Credit Lucky Ltd and Gui Hui Dong (Applicants/ Appellant) v National Crime Agency (formerly the Serious Organised Crime Agency)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Barling |
| Judgment Date | 29 January 2014 |
| Neutral Citation | [2014] EWHC 83 (Ch) |
| Docket Number | Case No: 4154 OF 2012 |
| Court | Chancery Division |
| Date | 29 January 2014 |
[2014] EWHC 83 (Ch)
The Hon Mr Justice Barling
Case No: 4154 OF 2012
APPEAL REF CH/2013/0381
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
The Rolls Building,
Fetter Lane,
London EC4A 1NL
Lance Ashworth QC (instructed by Cavendish Legal Group of London W1G 0PW) for the Applicants/Appellant
Lucy Frazer QC (instructed by Civil Recovery and Tax Legal Department of the National Crime Agency) for the Respondent
Joseph Curl (instructed by Russell Cooke Solicitors of London SW15 6AR) for the Liquidator
Hearing dates: 21–22 November 2013
Introduction
This application for rescission, variation or review, alternatively a stay, of a winding up order comes before me by virtue of an order of Mr Justice Hildyard on the 17 September 2013, which he made subject to the approval of Registrar Derrett, who made the winding up order. That approval was given on 1 October 2013.
At the same time Mr Justice Hildyard directed that an application for permission to appeal against the same winding up order, together with the appeal itself if permission were granted, should be heard at the same time by the same High Court judge who was to hear the rescission/stay application.
All those matters are therefore now before me.
Mr Lance Ashworth QC, who appeared for the applicant/appellant, invited me to consider and rule on the rescission/stay application before considering the application for permission to appeal.
Procedural background
The procedural background can be briefly stated.
On 21 May 2012 the Serious Organised Crime Agency ("SOCA") presented a winding up petition to the Court in respect of Credit Lucky Limited ("CL") on the basis of assessed unpaid corporation tax and interest in a total sum of £1,763,472.80. Additionally an application was made to appoint Mr Ian Mark Defty, a licensed insolvency practitioner and partner in the firm of Kingston Smith and Partners LLP, as provisional liquidator over the business and assets of CL pending the hearing of the winding up petition. Mrs Justice Proudman made an order to that effect on that date, along with various other orders and directions, including a freezing order in respect of certain assets of the company's sole director and shareholder Mr Gui Hui Dong, and the company's former secretary Ms Hong Fang. Ms Fang is Mr Dong's ex-wife.
On about 18 June 2012 Mr Dong caused appeals against part of the assessed unpaid tax to be lodged with the First Tier Tax Tribunal (respectively "the Tax Appeal" and "the Tax Tribunal").
Following the lodging of the Tax Appeal there were three or four adjournments of the hearing of the winding up petition, in order to provide an opportunity for Mr Dong to file evidence in support of a contention that there was a genuine dispute in relation to CL's liability for all or part of the assessed tax, and that a winding up was therefore not appropriate, or not appropriate in advance of the resolution of the Tax Appeal.
However, as seen, Registrar Derrett made a winding up order on 21 June 2013, following and pursuant to which Mr Defty was appointed liquidator on 5 July 2013.
Since its investigation into the affairs of CL began, SOCA has ceased to exist and its functions are now performed so far as relevant by the National Crime Agency. In this judgment I shall for convenience refer to SOCA as meaning SOCA or NCA, whichever is appropriate.
The evidence
Details of SOCA's investigation into CL's business, and of SOCA's conclusions, are set out in a number of affidavits and witness statements together with their exhibits put before me. These include an affidavit by Anna Petrarca of SOCA dated 21 May 2012, four witness statements of Roy Stoddart of SOCA, and one witness statement of Samantha Kynes of SOCA. In addition Miss Petrarca exhibits a witness statement of Detective Constable Neil Stanley of the Metropolitan Police, dated 9 March 2012. Three witness statements of Mr Defty set out his position as liquidator.
In response to these there are three witness statements from Mr Dong, together with two witness statements from Mr Antonios Christodoulides, a solicitor instructed by Mr Dong, and three witness statements from George Georgiou, a chartered accountant of Bond International, instructed by Mr Dong to represent CL in relation to certain financial issues, including the Tax Appeal.
I feel it right to record that these witness statements and the exhibits were not presented to me in a particularly helpful manner. They were randomly spread through a number of bundles with no apparent structure — and certainly none that I found of any assistance. The bundles prepared for the rescission application also overlapped with those prepared for the application for permission to appeal. This mode of organisation and presentation added significantly to the burden of the court both during and after the hearing.
SOCA's investigation
CL, which was incorporated in 2004, is a money services business offering exchange and remittance services, in particular the remittance to China of funds deposited by its customers. CL operated virtually entirely within the Chinese community in the United Kingdom, through six high street branches, in London, Liverpool, Manchester, Birmingham, Belfast and Glasgow. It was registered with the Financial Services Authority.
SOCA's investigation into CL's tax affairs has led it to conclude that CL has been used by organised criminals to launder the proceeds of their crimes and to transfer those proceeds out of the United Kingdom to China. SOCA believes that the funds received and transferred by CL are derived from, inter alia, prostitution, smuggling of cigarettes, tobacco, and counterfeit DVDs, and the production and supply of cannabis. In his witness statement DC Stanley listed over thirty occasions between 2005 and 2011 when, in the course of police visits to premises where criminal activities were believed to take place, documents evidencing use of CL's money transfer services were found.
According to SOCA, money was either deposited at one of CL's branches for transfer to China or was paid into one of CL's numerous bank accounts. The company then transferred the funds to one main account for transmission to China. Ms Petrarca's evidence is that between 1 November 2005 and 31 December 2009 (the period of the SOCA tax assessments) about £592 million passed through this main account. For example, in the period 1 January 2006 to 31 December 2007 some £217 million was deposited in that account. This scale of deposits is not in dispute. Indeed according to Mr Dong the amount deposited with CL in the period 1 November 2005 to 31 December 2009 was £678 million rather than £592 million.
Some of the money transferred to China by CL was first deposited in one or other of the many bank accounts held at various times by Mr Dong or Ms Fang. Between 2004 and 2007 Mr Dong is said by Ms Petrarca to have held 27 personal accounts with 5 different banks. Between 2005 and 2009 Ms Fang held 17 personal accounts with 5 different banks. Over a five year period £75 million was deposited in these accounts, a substantial portion of which was then transferred to CL. However, a significant proportion remained with Mr Dong and Ms Fang, and Ms Petrarca has raised separate unpaid tax assessments on Mr Dong and Ms Fang personally in respect of those sums.
One of SOCA's concerns, which led to the assessment of unpaid tax by Ms Petrarca in respect of CL, is the level of gross income in the form of commissions declared by CL to HMRC in the period 3 August 2004 to 31 December 2009. According to Ms Petrarca the income declared by CL for 2006 represents 0.0596% of the deposits in that period and the income declared for 2007 represents 0.05%. In her view this level of commission is not credible as it would not result in a viable return for CL. She refers to evidence that CL's advertised rates of commission on transfers was 1%, and that for the years 2010 and 2011 (just outside the assessment period) a commission rate of 1.5% was applicable. Ms Petrarca based her tax assessments on a rate of 1%, which for the reasons set out in her affidavit, she regards as conservative.
In his evidence Mr Dong denies any involvement in criminal activity, including money laundering. As for the tax assessments, he states that in the calendar year 2011 CL earned a margin of 0.21% for each transaction carried out, and that the real dispute between CL and SOCA relates to the true net margin earned by CL. As to that, he states that the liquidator and SOCA have few if any documents for the period of the tax assessments, whereas his financial adviser Mr Georgiou had the advantage of access to CL's servers in China. Thus, he states, Mr Georgiou's data is more extensive than the police's or the liquidator's, and raises the question whether CL is really indebted to SOCA as alleged.
Ms Petrarca also gave evidence about other aspects of CL's governance. For example she said that CL had breached FSA regulatory requirements by not requesting necessary "Know Your Customer" documents, by accepting insufficiently authoritative customer identification documents, by buying identification documents in order to circumvent the Money Laundering Regulations, by misrepresenting client funds as the company's funds in order to meet the FSA's capital requirements for registration, and by failing to construct risk profiles as required. Ms Petrarca also identified other likely breaches of the Money Laundering Regulations. Under those Regulations a regulated company is required to appoint a Money Laundering Reporting Officer whose role is to file...
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