The Commissioners for HM Revenue and Customs v Ian Charles, trading as Boston Computer Group Europe

JurisdictionEngland & Wales
JudgeLord Justice Newey,Lady Justice Asplin,Lord Justice Lewison
Judgment Date10 December 2019
Neutral Citation[2019] EWCA Civ 2176
Date10 December 2019
Docket NumberCase No: A2/2019/0411
CourtCourt of Appeal (Civil Division)

[2019] EWCA Civ 2176

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT

QUEEN'S BENCH DIVISION

His Honour Judge Jarman QC

E90CF053

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Lewison

Lord Justice Newey

and

Lady Justice Asplin

Case No: A2/2019/0411

Between:
The Commissioners for Her Majesty's Revenue and Customs
Appellants
and
Ian Charles, trading as Boston Computer Group Europe
Respondent

Mr Joshua Carey (instructed by The Solicitor's Office and Legal Service) for the Appellants

Mr Tim Brown (instructed by Hugh James Solicitors) for the Respondent

Hearing date: 26 November 2019

Approved Judgment

Lady Justice Asplin
1

This appeal raises the issue of whether the Commissioners for Her Majesty's Revenue and Customs (“HMRC”) can owe a common law duty of care to verify the factual accuracy of evidence relied upon in proceedings in the Tax tribunals. It arises in the context of a claim for damages brought by the Respondent in which it was alleged that HMRC was liable for breach of contract, breach of statutory duty and/or negligence in relation to matters arising from an HMRC investigation into what has become known as VAT “MTIC” fraud, and the conduct of subsequent litigation.

2

It results, in particular, from the omission of the name of a supplier from one of the chains of supply recorded in a report compiled by HMRC officers when investigating VAT fraud (the “Visit Report”) which was subsequently relied upon by the Respondent to this appeal in the First-tier Tribunal (Tax Chamber) (the “FTT”) in support of his statutory appeal against HMRC's disallowance of input tax for the purposes of VAT in the Respondent's VAT quarter to September 2006 and, subsequently, in his appeal to the Upper Tribunal (Tax and Chancery Chamber) (the “UT”) and his application for permission to appeal to the Court of Appeal.

3

By an order dated 27 February 2019, HHJ Jarman QC struck out the claims made by the Respondent, Mr Ian Charles, trading as Boston Computer Group Europe (“Mr Charles”) against HMRC in contract and breach of statutory duty. However, he declined to do so in relation to the claim based upon a duty of care in negligence. The judge held that on the unusual facts of this case there was a realistic prospect of establishing a narrow duty of care on the part of HMRC, once Mr Charles' reliance on the omission from the Visit Report became clear, to contact the visiting officers and to verify the Visit Report and, if necessary, to rectify it, particularly when that rectification would assist HMRC in carrying out its general duties and would have supported its case against Mr Charles. It is the dismissal of the application to strike out the claim based in negligence which is the subject of this appeal.

4

The court, having heard oral argument, informed the parties that this appeal would be allowed with written reasons to follow. My reasons for allowing the appeal are set out below.

Background

5

In order to understand the issue in relation to the alleged duty of care, it is necessary to put the appeal in context. In 2006, HMRC began investigating a number of electronic goods businesses in order to tackle widespread VAT fraud, known as “ Kittel” or MTIC fraud. As part of their investigations, on 17 June 2006 two HMRC officers made an unannounced visit to the premises of a freight forwarder, Tech Freight Limited. They took copies of various documents and were present at the premises for fifteen minutes. Subsequently, they produced the Visit Report which was based upon the documents which they had copied at the premises. They identified six chains of supply in respect of electronic goods or components. Each supply chain was set out in the Visit Report. The name of E-Management Solution Europe Ltd (“EMS”) appeared in all but one of the supply chains. The chain in which the name of EMS did not appear was concerned with the sale of 3000 Apple Ipod Nanos 4GB (the “Ipods”). EMS was subsequently identified as a fraudulent trader for the purposes of VAT. It is now accepted that the omission of EMS from the chain of supply concerning the Ipods was a mistake.

6

As a result of the investigations, HMRC disallowed input tax on seven purchases contained in Mr Charles' VAT return for the VAT quarter ending on 30 September 2006. Mr Charles appealed HMRC's decision to the FTT. HMRC's pleaded case was that Mr Charles' purchases, including the transaction relating to the Ipods, were connected with the fraudulent evasion of VAT, that the tax loss occurred either in a direct chain of transactions or a parallel chain and that Mr Charles knew or ought to have known of it, which he denied. It is accepted that on that appeal the onus was on HMRC to prove the connection between the transactions and the fraud and to prove that Mr Charles knew or ought to have known of it.

7

One of the issues raised by Mr Charles before the FTT was that HMRC had produced no transaction documentation to support a purchase or sale by EMS in the particular chain of supply relating to the Ipods. He relied upon the Visit Report which he produced and exhibited to a witness statement. His case in this regard was that a connection with fraudulent evasion of VAT could not be proved and as a result HMRC could not prove that he had the requisite knowledge in relation to the purchase and sale of the Ipods.

8

The FTT heard evidence and submissions over ten days with closing submissions at a later date. There were twenty-five volumes of witness statements and documents and the FTT heard oral evidence from Mr Charles and a number of HMRC officers concerned with the transactions, including those in which EMS was involved. Further written evidence was filed, relating, amongst other things, to EMS which was identified as a defaulter for the purposes of the appeal, which went unchallenged. The FTT also had the benefit of eight volumes of authorities which included decisions of the FTT in relation to Sceptre Services Ltd and Coracle Ventures Ltd. Sceptre Services Ltd was named in the supply chain relating to the Ipods in the Visit Report.

9

In a decision dated 12 June 2012, the citation of which is [2014] UKFTT 481 (TC), the FTT concluded in summary that: the Ipods had been imported into the UK and sold and bought in a chain of substantially contemporaneous transactions, ending with their purchase by Mr Charles from Sceptre Services Limited and his export of them; that EMS was part of that chain of supply; that EMS had fraudulently evaded the VAT payable by it at its stage of the chain; and that Mr Charles should have known that his purchase was connected with VAT fraud. Accordingly, the FTT dismissed Mr Charles' appeal against HMRC's refusal to allow the deduction of input VAT in respect of the purchase of the Ipods from Sceptre Services Limited.

10

In reaching its findings the FTT stated expressly that it relied upon all of the oral and documentary evidence before it and put only secondary reliance upon the findings of the tribunal in other appeals such as that in the Sceptre case, save where there was clear overlap in the evidence presented in those appeals and the one before it: see [64] of the FTT judgment. In finding that EMS was in the supply chain in relation to the Ipods, the FTT relied upon documentation which revealed back to back transactions in quick succession on 8 August 2006 whilst the goods remained in the custody of freight forwarders. The documentation revealed release of the Ipods to and by EMS, Connect Communications Ltd (“Connect”) and Sceptre, amongst others. See [67] of the FTT judgment. In addition to Sceptre, Connect was named in the supply chain in respect of the Ipods in the Visit Report.

11

The FTT's decision in relation to the Ipod transaction was appealed to the UT on limited grounds, which allowed Mr Charles to challenge the FTT's finding that there was a connection between his purchase and fraudulent evasion of VAT elsewhere in the chain of supply; and its further finding, based on its conclusion that such a connection had been established, that Mr Charles should have known of that connection. Mr Charles' case before the UT, based upon the Visit Report, was that the facts found by the FTT were not supported by the evidence and that the application of the “ Kittel” principles to his purchase of the Ipods was, accordingly, unwarranted. He argued, therefore, that the FTT had made an error of law in reaching a conclusion on the facts to which no person acting judicially, and properly instructed on the relevant law, could have come to on the evidence before it.

12

In its decision dated 24 July 2014, the citation for which is [2014] UKUT 0328 (TCC), the UT re-examined the evidence in relation to the Ipod supply chain in detail and held that the FTT was entitled to find as it did. It did so having criticised the FTT for failing to explain with greater particularity why it preferred the explanation of the supply chain including EMS to the other which excluded it and described its failure to mention the Visit Report as “the most serious failing” in its approach. See [31] and [38] of the UT decision. In any event, the UT held that: it was satisfied that the evidence, leaving the Visit Report aside, was sufficient for the FTT properly to have concluded that the supply chain in relation to the Ipods included EMS; the Visit Report did not undermine that conclusion; and that it was more probable than not that the Visit Report was inaccurate about the participation of EMS. See [44] of the UT judgment.

13

Permission to appeal to the Court of Appeal was refused by Briggs LJ (as he then was) on 15 July 2015, having heard the oral renewal of Mr Charles' application. In his judgment, the citation of which is [2015] EWCA Civ 750, Briggs LJ noted, amongst other things, that: the analysis of the Sceptre transaction had formed part of a trial lasting...

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