Deluxe Property Holdings Ltd (a company registered under the laws of the British Virgin Islands) v SCL Construction Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Pepperall |
| Judgment Date | 08 December 2020 |
| Neutral Citation | [2020] EWHC 3354 (TCC) |
| Date | 08 December 2020 |
| Docket Number | Case No. HT-2020-000355 |
| Court | Queen's Bench Division (Technology and Construction Court) |
[2020] EWHC 3354 (TCC)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES
TECHNOLOGY AND CONSTRUCTION COURT (QBD)
Rolls Building,
Fetter Lane, London EC4A 1NL
THE HONOURABLE Mr Justice Pepperall
Case No. HT-2020-000355
Seb Oram (instructed by DAC Beachcroft LLP) for the Claimant
There being no appearance for the Defendants
Hearing date: 8 December 2020
Approved judgment
I direct that no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic.
By contracts dated 14 March and 5 April 2019, Deluxe Property Holdings Limited employed SCL Construction Limited to carry out building works in Tooting, South London. SCL raised various invoices in respect of the works each claiming VAT upon the works at the standard rate of 20%. It is, however, common ground that the works were in fact zero-rated for VAT purposes and that VAT totalling £449,454.07 was wrongly invoiced and paid.
Although SCL initially accounted to HM Revenue & Customs for the VAT invoiced to its customer, it has now obtained reimbursement of the overpaid tax by way of an accounting credit against its liability in the quarter ended 31 May 2020. There is no dispute that in such circumstances SCL is liable to repay the VAT wrongly invoiced to Deluxe. The issue between the parties is whether:
2.1 SCL holds the accounting credit obtained from HMRC on trust for Deluxe; or
2.2 the claim is only in debt, in which case SCL seeks to set-off such claim against other monies that it alleges are owed by Deluxe.
The difference between a proprietary claim and one in debt may well be important since SCL's counterclaim is disputed and SCL appears to be on the verge of liquidation.
This Part 8 claim came on for trial on 8 December 2020. Although SCL acknowledged service and relies on the evidence of its director, it has not appeared at trial. I proceeded in SCL's absence since I was satisfied both that SCL knew about this hearing and that it had made a conscious decision not to appear before the court:
3.1 Deluxe's solicitors have formally certified service by first class post and email.
3.2 When my clerk contacted all parties to confirm the arrangements for the hearing, the company's director, Mike Lee, replied on 26 November 2020 asserting that the company was then in the hands of administrators who would be in touch.
3.3 Subsequently, on 2 December 2020 Neil Hammond-Jarvis of FRP Advisory Trading Limited emailed my clerk indicating that SCL is not in fact in administration but that Mr Lee has given instructions to FRP to assist him in placing the company into creditors' voluntary liquidation. He explained that the proposed date of the liquidation would be in the week commencing 21 December 2020, and added:
“In view of the above and after taking into account the company's circumstances, it will not be defending the action and will therefore not be attending the hearing. We are informed by the director that copious amounts of documentation defending the claim has (sic) already been lodged with the court and the company will be relying on that documentation to state its case. For the record, the director disputes the claim from the claimant and does not consider them to be a creditor of the company, rather, a debtor.”
I should, for completeness, add that Mr Hammond-Jarvis does not appear to have any standing in this matter. That said, Mr Lee was copied into Mr Hammond-Jarvis's email and has not refuted his assertion that SCL is not in administration.
No relief is sought against HMRC who understandably elected not to attend trial.
VAT REFUNDS
Section 80 of the Value Added Tax Act 1994 provides that HMRC shall be liable to credit any overpaid output tax upon a claim being made under the section. Section 80(3) provides HMRC with a defence to such a claim where crediting the overpaid tax would unjustly enrich the claimant. This defence is supported by s.80A which provides:
“(1) The Commissioners may by regulations make provision for reimbursement arrangements made by any person to be disregarded for the purposes of section 80(3) except where the arrangements—
(a) contain such provision as may be required by the regulations; and
(b) are supported by such undertakings to comply with the provisions of the arrangements as may be required by the regulations to be given to the Commissioners.
(2) In this section ‘reimbursement arrangements’ means any arrangements for the purposes of a claim under section 80 which—
(a) are made by any person for the purpose of securing that he is not unjustly enriched by the crediting of any amount in pursuance of the claim; and
(b) provide for the reimbursement of persons who have for practical purposes borne the whole or any part of the amount brought into account as mentioned in paragraph (b) of subsection ( 1) or (1A) of that section.”
By regulations 43B and 43C of the VAT Regulations 1995, HMRC is required to disregard any reimbursement arrangements for the purposes of the unjust enrichment defence under s.80(3) of the Act except where such arrangements include the provisions described in regulation 43C. Such provisions include:
“(a) reimbursement for which the arrangements provide will be completed by no later than 90 days after the crediting of the amount to which it relates;
(b) no deduction will be made from the relevant amount by way of fee or charge (howsoever expressed or effected);
(c) reimbursement will be made only in cash or by cheque …”
Further, by regulations 43B and 43G, HMRC is also required to disregard any reimbursement arrangements for the purposes of the unjust enrichment defence where such arrangements are not supported by undertakings that, among other matters:
“(a) at the date of the undertakings [the trader] is able to identify the names and addresses of those consumers whom he has reimbursed or whom he intends to reimburse;
(b) he will apply the whole of the relevant amount credited to him, without any deduction by way of fee or charge or otherwise, to the reimbursement in cash or by cheque, of such consumers by no later than 90 days after his receipt of that amount (except insofar as he has already so reimbursed them) …”
On 29 July 2013, HMRC published its guidance “ How to correct VAT errors and make adjustments or claims (VAT Notice 700/45).” The guidance explains the two methods that a registered person can use to correct previous errors. Method 1 involves a simple balancing adjustment to the next VAT return but is not available where the error is in excess of £50,000. In such larger cases, method 2 must be used and the registered person must notify HMRC of the error on form VAT652.
Section 9 of the guidance explains the unjust enrichment defence. It explains the circumstances in which HMRC will refuse claims on the basis of unjust enrichment:
“We will refuse claims for unjust enrichment where a trader:
— has charged VAT to his customers that he ought not have charged
— has passed the economic burden of the wrongly charged VAT on to his customers
— has suffered no loss or damage as a result of having passed the mistaken charge to his customers
— is unable or unwilling to reimburse his customers with any amounts paid to him by HMRC”
Sections 9.2 and 9.3 clarify that a refund can only be obtained where the trader agrees to avoid being unjustly enriched by passing the refund back to the customer who bore the burden of the mistaken VAT charge. Section 9.6 provides:
“Under the reimbursement scheme we will only make a refund to you if you agree to:
— sign an undertaking in the format set out in section 10 of this notice — once signed, you cannot amend it
— make all refunds to customers within 90 days
— repay any residual amounts not returned to your customers after 90 days to us within 14 days — we will not send reminders — if you fail to do this we will assess for the residue
— pass any statutory interest paid with the refunds to customers, this is subject to the same terms and conditions as the refund”
Section 10 then sets out the wording of the required undertaking.
THE EVIDENCE
In April 2020, Kal Hassan of Interland Group Limited, who was acting as agent for Deluxe, sought to negotiate a deed of indemnity and assignment in respect of the anticipated tax refund. On 24 April 2020, Mr Lee indicated his agreement to the deed provided that clauses could be added allowing SCL to finish the project, agreeing a final account sum of £2,913,739.09 and agreeing that no liquidated damages would be levied. Mr Hassan immediately rejected this proposal complaining that Mr Lee was seeking to use the draft deed to leverage a position for SCL in respect of the agreement of its final account.
Meanwhile, on 11 April 2020, Landmark PT Limited (tax advisers acting for SCL) emailed a draft claim for repayment that it intended to submit on behalf of SCL in respect of the overpaid tax pursuant to s.80 of the Value Added Tax Act 1994 to both SCL and Mr Hassan and Shachar Livni of Interland. On 16 April 2020, Mr Lee emailed Mr Hassan confirming that the claim had been submitted. In fact, Landmark did not formally lodge the claim with HMRC until 27 April 2020.
In accordance with HMRC guidance, the application included a signed reimbursement undertaking in the terms required by section 10 of VAT Notice 700/45:
“In relation to a claim for £415,365.87 made on 23 rd March 2020 relating to prescribed accounting periods 05/19, 08/19, 11/19 and 02/20 made under section 80 VAT Act 1994. In accordance with the terms of section 80A VATA 1994 and regulations 43A to 43G of...
To continue reading
Request your trial