Coudrat v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judgment Date | 26 May 2005 |
| Neutral Citation | [2005] EWCA Civ 616 |
| Docket Number | Case No: B2/2004/1724 |
| Court | Court of Appeal (Civil Division) |
| Date | 26 May 2005 |
[2005] EWCA Civ 616
Lord Justice Mummery
Lady Justice Smith and
Sir Martin Nourse
Case No: B2/2004/1724
CL 300216
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
HIS HONOUR JUDGE RYLAND
Royal Courts of Justice
Strand, London, WC2A 2LL
Victor Lyon QC and Adrian Davies (instructed by Messrs Watson Farley & Williams) for the Appellant
Michael Kent QC and Andrew O'Connor (instructed by The Solicitor for Customs and Excise) for the Respondent
Smith LJ:
This is the judgment of the Court.
Introduction
This is an appeal from the decision of His Honour Judge Ryland, sitting in the Central London County Court on 24 June 2004. The judge dismissed the appellant's claim for damages for wrongful arrest, false imprisonment and malicious prosecution. The appellant claims that the judge's decision was wrong and must be overturned. He seeks an order that the appellant's claim should succeed on liability and should be remitted for the assessment of damages.
The appellant is a French national, born in 1973 and is of good character. On 29 th February 2000, he and another French national, named Luc Sommeyre, were arrested at an hotel in Central London, by officers of HM Customs and Excise, the respondent to the appeal, on suspicion of having committed an offence contrary to Section 72 of the Value Added Tax Act 1994 ( VATA). That section creates a number of offences relating to the fraudulent evasion of VAT. Following the arrests, both men's hotel rooms were searched and documents and cash were seized.
Both men were detained in custody and, later that day, were interviewed under caution. The appellant claimed that he was completely innocent of any wrongdoing. Both men were detained overnight and interviewed for a second time the following day. Again, the appellant claimed complete innocence. Late in the evening of 1 st March 2000, the appellant was charged with an offence under section 72(8) of VATA. Mr Sommeyre was also charged. They were brought before the Magistrates the following day and the appellant was granted conditional bail, but, due to his inability to comply with the conditions, he remained in custody until 7 th March. He was then released but required to surrender his passport and to remain in this country. On 25 th May 2000, the respondent discontinued the case against the appellant but continued the prosecution of Mr Sommeyre. The appellant returned to France that day. Later, Mr Sommeyre breached the terms of his bail; he has failed to return to this country and has not been tried.
In January 2003, the appellant commenced proceedings for damages for wrongful arrest, false imprisonment and malicious prosecution. He alleged that there was no evidence on which the arresting officer could have formed the reasonable suspicion that he was guilty of the evasion of VAT. Also he alleged that there was no evidence sufficient to justify the commencement of proceedings against him for an offence contrary to Section 72(8) and that there was no evidence to undermine the explanations of his conduct that he had given in interview. It was alleged that, in prosecuting him, the respondent had been motivated by malice, in that the officers responsible for the prosecution did not believe him to be guilty of the offence, but charged him in order to keep him in this country and to put pressure on him to give evidence against Mr Sommeyre.
By its defence, the respondent averred that, at the time of the arrest, the arresting officer had had reasonable grounds to suspect that the appellant and Mr Sommeyre were both guilty of a VAT fraud in connection with a company called Tecniconsult Ltd. Further, the respondent's officers honestly and reasonably believed that there was sufficient evidence against the appellant to justify the commencement of a prosecution. It was averred that, on 22 nd May 2000, standing counsel to the respondent had advised that there was insufficient evidence against the appellant to warrant continuing the prosecution against him. The appellant was informed that the case was to be dropped. The allegation that the respondent's officers had acted as they did in order to put pressure on the appellant to give evidence against Mr Sommeyre was expressly denied. The evidence that had been available to the respondent at the time of the arrest and the decision to charge the appellant was set out in detail in the defence. We will return to that later in this judgment.
Background to the Respondent's Investigation
For some time prior to the appellant's arrest, the respondent had been concerned about a VAT fraud being widely perpetrated by dealers in mobile phones. The respondent called this type of fraud a 'missing trader' fraud. It was perpetrated in the following way. An English company (Company A) would obtain VAT registration. Typically, Company A would have no assets and would operate from an accommodation address. It would buy substantial quantities of mobile phones from a supplier somewhere in the EU. No VAT would be chargeable on the purchase transaction between companies registered in different EU countries. Company A would then sell the mobile phones to a purchaser in the UK. VAT at 17.5% would be chargeable on that transaction. The selling price before the addition of VAT would be very competitive and might even be less than the prior purchase price. An invoice would be issued quoting Company A's VAT registration number. Company B would pay the selling price inclusive of VAT to Company A, which would then be under a legal obligation to account for the VAT to Customs and Excise. However, it would not do so; it would continue trading for only a short time and would disappear before Customs caught up with it. Company A was the 'missing trader'. Meanwhile Company B would reclaim from Customs and Excise the VAT it had paid to Company A, as it was entitled to do. The effect was that Company A pocketed the VAT it had received from Company B at the expense of Customs and Excise and, of course, the public purse. In effect, the VAT became Company A's 'profit margin', enabling it to sell at a competitive price or even at a loss. It was possible for this fraud to be operated by one dishonest company, Company A, using Company B as an innocent dupe. However, at the trial, Customs officers told the judge that they had come across cases in which both Company A, Company B and also the original supplier of the mobile phones were all involved in a series of sham transactions. If Company B was involved in the fraud, the consignment of phones that it had received might be sent abroad and reimported for a second or even third time, using the same fraud to obtain another 17.5% of the selling price. This was described as a carousel fraud, as the goods went round and round.
The respondent became suspicious that a company called Tecniconsult Ltd (Tecniconsult) was a missing trader dealing in mobile phones. On 29 th February, 2000, a large and valuable consignment of mobile phones was discovered at freight forwarders at Heathrow, standing to the order of Tecniconsult. It was destined for a company called Evolink Ltd (Evolink).
Inquiries showed that the sole director of Tecniconsult was Luc Sommeyre. He had signed the application to register the company for VAT. The application appeared to be misleading in that it claimed that the company's main business activity was to act as 'engineering and industrial consultants' whereas, in fact, its business activity appeared to be the large scale importation of mobile phones. Further, when applying to register for VAT, the company had estimated its annual turnover at between £160,000 and £180,000 per annum, whereas the size of the single transaction with Evolink suggested that the annual turnover was likely to be much larger than that. Yet further, Tecniconsult's first VAT return, completed in February 2000, in respect of the months September to December 1999, had declared a liability of only £56, suggesting minimal trading. Even that had not been paid. Tecniconsult's registered office was an accommodation address. Further, Mr Sommeyre was resident abroad and his address in the UK was also an accommodation address. By 29 th February, 2000, the respondent's officers believed that Tecniconsult Ltd was a fraudulent company, set up to perpetrate VAT fraud through mobile phone dealing.
The Trial of the Action—Wrongful Arrest and False Imprisonment
At the trial of this action, it was for the respondent to prove the lawfulness of the appellant's arrest. The respondent had to prove that the arresting officer honestly suspected, on objectively reasonable grounds, that the appellant was guilty of VAT fraud. The appellant accepted that there was evidence to suggest that Tecniconsult was involved in VAT fraud. He also accepted that, as the person who had signed the application to register the company for VAT, Mr Sommeyre inevitably came under suspicion. However, the appellant's case was that he was not involved in the running of Tecniconsult and knew nothing of its VAT dealings. He was an independent selling agent, acting on behalf of Tecniconsult, in selling consignments of mobile phones to companies in the UK. He knew nothing of any fraud and, he claimed, there was no reason to suspect that he did.
On wrongful arrest, the respondent's case was that its officers had received information from representatives of Evolink that their contact with Tecniconsult had been with a Frenchman named Didier. It was he who had negotiated the contract for...
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