Revenue & Customs v Cozens & Ors [2011] EWHC 2782 (Ch)

[2011] EWHC 2782 (Ch)Case No HC10C04556
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Rolls Building, London, EC4A INLDate 08/11/2011
Before
THE HON MR JUSTICE FLOYD
Between
HER MAJESTY’S REVENUE & CUSTOMSClaimantsJOHN PAUL COZENSDefendantsTOBY PRICEDefendantAND 35 OTHER DEFENDANTSDefendant
Mr Stephen Davies QC and Mr Jeremy Bamford (instructed by Howes Percival LLP) for ClaimantMr Philip Moser and Ms Julianne Stevenson (instructed by Day Sparkes) for First DefendantHearing Hearing date: 6 th October 2011
Judgment
[1]On 21 December 2010, I granted, on the application of HMRC, and without notice to the first defendant and respondent Mr John Cozens, a worldwide freezing order. The order had a return date for early January 2011, but in the event the parties agreed to successive adjournments of that date, with the order continuing in the meantime. Mr Cozens has now issued an application to discharge the order of 21 December 2010, and the parties have exchanged several rounds of evidence. The matter came back before me on 6 October 2011. The sole issue is whether the freezing order should continue against Mr Cozens. Mr Philip Moser argued the case for Mr Cozens; Mr Stephen Davies QC argued the case for HMRC.

The without notice applications

[2]The matter first came before me on 16th December 2010. Prior to the matter being called on in court, I was presented at very short notice with a draft affidavit from the HMRC investigating officer, Ms Susan Grimshaw, running to over 200 pages and supported by 27 volumes of documents. At that stage, HMRC sought freezing injunctions against both Mr Cozens, the first defendant, and Mr Price, the second defendant. The orders were sought in support of claims for unpaid excise duty for which HMRC claimed these defendants were liable. It is fair to say that the documents at that stage were not arranged as conveniently as the court might be entitled to expect, having regard to the fact that the application had clearly been in gestation for many months. The matter had been placed before the court as a matter of urgency because HMRC had set itself 16th December as the deadline for making the application. The documents were not delivered to court in time for their contents to be adequately digested before the hearing. The timing of the application was prompted by the fact that a limitation period of one year for making the assessment under section 12(4)(b) of the Finance Act 1994 was said to be, in HMRC’s view, rapidly approaching. Once the assessment was notified to the defendants, they would be on notice of the claims of wrongdoing against them, and it would be more difficult to justify the grant of a freezing injunction without giving notice to the defendants.[3]The proceedings involve an allegation of what is sometimes referred to as “inward diversion fraud”. Duty-suspended alcohol leaves a bonded warehouse in Bordeaux by lorry, ostensibly destined entirely lawfully to a bonded destination warehouse in the UK. However the lorry-load of alcohol never arrives at the UK bonded warehouse, but is “slaughtered”, to use the colloquial term, somewhere in the UK. In practice what this means is that the load is diverted, possibly with the connivance of the lorry driver to a destination other than the designated bonded warehouse. The alcohol is then sold on the black market in the UK without payment of any duty.[4]HMRC have been alerted to the alleged fraud in the present case by the French national customs intelligence investigations directorate, Direction Nationale du Renseignement et des Enquêtes Douanières (“DNRED”). I will refer to the alleged fraud as “the Scheme”. HMRC say that pursuant to the Scheme, loads were despatched from the premises of a company called STTM Ziegler (“STTM”) in Bordeaux. Despatch of the loads is recorded on the Accompanying Administrative Document (“AAD”). The loads were ostensibly held by STTM to the account of three companies: Recette, Overseas Trading and Robbie Hughes.[5]HMRC’s case, as presented in their skeleton on 16th December, was that Recette, Overseas Trading and Robbie Hughes were either fronts for Mr Cozens and Mr Price or had had their identities hijacked by them. They drew attention to the fact that Mr Price provided despatch instructions on behalf of Recette to STTM. They were not able to link Mr Cozens with any such despatch instructions, nor were they able to link either Mr Cozens or Mr Price with instructions given by Overseas Trading or Robbie Hughes.[6]HMRC relied in support of its case that this was an inward diversion fraud on the fact that the assessed loads despatched from Bordeaux consisted in the majority of cases of alcohol manufactured in the UK. There was accordingly no obvious commercial reason for the re-importation of that alcohol into the UK.[7]The AADs stated that the destinations of the loads were three bonded warehouses in England and one in Italy, called Magazzini SPA. Magazzini has particular relevance so far as the present allegations against Mr Cozens are concerned. In the case of Magazzini it is alleged that the goods originally set out with an AAD identifying the warehouse in Italy as the destination, but that this AAD was then substituted, whilst the vehicle was en route in France, by an AAD identifying Magazzini as the warehouse from which the goods were despatched, with a UK destination warehouse.[8]HMRC alleged in their skeleton argument that Mr Cozens was orchestrating the movement of the loads of alcohol on the ground. They pointed out that the evidence against Mr Cozens showed amongst other things that: i) he was present when the lorries were being loaded at STTM; ii) he was seen to liaise with drivers prior to their departure from France and to hand them paperwork; iii) he was seen to post documentation to a Mr Warner at 63 Yeoman Gardens, which was Mr Cozens’ address; iv) lorry drivers had envelopes addressed to a business called “Pussy Cats” with which Mr Cozens was or is connected and where he had his office, at 27 Risborough Lane, Folkestone; v) he had in his possession (left behind at a hotel in France for its collection) a briefcase containing fake Magazzini stamps and blank AADs such as could be used to make fake AADs identifying Magazzini as the warehouse of despatch.[9]Accordingly HMRC asserted that Mr Cozens had a “central role” in the Scheme. They said that they intended to raise assessments against him in the total sum of £6,128,138.68.[10]So far as Mr Price is concerned HMRC contended that the evidence showed amongst other things that: i) he was a director of and directing mind of Recette, one of the consignors and had represented himself as acting on behalf of Recette; ii) he may also have acted on behalf of Robbie Hughes; iii) he had direct communications with transport providers to organise the importation of loads; iv) he corresponded with HMRC about certain intercepted loads; v) transport providers had confirmed that Mr Price contacted them to organise transportation of the loads; vi) he corresponded with STTM about loads which were purportedly coming from Magazzini; vii) he apparently did not care what goods were loaded at STTM.[11]Accordingly HMRC submitted that Mr Price was responsible for organising transport on a day to day basis and could be seen to have had considerable correspondence with the transport providers. At the hearing on the 21st December 2010 Counsel submitted that Mr Cozens was “at the top of the tree as far as we know what the tree is” and that there was “no evidence that there is anybody above Mr Cozens”. Ms Grimshaw’s affidavit stated that HMRC contended that Mr Cozens and Mr Price were the directing minds behind the scheme. She pointed in particular to the fact that Mr Price was a director of Recette. At paragraph8.1 and8.2 she said that “Mr John Cozens is the directing mind behind the Scheme, who is involved in the movement of loads in France from STTM Ziegler, liaising with the drivers, obtaining copy AADs from the drivers, falsifying the AAD3s obtained form the drivers and returning them to STTM Ziegler. In the case of the Magazzini loads Mr Cozens also supplied falsified AADs to the drivers”. “Mr Toby Price has acted or purported to act on behalf of Recette Limited, as a consignor of duty suspended goods, and was involved in the setting up of an account on behalf of Recette Limited with STTM Ziegler, the giving of instructions to STTM Ziegler to receive duty suspended loads into the Bordeaux warehouse and to release duty suspended loads from the Bordeaux warehouse to particular lorries. He has also been involved in entering into contracts with the transport providers and the giving of instructions to drivers as regards the movement of duty suspended loads from Bordeaux into the UK as part of the Scheme.”[12]Such reading as I had been able to do prior to the initial hearing on 16th December 2010 indicated to me that, so far as Mr Cozens was concerned, there was little by way of evidence of significant assets beyond a property said to be worth £146,000 at 33 Burley Hill, Church Langley, Essex (“the Burley Hill property”). The evidence showed that HMRC knew of bank accounts in the name of Mr Cozens but not about what they contained. Ms Grimshaw deposed to the relatively modest income disclosed to HMRC up to 2007, as income earned by Mr Cozens as a taxi driver. As to Mr Price, I pointed out that the evidence did not show he owned any assets at all. Paragraph 283 of Ms Grimshaw’s affidavit merely asserted that “HMRC believe that he must have some assets, whether in a bank account or otherwise. In particular I note that a Toby (whom I believe to be Toby Price) made various payments to STTM Ziegler.”[13]I adjourned the matter to give myself further reading time and to enable HMRC to put the documents in better order.[14]When the matter returned before me on 21 December 2010 HMRC were only seeking relief against Mr Cozens. The application for a freezing order against Mr Price had been abandoned for reasons which I was not given, but which I infer had to do with the fact that HMRC had no evidence that Mr Price had any assets. I asked about the delay in making the application from the time when DNRED provided information in 2009, to the making of the application at the end of 2010. It was said that this delay had been largely caused because HMRC had taken the decision to target the drivers of the lorries, who make up some of the 35 other defendants to this action. Investigation of this had proved a considerable exercise. I was informed that it had originally been the intention to seek freezing orders against all the drivers as well, although that particular plan had been abandoned, on advice, by the time the application came before me.[15]Counsel submitted that HMRC had no indication or hint whatsoever that anyone else was involved in the Scheme. In the end I was persuaded to grant the order asked for against Mr Cozens. When granting the order I expressed reservations about the proportionality of the approach being adopted by HMRC, particularly having regard to the fact that it might turn out that Mr Cozens’ role in all this was a minor one. The existence of the Burley Hill property was plainly a factor I had in mind in granting the order, as there was no evidence of any other significant assets which would justify it. The order contained the usual provision requiring the respondent to disclose the whereabouts of his assets.

The Burley Hill property

[16]The evidence that Mr Cozens owned the Burley Hill property came from a proprietorship search at the Land Registry which revealed that a John Paul Cozens was the proprietor. Having obtained the freezing order, HMRC entered a restriction against the title to the Burley Hill property. This provoked a response on 4th January 2011 from the John Paul Cozens who owned the property who, as it turned out, was wholly unrelated to the first defendant. At this stage HMRC had not completed service of the voluminous documents in support of the freezing order on Mr Cozens. HMRC sought photographic confirmation of the identity of the owner of the Burley Hill property. They were provided with this confirmation on 6th January, after the evidence had been supplied to Mr Cozens. HMRC then took steps on that day to cancel the restriction against the title of the Burley Hill Property, but did not tell Mr Cozens or the court that they now accepted that the Burley Hill property did not belong to him. They did not in fact acknowledge this fact until July 2011, some six months after the order was obtained and an equal period after they discovered that Ms Grimshaw’s affidavit was misleading on this point.[17]The fact that HMRC did not immediately acknowledge their mistake meant that Mr Cozens and his solicitors had to spend time and effort gathering information to make it plain that he did not own this property. However the main significance for the purposes of this judgment of the fact that Mr Cozens does not own the Burley Hill property is that I have to reconsider whether there is sufficient evidence of assets under Mr Cozens’ control to justify the making of the order.

HMRC’s attitude to Mr Price

[18]At some point between December 2010 and July 2011 HMRC’s attitude to the involvement of Mr Price appears to have softened. In their skeleton for the hearing in July 2011 HMRC drew attention to the fact that they had been informed orally in the course of a telephone conversation by Mr Price that he and Recette have nothing to do with any of the circumstances to which these proceedings relate, and that Mr Price believed that his and Recette’s identities had been hijacked. In the course of that conversation Mr Price stated that Recette dealt in electrical goods and had never dealt in alcohol or with the UK. This denial was put forward as one of a series of reasons for supposing that Mr Cozens was high up the chain of command. In the conversation Mr Price gave an address in Mallorca, Spain and a telephone number in Spain. The evidence contained large numbers of communications between Toby Price, purporting to act for Recette, and STTM. One of the communications gives a fax number in Spain.[19]The conversation with Mr Price took place on 10th January 2011. However, it plainly did not convince HMRC that Mr Price had no involvement, as the next day they sent Mr Price an email saying that proceedings would shortly be served on him.[20]In fact HMRC had been in touch with Mr Price in 2009 in connection with a mixed load of spirits travelling from the account of Recette at STTM. HMRC had been informed by the driver that the load was from Toby Price of Recette giving an address in Mallorca, Spain (although a different one from that which he gave in 2011). In the course of an exchange of faxes, Mr Price complained about loads of alcohol being detained by HMRC, in sharp distinction with his 2011 denial. Mr Price gave some responses to a questionnaire from HMRC which Ms Grimshaw described as extremely vague and lacking in supporting documentation.[21]The evidence which HMRC obtained from DNRED asserted that it was Mr Price who set up the account with STTM, on the recommendation of an Englishman, a Mr Sandbach. Payments going through STTM’s bank accounts are marked as “Toby”, Mr Price’s first name. In addition Ms Grimshaw asserted that Mr Price had contact with drivers and was also connected in some way with Magazzini.[22]In his third witness statement, Mr Wright, who is the solicitor having the conduct of the matter on behalf of HMRC, says that evidence linking Mr Price to the fraudulent Scheme is not as strong as that against Mr Cozens. He makes no reference to the fact that the evidence showed Mr Price to be connected with the payments being made to STTM.

Mr Cozens’ evidence

[23]Mr Cozens, in his evidence served since the without notice hearing, contends that he was at all times acting on the instructions of Mr Price. He says that he met Mr Price as a customer of his taxi business and started to act as a courier for Mr Price. He denies that he knew of the fraud or that he was the controlling mind. He points to a reference in one of Mr Price’s emails to a “courier, John”, and suggests that this was his real role.[24]I have no hesitation in saying that the evidence as a whole persuades me that there is a good arguable case that Mr Cozens knew that he was being used as an operative in a scheme for the illegal importation of duty-suspended alcohol. Despite the fact that Mr Cozens has an explanation for his possession of the brief case which I have considered, his explanation will need to be tested in cross-examination. When one considers the complexity of the Scheme, and in particular the Magazzini variation of it with which Mr Cozens appears to be connected, there is a very serious case for Mr Cozens to answer. It is impossible to say that HMRC have not established to a sufficiently high degree for present purposes, that Mr Cozens was knowingly involved, and Mr Moser did not submit to the contrary. It is not necessary, therefore, for me to rehearse the details of this evidence much further.[25]Mr Moser submitted, however, that it was not established to an appropriate standard that Mr Cozens was “the controlling mind”. Such evidence as there was suggested that he was acting under the orders of Mr Price. It was Mr Price who was connected to Recette, not Mr Cozens. Mr Price controlled the money. When Mr Cozens came under suspicion he was not used any more for the purposes of the Scheme. Mr Moser did not suggest, however that this was a consideration which defeated the application for a freezing order, without more, on the basis that the evidence failed to satisfy the “good arguable case” test. He deployed it differently, saying that a consideration of Mr Cozens’ likely role was relevant to other questions. I will return to it in context.

Evidence of assets

[26]In addition to the Burley Hill property, Ms Grimshaw’s affidavit relied on other assets which HMRC alleged were owned by Mr Cozens. These were: i) At paragraph 278 a hint – and no more than that – that Mr Cozens had some interest in 27 Risborough Lane, Folkestone. In HMRC’s skeleton it had been suggested that the owner, Valerie Amos, was believed to be the wife of the first defendant. This incorrect suggestion appears to have been made because Mr Cozens’ sister was called Valerie. HMRC apparently made the double deduction that Valerie Cozens and Valerie Amos were the same person, and also that Valerie Cozens was Mr Cozens’ wife. HMRC’s evidence also stated that this address was the last known address of Mr Cozens. In fact he was living at rental accommodation in Yeoman’s Gardens, where HMRC officers had visited him. ii) At paragraph 279 a reference to his declared earnings as a taxi driver, and to a dividend of some £15,000 in the 06/07 tax year. iii) At paragraph 280 a reference to three motor vehicles. One, a Nissan Almeira was owned by Mr Cozens’ father. A second, a Vauxhall Omega, was sold by Mr Cozens in the autumn of 2010 for £600. A third, a black Mercedes, was owned by JJ Taxis Folkestone Limited. iv) At paragraph 281 a reference to the fact that Mr Cozens was registered at Companies House as a director of the Irish company PMP Cash & Carry Limited. Mr Cozens claims that he is the victim of identity fraud in relation to this company, and that the company registration documents, insofar as they refer to him, have been forged. There is no reference to any shareholding in the company. v) At paragraph 282, a reference to a number of bank accounts, although, as I have said, nothing about their contents.[27]Absent the Burley Hill property, there was little in this list which could amount to a substantial asset on which the injunction might bite, unless it turned out that there were substantial sums in the bank accounts. In his affidavit of disclosure, made pursuant to the freezing injunction, Mr Cozens disclosed the balances of three bank accounts with the Halifax amounting in total to some £5000. He also disclosed the fact that he was a 50% shareholder in two companies: firstly, Globel Travel Limited, a booking agent for chauffeur driven cars and luxury coaches in Europe and, secondly JJ Taxis Folkestone Limited.[28]I should pause for a moment to consider the position of Globel Travel. It is common ground that the freezing injunction bites on Mr Cozens’ interest in this company. Equally it is common ground that the freezing injunction does not bite on the bank accounts of Globel Travel. However, according to Mr Cozens, Globel’s bank account was indeed frozen by the bank. In consequence Mr Cozens’ solicitors asked HMRC to confirm that they did not object to payments being made. Lengthy correspondence and repeated requests for specific payments ensued. On 23rd September Mr Cozens’ solicitors wrote asking HMRC to confirm unequivocally to the bank that they did not need HMRC’s permission to make payments. This they resolutely refused to do.[29]Mr Davies sought to justify this refusal on the basis that it was not for HMRC to bless any specific payment made by the bank. I think this misses the point. The bank regarded the account as effectively frozen. That was wrong. The misconception was affecting the company’s ability to trade, and therefore the value of Mr Cozens’ shareholding in satisfying any judgment that HMRC might ultimately obtain. The bank did not require HMRC’s blessing: only a clear statement that it would not be in contempt of court if it allowed payments out of the account. Mr Davies also drew attention to the fact that some of the requested payments were going to Procars (see below). But once it is accepted that the bank account is not frozen by the order, I do not see how that point can justify HMRC’s position.[30]So far as JJ Taxis Folkestone Limited is concerned, Mr Cozens says that he had a falling out with his partner Mr Sackett, and was effectively excluded from the running of the company. He consulted solicitors but was unable to afford to pursue Mr Sackett. Accordingly he doubts whether his interest in JJ Taxis is worth anything.[31]HMRC challenge Mr Cozens’ evidence that he has made a full disclosure of his assets. In general terms, they rely on: i) the evidence that Mr Cozens has, on their case, been involved in an inward diversion fraud on a substantial scale; ii) failure by Mr Cozens to disclose details of his income supported by a suggested reluctance by Mr Cozens to pursue a “hardship application” before the First Tier Tribunal, the tribunal in which Mr Cozens will challenge the assessment; iii) the failure to provide requested information about a property in New Zealand; iv) failure to disclose an alleged interest in Procars; v) failure to disclose an additional Halifax account.[32]The first of these points is one to which I will return, as it formed the basis of what Mr Davies QC described as the issue of principle on this application. The second point is met to some degree by the fact that Mr Cozens has now disclosed a significant quantity of bank statements, obtained from his bank. I do not think that Mr Cozens’ desire not to fight on two fronts at the same time, in this court and the tribunal, is much evidence of a desire to conceal anything. The bank statements have, however, given rise to a further suggestion by HMRC that the sums passing through these accounts are far greater than can be accounted for by Mr Cozens’ account of his employment.[33]As to the New Zealand property, Mr Cozens explained that his family emigrated to New Zealand where he lived between 1972 and 1979. At the age of 17 he returned to the UK where he remained until 1993 when, having had two unsuccessful marriages, he returned to New Zealand. He returned to the UK in 2003 and started working as manager of Pussy Cats. According to Mr Cozens, he did assist his sister Susan and her husband, over ten years ago, to purchase a property in New Zealand by taking out a joint mortgage with them. It is clear that he was also registered as an owner. He says that he did not benefit in any way when the property was sold in 2006. HMRC complain that all this is unsupported by documentation.[34]Mr Cozens denies that he has any interest in Procars, although he accepts processing payments for drivers through his accounts. The additional Halifax account was one he had with one of his former wives, which he inadvertently failed to disclose.[35]The overall picture which emerges of Mr Cozens’ financial affairs is an unsatisfactory one. It is fair to point out that many of the explanations he gives are unsupported by documentary evidence. Many of his explanations rely on failures by an accountancy adviser to carry out instructions correctly, but are not supported by any evidence from the adviser. Other explanations involve processing of other people’s money through his accounts. Yet others involve explaining payments as coming from a money lender, whom he does not identify. His tax affairs are, as he has accepted, in complete disarray.

Relevant principles applicable to freezing orders

[36]It is not in dispute that a freezing order is an order that lies at the extremity of this court’s jurisdiction. The normal rule where a claimant sues for debt or damages is that he takes the defendant as he finds it. The claimant has to decide whether it is worth pursuing a claim where the defendant may not be able to pay. The freezing order jurisdiction has grown up to deal with a class of cases where the defendant has, on the face of it, assets which could be used to satisfy a judgment, but there is evidence of a risk that those assets may be dissipated so as to place them beyond the reach of the successful claimant. Nevertheless, it is still the case that such orders are regarded as a serious interference with the prima facie right of a person to deal with his assets as he wishes, and accordingly the basis for their grant needs to be treated with extreme care: see for example per Neuberger J (as he then was) in Flightwise Travel Service v Gill [2003] EWHC 3082 (Ch).[37]It is not in dispute that it is necessary for the applicant for a freezing order to show a good arguable case for the substantive relief he is seeking in the action. Mr Davies submitted that, in the context of HMRC’s claim in debt based on an assessment for excise duty, this criterion was satisfied by the existence of the assessment. The validity of that assessment could only be challenged by an appeal to the First Tier Tribunal (Tax & Chancery).[38]In Commissioners for Her Majesty’s Revenue & Customs v Ali [2011] EWHC 880 (Ch), HMRC alleged that A had received sums from a company knowing that the company had wilfully failed to deduct PAYE and that he was liable for it under the PAYE regulations. A freezing order was granted without notice to A in anticipation of service of assessments on him. A question arose on the return date whether the court had had the power to make the order prior to the accrual of the cause of action by the service of the assessments. After a review of the authorities, Warren J concluded that there had been jurisdiction to make the order and went on to consider the effect of the exclusive jurisdiction of the Tribunal on the question whether the freezing order should be continued:
“In the present case, assuming I am right about jurisdiction, there exists a clear cause of action. Unless and until a successful appeal is concluded, the assessment is conclusive. If I thought the appeal had a very high chance of success, that might influence the exercise of my discretion.”
[39]I do not think that Warren J was saying that, in the special case of freezing orders in support of tax assessments, the court is relieved from the obligation of testing the strength of HMRC’s case. Supposing the court on the application for the freezing injunction could see plainly that the assessment did not cross the threshold of a good arguable case: I cannot accept that it would be right for the court to grant a remedy which is at the extremity of its jurisdiction in support of a cause of action it thought to be so weak. However Mr Moser was content to accept that it did not matter for present purposes whether the point which he seeks to run on good arguable case is treated as one going to good arguable case, or as one solely affecting my discretion. So I need say no more about this point.[40]One aspect of the basis for the grant of a freezing order which needs to be scrutinised with care is the question of whether the defendant in fact has assets on which the order will bite. That this is a principle which underlies the freezing order jurisdiction is reflected in a number of the cases, and was not the subject of challenge. Indeed, as Mr Moser submitted, it is inherent in the requirement to show that there is a risk of dissipation of assets that the cases in which freezing injunctions are granted are cases in which there is evidence that the defendant has some assets to dissipate. Thus in the Mareva case itself, Mareva Compania Naviera v International Bulk Carriers [1980] 1 All ER 213, Lord Denning MR said at 215:
“If it appears that the debt is due and owing, and there is a danger that the debtor will dispose of his assets so as to defeat it before judgment, the court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him disposing of those assets. There is money in a bank in London which stands in the name of these charterers. They charterers have control of it. They may at any time to dispose of it or move it out of this country.”
(emphasis added)[41]The evidence of the existence of assets need not be specific: indeed it may in some cases be unreasonable to expect a party seeking such an injunction to have evidence of precisely what assets his adversary in litigation has. But there must be some material from which it is reasonable to infer or deduce that there are assets on which the injunction will bite. Otherwise the court will run the risk of acting in vain.[42]Mr Davies QC submitted that there are cases where, as a matter of principle, the court should infer the existence of assets and a risk of their dissipation from the dishonesty of the defendant coupled with his denial of the existence of assets. He drew my attention to the case of Dubai Islamic Bank PJSC v PSI Energy Holding Company BSC and ors [2011] EWCA Civ 761. That was a security for costs case in which the question was whether the specific condition set out in CPR 25.12(2)(g) was satisfied, that is to say “whether the claimant has taken steps in relation to his assets that would make it difficult to enforce an order for costs against him”. The significance of the authority from Mr Davies’ point of view can be seen, firstly, from an extract from the judgment of Langley J in the Noga v Abacha litigation [2004], cited by Tomlinson LJ at [24] “117. There is also little authority on the application of this rule [by which he meant rule 25.13 2(g)] which first appeared with the CPR. However, in Chandler v Brown 20th July 2001, Park J considered the rule in a case in which the individual claimant had "a record of dishonesty and creditors (had) been victims of it". Park J held that was not enough to satisfy the rule which required by its terms that it be shown that the claimant had taken steps in relation to his assets which would make a costs order difficult to enforce. It was not enough to show propensity that he might take such steps in the future. Actual "steps" already taken were required. I respectfully agree. The rule is not aimed at the impecunious or the dishonest as such but at the illegitimate hiding of assets. 118. The difficulty which faces the defendants is that they know nothing about Mr Gaon's assets and so cannot show that he has taken any steps in relation to them which would make enforcement of a costs order against him difficult or indeed at all. Both Mr Stanley and Mr Bright submitted that if it was a reasonable inference on all the evidence that Mr Gaon did have undisclosed assets then his failure to disclose them could itself lead to the inference that he had put them out of reach of his creditors including a potential creditor for costs. There are worrying features about the evidence which arouse suspicion: see paragraphs 72 to 81. But on balance I do not feel able to conclude that the double inference of the existence of assets and relevant steps taken in relation to them has been established by the defendants. It remains, I think, sufficiently possible that such assets as Mr Gaon has remain where they have in effect always been. It follows that there is also no jurisdiction to order him to provide security under this rule.”[43]Tomlinson LJ continued:
“30. … Where a party seeks to suggest that he is devoid of assets and yet able to maintain an expensive lifestyle and to fund litigation on the basis of loans from his family or other third parties, it is incumbent upon him in my judgment to provide details of the nature of those loans, the terms upon which they are granted and in particular to condescend to some further detail in relation to the efforts he has made in order to obtain further funds from the same sources. 31. When no such details are given and when the evidence is at such a high level of generality as to say that the source of living expenses and legal expenses is mostly loans from family and family affiliated companies and third parties without any further details volunteered, it is in my judgment possible and in many cases appropriate for the court to draw the double inference on which Langley J spoke in the Noga case, which is to the effect both that there are undisclosed assets and also that the failure to disclose them leads to the inference that they have been put out of reach of creditors including of course a potential creditor for costs.”
[44]Thus the “double inference” discussed in these extracts arises if there is material before the court from which it is possible to infer that there are undisclosed assets, and the defendant’s failure to disclose them could give rise to an inference that he had already placed them beyond the reach of his creditors. I can see nothing in these passages to suggest that the court can dispense with the need for there to be some material from which to infer the existence of assets. Indeed in Dubai at [33] Tomlinson LJ described the evidence in that case as “overwhelming” that the defendant had assets which had been dealt with in a way to make enforcement of an order against him difficult.[45]I think one also has to be careful about applying the sort of double inference being discussed in the Dubai case in the context of an application for a freezing injunction. In the security for costs context the court is concluding from the twin facts that the defendant had assets at one time and that he deposed to the fact that he now has none, that he has placed his assets out of the reach of his creditors. That is an entirely logical conclusion. The court is accepting the defendant’s evidence of no assets, not rejecting it, and using it to confirm the criterion in the rule. In the context of a freezing order where there is no evidence from which it can be inferred that the defendant has any assets in fact, and the defendant says that he has no assets, the position is entirely different. It would not be right to infer that the defendant has assets at all.[46]A further principle is that the court will not grant a freezing injunction simply because there is no evidence of immediate or obvious prejudice to the defendant. In Flightwise Travel Service v Gill, Neuberger J made this plain at [32]:
“Finally, because the point has been raised, it really should go without saying that it is for the applicant to make out his case to support a freezing order, namely an appropriately strong case against the respondent concerned, and that there is a real risk of dissipation by the respondent. It is not for the respondent to show that a freezing order ought not be granted. A freezing order should not be granted simply because the respondent cannot show any immediate and obvious prejudice. Whether in relation to this type of injunction … the court does not simply grant the order because it does not appear that it would cause any harm to the respondent. Of course, once the court considers that there is a real case for granting an injunction, the fact that it will cause or appear that it will cause no, or little, harm to the respondent is a fact that the applicant can pray in aid. But, of itself, it cannot begin to be a primary reason for granting an injunction.”

Good arguable case

[47]Mr Moser took only one point on good arguable case. This was that HMRC’s cause of action was barred by limitation. Section 12(4)(b) of the Finance Act 1994 provides for a limitation period of one year “beginning with the day on which evidence of facts, sufficient in the opinion of the Commissioners to justify the making of an assessment, comes to an end”.[48]Mr Moser took me to material which showed that HMRC was already taking advice in October 2009 and that solicitors for HMRC received the evidence from HMRC in December 2009. As the assessments were not issued until 17th December 2010, he submitted that the assessments were out of time.[49]Although this defence was pleaded out in considerable detail in Mr Cozens’ defence, it was not met at all in the evidence filed on behalf of HMRC, presumably relying on the exclusive jurisdiction of the Tribunal. Mr Davies’ skeleton did not adopt such a robust attitude. In his skeleton on behalf of HMRC, Mr Davies submitted that there was no reasonable prospect of this defence being successful on four grounds: i) that it was unclear why 27 October 2009 should be picked as the start date for the limitation period; ii) as at that date HMRC had not obtained any advice; iii) as at 27 October 2009 HMRC’s legal advisers had not received the evidence which HMRC had at that stage; iv) the Scheme was factually complicated with substantial volumes of evidence to be gathered and analysed before advice could be given as to what assessments could be raised against which individuals and companies.[50]These points, as I think Mr Davies recognised, did not even begin to suggest that HMRC had any defence to the suggestion that HMRC had the relevant evidence by December 2009. Mr Davies told me on instructions, however, that HMRC did not receive the AADs from DNRED until January 2010. I required this information to be confirmed by witness statement. In his witness statement served after the hearing Mr Duxbury explains that HMRC did not receive the AADs from DNRED until January 2010. These documents are, according to Mr Duxbury, a necessary basis for quantifying the assessment to duty.[51]It is extremely unfortunate that this evidence was not served in time for the hearing. It would be open to me to exclude it, but I nevertheless think it would be wrong to do so. Firstly, Mr Moser on behalf of Mr Cozens had an opportunity of dealing with the evidence in principle, even though he did not see the confirmatory witness statement. He suggested that HMRC had sufficient evidence when they intercepted the loads. They did not need the AADs to make an assessment. Secondly, because of the partially subjective nature of the test, it is difficult to see what further evidence Mr Cozens could have adduced in answer to that of Mr Duxbury.[52]The limitation point remains an arguable one, and will need to investigated in the Tribunal. But for present purposes, once Mr Duxbury’s evidence is admitted, I consider that HMRC can show a good arguable case.

Material non-disclosure

[53]Mr Moser ran a variety of non-disclosure points, as justifying the discharge of the freezing injunction. He reminded me of the five duties summarised by Bingham J (as he then was) in Siporex Trade SA v Comdel Commodities [1986] 2 Lloyd’s Rep 428 at 437. I need not set them out here.[54]Mr Moser made a number of complaints of the way in which matters had been disclosed by HMRC. The following is not an exhaustive list of the points he took: i) There was no disclosure by HMRC until late in the day of the assessment against STTM. Mr Moser was preparing to submit that this prevented HMRC having a cause of action at all. I express no view of the correctness of that proposition as a matter of law. However HMRC were asked directly in June 2011 whether such an assessment had been raised and they replied that it had, although they declined to produce any documents. ii) The error in identifying Mr Cozens as the owner of the Burley Hill property. Mr Cozens explains that relatively simple checks on public sources could have confirmed that he was not the owner. Mr Moser relies on this as a failure to investigate the facts properly. iii) The evidence of Ms Grimshaw might have led the reader to believe that Mr Cozens was living at Pussy Cats in Risborough Lane, from which a sauna and massage business was being run. This was despite the fact that two HMRC officers had visited Mr Cozens at his Yeoman Gardens address, where he told them he lived.[55]I have already referred above to the late disclosure of any compelling answer to the limitation point, although this development itself came too late for Mr Moser to rely on it in his skeleton argument.[56]I have not referred to all the occasions on which Mr Moser suggests that HMRC have not complied with their duties in respect of a freezing order application. Dealing with them globally, I do not think that any of them alone or together amount to a sufficient ground for discharging the order, in the exercise of what one might call the court’s disciplinary jurisdiction over freezing orders. What the points taken by Mr Moser, or at least some of them, demonstrate is that it is necessary to re-appraise the grant of the freezing injunction in the light of the asset position now revealed by the evidence as a whole. The real question is whether this is a case for a freezing injunction to be granted at all.

Risk of dissipation of assets

[57]HMRC have made plain that this is not a case where they are seeking to freeze the proceeds of the inward diversion fraud themselves. Their contention is that Mr Cozens has, by his activities in organising the inward diversion fraud, “caused an excise point to arise” and so rendered himself liable under the relevant legislation to the duty identified in the assessment. They say that a freezing order is justified, otherwise Mr Cozens will place his assets beyond the reach of the claimants and thereby defeat any judgment HMRC may obtain.[58]HMRC rely of course on the alleged dishonesty of Mr Cozens. The whole nature of the inward diversion fraud is an exercise in making transactions, including financial transactions, appear to be something other than what they are. If HMRC are right, then it would appear that Mr Cozens has been concerned in operations whose objective is to give a semblance of legitimacy to unlawful activities. If, say HMRC, Mr Cozens has been so involved, then it is reasonable to assume that, unless restrained, he will take steps to protect himself against any judgment that HMRC may obtain.[59]HMRC also submit that it is far from plain that Mr Cozens is without significant assets. They are able to point to the following: i) Despite Mr Cozens’ professed lack of substantial assets and income, the sums passing through his bank account are quite substantial. For example in 2010 his main disclosed account received some £141,000 in cash deposits and bank transfers. Mr Cozens has sought to explain these payments by reference to a number of matters. Firstly, it is to be expected that, as a taxi driver, he will not receive only his net pay through his account. Secondly he says that he collected rent on behalf of the owner of Procars, as a favour to him. Thirdly he says he made some income as a driver for Procars. Fourthly he says he processed payments on behalf of friends, such as Ms Lisa Joy the new owner of Pussy Cats, who he says did not have a bank account. Most importantly he says he received payments of between £36,000 and £50,000 from an unidentified money lender. ii) A number of items of expenditure which are at odds with his statement that he is in a parlous financial state. Examples are a payment to a ski school in France (567 Euros); West End theatre tickets (£250); Tiffany & Co (£325). Mr Cozens has explanations for these: broadly speaking that they were not for his benefit. iii) Substantial expenditure on travel and hotels. Examples are established by ATM withdrawals in Brussels, Belgium; Brescia Salo in Italy and Galway, Ireland; hotels and restaurants in the Medoc, Belgium and the Netherlands; flights to Ireland; a recent long holiday in New Zealand and so on. Mr Cozens says that some of this expenditure was by a friend to whom he gave his bank card. Other parts he accepts that he incurred himself, partly in connection with the business of Globel Travel. HMRC also draw attention to the fact that there is a marked similarity between the destinations to which Mr Cozens has been travelling and the countries involved in the Scheme. iv) Mr Cozens accepts that he has an interest in Globel Travel, but says he has no interest in Procars or Pussy Cats. He says that he transferred his interest in Pussy Cats to Ms Joy and his interest in Procars to Mr Kenny-Levick. Not surprisingly HMRC do not accept that is an accurate statement of the position. They point to a number of factors, including the fact that Mr Cozens continued to process payments for these businesses through his bank accounts. They say that Mr Cozens’ explanation in the case of Ms Joy and Pussy Cats has been shown to be false because HMRC have demonstrated that Ms Joy does have a bank account of her own. The position with Procars is equally unclear, having regard to the fact that Mr Cozens is shown as a shareholder of Procars in the annual return.[60]Mr Moser submits that such assets as are revealed by the evidence are insignificant. The true position is that Mr Cozens is in financial difficulties. He has lost his interest in JJ Taxis as a result of the dispute with his partner, and he has acquired very significant debts to a money lender. He points to the fact that there is nothing to connect Mr Cozens to what must have been the very large proceeds of the inward diversion fraud.[61]I accept that the picture which emerges from all this is not of someone surviving only on his earnings as a taxi driver. Moreover, whilst I am plainly not in a position to reject them out of hand, some of Mr Cozens’ explanations about his involvement in the businesses of Procars and Pussy Cats seem, to put it at its lowest, open to challenge. There is very little in the way of documentary evidence to corroborate Mr Cozens’ account of events, and where there are documents, such as documents filed at Companies House, they appear to contradict his account of things.[62]I think that the evidence against Mr Cozens as a whole means that, to the extent that he has any assets, there is a real danger that he will put them out of the reach of HMRC if not restrained.[63]The position would obviously be straightforward if HMRC could link Mr Cozens with the proceeds of the inward diversion fraud. However, the evidence does not in my view go this far. Despite Mr Davies’ able submissions to the contrary, the evidence falls far short of establishing that Mr Cozens was the man behind the scheme as a whole. There is nothing of substance linking him with Recette or with the money involved in purchasing the loads.[64]The fact remains, however, that Mr Cozens does have assets. He has his admitted interest in Globel Travel, and it appears more than plausible that he retains an interest in other businesses. Moreover unless one accepts without question all Mr Cozens’ explanations for the sums of money passing through his bank accounts, he does appear to have sources of income which go well beyond those of an average taxi driver. The successive explanations put forward by Mr Cozens as to the monies passing through his bank accounts themselves raise further unexplained questions.[65]Accordingly, whilst I have entertained doubts in the course of the hearing and subsequently, it seems to me that this is not a case where one can say that there is no material from which it is possible to infer the existence of assets. There is actual evidence of assets, such as the interest in Globel Travel, and a reasonable inference of further assets, either in the form of an interest in Procars and Pussy Cats, or in other undisclosed assets which are producing the levels of income seen in Mr Cozens’ bank accounts.

Just and convenient

[66]A recurrent theme in HMRC’s evidence and submissions was that, if Mr Cozens is telling the truth when he says he has no assets, then he will suffer no prejudice by continuation of the injunction. For reasons I have explained by reference to Flightwise, I do not regard that as a good point if it is intended to provide positive grounds for the grant of an injunction where none otherwise existed. But once it is established that there are some assets which will be caught by the injunction, and that there is evidence of a risk of dissipation, then, as the passage from Flightwise indicates, the absence of serious prejudice to the respondent is a factor I can take into account.[67]Beyond the difficulties caused by reference to Globel Travel, I think HMRC are right that there is no evidence of serious prejudice to Mr Cozens if the injunction continues. The bank has now unfrozen the account of Globel. HMRC also stressed the fact that they were prepared to give a cross-undertaking. I have taken this into account in the conclusion which I have reached.[68]I make no secret of the fact that a number of factors did trouble me about the continuation of the injunction in the present case.[69]Firstly I have already mentioned the delay in taking proceedings against Mr Cozens. Delay in itself is seldom a bar to relief. Its relevance in the context of applications for freezing orders is that it casts doubt on whether there is really any perceived danger of dissipation of assets. In the present case, however, HMRC have given an explanation of why they took so long. Whilst I think they have made their investigation unnecessarily complicated, I do not think that it would be fair to attribute to them a lack of concern about the risk of dissipation.[70]Secondly there was the attitude of HMRC to Mr Price. If HMRC’s approach in the present case of inferring significant assets in the hands of Mr Cozens were correct, then it would follow at least as strongly that it would be right to infer that Mr Price has significant assets which he would dissipate if not restrained. But HMRC abandoned their application for a freezing order against Mr Price, and apparently now place reliance on Mr Price’s unsworn denial of involvement. However, I must consider the application against Mr Cozens on its own merits. If I come to the conclusion that a freezing order is justified against Mr Cozens, I should not refuse it on the basis of a disparity of treatment of Mr Price.[71]Thirdly there is HMRC’s approach to Mr Cozens’ admitted interest in Globel Travel, which I have explained above. Whilst I regard their reluctance to reassure the bank about the ambit of the order as unreasonable, the impact of this point is not sufficient to undermine the basis for continuing the order.[72]Finally, there is the question of proportionality. If it were correct to say that Mr Cozens was entirely devoid of assets, it would not be right to continue the order as to do so would be disproportionate. But the fact that the freezing injunction will not secure the whole of HMRC’s claim, or indeed the likelihood that it will only secure a small part of the claim, is not a ground for refusing it altogether. Once it is established that there is a good arguable case of involvement in what is on the face of it a dishonest scheme, a clear risk of dissipation, evidence of actual assets and a reasonable inference of more, then it is difficult to say that the relief is disproportionate.[73]Overall it seems to me that I should continue the freezing injunction against Mr Cozens. I will hear counsel as to the precise form of the injunction.

Cited in 2 later judgments