XL Insurance Company SE v Ipors Underwriting Ltd
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Cockerill DBE,Mrs Justice Cockerill |
| Judgment Date | 04 March 2021 |
| Neutral Citation | [2021] EWHC 474 (Comm) |
| Date | 04 March 2021 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2017-000173 |
[2021] EWHC 474 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Cockerill DBE
Case No: CL-2017-000173
and
Joseph England (instructed by XL Catlin Services SE) for the Claimant/Applicant
Ajay Ratan (instructed by HMRC Solicitor's Office) for the Proposed Fourth Defendant/Respondent
Hearing dates: 04 February 2021
Draft sent to parties: 25 February 2021
Approved Judgment
I direct that 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 HONOURABLE Mrs Justice Cockerill DBE
The Claimant insurer (“XL”) pursues fraud-based clams for unpaid premiums of approximately £10 million principally against its former coverholder, the First Defendant (“IPORS”) and IPORS' sole shareholder/director, the Second Defendant (“Mr Corcoran”). IPORS was, pursuant to binding authority agreements spanning March 2012 to November 2016, obliged to hold on trust for XL, in segregated trust accounts, premiums received from insureds. It was then obliged to remit those to XL. However, XL says these funds were misappropriated by Mr Corcoran, who had sole control over IPORS' accounts, to accounts held in his name and, to a lesser extent, to another company controlled by him, the Third Defendant.
XL obtained freezing and proprietary injunctions against the Defendants, all of which have been effectively ignored by the Defendants, who have not participated in the proceedings or the numerous interim applications within them since Mr Corcoran filed a handwritten Defence on behalf of IPORS in April 2017. In that document he disputed the claim and asserted that there were credits owing which more than outweighed the sums claimed.
The present application represents the latest chapter in XL's quest to recover what it claims are its misappropriated premium funds. That application is to join Her Majesty's Revenue and Customs (“HMRC”) as a party to the present proceedings and amend its statements of case to make claims against HMRC.
In short, XL's case is that Mr Corcoran wrongfully declared taxable income to HMRC for the tax years 2014/2015 and 2015/2016. XL says (and has tendered evidence) that (a) this in fact constituted of XL's proprietary funds and not “income”; and (b) Mr Corcoran paid the tax allegedly due from these false declarations (totalling c.£1 million) to HMRC using XL's proprietary funds and could not otherwise have made those payments.
The application is brought under CPR 19.2 on the basis that:
“The court may order a person to be added as a new party if (a) it is desirable to add the new party so that the court can resolve all matters in dispute in the proceedings; or (b) there is an issue involving the new party and the existing party which is connected to the matters in dispute in the proceedings, and it is desirable to add the new party so that the court can resolve that issue.”
XL submits that the Court should also have regard to the fraud-based and proprietary nature of XL's claims, and the need to resolve any tracing issues and bind the relevant parties in these proceedings. It has referred me to a number of authorities which emphasise the court's desire to help the victims of fraud to find out where their money has gone and to preserve funds so traced.
CPR 19.4(4A) states that: “ The Commissioners for HM Revenue and Customs may be added as a party to proceedings only if they consent in writing.” But for the objection outlined below, HMRC would consent to the application.
However, HMRC takes a point of principle which means that it opposes joinder and the proposed amendments in paragraphs 4, 26–30, 35 and 43 of the Claimant's draft amended particulars of claim (“APOC”). The material parts of these amendments are as follows:
i) A plea that the sums used to pay HMRC were the Claimant's proprietary premium funds;
ii) A claim for a declaration that the sums paid are held by HMRC on constructive trust and for repayment;
iii) A claim in unjust enrichment on the basis that HMRC has received no consideration for the payment in that it purported to satisfy a tax liability which did not exist;
iv) A claim that the Claimant is entitled to be subrogated to or otherwise enjoy any rights held by Mr Corcoran against HMRC to claim a refund for overpayment.
The basis of the objection is that HMRC says that those claims have no real prospect of success as a matter of law, and so amendment and joinder would be pointless. There is no real opposition to the submission that the CPR 19.2 test is met – so long as the claims are arguable beyond the strike out standard.
It follows that the argument before me has been solely as to whether any of the claims advanced by the Claimant against HMRC is arguable.
The Claimant also seeks permission to make a number of other amendments which do not concern HMRC and are not opposed. There has been no response to this application by IPORS, Mr Corcoran or the Third Defendant since it was served on them in early August 2020. It follows that those amendments are not controversial and the only live point is as to the merits of the amendments to which HMRC objects.
It is common ground that the present application should be determined on the basis of the assumed facts set out in the APOC. That means I must assume that the allegations against the Defendants are made out, and that the funds paid to HMRC were XL's proprietary funds. Further it is certainly the case that quite apart from those assumptions, HMRC has not challenged (or provided any specific response to) the facts and figures supporting XL's proprietary/equitable claims against the existing Defendants and now HMRC.
Factual Background
The relevant alleged facts can be shortly stated: XL contends that Mr Corcoran has fraudulently misappropriated funds in which XL has an equitable interest. It also seeks to contend that he has incorrectly declared those sums as his own taxable income in his self-assessments for the tax years 2014/15 and 2015/16, and paid income tax to HMRC in accordance with those self-assessments using the misappropriated funds.
The sums involved were over £1.8 million, which Mr Corcoran declared as alleged dividends from UK companies in 2014–2015 and £2.3 million in 2015/6. Those figures closely reflected sums received by IPORS by way of premiums for XL under the binding authority, which funds should have been ringfenced and then passed on to XL. Instead, transfers were made to Mr Corcoran's personal account and substantial payments were made purportedly in satisfaction of his tax liability to HMRC. XL does not allege that HMRC had any notice of the facts giving rise to XL's alleged equitable interest at the time that Mr Corcoran made his income tax payments to HMRC.
The Submissions in outline
As noted above, HMRC does not join issue on the criteria for joinder, but only on the merits of the claim against it. It says that both claims – in unjust enrichment and the proprietary claim – depend in one way or another on XL establishing that there was no obligation to pay HMRC. If the claim is a proprietary claim, it can be met with a defence of bona fide purchaser for value without notice if there was no such obligation. If the claim is one in unjust enrichment, the existence of a genuine liability would prevent the giving of a positive answer to at least one of Lord Steyn's four questions, enunciated in Banque Financiere de la Cite v Parc (Battersea) [1999] 1 AC 221.
HMRC thus says that the short and complete answer to the proposed claims is to be found in the workings of the Taxes Management Act 1970 (‘ TMA’). Briefly, it says the machinery of the TMA means that Mr Corcoran had a valid statutory obligation to pay income tax in accordance with his self-assessments, and his payments to HMRC were made in the discharge of the valid statutory debts created by those self-assessments. None of the statutory mechanisms in the TMA for amending or enquiring into the content of these self-assessments have been invoked. The statutory time limits for invoking these mechanisms have all expired. HMRC was legally entitled to receive these payments and gave good consideration in the form of the discharge of the statutory debt owed by Mr Corcoran.
It is therefore said that the proposed claims against HMRC effectively seek to go behind the final and conclusive self-assessments of Mr Corcoran's income tax liability. This is inconsistent with the express terms of the statutory self-assessment regime and also its objectives (which include the public interest of the general body of taxpayers and the Exchequer in finality in fiscal transactions). HMRC says that the payments were the discharge of a valid statutory obligation, and that it therefore is a bona fide purchaser; or that it is not unjust for it to have received the moneys.
XL tends to accept that the validity of the liability is key, accepting that if the underlying tax liability was a valid tax liability its argument would have difficulties. It accepts that the position would be different had tax (actually owed to HMRC) been paid by Mr Corcoran out of stolen funds. In those circumstances, HMRC may have a defence to the claim by XL on the basis it had given...
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