Parkwell Investments Ltd v Mark Wilson (as Provisional Liquidator of Parkwell Investments Ltd) and Another
| Jurisdiction | England & Wales |
| Judge | Sir William Blackburne |
| Judgment Date | 16 October 2014 |
| Neutral Citation | [2014] EWHC 3381 (Ch) |
| Docket Number | Case No: 2102 OF 2014 |
| Court | Chancery Division |
| Date | 16 October 2014 |
[2014] EWHC 3381 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF PARKWELL INVESTMENTS LIMITED
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
Strand, London, WC2A 2LL
Sir William Blackburne
Case No: 2102 OF 2014
Donald Lilly (instructed by The Khan Partnership LLP) for the Applicant
Mark Cunningham QC and Christopher Brockman (instructed by Howes Percival LLP) for the Respondents
Clara Johnson (instructed by Dentons) for the Provisional Liquidator
Hearing dates: 23, 24, 25, 26 and 30 June 2014
On 18 March 2014 Hildyard J appointed Mark Wilson of Baker Tilly Restructuring & Recovery LLP ("Mr Wilson") as provisional liquidator of Parkwell Investments Limited ("Parkwell"). The appointment was made on the without-notice application of The Commissioners for Her Majesty's Revenue & Customs ("HMRC") who that day had presented a creditor's petition to wind up Parkwell. The petition alleged unpaid VAT (inclusive of interest to 31 July 2013) totalling £7,764,476.14 based on assessments raised on or about 30 October 2013 for three quarterly periods between 1 November 2012 and 31 July 2013. The petition also alleged that a further £2,167,261, by way of VAT for periods between 1 August 2013 and 31 December 2013 was contingently or prospectively due. The court appointed Mr Wilson provisional liquidator until the conclusion of the hearing of the petition or further order and conferred upon him the powers and functions usually given when these orders are made. The court also directed that the order and its continuation should be considered on 25 March, which was a week later. Among the undertakings given to the court by HMRC upon the making of the order was that "In the event that the court should later decide that [HMRC] ought, as a condition of the continued appointment of the provisional liquidator to provide an undertaking in damages, to consent to such undertaking having retrospective effect from [18 March (the date of the appointment)] and as if it had been contained in this [the court's original] order."
The petition debt is put forward on alternative bases. The first, which relates to the taxable supplies allegedly made to it during the nine months to 31 July 2013, is that Parkwell has failed to produce documentary evidence to support the supplies, that is to say the supplies to it upon which it claims to have paid input tax and in respect of which it has claimed an offset against its liability to pay output tax as set out in its VAT returns for those periods. The alternative basis, which relates to those supplies and the further supplies to it said to have been made for the subsequent five months to 31 December 2013, is that, being a taxable entity, Parkwell knew or should have known that its transactions for those periods were connected with the fraudulent evasion of VAT with the result that HMRC was properly entitled to refuse to deduct input tax in respect of the transactions. In so contending HMRC relied on the ECJ ruling in Kittel v Belgium; Belgium v Recolta Recycling SPRL [2008] STC 1537 (" Kittel") as applied in this jurisdiction by the Court of Appeal in Mobilx (in administration) v Revenue and Customs Commissioners [2010] STC 1436 (" Mobilx"). On either basis it contended that there was a £ for £ increase in the amount of output tax due from Parkwell and therefore that the petition was well founded and a winding up order was likely when the petition came on for disposal.
On 25 March 2014, the return date of the application, Nugee J, by consent, continued the earlier order. By consent, he also directed that any application by Parkwell to vary or discharge the earlier order should be issued and served with supporting evidence by 11 April following and, were that to happen, gave directions for the service of reply evidence and for the hearing of the application. On 11 April, Parkwell duly applied to discharge the earlier orders and terminate the provisional liquidation. In addition it sought the dismissal of HMRC's winding up petition, alternatively a stay of the petition pending resolution of its appeals against the petition debts by the First-Tier Tax Tribunal ("the FTT") to which it had appealed the VAT assessments. It also sought an order that HMRC be required to offer to it a retrospective undertaking in damages dating back to the original appointment.
In support of its application Parkwell has relied on three matters. First, it has contended that the court had no jurisdiction to appoint a provisional liquidator, alternatively that the jurisprudence required the court to refuse the application ("the jurisdiction argument"). This was advanced on the footing that the appropriate tribunal to determine whether it had paid input tax on the supplies to it and whether it fell foul of the Kittel test in connection with the fraudulent evasion of VAT was the FTT (to which it had appealed the assessments on 27 January 2014 – some weeks before the winding up petition against it had been presented) and that it was inappropriate while the appeals against the assessments were still outstanding that this court should be permitted to abrogate or pre-empt that process by the appointment of a provisional liquidator or by the making of a winding up order, in each case in reliance upon the assessments. Second, it contended that on the evidence before the court it was not likely that the court would make a winding-up order when the petition came before it for disposal and therefore should not have made the appointment of a provisional liquidator ("the merits argument"). Third, it contended that even if a winding up order is likely to be made, the court ought not in the exercise of its discretion to have made the appointment ("the discretion argument"). Even if it failed on each of those arguments and the provisional liquidation were to continue, it contended that the court should now require HMRC to give to it an undertaking in damages and that such undertaking should be backdated to the date of Mr Wilson's appointment on 18 March.
Parkwell's application came before me for effective hearing in late June. At the conclusion of the hearing I indicated that I was not willing to discharge the appointment and was not willing to require HMRC to offer an undertaking (whether or not backdated to the date of the original order). I said that I would set out my reasons in writing. This I now do.
Mr Donald Lilly appeared for Parkwell, Mr Mark Cunningham QC and Mr Christopher Brockman appeared for HMRC and Ms Clara Johnson appeared for Mr Wilson, the provisional liquidator.
VoIP Trading
Parkwell claimed to be a Tier 3 provider of voice-over-IP (or VoIP) services. These are the wholesale trading of minutes relating to telephone communications over the internet rather than through conventional telephone lines. Mr Lilly accepted as accurate the following summary of what such business involves which is to be found in the judgment of Norris J in HMRC v Winnington Networks Ltd [2014] EWHC 1259 (Ch) (" Winnington") at [17] to [19] and which I gratefully adopt as being sufficient for present purposes:
"[17] Telecommunications depend on origination of the call, transmission of the call and termination of the call. The origination and the termination of the call will be under the control of the network providers. The transmission of the call (which is the movement of the data) will normally be the subject of agreement between large telecom providers. However, there is a multiplicity of small wholesale carriers of data who specialise in interrupted or less frequented routes. Here the movement of the data would move from the originator through a small wholesaler and perhaps a chain of wholesalers until it reached the terminal network provider. The movement of the data from the originator and from wholesaler to wholesaler and to the termination is controlled by means of switches. Each movement of data creates something called a "Call data record" or "CDR" which indicates the number of units consumed and from which, if a unit price is applied, a charge can be calculated, the charge being for the use of the carrier's owned or leased network.
[18] As Mr O'Hara explains in his affidavit at paragraph 26: 'The actual traffic, i.e. the data packets or minutes, must move through a switch every time that the data is moved between parties. At the point of every purchase and every sale the movement and direction of the data is decided by the switch. Calls must be transferred from trader A to trader B and so forth throughout a supply chain via a switch.'
[19] The switch will normally be programmed with a hierarchy of specified routes in order to secure that the call is transferred according to what is called a 'least cost routing plan'. Because of the intrinsic unreliability of networks it is normal for the 'least cost routing plan' to contain, as I have indicated, a hierarchy of alternative routes. A genuine carrier would be unlikely to trade without an LCR. A genuine carrier would be unlikely to trade with only one customer and to use only one supplier since this contemplates that there will never be a problem with the route selected."
From this it is apparent that the CDR details of calls are the primary record of calls made via the supply chain and the only source from which a breakdown of traffic can be obtained. They are used to generate the invoices on which payments to the VoIP trader are based. Without them the trader cannot invoice its own customers, know whether it is being correctly invoiced or deal with any dispute that might arise. The trader might lease rather...
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