HM Revenue & Customs v Ali [2011] EWHC 880 (Ch)

Case No HC11C00339

[2011] EWHC 880 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue Royal Courts of Justice

Date Wednesday, 23 March 2011

Strand

London WC2A 2LL

Before

MR JUSTICE WARREN

Between

COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMSClaimant

MR IMTIAZ ALIDefendant

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MR DAVID CHIVERS QC & MR MARK FELL (instructed by Messrs Howes Percival) appeared for CLAIMANT

MR ANDREW GEORGE (instructed by Messrs Sydney Mitchell LLP) appeared for DEFENDANT

JUDGMENT

[1]MR JUSTICE WARREN: This is an application by HMRC to continue a freezing order made by me on 17 February without notice. The defendant now appears and is represented by Mr George. HMRC is represented by David Chivers QC and Mr Mark Fell. Mr Mark Fell appeared on the without notice application. HMRC's underlying claim relates to Mr Ali's income tax and capital gains tax liabilities.

[2]The background giving rise to the claim is this and comes from the evidence of Mr Brannigan on behalf of HMRC. The respondent, Mr Ali, was a director and employee of a now dissolved company known as Direct Resolutions Limited (which I will call "DR") for part of the tax year ended 5 April 2002. In that year DR purportedly participated as a learning provider in a vocational scheme operated by the Department for Education and Skills ("the DFES"), known as the Individual Learning Account Scheme. Pursuant to the ILAS, as I shall refer to it, between June 2001 and October 2001 DFES paid a total of nearly £3 million to DR.

[3]HMRC believe that in the course of the tax year ended 5 April 2002 DR and subsequently paid a sum of about £2.5 million to the respondent. I shall refer to those as "the Payments". (It has a capital P in my mind, but I cannot do that when I am speaking.) HMRC considers that the sums were subject to an income tax charge under case 1 of schedule E and they consider that by reason of the Payments the amount which DR was liable to deduct from payments made to Mr Ali in the tax year ended 5 April 2002 exceeded the amount actually deducted by DR in that tax period. Secondly, HMRC is of the opinion that Mr Ali received the Payments knowing that DR wilfully failed to deduct the amount which should have been deducted from the Payments under the PAYE regulations. These matters are denied by Mr Ali, who has a different explanation for the Payments, as I will explain later. Ordinarily the liability to account for PAYE is the responsibility of a person's employer and it is for the employer to make the appropriate deduction from salary. Where there has been a failure to do so HMRC may make a direction pursuant to regulation 72 of the Income Tax Pay As You Earn Regulations 2003 (which I will call "the PAYE regulations"), and interest as well.

[4]By 16 February 2011 HMRC had decided to make a direction in respect of the Payments. The result would be that Mr Ali would become liable for income tax of well over £1 million. HMRC did not wish to serve a direction and associated assessment, plus some other assessments for capital gains tax, on Mr Ali because they feared it would result in his hiding his assets or removing them from the jurisdiction. They therefore wanted to obtain a freezing order. However, HMRC were concerned that they might not have a cause of action sufficient to support a freezing order unless they had first issued the assessment. If push comes to shove they would argue that there is a sufficient cause of action even before the assessment is issued, but to avoid that argument they decided to adopt the procedure established in Re Q's Estate

[1991] 1 Lloyd's Rep 931

. Under this procedure HMRC came before me on 16 February to explain the case in just the way they would have done if they were in fact applying for a freezing order on that occasion. I indicated, after full submissions from Mr Fell, that I would be prepared to make the order the next day once the direction and assessment had been served on Mr Ali. This took place so that the period between service of a direction and the assessment and service of the freezing order was very short. They were in fact all served on the morning of 17 February.

[5]Mr Ali is or is intending to appeal the assessments to the tax chamber of the first tier tribunal. The statutory provisions relating to tax, and I do not need to go into the relevant charging provisions relating to income tax and capital gains tax other than to explain how it is that Mr Ali can be made liable for the PAYE, if any, which should have been deducted by DR. Regulation 72 of the PAYE regulations provides that:

"This regulation applies if – (a) it appears to the Inland Revenue that the deductible amount exceeds the amount actually deducted, and (b) condition A or B is met."

It refers to an excess which is in effect the amount by which the amount which should have been deducted exceeds the amount actually deducted by the employer in relation to PAYE. Condition B, which is relevant to our purposes, is that:

"The Inland Revenue are of the opinion that the employee has received relevant payments knowing that the employer wilfully failed to deduct the amount of tax which should have been deducted from those payments."

[6]Regulation 72(5)(a) provides that any direction under that paragraph must be made by notice, the direction notice, stating that the notice was issued to the employee if condition B was met. Sub-regulation (6) provides that if a direction is made the excess must not be added under regulations 185(5) or 188(3)(a), adjustments to total net tax deducted for self-assessment and other assessments in relation to the employee. I interpose here that normally an employer will deduct PAYE. The employee will show on his tax run the income but he will show the PAYE deductions as a permittable deduction when arriving at the tax that he actually has to self-assess.

[7]Returns are dealt with in section 8 of the Tax Management Act 1970. For the purposes of establishing the amounts in which a person is chargeable to income tax and capital gains tax for a year of assessment, and the amount payable by him by way of income tax for that year, he may be required by notice given to him by a officer of the board to make a return and provide information. The information required includes that which can be found in the tax return, which we are no doubt all personally familiar with.

(b) :

"the amount payable by a person by way of income tax is the difference between the amount in which he is chargeable to income tax and the aggregate amount of any income tax deducted at source and any tax credits to which section 397(1) or 397A(i) of IT TOIA 2005 applies."

[8]I should mention section 9 of the Act, which I have in the court bundle in various versions as time goes by. I do not think anything turns on the differences. It provides in effect that in your tax return you must include a self-assessment setting out the amount of tax you have to pay. Clearly in relation to the income which has been made subject of the direction, in contrast with capital gains tax, Mr Ali did not need to self-assess the Payments, although if they were income they should have been shown on his return. His case before the tax tribunal, as I understand it, will be that they are not income at all.

[9]Section 29 of the TMA deals with assessment where loss of tax is discovered by the inspector. Paraphrasing, subsection 29 applies where an officer of the board discovers as regards the taxpayer that any income has not been assessed or that an assessment to tax is or has become insufficient. If he forms that view then, subject to some conditions, he can make an assessment himself. The assessment can only be made if one of two conditions is fulfilled. The relevant one for our purposes is that the situation mentioned in “subsection (1) above”, that is to say a non-assessment or an inadequate assessment, was brought about carelessly or deliberately by the taxpayer or by a person acting on his behalf.

[10]Appeals are dealt with by section 31 and may be brought against any assessment of tax which is not a self-assessment. Payment of any tax assessed under section 29 is due for payment under section 59B of the TMA, on the day following the end of the period of 30 days beginning with the day on which the notice of assessment is given. Section 68 provides that any tax may be sued for and recovered from the person charged in the High Court as a debt due to the Crown. In the present case the debt under the assessment did not become due until 30 days after 17 February. That date has now passed, but it had not passed when this matter came before me on the return date. Section 86, which I will not go to, provides for interest on tax.

[11]I will come in due course to the facts which HMRC rely on to justify a freezing order, but before I do so, I propose to deal with the principal legal argument which Mr Ali raises to resist an order and which would apply even if there were a clear risk of dissipation. The case is simple. First, he says, the authorities establish that before a freezing order can be made (Mareva relief in the language of the old cases) the claimant must have an existing cause of action. In the present case tax was not due from Mr Ali until 30 days after the assessment was given. There was accordingly no cause of action on which HMRC could sue, with the result that the court had no jurisdiction to make the order. In other words, I should not have made the order which I did in February and I should not make an order to continue that freezing injunction on the basis of an application and proceedings issued at that time. Of course by the date of today the 30-day time limit has expired. That does not mean that I could ignore the case as it is put, not least because no further application has yet been made. There may be additional arguments against making an order if there was no jurisdiction to do it before, even if there is a risk of dissipation, and in particular that there is no cause of action even pending appeal.

[12]HMRC's answer to this is also short. First of all, there exists a jurisdiction under section 37 of the Senior Courts Act 1981. The case law is not about jurisdiction in the strict sense but about its exercise. The overriding issue is to achieve justice between the parties. Secondly, there exists in any case a sufficient cause of action for the purposes of founding a freezing order, in particular because of the statutory scheme for the recovery of tax. To resolve these “simple” issues it is necessary to go through the authorities to see just what they do say. But I should first start with the statute itself, which provides that the High Court may by order, whether interlocutory or final, grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so.

[13]I start then with The Siskina. This case was very well known. The real question in it was about the service out of the jurisdiction. This was dealt with under the old RSC order 11, rule 1(c) so far as relevant. It provided that service of the writ or notice of the writ out of the jurisdiction is permissible with the leave of the court including in the following case; if in the action begun by the writ:

"An injunction is sought ordering the defendant to do or refrain from doing anything within the jurisdiction (whether or not damages are also claimed…)"

[14]It was held that the injunction sought within that rule had to be part of the substantive relief to which the plaintiff's cause of action entitled him and the thing that it was sought to restrain the foreign defendant from doing in England had to amount to invasion of some legal or equitable right belonging to the plaintiff in this country, enforceable by a final judgment. This was not a case where the plaintiffs had no present claim anywhere in the world at all. It was a case where they had no right justiciable in the High Court in England. The two passages from the judgment of Lord Diplock, which have been cited many, many times, are to be found at pages 254 and 256. In the first he refers to the predecessor of section 37, which was section 45(1) of the Supreme Court of Judicature (Consolidation) Act 1925, and to the court's power to:

"'Grant a mandamus or an injunction or appoint a receiver by an interlocutory order in all cases in which it appears to the court to be just or convenient to do so.' "

That subsection, speaking as it does of interlocutory orders, presupposes the existence of an action, actual or potential, claiming substantive relief which the High Court has jurisdiction to grant and to which the interlocutory orders referred to are but ancillary."

[15]The passage at page 256:

"The words used in sub-rule (i) are terms of legal art. The sub-rule speaks of 'the action' in which a particular kind of relief, 'an injunction' is sought. This pre-supposes the existence of a cause of action on which to found 'the action.' A right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own. It is dependent upon there being a pre-existing cause of action against the defendant arising out of an invasion, actual or threatened by him, of a legal or equitable right of the plaintiff for the enforcement of which the defendant is amenable to the jurisdiction of the court. The right to obtain an interlocutory injunction is merely ancillary and incidental to the pre-existing cause of action. It is granted to preserve the status quo pending the ascertainment by the court of the rights of the parties and the grant to the plaintiff of the relief to which his cause of action entitles him, which may or may not include a final injunction. "

Since the transfer to the Supreme Court of Judicature of all the jurisdiction previously exercised by the court of chancery and the courts of common law, the power of the High Court to grant interlocutory injunctions has been regulated by statute. That the High Court has no power to grant an interlocutory injunction except in protection or assertion of some legal or equitable right which it has jurisdiction to enforce by final judgment, was first laid down in the classic judgment of Cotton LJ in North London Railway Co v Great Northern Railway Co

[1883] 11 QBD 30

, 39-40, which has been consistently followed ever since."

[16]There are perfectly general words used in those two passages and, whilst uttered in the context of Mareva relief, they are equally applicable whenever the relevant rule of the RSC was concerned, but they are not legislation. Lord Diplock referred to North London Railway Company, we can see a case from which the law has moved on a long way, as we will see in a moment, and he also referred to a decision in Rosler v Hilbery

[1925] Ch 250

, which again concerned not causes of action so much as the jurisdiction over foreign defendants. Neither of these cases state that the right has to be a pre-existing right in the sense of being immediately enforceable, or indeed at all. Lord Diplock does not in any case say what he means by a pre-existing action, either in that passage or at the earlier passage. What later cases have to say about that I will come to in due course. The idea that analogy with a quia timet action, which has been relied on in some other cases and by Mr Chivers in this case, might be of help is generally discredited, which one can see in the decision in Mercedes Benz AG v Leiduck

[1996] AC 284

at page 303. That case, like The Siskina itself, was one where there was nothing which was or would become justiciable in England.

[17]In contrast, in the present case the issue certainly is justiciable in England. Moreover, the underlying issue is not about a threatened wrong at all, it is whether tax is due in principle. If it is (or as I speak today was at the time that I heard this action) it was a present debt due for payment in the future. It was not in any sense a contingent debt. That seems to have more of a parallel with a quia timet action than in the Mercedes case. What is clear is that Lord Diplock did not have in mind the sort of case I am dealing with in saying what he did. Nonetheless, the conventional view is that no Mareva can be granted if there is no cause of action.

[18]I am not going to refer to all the relevant authorities, but I will go to Siporex Trade SA v Comdel Commodities Limited [1986] 2 Lloyd's Rep at 428. Bingham J said this:

"I take it to be clear law, both on principle and authority, that a Mareva injunction will not be granted to an applicant who has no cause of action against the defendant at the time of the application: see, for example, The Neidersachsen… Siporex submit that a claim of entitlement to a declaration, in the absence of any claim of entitlement to an immediate money judgment, does not ground a claim to Mareva relief. That submission is founded on a Court of Appeal decision, TheSteamship Mutual Underwriting Association (Bermuda) Limited v Thackur Shipping Co Ltd. In that case the applicant P. & I. Club had given a guarantee 111 order to prevent the arrest of one of its member's ships, against the counter-undertaking of the member. The club apprehended that it would be called on to honour its guarantee but that the member would default on the counter undertaking. It accordingly sought Mareva injunction, which Mr Justice Hirst refused, to freeze the member s assets. Sir John Donaldson, MR, in a brief judgment with whichLords Justices O'Connor and May agreed: "

'It seems to me that it is important to remember that s. 37 (1), which is the section of the Supreme Court Act 1981 which gives jurisdiction to this Court, speaks of granting an injunction or appointing a receiver in all cases in which it appears to the Court that It would be just and convenient to do so. Justice and convenience· in this context is not an abstract conception. It predicates that there is a cause of action in respect of which the Court may make an order and the Court will be unable to enforce its order unless there is security provided by a Mareva injunction. Therefore we asked Mr Kealey what the cause of action was that we were being asked to support. The answer is that the only cause of action that they can conceivably have at the moment is a cause of action for a declaration that in the event of the club having to honour its guarantee and in the further event of the shipowners being called upon to pay the club under their undertaking and perhaps in the further event of the shipowners not meeting their obligation, the shipowners will be liable to the club. It seems to me that no declaratory relief needs a Mareva injunction to support it. "'What the club really wants is security for a future cause of action - a cause of action which will give rise to entitlement to monetary relief. I think that that would be contrary to a long line of authority which says that s. 37 is to be used in support of an existing legal or equitable right. I furthermore think that if we extended it to this case, even assuming we have jurisdiction to do so it would be difficult to see what possible limits there could be to the Mareva jurisdiction, since whenever it was apprehended that someone was likely in the future to commit a breach of contract, and it was further apprehended that if they did and if judgment were given against them they might be unable to meet the judgment debt, it would follow that the fearful plaintiff was entitled to a Mareva injunction. That plainly is not the case. "'I would dismiss this application. ' "The ratio of that decision is, as it seems to me, plainly applicable in the present case. Comdel had when the injunction was granted; and still have, no existing legal or equitable right. That is an additional and compelling reason why I must discharge this injunction."

[19]The passage from Steamship Mutual shows that there were three contingencies in that case before there would be a claim against the defendant. It needed the club to have to honour its guarantee, it needed the ship owners to be called upon to pay the club under their undertaking and it needed perhaps the further event of the ship owners not meeting that obligation, before an action can be brought.

[20]The next case I want to refer to is Jet West Limited v Haddican

[1992] 1 WLR 487

. This established, if it needed establishing, that a Mareva injunction may be granted or continued in support of an order for costs or of any judgment or order of the court for the payment of money, whether or not the exact sum payable has been quantified at the date when the order is made. It is an unsurprising decision. What is perhaps surprising is that at the first instance a judge had decided that an order for costs could not form the basis for a Mareva injunction because it was not yet quantified. But if you read the rationale for a Mareva injunction as in Steamship, it is a surprising decision and the Court of Appeal put it right. In terms of principle Lord Donaldson said at page 489:

"The Mareva injunction was introduced in the 1970s because the courts held that they must necessarily have jurisdiction and did have jurisdiction to prevent parties to actions frustrating their orders by moving assets out of the jurisdiction, or dissipating assets in one way or another, with a view to making themselves proof against a future judgment. Where you have someone who is already subject to a money judgment, including an order for costs, the same principle applies, namely that the courts will not allow people to set their orders at nought simply by removing assets from the jurisdiction."

[21]Next comes the high point of the case for Mr Ali, the case of the Veracruz Transportation Incorporated v VC Shipping Co Inc and Den Norske Bank AS

[1992] 1 Lloyd's Rep 353

. The factual background was that there were two breaches of contract involved. It was held it was wrong to grant as much relief as the judge did because one of the breaches was actually not an existing breach but a feared breach namely that when the ship was delivered it would be in an unsatisfactory state. At page 357, at the bottom of column 1, Beldam LJ says that:

"The first question is whether the Judge was correct to hold that the Court had jurisdiction to make that part of his order based upon the allegation of apprehended breach of the obligation to deliver in the stipulated order of repair when, as was conceded, no cause of action for damages in that regard had yet accrued."

[22]He refers to The Siskina and comes at the bottom of the second column, page 357, to the South Carolina Insurance Company case where Lord Brandon affirmed the principles laid down in The Siskina when at page 324 he said:

"The second basic principle is that, although the terms of s 37(1) of the 1981 Act and its predecessors are very wide, the power conferred by them has been circumscribed by judicial authority dating back many years. The nature of the limitations to which the power is subject has been considered in a number of recent cases [and he refers to the Siskina, Castanho and British Airways Board v Laker]."

[23]One can usefully refer to that part of the judgment from where I have just stopped down to halfway down the first column on page 359. Nourse LJ agreed and Sir John Megaw said this:

"I see no valid reason in logic or practical convenience in the interests of justice why jurisdiction should not exist in respect of Mareva injunctions, with the qualification which Saville J applied, namely, that such a Mareva injunction should not operate unless and until the anticipated cause of action had arisen. But we are precluded by authority from doing so on this question of technical jurisdiction. In that case there existed no cause of action, however, you might like to view what Lord Diplock meant by pre-existing cause of action in The Siskina. In our case there does exist a present right, that is to say the payment of tax, albeit payable in the future, but there is an accrued right and a threatened breach, assuming that the evidence establishes it, is very different, it seems to me from the sort of situation being addressed in Veracruz. "

Returning to Lord Diplock, as already mentioned we see the words 'threatened invasion being capable of being a cause of action which is pre-existing'. But perhaps it is the thrust of his analysis that if the threat were immediately carried out it would give rise to an immediate breach for which there is no parallel in our case." [Quotation unchecked.]

[24]So Veracruz looks like a pretty compelling authority in favour of Mr Ali's case, assuming of course that cause of action is to be read how he submits it is to be read. But in none of the cases was there anything like the right in our case, as I have said, namely, a statutory right to payment not subject to any contingency, albeit payable at a future date. The courts have chosen to analyse the situations which have come before it using the language of no cause of action because that suited the facts. There was no cause of action or anything like a cause of action in the cases which have dealt with this point.

[25]Next comes the decision in Channel Tunnel Group Limited v Balfour Beatty Construction Limited [1993] AC at 334. This is an important case because it can be seen as casting a gloss on the no cause of action point. The third holding was in the following terms that:

"A claim to an interlocutory injunction under section 37(1) of the Supreme Court Act 1981 was incidental to and dependent on the enforcement of a substantive right and could not exist in isolation; but that, although the substantive right usually [and I emphasise that word] took the form of a cause of action, it was not a necessary condition of the grant of such an injunction that it should be ancillary to a claim for relief to be granted by an English court; that there was no reason in principle why an order for a mandatory stay of an action could not be combined with an injunction to secure interim relief; and that, accordingly, there was power under section 37(1) to grant the injunction sought by the plaintiffs."

[26]This again was not really a cause of action issue, it was a question of were the claimant's rights justiciable? In our case, however, it could be said that there is a subsisting right, namely, the payment of tax, again, as I have said before, even though it is only payable in the future.

[27]Lord Goff and Lord Keith gave very short speeches agreeing with Lord Browne-Wilkinson, who gave the leading speech. At page 341 at the bottom he reads the well-known passage from Lord Diplock in The Siskina. What is interesting is when we come to page 343 at letter D where he says this:

"Finally I should make it clear that I have merely been considering the effect of the decision in the Siskina on the assumption that it correctly states the law. The tests laid down in absolute terms have already received one substantial modification: see Castanho v Brown & Root, British Airways Board v Laker Airways. Moreover, in South Carolina Insurance Lord Goff of Chiveley (with whom Lord Mackay of Clashfern agreed) reserved the question whether the law as laid down by the Siskina (as subsequently modified) was correct in restricting the power to grant injunctions to certain exclusive categories. With respect, I share the same doubts as there expressed and reserve the question for consideration when it arises."

Lord Goff said this: "I am reluctant to accept the proposition that the power of the court to grant injunctions is rested on exclusive categories. That power is unfettered by statute and it is impossible now to formulate the circumstances in which it may be thought right to make the remedy inavailable." [Quotation unchecked.]

[29]Lord Mustill deals with the power of the court to grant an injunction, starting at the foot of page 360, it is worth reading the passage over the page:

"The respondents begin with an argument of general principle. Although the words of section 37(1) and its forebears are very wide it is firmly established by a long history of judicial self-denial that they are not to be taken at their face value and that their application is subject to severe constraints."

[30]He refers again to the cases which I have already referred to and sets out a lengthy passage from the speech of Lord Brandon in South Carolina where he says that:

"'The effect of these authorities, so far as material to the present case, can be summarised by saying that the power of the High Court to grant injunctions is, subject to two exceptions to which I shall refer shortly, limited to two situations. Situation (1) is when one party to an action can show that the other party has either invaded, or threatened to invade, a legal or equitable right of the former for the enforcement of which the latter is amenable to the jurisdiction of the court. Situation (2) is where one party to an action has behaved, or threatens to behave, in a manner which is unconscionable. The third basic principle is that, among the forms of injunction which the High Court has power to grant, is an injunction granted to one party to an action to restrain the other party to it from beginning or if he has begun from continuing, proceedings.'"

Lord Mustill then goes on to say that:

"In reliance on this line of authority the respondents maintain that the English court can never grant an injunction in support of a cause of action which the parties have agreed shall be the subject of an arbitration abroad, and a fortiori where the court has itself halted the proceedings."

[32]So again he is dealing not with a case of no cause of action but no justiciable cause of action in England. But he rejects that argument, saying at 362B:

"I prefer not to engage the question whether the law is now firmly established in terms of Lord Brandon's statement, or whether it will call for further elaboration to deal with new practical situations at present unforeseen. For present purposes it is sufficient to say that the doctrine of the Siskina, put at its highest, is that the right to an interlocutory injunction cannot exist in isolation, but is always incidental to and dependent on the enforcement of a substantive right, which usually although not invariably takes the shape of a cause of action. If the underlying right itself is not subject to the jurisdiction of the English court, then the court should never exercise its power under section 37(1) by way of interim relief."

[33]It is important to note what he says as his understanding, which I gratefully adopt, of The Siskina, which is, as he put it:

"At its highest, is that the right to an interlocutory injunction cannot exist in isolation but is always incidental to and independent on the enforcement of the substantive right", then come the important words: "which usually, although not invariably, takes the shape of a cause of action"

. It does at least leave open the possibility that something short of an immediately enforceable cause of action is good enough, and in particular at least leaves open the possibility that a present debt payable in the future pursuant to a statutory scheme is just such a case.

[34]In the context of the present case, or indeed of a contract where money may fall due for payment in the future, invasion of a right, as those words have been used in the cases, must include failure to comply with an obligation giving rise to damages or an action for a debt. It might therefore be said that a threat to breach a contract is enough, but clearly that is not so, as the whole line of authorities show, and, to return to Mercedes Benz, there is no analogy between a quia timet injunction and a Mareva injunction because of the disconnection which is identified in the judgments there. There is of course a real difference between a fear or even a threat of a breach of contract. In Veracruz the fear, perhaps even a justified expectation, that the ship would not be delivered in a state of disrepair was not enough to amount to such an invasion of a person's right or sufficient threat of invasion because in that context the threat would not give rise to a cause of action for Mareva relief. But if there had been a threat in a different case to refuse to deliver a sound ship being built in an English shipyard, the threat might well form the basis of a quia timet injunction before due date for delivery. The question for me really is which side of the line the present case falls.

[35]The final domestic authority to which I want to refer is Fourie v La Roux

[2007] UKHL 1

, a decision of the House of Lords. Reading from the headnote:

"Held, dismissing the appeal, that a court had jurisdiction, in the strict sense, to grant an injunction where it had in personam jurisdiction over the person against whom it was sought; that a freezing order might, in suitable circumstances, be granted and served on the respondent before substantive proceedings had been instituted, although the judge should pay careful attention to the substantive relief which was, or would be, sought; but that in general a freezing order, on an application without notice, would not be properly made in the absence of any formulation of the case for substantive relief which the applicant intended to institute; and that, in the circumstances as they had stood before Park J, the protection which ought to be associated with the granting of a without notice order had been absent and the order had not been properly made."

[36]The reasoning turned on a detailed consideration of the now familiar cases. Everyone agreed with Lord Scott, who gave the long reasoned judgment. Lord Bingham said this, pithily:

"Mareva (or freezing) injunctions were from the beginning, and continue to be, granted for an important but limited purpose: to prevent a defendant dissipating his assets with the intention or effect of frustrating enforcement of a prospective judgment. They are not a proprietary remedy. They are not granted to give a claimant advance security for his claim, although they may have that effect. They are not an end in themselves. They are a supplementary remedy, granted to protect the efficacy of court proceedings, domestic or foreign."

[37]I pick up the speech of Lord Scott at page 329, under the heading "The First Issue" where he deals with the jurisdiction in the strict sense. There is no doubt that in the present case there is jurisdiction in the strict sense because this is an English tax claim against an English resident taxpayer and Mr Ali was properly served with the assessment. The issue of jurisdiction in the strict sense is dealt with in paragraph 25 of Lord Scott's speech, and I do not think it is necessary to refer to that further. Then he deals with the exercise of the discretion and considers the cases which are even more now familiar than they were, but including South Carolina and reiterating Lord Goff's concerns in Channel Tunnel. His summary of the law is to be found starting at paragraph 30 where he says:

"The authorities show, in my opinion, that, provided the court has in personam jurisdiction over the person against whom the injunction, whether interlocutory or final, is sought, the court has jurisdiction, in the strict sense, to grant it. The practice regarding the grant of injunctions, as established by judicial precedent and rules of court, has not stood still since The Siskina was decided and is unrecognisable from the practice to which Cotton LJ was referring in North London Railway Co v Great Northern Railway Co and to which Lord Diplock referred in The Siskina. Mareva injunctions could not have been developed and become established if Cotton LJ's proposition still held good. In The Siskina the jurisdiction of the court over the defendant depended on the ability of the plaintiff to obtain leave to serve the defendant out of the jurisdiction. Once the leave that had been granted had been set aside there was no jurisdictional basis on which the grant of the injunction could be sustained. On the other hand, if the leave had been upheld, or if the defendant had submitted to the jurisdiction, it would still have been open to the defendant to argue that the grant of a Mareva injunction in aid of foreign proceedings in Cyprus was impermissible, not on strict jurisdictional grounds, but because such injunctions should not be granted otherwise than as ancillary to substantive proceedings in England. In 1977 Mareva injunctions were in their infancy and the House might well have agreed."

[38]Paragraphs 31 and 32 also merit consideration by the interested reader of this judgment. But nothing in that case answers or directly touches on the issue in the present case, but one sees a recognition that Mareva injunctions are really at root all about the interests of justice and the speech can be seen as taking Lord Goff's concerns forward.

[39]The only case in domestic jurisdiction which is at all close to the facts of the present cases is the decision of Pitchers J in the Director of Asset Recovery Agency v McCormick. I referred to this decision when giving my decision on the without notice application. In that case no return had been delivered by the taxpayer and there was a breach of section 8 of the TMA. The judge referred to liability to pay on account under sections 59(2) and he concluded that there was therefore an existing cause of action for an unquantified amount. He found in section 29 the route to quantification, but he recognised the 30-day issue; thus in paragraph 13 he said:

"The liability to pay that quantified amount under section 29 arises at the earliest 30 days later, but, in my judgment, the cause of action has already arisen. I reject the argument for the defendant that the cause of action only arises after the expiration of 30 days from the service of assessments. Therefore, there being an existing cause of action, this case falls within the general rule that a freezing order will normally only support an existing cause of action."

[40]Of course in our case there was no failure to submit a return and when the return was actually submitted there was no obligation to self-assess the payments. Therefore, one cannot argue, except in relation to capital gains tax, that there is, in accordance with Pitcher J's decision, a cause of action via the route of section 59. But I, with respect, find it hard to see how he can be right to say that there is a cause of action in the ordinary sense as a result of section 59 and I do not need to decide that point. But I do agree with what he said in paragraph 13, that there is a sufficient cause of action, as I would put it, within the concept of what is required by The Siskina.

[41]The final case to which I want to refer is an Australian decision, the Deputy Commissioner of Taxation ACT v Sharp and Another, a decision of Kelly J, reported at 82 ACTR page 1. The statutory structure, if not identical, was very similar for the collection of tax in the UK. Reading from the headnote:

"The plaintiff issued amended assessments against the defendants assessing them to additional tax. Before the period allowed for the payment of the assessment had elapsed the plaintiff moved ex parte for Mareva injunctions restraining the defendants from removing assets from the jurisdiction. The issue arose as to whether Mareva injunctions should be granted where no action has been or can be commenced because the debt said to be due is not immediately payable. "

Held, (i) Special circumstances obtain when the Commissioner of Taxation seeks a Mareva injunction in such circumstances, since the debt has peculiar characteristics attaching to it because the legislation which gives rise to it provides that production of an appropriate certificate is conclusive evidence of the making of the assessment and of its amount. "(ii) Where there is undoubtedly a debt owing even if it cannot immediately be the subject of an action and where the granting of the injunction would work no injustice, a Mareva injunction may be granted although no action has been commenced."

[42]Of course in our case an action has been commenced. But if the law of Australia and the law of England and Wales is the same, that is a conclusive authority, not binding on me, but a very strong support for HMRC's position that there is a sufficient cause of action. The question is whether the law is the same. The law in Australia concerning Mareva injunctions has, as we stand today, moved in different directions so I must be careful about how I take account of this decision. What I do note are the similarities with the UK procedure and the peculiar circumstances of an assessment and its conclusive nature, subject in the UK, and no doubt in Australia as well, to a statutory appeal. On page 2

the judge says this:

"Standing in the path of the plaintiff was a dictum of Lord Diplock in Siskina … where his Lordship, with whom all their Lordships agreed said --"

[43]Then he quotes the well-known passage that I have already referred to. Mareva injunctions have been granted by this court, that is to say, in Australia in a couple of cases that he cites. The guts, if I can put it that way, of the decision can be found at page 5, starting at line 9. “It seems to me that special circumstances obtain when the Commissioner of Taxation seeks a Mareva injunction in respect of an assessment whichhas issued but is not immediately payable because the time which must beallowed for the payment of the assessment has not elapsed. Such a debt haspeculiar characteristics attaching to it because of the legislation which givesrise to it. Section 204 of the Act provides that, subject to the provisions of Pt VI in which it appears, any income tax assessed shall be due and payable by the person liable to pay the tax on the date specified in the notice as the date upon which tax is due and payable, not being less than 30 days after the service of the notice. or, if no date is so specified, on the thirtieth day after the service of the notice. By s 177(1) the production of a notice of 20 assessment or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all the particulars of the assessment are correct. The High Court stated in McAndrew v FCT

(1956) 98 CLR 263

at 270 that it was the policy of the legislation:

"00 the one hand to give to the taxpayer fuU opportunity on objecting to his assessment of contesting his liability in every respect before a court or before a board of review but on the other hand to require that in proceedings for the recovery of the tax the taxpayer will be concluded by the assessment and will not be entitled to go behind it for any purpose."

It follows, in my opinion, that a peculiar quality attaches to a debt claimed as a result of an assessment made under the Act. All that the Commissioner need do to establish conclusively the existence of the debt is to produce the appropriate notice of or copy of the notice of assessment. The debt is not payable in presenti but is a debt in existence - debitum inpresent solvendum in futuro. In these circumstances it seems to me that the Commissioner is entitled to pray in aid the injunctive power of the court when he establishes that prima facie there is a real risk that the taxpayer will so deal with his assets as to render useless in whole or in part the judgment to which the Commissioner would be conclusively entitled upon the mere passage of time. If an order might properly be made in ConstructionEngineering (Aust) Pry Ltd v Tambel (Australasia) Pry Ltd, supra, as, with respect, I think it was, it seems to me that there was even greater reason the court should have granted an injunction in this case where the existence of the debt was not a matter of uncertainty, depending upon the result of other extra-curial proceedings which had not yet reached the point where an action might be instituted in this court.”

[44]In essence the judge said that a peculiar quality attaches to a debt claimed as a result of an assessment and all that the commissioner would need to do to establish the existence of the debt is to produce the appropriate notice. And in our case the assessment itself is good enough and section 68 gives the right to sue. The debt is not payable, the judge says, in praesenti but is a debt in existence payable in futuro. In these circumstances it seems to me that the commissioner is entitled to pray in aid the injunctive power of the court when he establishes that prima facie there is a real risk that the taxpayer will so deal with his assets as to render useless in whole or in part the judgment to which the commissioner would be conclusively entitled upon the mere passage of time.

[45]Later on, on page 6, he refers to the English decision of Faith Panton Property Plan Limited v Hodgetts [1981] 2 All ER. That was a case where there had been an order for costs but the costs had not been taxed and the plaintiffs were therefore unable to enforce judgment for them. The judge considered that that case was authority for the proposition that an injunction may go in respect of a debt presently in existence but not payable until the future because not quantified. Then he says this:

"Nevertheless it seems to me that, where, as in this case, there is undoubtedly a debt owing even if it cannot immediately be the subject of an action and where the granting of the injunction would work no injustice, particularly when the debt may in any event be sued for within a very short time, which may be only a matter of days and at most a period of 30 days, a Mareva injunction may be granted. Such an injunction should, of course, be returnable at the shortest possible notice."

[46]Whether the judge saw himself as going outside The Siskina in a way permissible in Australian law is unclear. If he saw himself as departing from it I would have expected him to say so and to make clear that Australia would make another inroad into the decision. I rather doubt that he actually saw English law and Australian law developing in a different way on this point.

[47]I agree with Mr Chivers when he says at paragraph 21.1 of his skeleton that cases where the assessment procedure under section 29 of the TMA has been initiated by the issue and service of assessments are a sui generis instance in which the court may, provided it is just and convenient to do so, grant and continue a freezing injunction to support the applicant's discharge of their statutory duties to collect tax after the tax comes into existence but before it is payable.

[48]Mr Chivers has also relied on a number of analogies. These are the costs claims, I have already referred to one case, and arbitration proceedings where the courts have held they have jurisdiction and will exercise it, notwithstanding that the actual litigation is subject to a binding arbitration even outside the jurisdiction. These are but analogies so that if the authorities bind me to hold that I had no jurisdiction in the sense that there are judicial constraints on what I can do, the analogies do not release me from the shackles. In contrast, if I am not bound I would not extend the judicially imposed constraints but would hold without any hesitation that the court has a discretion to grant a freezing order to be exercised in accordance with the conventional principles. I do not need analogies to get me there.

[49]In my judgment, the court clearly has jurisdiction in the strict sense to grant these injunctions against Mr Ali. More importantly, it is not, in my judgment, constrained from doing so by the authorities. I consider that HMRC have a sufficient immediate and present interest to support this relief. The particularly important point is that HMRC are properly to be seen as a creditor. Their debt is not contingent, albeit that it is payable, as I have said a couple of times already, at a time, and a short time at that, in the future. The special feature of this debt makes it right that where it is just and equitable to grant the relief the court should be able to do so. It does not seem to me that the factors which have led the courts to refuse Mareva injunctions where there is no cause of action or anything like a cause of action apply in the present case. Although Lord Goff and Lord Nicholls in Mercedes Benz gave minority speeches, they point to a less rigid categorisation than previously. If I need to do so I take my lead from them.

[50]I think Pitchers J was correct in his decision, indeed he may have been expressing in different language the same approach as me. It would certainly be surprising if the court could properly grant an injunction in the case before him but not in the case before me. This result is also in tune with the approach to the exercise of the statutory powers vested in HMRC. In a case I have not referred to, with a subject matter miles away from the present case, Broadmoor Special Hospital Authority v Robinson [2000] QB at 775, the Court of Appeal was concerned with injunctions to restrain a mental patient from publishing information which would reveal confidential information about other patients. At paragraph 55 of his judgment Waller LJ says this:

"On the important question of the [health] authority's powers and the circumstances in which it can seek the aid of the court, I respectfully agree with Lord Woolf MR and would adopt his ultimate formulation which is in these terms: "

'if a public body is given a statutory responsibility which it is required to perform in the public interest, then, in the absence of an implication to the contrary in the statute, it has standing to apply to the court for an injunction to prevent interference with its performance of its public responsibilities and the court should grant such an application when "it appears to the court to be just and convenient to do so.'"

[51]I see no reason not to find support in that when applied to the statutory functions of HMRC to collect tax and if they can see a taxpayer who is going to dissipate his assets to avoid compliance with an assessment on which they cannot, because of the 30-day time limit, yet sue him to judgment, I see no reason why that is not a factor properly to be taken into account. This approach is also supported by the failure, on HMRC's case, of Mr Ali to comply with his statutory obligations to include his income on his return. This is not to say that his self-assessment was wrong because at that stage the tax liability was not his. It only became his as a result of the direction on 17 February. I leave out of account his liability to capital gains tax as the sums there are insignificant compared with the income tax liability.

[52]Mr Chivers also raised some quite subtle and difficult arguments to support the jurisdiction to grant a freezing order by reference to the insolvency procedures and by reference to the decision of Briggs J in HMRC v Eagleton. I do not propose to consider those arguments in the light of the conclusion I have already reached.

[53]The conditions for granting a freezing order are well known. 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. The real issue in the present case is the risk of dissipation which must be established. In that context the honesty of a defendant is clearly a relevant factor in any case and the honesty of Mr Ali in particular in this case. If he has been dishonest, that may colour the view of the court about the risk of dissipation. But just as dishonesty is not an essential element to the exercise of the jurisdiction, so dishonesty is not by itself enough. The dishonesty relied on must be sufficient to justify, together with the other evidence, the inference of a risk of dissipation and this requires an examination of the facts of course.

[54]I ought just to refer to the passage in the decision of the Court of Appeal in Thane Investments Limited v Tomlinson and Others, 29 July 2003. Approving the statement of Neuberger J below, the court at paragraph 21 said:

"'…the duty of a person seeking an order, in particular an order which can have as substantial an effect as a freezing order, in the absence of the Defendant against whom it is sought, is strict and important.'"

[55]I will not read the rest of that passage. At paragraph 28 the Court of Appeal said this:

"Mr Blackett-Ord [who represented the applicant] submitted that it has now become the practice for parties to bring ex parte applications seeking a freezing order by pointing to some dishonesty and that, he says, is sufficient to enable this court to make a freezing order. I have to say that, if that has become the practice, then the practice should be reconsidered. It is appropriate in each case for the court to scrutinise with care whether what is alleged to have been the dishonesty of the person against whom the order is sought in itself really justifies the inference that that person has assets which he is likely to dissipate unless restricted."

[56]Before turning to the facts I want to mention one particular matter which will feature in the exercise of the court's discretion, and that is delay in seeking relief. As with any interim relief, a claimant should seek relief promptly. It is the nature of a freezing order that relief will be sought very soon after, and in some cases even before, issue of proceedings so that post-commencement delay will hardly ever be an issue. But delay once the facts are known and the risk appreciated is a different matter. A failure to seek relief promptly might be seen as indicating a lack of concern, suggesting that there is really no risk of dissipation at all. Sometimes the court sees the position in a slightly different way. If there is a risk of dissipation, the risk is likely to have become a reality after a period of time, a case of the court refusing to shut the stable door after the horse has bolted. Each case is of course dependent on its own facts and the ultimate objective is to achieve so far as possible justice between the parties. There can be no hard and fast rule that delay is fatal to a claim for a freezing order.

[57]In the present case, as will be seen, there has been some delay by HMRC in carrying out their inquiries into Mr Ali's affairs. This has resulted in some delay in giving the direction under regulation 72. Until the direction was given it must have been doubtful that HMRC had a cause of action for the PAYE because Mr Ali himself was not liable. Accordingly it could not, if there was no cause of action, have obtained the freezing order. HMRC cannot be criticised for not seeking a freezing order until the direction and the use of the Re Q procedure. If there is a criticism it can only be that it should have issued the direction and the assessment much earlier. It is fair to Mr Ali to point out that he and his advisers were pressing for closure of the inquiry into his affairs, as can be seen, for instance, in the letter of 4 December 2009.

[58]I say something about those inquiries into Mr Ali's affairs. An inquiry by HMRC for the year ended 5 April 2004 was opened on 25 November 2005. In August 2006 this inquiry was widened into a general investigation into Mr Ali's tax affairs for the previous 20 years. The investigation has been ongoing ever since then. It can be seen that a considerable period of time has elapsed between the commencement of the original inquiry and the seeking of the relief in the present case. This delay is one reason which Mr Ali says precludes my continuing the freezing order. Mr Ali has known for some time of the risk that an assessment might be made. That was made clear in a letter dated 20 March 2009. This is from Dr Cox. She was the investigating officer for HMRC and had written to Mr Ali personally. She encloses copies of bank statements obtained as part of her investigations which were questioned by Mr Ali's advisers. They are on an attached schedule. She says:

"I have been trying to ascertain the source of the deposits into these accounts and the destinations of the withdrawals. The statements show that the amount of income you have received do not correspond with the amounts declared on your tax Returns. It is proposed to make assessments for the purpose of making good to the Crown, a loss of tax which may have been underpaid by reason of your fraudulent or negligent conduct in submitting tax returns which are believed to be incorrect. I will be unavailable from 23 March to 1 April 2009 and will arrange for this as soon as possible after that date."

[59]It turned out to be February 2011. At that stage at least Mr Ali was aware that something would be likely to be heading his way. The letter does not hint at the amount of the assessment, although it does refer to the enclosed bank statements which had been, as I said, requested by Mr Ali's advisers. By this time Mr Ali knew that HMRC knew that he had received the Payments. In giving my earlier decision when granting the freezing order without notice I said that Mr Ali may say that there is no evidence of dissipation, but added that he was not aware of the level of the assessments which might be made. I can now see that that might be overstating the position since he would no doubt have known that the Payments were a matter of concern to HMRC. Nonetheless, the amount of the assessments was large. The reality of an actual direction and an actual assessment would, it is quite possible, have impressed Mr Ali with the seriousness of the situation and if he was the sort of person likely to hide assets this could well have triggered action when previous indications that an assessment would be made did not do so.

[60]I also relied on what I described as evasive and contradictory answers in an interview which had been held with Mr Ali. I must say some more about that now. This interview took place on 7 September 2006, after the inquiry had been opened. This was before HMRC's investigating team knew of the Payments. There are some important points which arise out of the note of the meeting. I should say that there was a note prepared by HMRC which was sent to Mr Ali's advisers, who in turn made some alterations to it, on his instructions, and it is the revised note which I refer to in making the observations which I now do:

"Mr Ali said that Direct Resolution limited was dormant when he was a director. [At the time of the interview, and this was an addition by Mr Ali, he believed that his directorship had ended in June 2001, although he subsequently found that it actually ended in September 2001.] He said it did not trade. Cox asked for what period Ali was a director. He said … 1999 to 2001."

[61]He may have been mistaken about the date when he ceased to be a director, but he cannot, I would have thought, have been mistaken about what actually happened within the company when he was a director. At paragraph 34 of the note it said:

"Cox said that he had been a director up until say September [that is corrected to November] 2001 and asked Ali whether the company had traded from March 2001 to September 2001. Ali said it had traded from March [crossed out, June substituted by Mr Ali] to September 2001. Cox said that if this was the case why had accounts not been submitted from March 2001 onwards. He said he didn’t know because he was not a Director after that time."

[62]On any footing, even on his own view, he was a director up until June. In paragraph 35: "Cox asked what the business involved. Ali said training courses. Cox asked what the turnover was in the period after March 2001. Ali said he couldn’t remember. Cox asked for a rough idea. He said he couldn’t remember. She asked if it was in the region of £10,000, £100,000, £1M. Ali said he couldn’t remember." [He now says that he is not aware of the extent of the business after he left].

[63]He leaves slightly opaque when it was he now says he left, but if he was a director until September 2001 he had responsibilities at least up to that time and in that context it is to be noted that he was signing cheques, including large cheques to himself, in respect of the Payments. So he changes his attitude from not being able to remember, the implication being that he knew but had forgotten, to saying he was not aware of the extent, the implication being that he never knew what was going on. In paragraph 36:

"Ali said he was not responsible for the Company after June 2001. Cox said he was a director for the period to December 2001. Cox asked Ali whether he had employed anybody in that period. He said that he may have employed somebody but he could not remember. [That is an amendment from 'he did not know how many people'.] Cox asked whether he’d operated PAYE correctly. Ali said he couldn’t remember. Cox asked Ali to think very carefully about this."

[64]Now we know as a matter of fact that Mr Ali was in fact operating the bank account, as I have said, including significant payments to himself. In paragraph 37:

"Cox asked Ali whether he had benefited himself from the company. Ali said he had received a salary of about £13,000 in 2002. Cox asked whether this was everything he had earned from the company. [That was a change from 'had out of the company'.] Ali confirmed this. Cox asked Ali whether he had taken money out of the company through a directors' loan account. Ali said no. Ali said the only money he had taken out of the company was £13,000 salary mentioned earlier. Cox asked Ali whether he had taken any money through dividends, loans or bonuses. Ali said no to all. Cox asked Ali if he was positive. Ali said yes."

[65]Although Mr Ali now says that he was answering that line of questioning in the context of earnings, it is impossible, in my view, to read that paragraph as a whole as restricted only to earnings. It is quite clear that he should pursuant to that line of questioning have revealed the Payments. The reference to earnings does not explain why he was able to say that the only money he had taken out of the company was £13,000 salary. Of course I must be careful; this is an interview under pressure and it is not a carefully considered letter or legal document, but I have to say it is very surprising indeed to find that the Payments were not mentioned in the course of that.

[66]On 22 September 2006 Mr Ali's accountants wrote to HMRC. The letter included this paragraph:

"Our client has requested we draw your attention to our correspondence to the Inspector of Taxes of Birmingham dated 10 August 2006 in which he confirmed money had been received from Mr Javed Ahmed. This money was received both personally and from Direct Resolutions Limited, the shares of which were held by Mr Javed Ahmed."

[67]It is not suggested in the accountant's letter of 22 September that Birmingham was told not only that money had been received from Mr Ahmed but that it had been received from him personally and from DR. So until that letter HMRC collectively would not have known of Mr Ali's case that the money had been received from DR. What is said in that letter does not excuse the inaccuracy of what was said in the interview. I have absolutely no idea what was said between his advisers and himself leading to this disclosure, and I do not pause to speculate, but note only a clear and unequivocal denial in the interview that anything else had been received.

[68]There is some evidence of Mr Ali's dishonesty in the shape of mortgage applications. The first relates to an application made on 1 January 2001. He reveals his address as 43 Church Hill Road, Solihull. He gives a previous address as 18 Moat House Road, Birmingham, where he says he resided from 1 August 1998 to 1 January 2001. He says he has no unsecured commitments. He says he has no ownership of other property. He says his employer is World Distributions, 43 Church Hill Road, Solihull, where he has been employed since 1 March 1998. He discloses earnings of £150,000 per annum. He reveals that he is a 25 per cent shareholder in World Distributions, which actually was incorrect because he was 100 per cent shareholder and it is suggested that this was to make sure that he was below the 30 per cent threshold above which an applicant for a mortgage of this sort is treated in the same way as a self-employed person. He sought a loan of £400,000 and the property to be mortgaged was 43 Church Hill Road.

[69]The second application was made on 30 July 2003. This gives his home address as 405 Streetsbrook Road, Solihull. He seeks a loan of £500,000. He says that he has lived in 405 Streetsbrook Road since January 2003. He gives details of his previous residences as 43 Church Hill Road from January 2001 to January 2003, and 18 Moat House Road from August 1998 to January 2001. The residential dates in each of the two application forms are consistent. He says he is employed by World Distributions again and that he has an income of £220,000 per annum. He says that he has no financial commitments and no mortgages.

[70]In his witness statement he sets out a table of his ownerships of properties and the times between which they were his main residence. He refers to 23 Moat House Road, 43 Church Hill Road and 405 Streetsbrook Road, his current address. 23 Moat House Road was not referred to in his mortgage applications, where it was 18 Moat House Road, and 43 Church Hill Road had different dates of ownership and residence. The dates I think conveniently fit in the witness statement with the periods during which he would want to seek principal private residence relief for capital gains tax purposes.

[71]In the context of these loans I note that there was a meeting between officers of HMRC and Mr Sohota, who is, or was, Mr Ali's accountant. This meeting was held on 4 July 2006. It is recorded that Mr Sohota said that Mr Ali came to his firm in 2004. Mr Ali's background was in computers but since October 2005 he had been dealing in mobile phones. Mr Ali was also a qualified mortgage adviser and had discussed property dealing with Mr Sohota. The objective was to buy and sell for a quick turnaround, but, against Mr Sohota's advice, Mr Ali decided to deal with larger, more expensive properties. I leave completely apart the question whether he was therefore trading rather than buying and selling houses with a genuine residence intention. That does not go to the application before me, but it is important to note that Mr Ali was a qualified mortgage adviser, which leads one to question his explanation for the misleading, I would say dishonest, information in the mortgage applications that he was told to fill in the form by a mortgage broker in that way.

[72]Mr Ali's domicile statement, dated 10 December 2005, refers to his income from abroad from land rental income. He said, because this was a domicile form about his future intentions, he would have no income from employment, referred to a home retained in Pakistan. Although he does not say that he owned it, he states that it was kept available for his own accommodation. His intentions for the future were to return to Pakistan when he retired.

[73]I should say something about the company now, DR. I do not propose to go into the evidence, which is sparse at present. There is however real reason to hold a suspicion that the company was acting fraudulently vis-à-vis DFES. Mr Ali says that he knew nothing about the company's operations, it was Mr Ahmed's idea and he owned the company. But the relevant times when the Payments were made Mr Ali still was a director and he signed cheques. He knew the company had money. He must have known it came from the DFES. It certainly did not come from Mr Ali's money in Pakistan. It cannot be described as money derived from Mr Ali's grandfather. In this context Mr Ali says that he inherited 250 million rupee bonds from his grandfather. The picture is not entirely clear, but there are documents suggesting a gift rather than a will taking effect on death of that amount.

[74]There is an extraordinary letter, as I would describe it, from a Mr Ghanti dated 4 March 2011. This was obtained by Mr Ali's solicitors, Sidney Mitchell LLP. Mr Ghanti writes that he had been head of business investigation group at Russell Jones and Walker. He left there in November 2002. He says:

"I can confirm that an agreement was drawn up by me on behalf of Mr Javed Ahmed and Mr Imtiaz Ali. As the agreement was drafted approximately ten years ago I cannot be accurate as to the exact date. I also do not have copies of the agreement or access to the file relating to Mr Ahmed and Mr Ali. I can confirm that Mr Ali had been the beneficiary of a large sum of monies which he had been left by his grandfather. I recall this matter as the sums involved were substantial and, as stated by you, in the region of 250 million rupees. I recall advising on this matter. As I was acting for Mr Ahmed in the first instance I had informed Mr Ali that he should take independent legal advice in relation to the agreement. "

The agreement involved the transfer of the ownership from Mr Ali to Mr Ahmed in Direct Resolutions Limited. Mr Ali was to be retained in the business in a management or some other employee role and only act upon the instructions of Mr Ahmed. Mr Ahmed was to take the obligations for the directorship and liabilities of the company. The agreement also centred round the transfer of funds from the company to Mr Ali. We refer to your letter (inaudible) the sum of £2.6 million. I do not recall the exact figure, but this amount appears to be correct. The sum was to be paid back by Mr Ali to Mr Ahmed in Pakistan in rupees. I was not privy to that transaction, although the agreement reflected that part of the deal." [Quotation unchecked.]

[75]Then reflecting that and doubtless further instructions from their client, Sidney Mitchell LLP write that in essence the nature of this agreement with Mr Ahmed was as follows: "Our client will transfer the ownership and directorship of the company called Direct Resolutions Limited ('the company') from himself to Mr Ahmed. Mr Ahmed would operate the company as he saw fit and would take responsibility for any liabilities. Mr Ahmed would pay our client a sum of approximately £2.6 million ('the sum') to our client, which was done through the company. Upon payment of the sum our client would transfer the 250 million rupees to Mr Ahmed." [Quotation unchecked.]

[76]That was the letter that they sent to Mr Ghanti to get the response which I have already referred to. So here we see Mr Ali being described as some sort of employee or manager within the company. The company is used as a means of providing funds to Mr Ali. He must have been aware of the source of the funds, that is to say the DFES, and we can see Mr Ahmed extracting money from the company in return for rupees paid to himself in Pakistan. This lends force to the claim that the Payments were income in the hands of Mr Ali, but that is a matter for the tax tribunal. But more importantly it seems that there was certainly improper dealing, to put it mildly, with the company's assets in paying these large sums of money. Whether they were out of distributable profits or not must be rather doubtful.

[77]It seems to me that there are reasonable grounds for concluding that to the extent that DR defrauded the DFES Mr Ali knew that it was doing so or was reckless about that. He completed the application to the DFES to become a learning provider. He gave the name of a Dave Jackson as the principal, although Mr Jackson had by this time transferred his shares to Mr Ali, and it is not suggested by Mr Ali that Mr Jackson had anything to do with the DFES business. Mr Jackson said he had had no involvement since Mr Ahmed took over. Mr Ali signed DR's only corporation tax return and its annual return in June and September 2001 and he of course received the payments from DR in August to December 2001 totalling over £2.5 million, signing the cheques himself. There is also a reasonable basis, in my view, for suspecting that DR deliberately secured funds from the DFES under ILAS in respect of irregular claims. The evidence for that is contained in Mr Brannigan's first witness statement in paragraphs 37 to 39, which I will not read out in the light of the time that I have already taken.

[78]Certain evidence has appeared since the freezing order was originally granted. Mr Brannigan gives evidence about this and it is summarised in paragraph 47 of Mr Chivers' skeleton argument. Mr Ali failed to declare Nationwide account number 0088970 into which working tax credit and child tax credits, in respect of which Mr Ali is a joint applicant with his wife, are paid. This may not constitute a breach of clause 10 of the freezing order because there may be less than £1,000 in the account. However, at paragraph 4 of his affidavit of assets Mr Ali states: "To the best of my knowledge my bank accounts and balances are as follows --" and it does not include that account. That account may, I suppose, be in his wife's name so that would not be a breach of a failure to disclose the account, provided of course that he did not own any of the money in it. But as part of the money going into that account resulted in his own claims, that is rather unlikely.

[79]Further, HMRC have evidence that after the freezing order was served he contacted HMRC's tax credit call centre on 28 February 2011 and instructed them that the working tax credits and child tax credits should be paid into that same account rather than the Nationwide account which is declared in his affidavit of assets. That is said to be a breach of clause 5 of the freezing order and an attempt to evade it. His affidavit of means discloses a number of bank accounts in the UK with modest balances in them, one is £10,000 overdrawn, with the exception of the Barclays Bank savings account, which has about a quarter of a million pounds in it. The properties he refers to in the UK are his main residence, 405 Streetsbrook Road, a property called 50 Stoner Park Road, Solihull, which he says he is the legal owner of but beneficially owned by his sister, and one car worth £20,000 but with £23,000 of outstanding finance on it. His overseas assets include two bank accounts with 70,000 dirhams and 15,000 dirhams in the Emirates Islamic Bank. I assume, but do not know, that the accounts are held in the Emirates and not a branch in some other country. At about six dirhams to the pound, that is less than £20,000 in those accounts.

[80]He says he has 2.5 million dirhams owed to him by Al Mariam Petroleum. Whether that debt is recoverable seems to be a matter of some speculation. He is owed £13 million by Mr Mohammed Imran. He says this has not been received nor remitted to the UK. This is an unsecured personal claim against Mr Imran. No information is given about whether that is immediately payable or whether Mr Imran is good for the money.

[81]He also says he owns shares in three companies, Midland Communications, Midland Enterprises and Midland Mortgages. These companies are all subject of tax appeals in the tax chamber of the first tier tribunal in relation to alleged MTIC frauds. One of the bank accounts is in the name of a company called B and C International. That has £30,000 in it. Otherwise the bank accounts for the three Midland companies and another company called Multi-text Limited are not shown as assets on this asset sheet.

[82]The ownership of Stoner Park, which is said to belong beneficially to his sister, is not explained. It looks as if the purchase was funded out of monies made available by Mr Ali. Whether he has any right to claim the money back I do not know. But what one can see is that if he has no interest or secured loan on that property, or no loan at all, there has been transfer of value to her. There is also the question of a loan of a significant amount of money to Mr Wasim in respect of another property.

[83]On 11 July 2006 Mr Ali's accountants were asked to give details of the payment of £434,000 odd from Woolwich account 23642505. They asked: what is the name of the relative to whom the loan was made? What is the address of the property? Does Mr Ali have any interest in the property? Has the loan now been repaid? To which the answers were: Mr Wasim was the family member. The property was 407 Streetsbrook Road, Solihull, Birmingham. No. No. So Mr Ali did not have any interest. Has the loan now been repaid? There is nothing to suggest the loan was repaid after 11 July 2006 and yet nothing appears in Mr Ali's asset statement about that amount of loan or that he has an interest in the property in satisfaction of the loan.

[84]I am entitled to conclude, and do conclude, that Mr Ali is not being full and frank. My conclusions are that there is a justified fear of dissipation as a result of his dishonesty shown in relation to the mortgage transactions and involvement with DR. I expressly state that I do not take into account any suggestion that there has been dishonesty on Mr Ali's part in relation to the MTIC frauds alleged before the tax tribunal. It is highly likely that Mr Ali’s returns were accurate. I have a concern about the disposal of property to the sister of Stoner Road. There was nondisclosure initially of the Payments and I am satisfied that there is a propensity to take financial duties with considerable latitude. This is not perhaps the strongest case one has ever seen for dissipation, but nonetheless there is a real risk, in my view, of dissipation. However, one must have a proportionate response to the allegation. The inquiry was not dealt with with the urgency with which it might have been dealt with. I think it is appropriate on that ground alone to temper the draconian effect which a freezing order might otherwise have.

[85]There are also concerns which Mr Ali has expressed in his witness statement. The first is that he needs assets to meet the costs of the MTIC case. In fact that has been agreed, as I understand it, by the solicitors for HMRC and that funds can be drawn on by him from the Barclays savings account with the £250,000 in it. He says he is hampered in his ability to conduct business and he refers to a company called Multi-flex Limited, which is one of his businesses, incidentally ownership of which not mentioned in his asset list, and he is seeking a licence in relation to a pharmaceutical business. I have no idea how he is funding those businesses or what assets he is proposing to use to do so. He says in paragraph 83: "In the difficult judgment period I am having to fund the tribunal litigation and will explore new business opportunities. (Inaudible) will be the subject of a freezing injunction for any extended length of time will have a serious impact on my ability to work on a self-employed basis and could ultimately lead me facing loss of business opportunity and perhaps even being unable to make any form of living." [Quotation unchecked.]

[86]Those are very general and unfocused suggestions. There is no identification of the businesses he wants to be involved in, except Multiflex Ltd. and trading in pharmaceuticals. There is no business plan, and no attempt to show what he needs. That is, so far as self-employed businesses are concerned, not of significance because any freezing order will exclude from its effect the outgoings in the proper course of business. As is common knowledge, a freezing order has undesirable effects. Even where banks are told they may operate accounts, they seem reluctant to do so and I believe that Mr Ali is experiencing that not unexpected sort of result. Nonetheless, I think the appropriate way of dealing with this is to continue the freezing order but to a rather more limited extent.

[87]What I propose to do is to freeze the real properties in the United Kingdom, including the house belonging to the sister, at least pending evidence of how she is said to own the property. In relation to the personal accounts, I am not prepared to continue the freezing order, save in relation to the one with the significant sum of money, the Barclays savings account, but I will allow drawings on that for the proper conduct of the litigation in the MTIC litigation. Excluding these accounts from the freezing order will mean that the freezing order in relation to the other UK property will have to be reworded so as not to reduce the amount of his assets other than the bank accounts below the value which is currently in the freezing order. So he will not be able to fill up the bank accounts with other assets, if there are any which we do not know about, save in the ordinary course of business. If he wants to do other things he must identify the source of the money and say why he needs it. I should add for completeness that the freezing order does not relate to the companies' bank accounts and they should be omitted from any order.

[88]In relation to the overseas property I have a significant difficulty. The cause of action which supports the freezing order is a tax debt and it is a well-known principle of private international law that states do not enforce revenue impositions of another country. I can see no reason why that would not apply in the present case, meaning that, so far as concerns the credit to the bank accounts in the Emirates, or indeed any property in Pakistan, HMRC could not enforce against those assets to enforce a judgment which it gets at the end of the day, if it succeeds, for tax. If they cannot get at the assets, it is wrong in principle that they should have a freezing order. However, I have not heard argument on this point and I should give HMRC the opportunity to make their case.

[89]I therefore propose to continue the freezing order until noon on Monday of next week in relation to the foreign property to give the Revenue the opportunity to tell me and Mr Ali whether they nonetheless seek a freezing order over the foreign property. If they do, this matter must be listed again before me and I will attempt to do it very speedily and, I would hope, on Tuesday of next week. I cannot guarantee that because I have to check with listing. If on reflection HMRC recognise that a freezing order really cannot support the freezing of assets against which they could not enforce, they should let Mr Ali know and the injunction in relation to all of the foreign property can be discharged.

HM Revenue & Customs v Ali [2011] EWHC 880 (Ch)

(b) :

Lord Mustill then goes on to say that:

the judge says this:

Cited in 3 later judgments