Baljit Singh Bhandal v HM Revenue and Customs

Hearing dates: 20 th– 22 nd, 26 th and 29 th January 2015

This is a claim for compensation pursuant to Section 89 of the Criminal Justice Act 1988. It relates to a prosecution of the claimant which was commenced by an arrest warrant on 18 July 200On the same day, a world wide restraint order (RO) was obtained from Newman J. The identifiable asset which was covered by the RO was a property known as Updown Court in Windlesham, Surrey. This was being developed with a view to being sold for a very substantial sum said to be some £80 million. It was subject to a mortgage in favour of Irish Nationwide Building Society (INBS). On 19 July 2001 what has been described by the claimant as a raid was carried out at the property by officers of Customs and Excise under the RO. This was widely publicised.

At that time, INBS was owed over £14 million. The owner of the property was a company Heatherside Property Holdings Ltd, but the claimant had, as he has stated, the beneficial interest so that it represented his realisable property. A receiver was appointed by the court but on 11 September 2001 INBS appointed an administrative receiver following a declaration of an event of default and a demand for immediate repayment of the outstanding loan pursuant to the powers under the mortgage. In due course on 24 October 2002 the property was sold for £14,209,000, a sum approximately equal to the outstanding amount owed to INBS. The compensation claim accordingly approaches £66 million.

The alleged loss for which compensation is claimed thus occurred over 12 years ago. The charges which the claimant faced alleged that between 1 December 1996 and 30 April 1998 he was involved in evasion of excise duty and value added tax in dealing with alcohol and was guilty of laundering the proceeds of the frauds. One charge specifically alleged that he "concealed monies which represented in whole or in part directly or indirectly his proceeds of criminal conduct by using the said monies to purchase and redevelop 'Updown Court' through nominee offshore companies". This was an offence contrary to Section 93C(1)(a) of the Criminal Justice Act 1988.

The excise and VAT offences involved what is known as a diversion fraud together with a missing trader. Alcohol can be kept in a bonded warehouse without payment of duty or tax. Goods can be transferred from one bonded warehouse to another. Duty and tax is only payable when the goods are placed on the home market. The goods can be exported to a bonded warehouse within the European Union and, if that occurs, equally no duty or tax is payable in the United Kingdom. They will be payable at the relevant rate when put on the market in the EU State to which the goods have been despatched. The export must be documented and the material document is called an AAD. This will show the goods being destined for a bonded warehouse in the relevant EU State. The fraud involved the production of false AADs while the goods in question were placed on the market in the UK and sold at a price which purported to include duty and VAT. The duty and VAT element was the profit to the perpetrators arising from the fraud. Since the duty and VAT combined would reach over 50% of the value of the goods the profits from the fraud were enormous.

There were a number of prosecutions carried out by what were then Her Majesty's Customs and Excise (HMCE) which were based on diversion frauds carried out through a bonded warehouse known as London City Bond (LCB). The manager during the relevant years, namely the latter half of the 1990s, was a man named Alf Allington. He became what was described as a participating informant in that he reported to officers of HMCE that he was issuing false AADs. He was permitted to carry on doing so since one part of the investigation side of HMCE had decided that it was desirable to permit the frauds to be carried out for a time with a view to apprehending those responsible rather than the lorry drivers or others way down the chain of command. A number of prosecutions were brought. There were PII applications made in order to protect the identity of Mr Allington as an informant. However, full details of his role were not given: in particular, it was not disclosed that he was a participating informant rather then a simple trade source. His true role was obviously material since it could have been possible that he had acted as an agent provocateur. In fact, as will become apparent when I refer to the material history, he had not and it is clear that those carrying out the fraud were not induced to do so by anything done by Mr Allington. It was necessary that he was aware of what was going on. Indeed, he was paid a very large sum of money, namely £100,000, as a bribe to ensure that he cooperated and in the expectation that he would not inform HMCE.

In order to conceal what he was in reality doing and because he was unwilling to identify himself as an informant for fear of what might be done to him by the criminals, he did not answer questions about his role truthfully. The HMCE officer particularly involved, Mr Bernie Small, knew that he was not giving a truthful account, but he was in effect encouraged to maintain the lies. As a result, a number of judges refused to disclose to the defence any information which could have been damaging to him or to the case presented by HMCE. In some cases, an abuse of process argument was raised based on the possibility that Mr Allington had to the knowledge of HMCE allowed the fraud to be carried out. When this argument failed, some defendants pleaded guilty and others were convicted. Substantial prison sentences were imposed.

The true state of affairs came to light when Mr Allington, and his brother, Edward, who was involved in the running of LCB, were concerned at the conviction and sentence imposed on a Michael Villiers. His and his co-defendants appeals came before the Court of Appeal in November 2001 and were, because of the failures to disclose the true role of the Allingtons, allowed. The court ordered a retrial since it seemed that full disclosure could justify a further trial.

Following the disclosure, appeals were heard by a number of defendants who had pleaded guilty to evasion offences arising from LCB. The court noted that the total loss to the revenue resulting from the LCB fraud was some £300 million. The appeals were allowed: see R v Early and others[2002] EWCA Crim 1904. Rose V-P giving the judgment of the court observed at paragraph 18:-

"It is a matter of crucial importance to the administration of justice that prosecuting authorities make full relevant disclosure prior to trial and that prosecuting authorities should not be encouraged to make inadequate disclosure with a view to defendants pleading guilty……When inadequate disclosure is sought to be supported by dishonest prosecution evidence to a trial judge, this court is unlikely to be slow to set aside pleas of guilty following such events, however strong the prosecution case might appear to be…".

Because of the time lapse and the fact that some appellants had served the sentences imposed the court decided not to order retrials.

In the result, other prosecutions which were based on LCB diversions were not proceeded with since the view was taken that the activities of Mr Small in particular and the treatment of the Allingtons meant that an abuse of process argument would be likely to succeed. As will become apparent when I deal with the claimant's circumstances in detail, the claimant was not in this country at the time the arrest warrant and the RO were obtained. He did not return until 2005. It had transpired that Mr Small had uplifted a number of AADs from LCB and another bonded warehouse involved in fraud without keeping a record of when they were taken and which particular consignments they related to. Following an advice from leading counsel who was instructed to prosecute, the case against the claimant's co-defendants was withdrawn. At that stage, the charges against the claimant and the RO remained.

The Criminal Justice Act 1988 (the 1988 Act) deals in Part VI with confiscation powers. Sections 76 and 77 enable a restraint order preventing a defendant from dealing with any realisable property to be made on application to a High Court judge where proceedings have been instigated against a person or he is to be charged with an offence to which Part VI of the 1988 Act applies, the proceedings have not been concluded and it appears to the court that a confiscation order may be made. Such applications are usually for obvious reasons made ex parte. Section 77(8) gives power to appoint a receiver to take possession of and to manage any of the defendant's realisable property.

Section 89 of the 1988 Act under which the claim is brought provides, so far as material:-

"(1) If proceedings are instigated against a person for an offence or offences to which this part of this Act applies and…..

(a) the proceedings do not result in his conviction for any such offence….the High Court may on an application by a person who held property which was realisable property, order compensation to be paid to the applicant if, having regard to all the circumstances, it considers it appropriate to make such an order.

(2) The High Court shall not order compensation to be paid in any case unless the court is satisfied —

(a) that there has been some serious default...