The Commissioners for HM Revenue and Customs v Sunico A/S and Others
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Proudman |
| Judgment Date | 19 April 2013 |
| Neutral Citation | [2013] EWHC 941 (Ch) |
| Docket Number | Case No: HC10C01636 OF 2010 |
| Court | Chancery Division |
| Date | 19 April 2013 |
[2013] EWHC 941 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Proudman
Case No: HC10C01636 OF 2010
David Chivers QC, Peter Shaw and Tiran Nersessian (instructed by Howes Percival) for the claimants
Abbas Lakha QC and Graham Brodie (instructed by Jeffrey Green Russell) for the 1 st-5 th defendants
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The 6 th and 7 th defendants did not appear and were not represented
Hearing dates: 23/26/27/28/29/ 30 November 2012 and 03/04/05/06/11/12/13/14/17 December 2012
Introduction
This is a claim by Her Majesty's Revenue and Customs ("HMRC") for damages and interest arising out of an alleged unlawful means conspiracy to commit missing trader intra-Community ("MTIC") Value Added Tax ("VAT") fraud involving exports and imports of mobile phones. The First Defendant, Sunico A/S ("Sunico"), a company incorporated in Denmark in the business of supplying mobile phones, is the vehicle at the centre of HMRC's claim.
The claim arises out of some 719 transaction chains constructed by HMRC occurring between August 2004 and January 2006, each of which HMRC alleges is an instance of MTIC fraud involving Sunico. HMRC claims that, as a result of the MTIC fraud represented by these transaction chains, it has suffered losses in excess of £40 million.
It was recognised at an early stage in this litigation that a trial of so many transaction chains would be unmanageable in view of the significant volume of documentation underlying each chain. At a case management conference on 25 May 2011 before Norris J, HMRC submitted that there should be a trial of liability based on a sample number of representative transaction chains followed by — if liability was established — a trial to determine the quantum of damages. This approach was opposed by the Defendants, unless HMRC agreed to provide disclosure in relation to all 719 Transaction Chains. Norris J ordered that there should be a trial of liability based on 26 chains which, the parties being unable to agree, he proceeded to select from the transaction chains upon which the overall claim is based. The Defendants' liability in respect of these 26 chains (which were called "the Sample Chains") is the subject of this trial.
The parties
At a case management conference on 4 and 5 October 2012 before Warren J, summary judgment was granted in favour of the Ninth Defendant, Mr Nari Premchand, dismissing the claim against him in its entirety. Summary judgment was also given for the Eighth Defendant, Mr Dayal Dhalomal Shahdadpuri, dismissing HMRC's claim of conspiracy. HMRC's remaining claim against Mr Dayal Shahdadpuri pursuant to s. 423 Insolvency Act 1986 was subsequently discontinued with the leave of Warren J on 14 November 2012. Consequently, the Eighth and Ninth Defendants take no further part in these proceedings. HMRC's claim is thus effective against the First to Seventh Defendants only. I will collectively refer to them as "the Defendants", or, in some instances which are I hope obvious from the context, I will mean the First to Fifth Defendants only. Mr David Chivers QC, Mr Peter Shaw and Mr Tiran Nersessian represented HMRC before me, and Mr Abbas Lakha QC and Mr Graham Brodie represented the First to Fifth Defendants. The Sixth and Seventh Defendants did not appear and were not represented.
Sunico was incorporated in Denmark on 15 May 1996, its principal business being the trading of mobile phones. The defence asserts that Sunico has been an approved distributor for, among others, Samsung, Motorola, Siemens, and Panasonic. The Second Defendant, Mr Sunil Harwani (who without intending disrespect but purely for convenience sake I will refer to as "Sunil"), is a director of Sunico and it is accepted that he was a director at all times material to these proceedings and in particular, the period during which the transactions in dispute occurred. He also holds a 49% interest in the issued share capital of Sunico through a Danish holding company, Abascus Holdings ApS, the Fourth Defendant, which he owns outright. Mr Mangharam Harwani (who for the same reasons as with Sunil I will refer to as "Mangharam"), the Third Defendant, is Sunil's father and holds the remaining 51% interest in Sunico through his Danish holding company, M&B Holdings A/S, the Fifth Defendant, which he owns outright.
The nature of Mangharam's role in relation to Sunico's business, and accordingly the extent of his liability in respect of HMRC's claim, is a subject of dispute between the parties. However it is common ground that Sunil is the controlling mind of Sunico when it comes to establishing Sunico's liability or lack of it. In other words, if he is part of the fraud, then so is Sunico; if he is not, then Sunico is not either.
The Sixth Defendant, PT Naina Exim Indo ("PT Naina"), is a company incorporated in Indonesia. PT Naina entered into an agreement (the "Commission Agreement") with Sunico, pursuant to which PT Naina was purportedly entitled (according to the pleadings and Sunil's account given to the Danish tax authority ("SKAT")) to a share of Sunico's profits in return for referring customers and/or suppliers to Sunico. PT Naina has taken no part in these proceedings.
The Seventh Defendant, Mr Hashu Dhalomal Shahdadpuri, resides in Singapore and is the brother of the former Eighth Defendant. According to statements made by Sunil to SKAT, the Commission Agreement was negotiated with the Seventh Defendant. He too has taken no part in these proceedings. He has however participated in parallel proceedings commenced against him by HMRC in Singapore.
HMRC obtained a freezing order in this country against all the Defendants. A parallel order was obtained against the Seventh Defendant in Singapore. He unsuccessfully applied there to have that order set aside on the grounds that the claim amounted to an impermissible attempt by HMRC to bring a UK Revenue claim in Singapore. The ancillary freezing and attachment orders obtained against the Defendants in Denmark, Singapore and Hong Kong have given rise to much litigation in those jurisdictions. With the exception of PT Naina, challenges have been made by all the Defendants in those jurisdictions to the orders on the basis that they have claimed that HMRC's proceedings are an attempt to enforce UK taxes and so, it is contended, offend against the private international law principle of non-enforcement of foreign Revenue debts. In Hong Kong, the application of the Seventh Defendant to strike out proceedings there was dismissed. Similarly the application of the Eighth Defendant in Singapore to strike out the claim against him in that jurisdiction was dismissed by the Singapore Court of Appeal. The Danish Defendants have made an application to the court in Copenhagen for an order that any English judgment that may be made ought not to be recognised in Denmark. The matter has been referred to the European Court.
The claim
HMRC's claim against all the Defendants is for damages for unlawful means conspiracy. Insofar as the claim concerns the Sixth and Seventh Defendants HMRC allege, in summary, that the terms of the Commission Agreement are not bona fide arms-length commercial arrangements and that the agreement was in truth a mechanism for the division of the proceeds of the MTIC fraud. On that basis, the Sixth and Seventh Defendants would be parties to the unlawful means conspiracy and personally liable as such for HMRC's alleged losses. It follows that the case against the Sixth and Seventh Defendants will only stand if the case against the First to Fifth Defendants succeeds.
This is not a case brought in the First-tier or Upper Tax Tribunal as to the propriety of denying a tax reclaim and the extent of the connection between the transactions and the alleged fraudulent tax loss. HMRC put their case squarely on Sunico being a party to fraud. This court therefore has to decide whether Sunico did sell or supply mobile phones into the Sample Chains in circumstances where there was a VAT loss occasioned by fraud to which Sunico was a party.
Disclosure
A result of the sample approach adopted in these proceedings is that there has been disagreement between the parties as to the scope of disclosure. Having narrowed HMRC's claim to the Sample Chains, Norris J made an order for standard disclosure on 27 May 2011. Norris J did not in terms specify in relation to which of the transaction chains disclosure ought to be given, although it seems clear that he envisaged that disclosure was only required in relation to the Sample Chains he had selected for trial. To order wider disclosure would be to defeat the purpose of limiting the trial to a sample in the first place.
At the case management conference before Warren J the Defendants objected that parts of HMRC's evidence strayed beyond the Sample Chains, incorporating references to other transaction chains in relation to which HMRC had not provided disclosure. Warren J observed that if HMRC sought to rely on other transaction chains as relevant to the trial of the Sample Chains (for example, to demonstrate dishonesty on the part of the Defendants) evidence of those transaction chains might well be relevant. And if it was relevant, HMRC would need to provide disclosure in relation it.
In the event, Warren J was unable...
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