judgment, are the joint liquidators of a company called Radarbeam Limited ( “the Company”).

The Respondent was the sole director of the Company, from its original incorporation. The Respondent and his wife, Mrs Hardip Todd, were the owners of the shares in the Company.

The Company

The Company was incorporated on 23 ^rd May 2002. The Company went into administration on 7 ^th April 2014, and was subsequently placed into creditors' voluntary liquidation on 4 ^th December 2014. The Appellants were appointed as liquidators of the Company on the same date.

I believe that the only known creditor of the Company in the liquidation is His Majesty's Revenue & Customs ( “the Revenue”), which submitted a claim in the liquidation in the sum of £2,119,485.

The principal evidence of the Appellants in support of the claim under Section 214 ( “the Section 214 Claim”) is a lengthy first witness statement of Mr Hyde, the First Appellant. This witness statement, which has been amended, is dated 9 ^th February 2021. Mr Mace confirmed to me, at the hearing of the Appeal, that the pleading of the Section 214 Claim is effectively to be found in this witness statement.

According to this witness statement the Company commenced trading in May 2002 and was involved in the sale of used cars until 19 ^th February 2003, when it notified the Revenue that the Company's business was then to operate as a retail shop supplying mobile phones and accessories to the public. The Company was largely exporting to Europe and Dubai.

The relevant history of the Company

The Company appears to have traded successfully until June 2006 when the Revenue denied the Company's entitlement to deduct input tax in relation to the Company's VAT returns. The denial of input tax related to transactions carried out during the accounting periods 04/06, 05/06 and 06/06. The total sum denied by way of input tax was £4,963,525. The relevant VAT returns for these three accounting periods ( “the Denied Returns”) were formally rejected by a notification by the Revenue issued on 16 ^th October 2007.

The Revenue's ground for denying the Company's input tax was that the input tax had been incurred in transactions connected with the fraudulent evasion of VAT, and that the Company knew or should have known of the connection. I understand that the type of fraud alleged by the Revenue is known as MTIC fraud.

In addition to this the Company submitted a VAT return for the accounting period 03/06 on 31 ^st March 2006, with a claim for repayment of input tax ( “the March Return”). In relation to the March Return the Company was repaid the claimed input tax on 25 ^th May 2006. Subsequently however the Revenue notified the Company of its decision to deny this input tax. The notifications were given on 3 ^rd November 2008 and 31 ^st March 2009. Notifications of assessment were also issued on these two dates for the respective amounts denied, which were £937,125 and £593,075, amounting to a total sum of £1,530,200 ( “the Demanded Sum”). The Revenue's ground for these assessments was the same as its ground for rejecting the Denied Returns; namely that the relevant input tax had been incurred in transactions connected with the fraudulent evasion of VAT and that the Company knew or should have known of the connection.

The Company appealed against the decision of the Revenue to deny the deduction of input tax in relation to the Denied Returns. The appeal was made to the First-tier Tribunal Tax Chamber ( “the FTT”) and was heard over a number of days in November 2009 and July 2010. The FTT handed down their decision ( “the FTT Decision”) on 10 ^th September 2010. The FTT Decision is lengthy and detailed. For present purposes four matters are of particular relevance:

(1) For the reasons set out in the FTT Decision, the Company's appeal was dismissed.

(2) It was part of the Company's case that the Company had not known and neither could nor should have known of the frauds in the supply chains relevant to the Denied Returns for 04/06 and 05/06. It was also part of the Company's case that the supply chains relevant to the Denied Return for 06/06 were not tainted by fraud.

(3) These parts of the Company's case failed. After reviewing the evidence in great detail, the FTT found that the Company had actual knowledge of the fraud in the relevant supply chains in relation to the transactions in all three accounting periods; see the summary of the findings of the FTT in paragraph 106 of the FTT Decision.

(4) The FTT made specific findings that the Respondent had been aware of the relevant fraud in the supply chains; see paragraphs 114–133 of the FTT Decision. It is not entirely clear to me, on reading the FTT Decision, whether there was a finding as to when the Respondent first acquired knowledge of the fraud. Paragraph 126 of the FTT Decision contains what I take to be a finding that the Respondent's knowledge of the fraud went back, at least, to 2005.

The outcome of the Company's appeal to the FTT against the rejection of the Denied Returns is best summarised by quoting the final two paragraphs of the FTT Decision:

“133. For all these reasons we find that BCC's trade was fraudulent and was carried out as part of an overall scheme to evade the payment of VAT. There is no other rational or realistic conclusion that can be drawn. We also find that the Appellant had knowledge of the fraud, clearly demonstrated by all the factors we have identified and the findings we have made in relation to deals 1 – 9.

134. The Appellant's appeal therefore fails in its entirety. We direct that the Appellant should pay the Commissioners costs of and incidental to and consequent upon the appeal, such costs to be assessed by a costs judge of the High Court in the event of their not being agreed.”

The Company applied to the FTT for permission to appeal against the FTT Decision. For reasons which it is not necessary to go into, the FTT did not issue its decision on this application until 13 ^th January 2011, when it refused permission to appeal. The Company then applied to the Upper Tribunal Tax and Chancery Chamber for an extension of time within which to make its application for permission to appeal, and for a stay of the application itself, if an extension of time was granted. By a decision released on 7 ^th March 2012, Upper Tribunal Judge Wallace granted the extension of time sought and stayed determination of the application for permission to appeal. For present purposes what is said by the Appellants to be most relevant in this decision is that Mr Ahmed, who appeared for the Company on the hearing of these applications, stated that there was no challenge to the FTT's finding of fact that the Company had actual knowledge of the fraud. This statement is recorded in paragraph 13 of the decision of Judge Wallace.

The substantive application for permission to appeal came before Upper Tribunal Judge Bishopp for decision. By a decision dated 28 ^th June 2013 Judge Bishopp determined, on the papers, that there were no arguable grounds of appeal, and refused permission to appeal. The Company was entitled to renew the application for permission to appeal at an oral hearing. The Company exercised this right and also made an application to amend its...