Commissioners for HM Revenue and Customs and Another v Ben Nevis Ltd and Others

JurisdictionEngland & Wales
JudgeHH Judge Pelling QC
Judgment Date20 July 2012
Neutral Citation[2012] EWHC 1807 (Ch)
Docket NumberCase No: HC 12 C 00707
CourtChancery Division
Date20 July 2012
Between:
(1) Commissioners for Her Majesty's Revenue and Customs
(2) Commissioner for the South African Revenue Service
Claimants
and
(1) Ben Nevis (Holdings) Limited
(2) Metlika Trading Limited
(3) Hsbc Trustee (Guernsey) Limited
Defendants

[2012] EWHC 1807 (Ch)

Before:

His Honour Judge Pelling QC

Sitting as a Judge of the High Court

Case No: HC 12 C 00707

IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION

Manchester CJC

1 Bridge Street West

Manchester M60 9DJ

Mr James Ayliffe QC and Mr Mark Fell (instructed by HMRC Solicitors Office) for the Claimants (Respondents)

Mr Timothy Howe QC Mr Philip Baker QC and Mr Rupert Allen (instructed by Stephenson Harwood) for the Defendants (Applicants)

Hearing dates: 20 and 21 June 2012 (RCJ); and 20 July 2012 (Manchester CJC)

HH Judge Pelling QC

Introduction

1

The First Claimant ("HMRC") is the competent authority within the United Kingdom ("UK") for the collection and management of tax revenue. The Second Claimant ("SARS") is the competent authority for the collection and management of tax revenue within the Republic of South Africa ("RSA"). The First Defendant ("Ben Nevis") is a company incorporated in accordance with the laws of the British Virgin Islands ("BVI"). Its corporate director is incorporated in accordance with the laws of Guernsey. Its sole registered shareholder is the Third Defendant ("HSBCT"), also a company incorporated in accordance with the laws of Guernsey. HSBCT holds the shares as trustee for the Glencoe Investments Trust ("GIT"), an offshore discretionary trust established in accordance with the laws of Guernsey for a class of beneficiaries that include Mr David King (a UK Citizen but a long time resident in RSA), his wife and children. Although disputed by the Defendants, the Claimants' case is that although Mr King is theoretically merely one of a class of beneficiaries of GIT, in practice he controls the structure to which I have so far referred. The issue has not been argued before me and I make no findings concerning it.

2

Ben Nevis is liable to SARS for taxes for the 1998, 1999 and 2000 years of assessment in the total sum (inclusive of various penalties and interest) of Rand 2.6 billion (approximately £222 million) following the final determination of a tax appeal in October 2010. On 4 th March 2011, judgment was entered against it in proceedings in RSA for these sums.

3

The Claimants' case is that Mr King learned that SARS was investigating Ben Nevis's tax affairs and that as a result he procured the transfer of Ben Nevis's assets to the Second Defendant ("MTL"). MTL is also a company incorporated in accordance with the laws of the BVI, its corporate director is incorporated in accordance with the laws of Guernsey and its sole registered shareholder is HSBCT who holds the shares on trust as trustee of GIT. SARS became aware that as a result of these activities a fund of approximately £7.8 million had been credited to a bank account with a London bank in the name of MTL ("the Bank Deposit").

4

These proceedings were commenced on 22 nd February 2012 and consist of two claims. The first ("the Tax Recovery Claim") is a claim by HMRC against Ben Nevis for the sum that Ben Nevis has been held to owe SARS in taxes penalties and interest and is purportedly brought pursuant to the mutual assistance provisions contained in Article 25A of a Double Tax Convention ("DTC") entered into between the UK and the RSA ("the 2002 Convention"), which became part of English law by the Double Taxation Relief (Taxes on Income) (South Africa) Order 2002, as amended by the Double Taxation Relief and International Tax Enforcement (South Africa) Order 2011 which gave effect to a protocol entered into by the Governments of the RSA and the UK in 2010 by which various amendments to the 2002 Convention were agreed ("the 2010 Protocol"). The second claim ("the IA Claim") is a claim by both Claimants against all the Defendants brought pursuant to, and seeking relief under, Section 423 of the Insolvency Act 1986 (" IA"). The purpose of the IA claim is to enable the Bank Deposit to become available in partial satisfaction of any judgment obtained in the Tax Recovery Claim.

5

On 22 nd February 2012, the Claimants sought and obtained a freezing order against all the Defendants. The purpose of this order was to preserve the Bank Deposit until after resolution of these proceedings. The initial hearing before Mann J, was in private and took place without notice to any of the Defendants. Mann J made the order sought ("the Freezing Order") and fixed a return date hearing to take place on 29 th February 2012. That hearing took place before Floyd J who continued the Freezing Order expressly without prejudice to challenges by the Defendants both to jurisdiction and to the grant or continuation of the Freezing Order.

6

This is the hearing of applications by the Defendants to (a) set aside the Order made by Mann J on 22 nd February 2012 by which he gave the Claimants permission to serve the Claim Form in these proceedings on the Defendants out of the jurisdiction; and (b) for an Order dismissing the Claim (together "the Jurisdiction Challenge"); alternatively (c) to discharge the Freezing Order ("the Freezing Order Challenge"). The Claimants have issued an application for summary judgment. However it is common ground that the summary judgment application cannot be heard at this stage. I will consider what further directions ought to be given concerning that application at the hand down of this judgment.

7

The only other matter that I need mention by way of introduction concerns some criminal proceedings that are pending against Mr King in the RSA. They are relevant for one limited purpose to which I refer in Paragraph 11 below.

8

In 2005, Mr King was charged with criminal offences involving alleged tax evasion and breaches of exchange control regulations in relation to the activities that gave rise to the charges to tax that are the subject of the Tax Recovery Claim ("the 2005 Charges"). In May 2010, Mr King was charged with further offences concerning alleged fraudulent market abuse ("the 2010 Charges"). The current expectation is that the 2010 Charges will be tried before the 2005 Charges in early 2013.

9

Following the charging of Mr King with the 2005 Charges, an application was made in the Crown Court at Southwark for a restraint order pursuant to the Proceeds of Crime Act 2002 (External Requests and Orders) Order 2005. His Honour Judge Wadsworth QC granted that order ("the Restraint Order") on 31 st May 2006. It is common ground that the Restraint Order applied to and prevented further dealing with the Bank Deposit.

10

As a result of the delays in the RSA to the progress of the criminal proceedings, an application was made to the Crown Court for the discharge of the Restraint Order. That application was itself the subject of a series of somewhat startling delays. The discharge application was issued in November 2009. It was heard initially on 26–27 May 2010 when it was adjourned part heard and resumed on the 20–22 February 2012. On 22 nd February 2012 (the date when the Claimants applied for and were granted the Freezing Order), it was again adjourned part heard and has been relisted to resume on 4 th February 2013—in excess of 3 years following the making of the discharge application.

11

These events are said to be material only to the application to discharge the Freezing Order because it is submitted on behalf of the Defendants that the continued existence of the Restraint Order meant that there was no real risk of dissipation of the Bank Deposit, which is the only asset against which the Freezing Order was and is effective.

The Issues

12

The Defendants maintain that the Tax Recovery Claim is unsustainable and misconceived because on its true construction Article 25A of the 2002 Convention does not apply to the enforcement in the UK of RSA taxes arising in any year of assessment prior to the coming into effect of the 2002 Convention by operation of Article 27 of the 2002 Convention, or if it does, then because the amendment took effect by operation of Section 173 of the Finance Act 2006 ("FA 06") it is ultra vires and void to the extent that it purports to have any effect earlier than the date of commencement of that Act. If neither of these points is correct, then it is submitted that the effect contended for is incompatible with Ben Nevis's rights under Article 1 of the First Protocol of the European Convention on Human Rights ("A1P1"). It is submitted therefore that there is no serious issue to be tried and that the permission to serve out granted by Mann J should be set aside and the Tax Recovery Claim dismissed. It is common ground that if this is the outcome then the IA Claim cannot be pursued and so must also be dismissed, and in consequence the Freezing Order will cease to have effect.

13

Even if all that is not correct, the Defendants maintain that in any event:

a. SARS has no locus to bring or continue these proceedings and thus the claim as brought by it should be dismissed; and/or

b. HSBCT is not properly joined as a Defendant because it is merely the registered shareholder of Ben Nevis and MTL and thus neither Claimant has any cause of action against it

c. Leave to serve the IA Claim should not have been granted and/or ought to be set aside on the grounds that:

i. There is no sufficient connection with this jurisdiction to justify the making of the Order; and/or

ii. The forum conveniens for such a claim is Guernsey not England

d. The Freezing Order ought to be discharged on the grounds that:

i. There is not and never was any real risk...

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