Europeans Ltd v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judgment Date | 13 April 2011 |
| Neutral Citation | [2011] EWHC 948 (Ch) |
| Date | 13 April 2011 |
| Court | Chancery Division |
[2011] EWHC 948 (Ch).
Chancery Division.
Proudman J.
Nicholas Cox (instructed by Howes Percival LLP) for HMRC.
Donald Lilly (instructed by Dass Solicitors) for the director.
The following cases were referred to in the judgment:
Brampton Manor (Leisure) Ltd v MacLean (No. 2) UNK[2009] BCC 30
Calltel Telecom Ltd v R & C Commrs UNKVAT[2008] EWHC 2107 (Ch); [2009] BVC 255
Dymocks Franchise Systems (NSW) Pty Ltd v Todd (Associated Industrial Finance Pty Ltd, Third Party) WLR[2004] 1 WLR 2807
Edwards v Bairstow ELRTAX[1956] AC 14; 36 TC 207
Equitas Ltd v Horace Holman and Co Ltd UNK[2008] EWHC 2287 (Comm)
Goodwood Recoveries Ltd v Breen WLR[2006] 1 WLR 2723
i-Remit Incorporated v Far East Remittance Ltd UNK[2008] EWHC 939 (Ch)
Metalloy Supplies Ltd v MA (UK) Ltd WLR[1997] 1 WLR 1613
North West Holdings plc (in liquidation) (Costs), Re UNK[2001] EWCA Civ 67
Petromec Inc v Petroleo Brasiliero SA Petrobras (No. 4) UNK[2006] EWCA Civ 1038
Secretary of State for Trade and Industry v Aurum Marketing Ltd UNK[2002] BCC 31
Symphony Group plc v Hodgson ELR[1994] QB 179
Taylor v Pace Developments Ltd UNK[1991] BCC 406
Value added tax - Input tax - Company director - Missing trader intra-Community (MTIC) fraud - Third party costs order - Taxpayer company appealing against HMRC decision to reject claim for input tax - Tribunal upholding HMRC's decision on basis that taxpayer involved in MTIC fraud - HMRC applying for third party costs order against taxpayer's managing director - Whether third party costs order appropriate - Senior Courts Act 1981, s. 51.
This was an application by HMRC for a third party costs order against the managing director (M) of the taxpayer company following dismissal of its appeal against a tribunal decision that its claim for repayment of input tax had rightly been refused because it had been involved in missing trader fraud.
The taxpayer was registered for VAT as a car hire business, but in 2005 it notified HMRC of its plans to extend the business to include the export sale of mobile phones. Following the repayment of VAT claims in several periods, HMRC formed the conclusion that the acquisition of phones by the taxpayer formed part of chains connected with the fraudulent evasion of VAT. They concluded that the taxpayer knew or should have known of that fact. The taxpayer appealed against a decision of HMRC denying input tax credit of £1,256,675 on the acquisition of mobile phones which had been sold to a Luxembourg trader.
The tribunal held that the taxpayer's claim was rightly disallowed. The basis ofthedecision was that when entering into the five transactions analysed by the tribunal thetaxpayer knew that it was part of a fraudulent chain. Knowledge was attributed tothetaxpayer on the basis of findings that M had actual knowledge of the relevant matters. The tribunal was satisfied that in respect of each deal the acquisition by the taxpayer was causally connected with the fraudulent evasion of VAT by other traders. Further, it was not credible that M was an innocent dupe as he was both articulate and intelligent. On the central matters, M had not given truthful evidence. He knew when entering into the transactions that they were part of a fraudulent chain. Accordingly, the taxpayer was a knowing participant in the fraud (Decision No. 20,883; [2009] BVC 4036).
The taxpayer appealed against the tribunal's decision to the High Court but sought to withdraw the appeal at a late stage. The appeal was dismissed and the judge ordered the taxpayer to pay HMRC's costs. The taxpayer went into liquidation and HMRC applied under s. 51 of the Senior Courts Act 1981 for a third party costs order against M. The director argued that it would be wrong to make a third party costs order against him, because he had caused the taxpayer to issue the appeal in good faith and in its best interests and notice of HMRC's intention to seek an order against him personally had been given too late.
Held, granting HMRC's application:
1.The director had a close personal association with the litigation as a sole director of and shareholder in the taxpayer and the sole witness for it in the tribunal. He alone gave instructions to the taxpayer's solicitors in connection with the appeal and its withdrawal. The tribunal had found that his evidence was dishonest and that he had actual knowledge of the chain of fraudulent transactions. Those findings impacted directly on his personal reputation. He had a clear incentive to clear his name by reversing the effect of the tribunal's finding that he had masterminded a serious VAT fraud. In the circumstances, there was in reality no separate interest of the taxpayer in bringing the appeal. It was plain that the director had viewed and treated the company as his "cipher". Its business had been carried on for his personal benefit. He lied in evidence to the tribunal and failed to co-operate with either HMRC or the joint liquidators of the taxpayer. There was no evidence to support his bald assertion that he had an honest belief that he was bringing the appeal on proper grounds in the interests of the company. (Taylor v Pace Developments Ltd [1991] BCC 406 distinguished.)
2.Looking at the matter in the round and determining it on the basis of the overall fairness of making a third party costs order, the absence of an early warning of an intention to pursue the director personally was insufficient in itself to deny HMRC a third party costs order to which they would otherwise plainly be entitled.
Proudman J:
[1]This is an application by HMRC under s. 51 of the Senior Courts Act 1951 for a third party costs order against Mr Tarik Meghrabi in relation to the costs of an unsuccessful appeal to the High Court against a decision of the London VAT and Duties Tribunal.
[2]HMRC claim costs of some £18,000 from Mr...
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Hobbs Close Ltd
...to the litigation … provided that he is “a real party in … very important and critical respects” … [70] Europeans Ltd v R & C Commrs[2011] BVC 239, concerned missing trader fraud and whether the taxpayer knew or should have known of the fraudulent trades in the supply chain. The taxpayer's ......
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Golden Harvest Wholesale Ltd
...exceptional and the director's personal interest in the appeal was precisely of the nature identified in Europeans Ltd v R & C Commrs [2011] BVC 239 as relevant in justifying a non-party costs order. It was incontrovertible, given his admission of guilt in the criminal proceedings, he knew ......