Mr Richard Ian Hughes v HM Revenue and Customs

Hearing dates: 25 th – 27 th June 2024

Approved Judgment

This judgment was handed down remotely at 10.30am on 9 July 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

INTRODUCTION

Mr Richard Hughes (“the Claimant”) is a businessman and financier. In December 2015 he was charged with offences of conspiracy to cheat and of cheating the Revenue. The charges were dismissed by HHJ Simon Drew QC 1 in May 2017 because they were defective. It is clear from contemporaneous documents that shortly before then it had begun to be appreciated that the prosecution was in a mess. One clear and obvious line of inquiry had not been pursued and disclosure was in a pitiful state. The Claimant applied for costs within the criminal proceedings and in a “Prosecution Statement of Position” filed in December 2017 it was conceded by the Crown that there had been improper conduct of the prosecution. In March 2018 the Claimant was informed that the Crown did not intend to recommence any prosecution by applying to a High Court judge for consent for preferring a Voluntary Bill of Indictment.

The Claimant instituted these proceedings against HMRC and CPS on 8 December 2021. The pleaded claims against both Defendants are in the torts of malicious prosecution and misfeasance in public office. The Claimant's preliminary schedule of loss claims vast sums. Most of the losses claimed were suffered by two companies that he regarded as his, Zeus Capital Limited (“ZCL”) and Zeus Renewables Limited (“ZRL”). However, the precise ownership position requires careful examination. The companies' rights and causes of action were assigned to the Claimant in the summer of 2019.

Thereafter, the litigation proceeded slowly. On 18 October 2023 both Defendants filed applications asking the Court to strike out the claims under CPR Part 24 and CPR r. 3.4(2) on various bases. In short, the Defendants say that the Claimant has no real prospect of making out a number of the essential ingredients of these torts, and that the assignments are unenforceable as being contrary to public policy. This is my judgment on those applications.

A vast amount of evidence has been placed before the Court. I have not read each and every page in the voluminous exhibit bundles but I am fully abreast of the material. It is right to point out that both Defendants have waived privilege and that I have been in a position to examine a mass of internal documentation which frankly recognises the Crown's shortcomings. Even so, I must bear in mind that the evidential picture might be fuller at trial and that Mr Rupert Bowers KC would have the opportunity to cross-examine witnesses (and, in the event that material witnesses were not called without proper explanation, the Court would be able to draw adverse inferences, if so advised).

The principles governing these applications are extremely familiar. In my view, the summary judgment applications should be my focus because if the Defendants cannot succeed on those, the strike-out applications would inevitably fail. There is a good summary of the relevant principles in the White Book at paras 24.3.2 – 24.3.4. Given what I have just said about the evidential picture being incomplete, I set out the

“21. The authorities therefore make clear that in the context of summary judgement the court is by no means barred from evaluating the evidence, and concluding that on the evidence there is no real (as opposed to fanciful) prospect of success. It will of course be cautious in doing so. It will bear in mind the clarity of the evidence available and the potential for other evidence to be available at trial which is likely to bear on the issues. It will avoid conducting a mini-trial. But there will be cases where the court will be entitled to draw a line and say — even bearing well in mind all of those points — it would be contrary to principle for a case to proceed to trial.”

Broadly speaking, the issues arising in this application will be addressed in the following order:

(1) Whether the malicious prosecution claim against both Defendants has a real prospect of success.

(2) Whether the misfeasance claim against both Defendants has a real prospect of success.

(3) Whether the Claimant has a real prospect of establishing the validity of the assignments.

ESSENTIAL FACTUAL BACKGROUND

Given the large amount of material placed before the Court, it is neither possible nor desirable to refer to everything drawn to my attention by the parties.

The criminal offences for which the Claimant was prosecuted related to his involvement in the establishment of investment products in his role as a partner of Zeus Partners LLP (“ZPL”), a financial services firm regulated by what is now the Financial Conduct Authority. In November 2007 ZPL and HSBC Private Bank (UK) Limited (“HSBC”) entered into an agreement which provided amongst other things for HSBC to assist ZPL with developing, and thereafter establishing and promoting, ZP Investment Products using what the Claimant describes as the HSBC framework. As para 9 of the Amended Particulars of Claim explains:

“The ZP Investment Products ultimately comprised investments in 52 UK Limited companies. The investments comprised an investment by each high-net-worth individual, both through their own funds and in significant part through “limited recourse” loans. It was intended that, in the event that an investment failed, a claim could be made for share loss relief pursuant to sections 131 and 132 of the Income Tax Act 2007. Each of the investments suffered a fall over time in the value of its shares.”

Further detail is provided in the witness statement of Ms Nishat Choudhury, a solicitor employed by HMRC. In all, there were five iterations of these investments or schemes: SA Film, Equicap, Games, Triton and Pharma. Over 400 high-net worth-individuals invested through the schemes in 52 UK limited companies. Ms Choudhury points out that 51 out of the 52 companies failed within 12 months of the investment having been made.

The “architecture” of the schemes was somewhat complex but Ms Choudhury has been able to provide the following simplified description:

“ The Schemes: — the Schemes provided a vehicle through which high net-worth individuals (the ‘Investors’) could invest in companies (the “InvCos”), formed by ZP using their own personal funds and ‘limited recourse loans’ (the “Loans”), by a newly incorporated finance company (the “FinCo”). Alliance & Leicester Corporate Financing (the “Lender”) provided the financing for the FinCos for the initial schemes. The Schemes were designed so that:-

(i) The Lender would provide a Loan to the FinCo under a facility that any funds provided were at all times held within blocked accounts with the Lender. The FinCo would then provide the majority of the investment (82–88%) through the Loans to the Investors repayable after a period of 12 months. The Loans were limited in recourse to the value of the shares in the InvCos. The Investors had no other obligation to repay;

(ii) The Lender provided the bank accounts for the FinCo and InvCos. The Loans were transferred direct from the FinCo to the InvCos on behalf of the Investors. The sums provided for the Loans were placed in secure blocked accounts and could not be expended without agreement of the Lender; and

(iii) The Investor would provide the remaining 12% to 18% of the funds themselves, which were used to pay fees to those responsible for administering and selling the Schemes. As such, the remaining element of the ‘investment’ in the Schemes, were the Loans, which the Investor had no obligation to repay and which could not, and were not, in any event accessible by or used by the InvCos (before the Schemes failed); and

(iv) When the Schemes failed, the Investors would make a claim for share loss relief pursuant to sections 131 and 132 of the Income Tax Act in relation to their investment (as augmented by the Loans).” (see para 8 of her witness statement)

Given that virtually all the schemes failed (and in HMRC's view, were always going to fail), the loans were never used (and, because they were never actually used, could be redeployed on a basis that has been described as “circular”), the individual investors were able to claim share loss relief (because the shares in the failed investment vehicles had no value), and the share relief claimed by these individuals, which included the loan element, well exceeded the sums actually invested.

HMRC's viewpoint was (and still is) that, given that these schemes were not genuine commercial investment opportunities but rather were designed to obtain a tax advantage, there was a requirement to register them with HMRC. Further, the Targeted Anti-Avoidance Rule was introduced by the Finance Act 2007 so as to deny relief on capital losses accruing to any person as a result of, or in connection with, any arrangements where the main or one of the main purposes of the arrangement was to secure a tax advantage.

These basic facts provided the foundation for the criminal charges which were...