Hague Plant Ltd v Hague & Ors [2016] EWHC 2663 (Ch)

[2016] EWHC 2663 (Ch)

Case No 2LS30214

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue LEEDS DISTRICT REGISTRY, Leeds Court Centre

Date 26/10/2016

LS1 3BG

Before

MR JUSTICE NORRIS

Between

HAGUE PLANT LIMITEDClaimant

(1) MARTIN HARTLEY HAGUEDefendants

(2) JEAN ANGELA HAGUEDefendant

(3) MHH CONTRACTING LIMITEDDefendant

Hugh Tomlinson QC and Ben Silverstone (instructed by Walker Morris LLP) for Claimant

Gregory Pipe (instructed by Shulmans LLP) for First and Third Defendants

Margaret Griffin (instructed by Lupton Fawcett Dennison Till) for Second Defendant

Hearing Hearing dates: 3,4,8,9,10,11,15,16,17,18,19, 22 and 23 June and 30 and 31 July 2015

Judgment circulated 5 August and 25 October 2016.

Judgment Approved

MR JUSTICE NORRIS :

[1]Douglas Hague (“Mr Hague”) and his wife Jean (“Mrs Hague”) were farmers. Since 1957 they had run a farming business at Prospect Farm, Bradfield, Sheffield. They supplemented their farming income by running side line businesses. Mr Hague ran a plant hire and small contracting business under the trading name “D Hague Contractor”. Mrs Hague was a partner in a haulage business. Their three children, David William Hague (“David”), Dianne Hague (“Dianne”) and Martin Hartley Hague (“Martin”) all in due course worked in the farming and other businesses. In 1971 Loxley House Farm was bought (probably with assistance from Mr Hague) in David’s name, and David operated his own business there.

[2]Mr Hague was an entrepreneurial man. He developed his contracting business by entering into a contract in 1974 with a local paper tissue factory to remove a by-product (referred to as “pulp” or “sludge”). Originally he simply disposed of it by tipping it around the family farms: but he discovered that by spreading it on fields significantly greater quantities could be processed and that the effect on the land could be beneficial. I say “could be beneficial” because the spreading of paper pulp would require additional tillage, could disrupt the agricultural calendar and might lead to a requirement for the application of additional nitrogenous fertiliser: but that might be outweighed by the conversion of scrubland into workable farm. Because of this beneficial effect and because of the large areas of family land available close to the factory there was no need to pay anyone or to incur significant costs, and this “pulp” business proved very lucrative for some 25 years.

[3]In 1975 Mr Hague incorporated Hague Plant Limited (“Plant”) to take over the non-farming businesses, and he allocated shares to David, Dianne and Martin. Eventually each of them came to hold 32% of the issued shares in Plant, and Mrs Hague retained 4%. The three children were directors.

[4]The business of Plant developed into excavation and site clearance. This produced large amounts of waste material which had to be disposed of. So in 1984 Plant acquired a disused quarry at Haighenfield, near Prospect Farm and obtained a tipping licence. The tipping licence came to be used not only to tip Plant’s own excavated material but also third party waste. Taking third party waste incurred the risk of prosecution for taking in unauthorised or contaminated material, and posed management problems. But the business grew rapidly and two further properties (at Lightwood Lane and Carlisle Street, Sheffield) were identified as potential tipping sites. The former was a site in third party ownership but in respect of which permission to tip was available: the latter was a site for sale in Sheffield itself. Being some distance from Prospect Farm these sites would prove more difficult to supervise, and the risk of prosecution for processing unauthorised or contaminated waste or being burdened with expensive remediation demands would increase.

[5]In part to limit the risk to Plant’s business from those tipping operations a new company, subsequently called Hague Plant Excavations Limited (“Excavations”) was incorporated in June 1985, with David, Dianne and Martin as its shareholders, and with Mrs Hague, Dianne, David’s wife (“Rosemary”) and Martin’s wife (“Jean Angela”) as directors. Within months of incorporation a reorganisation of the shares was undertaken. The process began in November 1985 and was concluded in July 1986. David’s and Dianne’s shares in Excavations were transferred to Martin and to Jean Angela: Rosemary ceased to be a director, and Martin became one.

[6]The transfer of the shares was more or less coincident with the acquisition by Excavations in September 1986 of the further tipping site at Carlisle Street. In order to fund that acquisition the sum of £115,000 of Plant’s money was used to complete the purchase in the name of Excavations: and this was treated as an inter-company loan (subsequently written off). Carlisle Street was to become the hub of an expanding and highly successful waste processing business. By “waste processing” I mean that Carlisle Street became not only a tipping site but also (from 1988) a transfer station where waste was taken in and was recycled, the operation being conducted by both Plant (which provided men and machinery and in return took the recycled material) and Excavations (which provided the site, the licence and the management and operational direction). The waste tipping and transfer business was under the direction of Martin (who was a director of both Plant and Excavations).

[7]After about 20 years, by which time Excavations was worth something over £7m, a huge family row erupted over the purchase of a hotel, which row spread to Excavations. In short, David and Dianne said that although they had transferred their shares in Excavations to Martin and to Jean Angela this transfer of legal ownership and control of Excavations was simply to protect the rest of the family and the business of Plant from the risks inherent in the tipping and waste processing business, and that it had always been intended that David and Dianne should remain beneficially interested in the transferred shares. On the other hand Martin and Jean Angela (supported by Mr and Mrs Hague) contended that the transfer of David’s and Dianne’s shares was exactly that, an outright transfer - because Martin and Jean Angela were willing to run the risks of conducting the tipping and waste processing businesses which the others were not. This family row led to hotly contested family litigation (generally called “Hague 1”) that was determined by a judgment of His Honour Judge Behrens in March 2009 in which he held that the transfers executed by David and Dianne of their shares in Excavations were and were intended to be transfers of both their legal and beneficial interest (and that in consequence after the transfers were registered David and Dianne had no legal or beneficial interest in Excavations, Martin and Jean Angela being sole owners in law and in equity).

[8]Far from putting an end to the family dispute, this decision has provoked five further rounds of litigation, of which the instant case is the last but one. (During this case Hague 6 was commenced, in order to advance claims for which permission to amend was refused in this action). By a claim form issued on the 23 June 2011 Plant (which is now under the entire executive control of David and Dianne as the result of the dismissal and removal of Martin shortly after judgment in Hague 1) sues Martin, Jean Angela and Excavations (under its present name of MHH Contracting Limited) for an account of its profits since 1986, or for equitable compensation, and for a declaration that certain properties belonging to Excavations are held on trust for Plant. That relief is sought on the footing that Martin acted in breach of his fiduciary duties as a director of Plant between 1986 and 2009 in dishonestly favouring the interests of Excavations over those of Plant, thereby making unauthorised profits for himself, Jean Angela and Excavations; and on the basis(a) that Jean Angela and Excavations each dishonestly assisted Martin in the breach of his fiduciary duties and

(b) that Excavations knowingly received property and services from Plant for its benefit and to the detriment of Plant at the direction of Martin and in breach of his fiduciary duties. By this means David and Dianne seek to recover for Plant and for themselves the benefit of the business of Excavations of which they consider they were deprived by Judge Behrens’ decision in Hague 1.

[9]All iterations of the Particulars of Claim have begun with an acknowledgement that the events with which the claim is concerned span a period of about 23 years, from 1986 to 2009. That is a fundamental point of which sight must not be lost. It has given rise to limitation and laches defences, and to arguments about the disapplication of such principles by reason of the dishonesty of Martin. But it also means that making decisions about what probably happened is extraordinarily difficult.

[10]From the outset the Particulars of Claim have included an allegation that dishonestly, and in deliberate and conscious breach of his fiduciary duties, Martin procured Plant to transfer monies to Excavations which Martin knew were in no way referable to any goods or services provided to Plant by Excavations. From the outset the Defences of each of the Defendants has contained a paragraph responding to that allegation in these terms:- “(i) It is admitted and averred that by the process of cross-invoicing Martin procured [Plant] to transfer monies to [Excavations] which he knew were not referable to any goods or services provided to [Plant] and/or which far exceeded the value of services and goods provided. (ii) It is admitted and averred that by the process of cross- invoicing, Martin procured [Excavations] to transfer monies to [Plant] which he knew were not referable to any goods or services provided to [Excavations] and/or which far exceeded the value of services and goods provided. (iii) The monies travelling each way were calculated so as to balance out and to create no net cost to either company…. (iv) Cross-invoicing was a means by which each company attempted to reduce its liability for corporation tax by being presented with a false invoice by another company so as to give the impression of a reduced profit. The practice was known by, consented to and authorised by and participated in by [Plant], [Mr Hague], [Mrs Hague] Dianne and David…”. In amended versions of the Defences subparagraph (iii) (which asserts that the relevant sums balanced out) is qualified in the following way:- “… subject to(a) de minimis differences and

(b) intentional small differences aimed at hiding the activity from any potential third party investigation. Jean Angela maintained a record of this activity and Martin relied upon the accuracy of Jean Angela’s record keeping for the purpose of ensuring that the process balanced. On occasion the balancing process would be completed by Martin valuing work done and ascribing a price to it which would then be used by Jean Angela as part of this balancing process….”

[11]As well as that allegation of the payment by Plant to Excavations of monies which were not referable to any goods or services provided to Plant by Excavations, the claim against Martin for breach of fiduciary duty (and against Jean Angela for dishonest assistance and against Excavations for dishonest assistance and knowing receipt) had a number of other aspects. These include:- a) Payment by Plant of various fees for which Excavations was liable: b) Provision by Plant of goods and services to Excavations for a consideration far below the true value (or in some instances for no consideration): c) The provision by Plant of labour and equipment in respect of works carried out on properties owned by Excavations (or by Martin and Jean Angela): d) Causing Excavations to overcharge Plant in relation to tipping charges, rental/storage charges, weighbridge charges, transfer station charges and landfill tax: e) Diverting to Excavations all fees paid for leaving waste at Excavation sites (even though much of that waste was for recycling by Plant): f) Causing Excavations (rather than Plant) to acquire properties and funding those acquisitions by profits dishonestly extracted from Plant.

[12]In their response to some of these individual claims (e.g. the tipping charges, the rental/storage charges and the weighbridge charges) Martin and Jean Angela alleged that these were all part of the cross-invoicing scheme, in that whilst there might be an element of legitimate charge there was also an element of false charge (in that once Jean Angela had calculated the legitimate charge on the basis of data provided by Dianne then Martin would instruct her to adjust it to accommodate the appropriate movement of funds required to achieve neutrality under the cross-invoicing process).

[13]The case of Martin and Jean Angela on “cross-invoicing” included the allegation that the existence and operation of the scheme was known to David and to Dianne. As part of that case (although the allegations themselves went wider) Martin and Jean Angela alleged that Plant had been used as a device to provide benefits to Mr Hague, Mrs Hague, and to their children (including David and Dianne). These benefits included:-(a) payment of large undeclared sums of cash:

(b) the purchase of properties for (and the writing off of substantial loans to) another family company called Hague Farming Limited (“Farming”):

(c) the undeclared development and improvement of properties in which David and Dianne (amongst others) individually had interests: and

(d) the undeclared provision of domestic supplies and services by Plant. In each case it was said that the object of the exercise was to avoid paying tax on the benefit.

[14]The resolution of these various issues required an examination of the surviving raw accounting documents (of which there was a very considerable volume); the receipt of evidence from the principal participants, their spouses, former spouses and children commenting upon and explaining this material so far as it related to each of the businesses in which the Hague family or some members of it had participated between 1986 and 2009; and a consideration of expert evidence. The case was initially managed with the view to there being a trial of between 8 and 12 weeks duration commencing in June 2015. But this proposal was derailed by a deep dispute over proposed amendments by David and Dianne to their Particulars of Claim, which went to the Court of Appeal: see Hague v Hague

[2014] EWCA Civ 1609

, a decision handed down on 11 December 2014.

[15]In the light of the contested amendment a full trial starting in June 2015 was impossible. The parties sensibly agreed that, rather than let the time between the original amendment decision of Judge Behrens in March 2014 and the disposal of the appeal lie fallow, it would be possible to identify some issues for trial in advance of others thereby utilising the trial slot. These were not “preliminary issues” in the conventional sense explained in SCA Packaging v Boyle

[2009] UKHL 37

at [9]. Rather, this was an attempt to isolate the factual question whether cross invoicing actually occurred in the way claimed by Martin and Jean Angela. It was recognised that the determination of this question might not in the end prove material (since Martin said the practice had ended in 2003, whereas the Claim Form was only issued in 2011, so that there were limitation issues that might only be resolved upon a consideration of questions of honesty). But it was accepted that progressing the case by addressing the “cross-invoicing” issue was of value even if that issue of itself required a consideration of some contextual matters.

[16]On the 16 October 2014 (and with the cooperation of the parties) I made an Order for the determination of seven issues in advance of the main trial. The Order was in these terms:- “It is common ground that there was a deliberate transfer of some monies which were known by Martin either(a) not to be referable to any goods or services provided to the paying company or

(b) to be far in excess of the value of the goods and services provided to the paying company (“unjustified payments”). By reference to the financial years (a) 1990/1991, 1991/1992 and 1992/1993 and (b) 1998/1999, 1999/2000 and 2000/2001 (“the Relevant Years”) the following issues (“the Issues”) shall be determined in advance of trial:- 1. Were such unjustified payments made pursuant to a cross-invoicing arrangement between [Excavations] and [Plant] as admitted and averred in paragraph 56(c)(i) and (ii) and paragraph 56(f)(i) (last substantive paragraph beginning “For the avoidance of doubt…”) of the Re-Amended Defence of the First and Third Defendants and the parallel paragraphs in the Re-amended Defence of the Second Defendant (“the Defences”)? 2. If such unjustified payments were made as part of a cross-invoicing arrangement, were the payments each way calculated to balance out so as to create no substantial net loss to either company as alleged in paragraph 56(c)(iii) of the Defences? 3. If such unjustified payments were made as part of a cross-invoicing arrangement, was the practice known by, consented to and authorised by and participated in by [Plant] and/or Dianne and/or David (as alleged in paragraph 56(c)(iv) of the Defences)? 4. In the middle year of each tranche of Relevant Years did the payments each way broadly balance out so as to create no substantial net loss to either company as alleged in paragraph 56(c)(iii) of the Defences? (In answering this question there will be no detailed account taking and no final determination of figures). 5. If [Plant], its directors and shareholders were involved in any cross-invoicing arrangement, then (as raised in response 65 in an Answer dated 7 December 2012 to [Plant’s] Part 18 Request) did [Plant] know that it could not rely upon the accuracy of inter-company invoicing? Can [Plant] now complain that invoices are inaccurate? Can [Plant] put forward a case based upon the accuracy of such invoices or the expectation that they would be accurate? 6. To what extent (if at all) are these issues to be determined by reference to findings or admissions made in the proceedings usually referred to as “Hague 1”? 7. If (i) the answer to Question 2 is “No” or (ii) the answer to Question 2 is “Yes” but the answer to Question 4 is “No” then the question of whether Martin was honest or dishonest and the question of whether (if he was dishonest) Jean Angela was ignorant of that dishonesty shall not be determined as part of the Issues but shall be determined at the trial of the action.”

[17]Even the definition of those Issues had to be supplemented by lengthy directions in an endeavour to provide a focus for the hearing, to control the material to be deployed and identify the impact of the resolution of those issues on the action as a whole. Since David and Dianne had spent years undertaking (though not personally) a most minute examination of the raw accounting documents and of every statement made by Martin and Jean Angela (in statements of case, witness statements or oral evidence in Hague 1, and in other Hague litigation) in order to demonstrate that the notion of “cross-invoicing” was pure fantasy I gave directions designed to secure that they should set the boundaries of the debate and should identify the detailed issues (even though in the action overall it might be for Martin as a fiduciary to account for his dealings). My direction that this should be done “concisely” proved incapable of achievement. I will at the outset express my thanks to Counsel for coping with the vast quantities of material generated and/or adduced to address the agreed issues.

[18]In the shipwreck of the relationship between Martin and his mother on the one side and Martin’s siblings on the other there are in truth few pieces of wreckage to which one can cling. My approach to the quantity of material produced is to follow the guidance given by many other judges: to look principally to authentic contemporary documents, to pay proper regard to the inherent probabilities, and to weigh the oral evidence in the light of those considerations. I reminded myself of the observations of Leggatt J in Gestmin SGPS SGA v Credit Suisse

[2013] EWHC 3560 (Comm)

concerning oral evidence in commercial disputes. Although he there suggests that to contrast recollection and reconstruction is to draw a false dichotomy, the labels have their utility in pointing to what may be the predominant process by means of which evidence is tendered. In the instant case the matters at issue have been the subject of the most intense examination and scrutiny since they first made their appearance in correspondence on 21 February 2008. The underlying material has thereafter been the subject of analysis and review, comment and discussion, criticism and reappraisal within the two camps within the Hague family for many years. Even putting on one side a propensity within the family for dishonest conduct, there is no real hope that oral evidence will provide a reliable guide to where the unvarnished truth lies. Its real value lies in the extent to which it records apparently unimportant detail.

[19]I would qualify this general observation about the oral evidence in three respects:- a) This has no application to Mr Midgley. He is a partner in the accountancy firm of Haywood & Co of Rotherham, which had acted for Mr Hague and the family businesses since 1950: Mr Midgley had been active in providing the firm’s services to the Hagues since the 1970s. He gave accurate evidence supported by his working papers without any apparent partiality. b) It applies only to a degree in respect of non-family witnesses, such as those who worked for or with David, Dianne, Martin and Jean Angela. They undoubtedly had their personal loyalties but did not, I think, have the intense focus on the battle that David, Rosemary and Dianne on the one hand and Martin and Jean Angela on the other applied. c) It applies only in a qualified sense to Mrs Hague. I have no doubt that she was caught up in the family dispute, and she has taken Martin’s side in it. But at the time of preparing and giving her evidence in this action she was in her mid-80s, frail and with diminished faculties. There is, of course, a real risk that she has been deluded into believing that certain events took place (when they did not). She was ready to agree with leading questions put to her by Counsel for Plant at trial (and may have been equally willing to agree to leading questions put to her by Martin’s legal representatives when taking her statement). But her oral evidence had about it an air of authenticity and a disarming frankness. Yes, she said, it was part of her technique to lie and to cheat, to pay bribes, and to take cash for jobs. It was she said common practice:

“Everyone was doing it. If we didn’t, someone else would”

. She spoke of her great upset at her children falling out, of her desire to do “the correct thing” and of her bewilderment at the present dispute between her children. When taxed with particular matters she became very animated: her answers being neither calculated nor considered. I felt I saw the shadow of the astute businesswoman who had built up the family fortune by means which she acknowledged were not wholly honest, but about the essential features of which she was being truthful (though I have consciously tried to avoid the trap of treating confidence of recollection as an indication of reliability).

[20]Martin’s account of the cross-invoicing scheme was as follows. The businesses were always run in such a way as to keep wealth within the family: if this meant avoiding paying tax, then tax was avoided. Cash was taken in the business and not declared. Benefits were conferred on family members for which no payment was made and in respect of which no tax declaration was made. Sometimes if a payment had to be made then the service or product was misdescribed in order to obtain a more favourable tax treatment than would have applied had an accurate description been included. (An example is invoice 57112 dated 30 November 2004 which was said to relate to “repair existing haul roads at Carlisle Street” but in truth was for labour and materials supplied by Plant to convert a property owned by Excavations). Sometimes false invoices were raised to transfer value. (An uncontroversial example is the invoices which Excavations rendered to Plant which were with everyone’s agreement used to “write off” the inter-company loan by Plant to Excavations which had been used to purchase Carlisle Street). It was in this context that the cross-invoicing scheme was said to have been implemented.

[21]Martin’s explanation is in these terms:- “My parents became involved in the practice known as “cross-invoicing” or “year end invoicing”. This was a practice which was intended in the event of a bad trading year to allow tax to be avoided. Tax was deferred from the year in which it should have been paid… The standard practice had been to look to reduce the profits of one company as it reached its year end by one of the other companies invoicing it for services and for that “invoice” to be repaid in the next financial year…The principle of “year end invoicing” or “cross-invoicing” was for one company (for these purposes called “Company 1”) to send invoices to another company (for these purposes called “Company 2”) usually towards or very near the end of financial year of Company 2 (the process will only work if the two companies have different year end dates). The invoices from Company 1 to Company 2 contain fictitious charges and descriptions which were intended to sound convincing if the invoices were ever examined by HMRC, but which were simply false or were overstated in that they did not represent actual work done or material supplied but when entered into the books of Company 2 had the effect of reducing the profits of Company 2 because they gave rise to a liability for Company 2 to pay those invoices. In some instances the invoices upon which these charges were raised would be wholly fictitious in that they were in no way referable to goods or services provided, in other instances invoices for generally referable goods or services would be inflated to carry a “year end effect”. The effect was to reduce the profits of Company 2 and therefore the liability of Company 2 to tax and we always saw this as a means of trying to shelter the companies concerned from the effects of any bad trading years which would have had the effect of reduced profits and high levels of tax to pay for previous years profits…Company 2 would pay the invoices which had been raised under this arrangement and, before Company 1’s year end, it raised invoices on a similarly fictitious basis, to Company 1 in order to reduce the value of the invoices which Company 1 raised to Company 2 and these invoices were then paid. On occasion, a cross-invoiced sum which should be repaid would be worked off i.e. credit would be given for a service that would otherwise have been genuinely charged for… Similarly, when it came towards Company 1’s year end, Company 2 would issue invoices on a fictitious basis to Company 1 in order to reduce Company 1’s profits for that year and Company 1 would pay those invoices and then after its own financial year end Company 1 would return the value of those invoices in the same way as Company 2 had done as I have described above”.

[22]David and Diane say that this account is pure fantasy. The headline points that they make are:- a) The scheme is entirely pointless, and an astute businessman like Martin (whilst not himself involved in the mechanics of its operation) would not have permitted the staff to implement such a complicated and risky scheme for no real benefit. b) When first called to account (and required by David to attend a disciplinary meeting in May 2006) Martin did not make a single reference to, or suggest the existence of the scheme, the notion of “cross-invoicing” emerging only on 21 February 2008 as part of Martin’s Defence in Hague 1. c) The pattern of alleged cross-invoicing evidenced by the documents is not consistent with Martin’s account of the scheme. d) Martin’s account of the scheme is not consistent with the underlying business model and the commercial realities. e) The documents which are alleged to support the existence of the scheme are suspicious.

[23]Having established what the cross-invoicing scheme is (and noted David and Dianne’s criticisms) I can turn to the documents and to the inherent probabilities to see whether they support or undermine the actual existence of a cross-invoicing scheme (and so whether taking account of that material and giving what weight may be accorded to the oral evidence) it is possible to find on the balance of probabilities if such a scheme either did or did not exist.

[24]It is convenient to begin by listing the principal documents deployed at trial which were said to illuminate the issue of the existence or non-existence of the cross-invoicing scheme, before noting one general challenge and then describing and considering each in turn:-(a) The Early Years Note;

(b) The Haulage Schedules;

(d) The Blue File;

(e) The Yellow File;

(f) (For reference purposes) the Grey Books.

[25]Within the trial of the Issues the Claimant squarely challenged the authenticity of the Early Years Note, the Haulage Schedules and the JAH Note. The authenticity of the Blue File was not directly challenged. Its contents were accepted as genuine invoices. It was not one of the documents which Plant required to be the subject of expert document examination. But Jean Angela was accused of selecting and putting documents into the Blue File to support her “story”. The authenticity of the Yellow File was not challenged. The Grey Books were accepted by all as genuine, contemporaneous though not comprehensive documents: but there was an issue as to their reliability as source material for particular enquiries. Paragraph 78 of the Particulars of Claim alleged that “all documents that the Defendants allege are records of cross invoicing are not contemporaneous documents but subsequent fabrications”. I therefore permitted each party to call expert handwriting and document examination evidence, and by Order dated 24 February 2015 I settled the questions to be answered by those experts (the parties being in dispute on that matter).

[26]The expert for Plant, David and Dianne was Dr Chris Davies a document examiner who had trained with the Metropolitan Police Forensic Science Laboratory, and now operated as an independent forensic consultant. Martin, Jean Angela’s and Excavations’ expert was Mr Robert Radley, senior consultant with the Radley Forensic Document Laboratory. They produced individual reports and a joint report dated 27 May 2015.

[27]The Early Years Note was in evidence in Hague 1. It consists of several ledger sheets apparently recording a selection of sales and purchases by Excavations, and is written by Jean Angela. Working across the printed page the Note records the invoice number, a brief narrative, the charge, the VAT, the total invoice sum and the invoice date. There are annotations on the ledger sheets. David and Dianne assert that the Early Years Note is fabricated.

[28]The evidence of Mr Radley after a consideration of very many features of the Early Years Note was that the physical state of the document was wholly in keeping with what is expected of a genuine document written up periodically. Dr Davies was in agreement. The Joint Expert Report recorded their agreement that the evidence strongly undermined David and Diane’s case that the Early Years Note was not contemporaneous and strongly corroborated Martin and Jean Angela’s position that it was.

[29]Counsel for Plant challenged this conclusion on the basis of internal evidence within the Early Years’ Note. One page of the Early Years Note for the period December 1986 to November 1987 identifies a number of invoices which Excavations paid to Plant totalling £173,725.05. (So that one keeps one’s bearings, these are payments which Martin’s company actually made to David and Dianne’s company). They include payments in respect of the stripping of the topsoil on Lightwood Lane, and levelling and regrading Lightwood Lane, between July and November 1987, plus payments for levelling and regrading Carlisle Street in June 1987. Below these listed invoices are entries which say:- “173,727.05 invoiced paid to Plant 137,844.18 actually owed to Plant £35,882.87 overpaid so this actually covers levelling of tips to February 1987 (based on 50 hours x £15 x 50 weeks) All clear.” The top right hand corner of the sheet is marked “Clear”. £35,882.87 overpaid so this actually covers levelling of tips to February 1987 All clear.”

so this actually covers levelling of tips to February 1987

[30]On its face this entry would appear to be a contemporaneous record of the operation of a “cross invoicing” scheme, though not the familiar one utilising “generating” and “returning” invoices, but one where the “overvalue” transferred is cancelled out by chargeable work that is not in fact paid for. On this “leg” of the cross-invoicing operation Martin is (to his apparent disadvantage) overpaying David and Dianne. If he is, in breach of fiduciary duty, to be procuring that Excavations improperly obtains an advantage over Plant (as David and Dianne say) then that must be because either(a) the £173,727.05 was not an “overcharge” at all but the proper price for the job (the “overcharge” being artificially created in order to be artificially cancelled by the non-delivery of an invoice by Plant for work done in early 1987 for which Excavations ought properly to have been paid); or

(b) the “cancelled” levelling charges were worth a lot more than £35,882.87 in June 1987.

[31]Those are not findings that can be made: the actual work done in June 1987 cannot be securely identified. So to advance the case that things are not what they seem in relation to the Early Years Note Counsel for Plant pointed out that the cancelling work referred to is itself slightly odd, since read literally it would appear to relate to the levelling tips for the 50 weeks preceding February 1987; yet Carlisle Street was only acquired in June 1986 (less than 50 weeks before February 1987). They therefore invite the conclusion that although this document appears to evidence the operation of a cross-invoicing scheme it all must be made up after the event.

[32]There is very little material upon which to reach a conclusion as to what this entry actually means. I incline to the view that the reference to “tips” means that there were levelling works elsewhere than at Carlisle Street: the internal references to Lightwood Lane suggest that it too was then operative, and the evidence suggests had been operative since June 1986, so the 50 weeks is probably an aggregate. I note that the same matter is also referred to on another page of the Early Years Note not referred to at trial, where the “returning” invoices are again totalled alongside the remark “above returned plus actual levelling”. So whatever the transaction was, it was recorded in two separate entries. Moreover, if there were not 50 weeks’ worth of levelling charges to be offset the end result seems to me to be that Plant (the company in which David and Dianne are interested) has been overpaid. This is a curious basis on which to suggest that the Note is fabricated so as to defraud David and Dianne.

[33]What is plain from the examination at trial of this entry in support of a challenge to the contemporaneity of the Early Years Note is:-(a) It is a record of and commentary upon actual invoices delivered: so one has to ask why the separate record and the commentary is being created. Is it more likely to be a contemporaneous record having regard to the other evidence available on that question? Or is it more likely to be a fabrication made prior to February 2008?

(b) It apparently records (in two places) an overpayment by Excavations (and it cannot be concluded that there was no element of overpayment): so one has to ask why overpayments are being made by Excavations and recorded as such?

(d) The conclusion of the experts (that the Early Years Note is not a recent fabrication but a record generated over time and probably contemporaneous) is not undermined by the ambiguous wording of a single entry.

[34]A similar pattern emerges on other pages on the Early Years Note. A page showing sales by Excavations to Plant (i.e. the movement of money from Plant (David) to Excavations (Martin)) on 29 February 1988) has a number of invoices for general items (“Yard” “Topsoil” “sand”) marked with an asterisk. These total £146,830.56. To this figure is then added a sum of £45,425 for other work. This makes £192,255.56. There is a record that £192,255.56 including VAT is to be returned to Plant (i.e. by Martin to David), to which is added a note “levelling and crushing to be returned to Plant £21,466.66”. Added together these figures now total £213,722.22. Lower down the page £213,722.21 (sic) is noted as having been returned to Plant by invoice number 1774D (which exists). Below that is the entry “[therefore] all clear to 30 June 1988”. On its face this looks to be an overcharge (by “generating” invoices) by Excavations (reducing Plant’s profits), which is cancelled by “returning” invoice 1774D delivered by Plant to Excavations (re-inflating Plant’s profits), warranting the remark “all clear”.

[35]Below that is yet another computation below which appears “All clear to 30 September 1988”. That entry is exactly mirrored upon an annexed page which deals with purchases by Excavations and records invoice number 1774D (followed by the remark “all clear to 30 June 1988”) and an invoice reference and narrative referring to levelling and compacting at Lightwood Lane and levelling, compacting, crushing and screening at Carlisle Street, concluding with the comment “all clear to 30 September 1988”. On their face these are again contemporaneous records of “cross invoicing”.

[36]If the experts are right, the Early Years Note is an authentic document (i.e. one produced over time and not fabricated), available in Hague 1 but not then challenged as a fabrication, which contains entries which evidence a “cross-invoicing” scheme in operation both in a simple form (by the creation of “generating” and “returning” invoices) and in a more complex form.

[37]I turn to the Haulage Schedules. This term was used to cover both lined spreadsheets used to record the type of vehicles in use, the number of loads carried and the site at which tipping occurred (data which is also recorded elsewhere in the Grey Books): and also lists of invoices calculated from those spreadsheets. The spreadsheets are of interest insofar as they verify the amounts invoiced and listed: and just so that one keeps one’s bearings, they show haulage undertaken by Plant for Excavations. The lists of invoices are of greater interest. All these were produced by Martin in Hague 1 in March 2008 as part of the attack on the credibility of David and Dianne, and therefore (as pieces of evidence deployed in the family dispute) pre-date the main action in which these Issues have been ordered. In their Points of Claim in the Issues the Claimants allege that “these supporting schedules [are] not contemporaneous documents” and in their Reply allege that they “have been reverse engineered, involving manipulating underlying periods for invoices, the rates used for destinations and the loads that are included….”.

[38]In their Joint Report the experts were agreed that the evidence they examined(i) strongly undermined David and Dianne’s case that the Haulage Schedules were not made on a contemporaneous basis and

(ii) very strongly corroborated Martin and Jean Angela’s case that the documents were authentic contemporaneous “course of business” materials produced over a period of time. Amongst the grounds relied on was that the documents were written in a wide variety of inks (some of which were to the naked eye the same, but on examination proved to be different): Mr Radley makes the point (and Dr Davies accepts) that a fabricator of the document would be unlikely deliberately to use different pens whose results appear the same. Further, the impressions on the paper showed the documents to have been written on a variety of surfaces and at varying angles and bore impressions which appear to emanate from other (sometimes entirely unrelated) documents. Yet further, the forms on which the entries were made showed that they had been generated over time from multiple printings, and the existence of staple holes showed that some sheets but not others had been attached and reattached to other documents. Given the range of analytical tools available to a forensic document examiner it was considered that the deliberate introduction of these characteristics by a forger or fabricator was only an extremely remote possibility.

[39]The Haulage Schedules include lists of charges which Plant is going to render Excavations. On one sample the first column shows the activity undertaken (“haul and tip” or “haul only”). Another shows a number of loads, the type of wagon and the price paid for carriage. A final column totals up the relevant charge. This Schedule is in the writing of both Dianne and Jean Angela. It is interesting(i) because Dianne appears to have corrected some of the figures (a point to which I shall return); and

(ii) because the total of the relevant charges is some £88,328 but there is then added to this an unexplained figure of £204,000 to make a total invoice £292,328 alongside which is written “Return 99”. On its face this would appear to be the artificial inflation of an invoice by £204,000 with a note that the overcharge is a “return” by Excavations to Plant. (There is in fact a note to precisely this effect in another document, the JAH Note to which I next turn). I should record that this pattern of entries is not unique: the addition of an arbitrary figure to the true invoice total marked by the narrative “return” and appearing as an entry in the JAH Note occurs on other occasions in the Haulage Schedules.

[40]Another sample shows haulage invoices totalling £58,969: but the schedule then adds £109,040 alongside the note “Return 01”. This makes a new total of £168,009. By invoice no. 43152 dated 31 August 2001 Plant invoices Excavations in the sum of £168,009 for “transporting materials” (without itemisation) i.e. for the apparently inflated sum. This August invoice looks like the return leg (“Return 01”) of an earlier generating invoice. There are two corresponding records in the JAH Note. The first is a note in February 2001 “[Excavations] invoiced [Plant] re y/e 109040”. The second is a note in August 2001 “[Plant] invoiced [Excavations] to bal[ance] 109040 [therefore] clear”. This latter is consistent with the Haulage Schedule from which I have quoted.

[41]What emerges from this mass of detail is that the Haulage Schedules appear to be contemporaneous documents recording actual invoices supported by contemporaneously prepared spreadsheets (themselves supported by other records, though these need authentication), adjusted by the addition of sums that are not supported by itemised narratives but marked by the designation “return” (which adjustments are themselves recorded on another document with further explanation). On their face the Haulage Schedules provide a documentary record of cross-invoicing of some sort.

[42]I turn to the JAH Note. This was produced late in the present action (in May 2013) in circumstances which David and Diane understandably view with suspicion. In their Reply they alleged:- “That the JAH Note was produced after the event in a desperate attempt to support the cross invoicing story is also apparent from the miraculous circumstances in which the JAH Note was produced during the proceedings…”

[43]Mr Radley, after examining a wide range of matters considered that the evidence was wholly consistent with the JAH Note having been executed over a period of time (though he does not identify precisely what that period was) and that there was no evidence whatsoever to support the converse proposition: he considered the likelihood of a fabricator taking all the various factors in favour of authenticity into account when creating a false document to be highly unlikely. Asked to assess the quality of the evidence, Mr Radley thought (looking at the document itself and the competing cases) that the evidence very strongly undermined David and Diane’s case that the JAH Note was not contemporaneous and very strongly corroborated the position of Martin and Jean Angela.

[44]Dr Davies agreed with this conclusion. The Joint Expert Report records their agreement that the various sheets which together constitute this document were produced during the normal course of business. Amongst the evidence upon which that conclusion is founded is:(i) the origin and dating of the ledger sheets (supporting genuine usage of different batches of paper);

(ii) the condition of the ledger sheets (in particular creasing and staining) which was typical of well-handled documents;

(iii) variations in handwriting (providing good indications of writing produced on different occasions and over a period of time);

(iv) variations in abbreviations and textual layout (consistent with preparation over a period);

(v) electrostatic document analysis showing relative movement between the top document being written and the underneath document on which impressions are recorded, including a number of “overwritings” (very strongly supporting the proposition that individual entries were made on sundry different occasions);

(vi) the sequence of the writings;

(vii) the inks used (including the fact that some visibly identical inks had different ink compositions); and

(viii) the different pens used on different occasions.

[45]The JAH Note is written in blue, black, red and green ink by Jean Angela on five ledger sheets. It appears to be a succession of 69 aides memoires of charges made and adjustments undertaken during the period 1989 to 2004. There are no invoice numbers and few references to the paying and the receiving party, but it is possible to “decode” the notes if one has access to the invoices of Plant and of Excavations. I will give one detailed example.

[46]The first sheet begins in 1989 with Plant and Excavations apparently in balance. The entry then reads:- “Dec Inv + 98 but 8w@RT not taken into account [therefore] these want deducting off this”. Reference to the invoice run discloses that “Dec Inv” is a reference to invoice 484 rendered by Excavations to Plant on 31 December 1989 in the sum of £164,957 for “tipping”. It is said by Jean Angela that the “+98” is a reference to an overcharge of £98,000. This will have to be returned to Plant. But the amount to be returned will have to be adjusted downwards because in the invoice account has not been taken of the loads from the 8-wheeler lorries which Plant has used to tip material at Excavation sites from a Rush & Tomkins job at Barnsley. (I should note that there is a separate document, accepted by the experts as genuine, relating to tipping which shows the calculation of a charge of £66,957 and which then increases this sum by £98,000. So that in relation to this single entry one has the calculation, the invoice and a deconstruction of the invoice all evidenced by surviving documents).

[47]The next entry reads “March OK”. It is followed by a narrative which reads:

“Level +14 [therefore] this [needs] to be taken off above also 250 of invs to be given back to next quarter by P. Therefore Dec + 98 less 14 March = 84 this will be correct for Barnsley job therefore this clear”

. According to Jean Angela’s commentary prepared for the purposes of this action this means that the March inter-company invoices have been done for Excavations to Plant in respect of the tipping and from Plant to Excavations in respect of levelling. The levelling invoice has been inflated by £14,000 and therefore this is to be deducted from the £98,000 overcharge in the December invoices when the reconciliation takes place (£14,000 having been returned). This leaves the £84,000 to be adjusted. But £84,000 is considered to be an appropriate charge to cover the 8-wheeler lorries which Plant was tipping at Excavations sites from the Rush & Tomkins job at Barnsley, so the intercompany account is considered in balance notwithstanding the inflated invoices.

[48]The following pages contain sundry entries and calculations of a similar nature. Against some figures is the note “Plant overcharged”: against others “Plant overcharged Excavations”. Against some figures is the note “To put back”: against others the note “Done back”. At regular intervals is the note “Clear to date” or “nil o/s”. Sometimes a figure bears the note “Still to be repaid to Plant”, but that is followed by a tick evidently written with a different pen and the words “Sorted in June 97”.

[49]It is possible to cross-refer the figures in the JAH Note to invoices and other calculation documents. So in November 1999 it is noted(i) that Plant invoiced Excavations re Excavations’ year end a total of £520,698 (to reduce Excavations’ year end profits); but

(ii) that only £274,063 was actually due for specified jobs; so that

(iii) £246,635 was “to go back” i.e. from Plant to Excavations. This very figure of £246,635 then appears struck through on a separate hand written schedule of invoices delivered by Excavations to Plant in January 2000, evidently prepared as part of the “returning invoice” calculation: and the actual listed invoices themselves exist, as do all of those referred to in the November 1999 note. The delivery and payment of these invoices was the means of returning to Excavations the excess charge raised by Plant. This January billing is then itself recorded on the JAH Note (accurately) as totalling £255,302 (i.e. the returning invoices overcharge £8,667, thereby reducing Plant’s profits). The short point is that the notes and observations in the JAH Note are anchored in and cross-referable to the existing invoices and surviving other accounting documents.

[50]Again in November 1998 the JAH Note records Plant invoicing Excavations at the Excavations’ year end in the sum of £569,045. Beneath this in red pen is a note of adjustment to be made which concludes with the observation “368K to go back”. There is an entry of February 1999 which records Excavations invoicing Plant “to return”, with the figure of “368” forming part of the computation. These entries tie in with a separate invoice list in the handwriting of Jean Angela which has a marking “368+” in the top right hand corner. The short point again is that the notes in the JAH Note are not only internally consistent but also anchored in and cross-referenced to other surviving accounting documents.

[51]This would be the case if the JAH Note was a contemporaneous record of the movement of funds that did not reflect real transactions and which would require subsequent adjustment - the necessary adjustment being noted and then being carried into effect by surviving invoices. It might also be the case if the JAH Note was reverse engineered from a mass of raw accounting documents -with the aim of creating the impression that these “fictitious” transfers took place. So the expert accountants were directed to consider(i) how difficult and complex an exercise it would be to create the JAH Note if it be a fabrication and

(ii) whether the JAH Note was more complex and far-reaching than would have been necessary if it had been created to justify ex post facto the existence of cross-invoicing.

[52]David and Diane’s expert was Mr Pritchett of Pritchett Consulting. A chartered accountant with experience in the construction industry, he had since 2006 been concentrating on specialist and forensic accounting work. On the instructions of David and Dianne he had spent some 5 months from November 2011 (with his son James) collating information from the Grey Books (a series of raw data records relating to the whereabouts of men and machinery) provided by Mr Pulfrey (a consultant retained by David and Dianne for some years to work on the Grey Books), processing it by cataloguing it according to generic terms, and then entering it into a database consisting of some 192,000 lines of data which he then subjected to modification and analysis. He knew that David and Dianne’s case was that Martin had extracted £17 million from the businesses, and he appeared to me to approach his lengthy task with the objective of helping them prove that this was indeed so. Thus when he undertook his consideration of the JAH Note he did so on the basis of instructions that all documents referred to in them were challenged. On that basis he unsurprisingly felt able to express the opinion that there were various matters that indicated that the JAH Note was reverse engineered. But in cross-examination he very fairly acknowledged that if the documents referred to in the JAH Note were genuine and had existed before 2008 then he would have to give weight to them, whereas his present report did not.

[53]His opinion that there were matters which indicated that the JAH Note was reverse engineered was based on the following:- a) The JAH Note is messy, with different coloured inks and appears to have been designed for consideration by someone who did not understand the cross-invoicing scheme (i.e. an outside observer like a judge, rather than an inside operator of the scheme). This comment seems to me to lie outside the expertise of a forensic accountant (and I do not in any event agree with it, the document being far from clear to someone who did not understand the “cross-invoicing” system). b) The content of the JAH Note shows the difficulties presented by reverse engineering, because there was no correlation between the amount of cross-invoicing and the amount of profit in each year. I accept that there is a degree of variability between the amount of true cross-invoicing and genuine profit when year is compared with year. It is not as great as Mr Pritchett thought, because he made certain assumptions (explored in cross-examination) about the extent to which “cross-invoicing” took into account “generating” as well as “returning” invoices and about whether the “profit” against which cross-invoicing was assessed itself included the product of generating invoices. But the point remains that the amount of cross-invoicing was not itself governed by the profit generated. However, I do not think this a significant indicator of “reverse engineering”. It simply shows that any cross-invoicing system(i) was unprincipled and opportunistic

(ii) itself had to adapt to any other available means of reducing profit in any given year (such as claiming capital allowances). c) The JAH Note shows some “tipping invoices” being reduced (allegedly to produce opacity and to make detection difficult), whereas no mention was made of this in Hague 1. This comment of itself lies outside the expertise of a forensic accountant. Mr Pritchett accepts that the false adjustment of “tipping invoices” might make any cross-invoicing scheme difficult to detect (because they were produced quarterly, not simply at the year-end, thereby disguising the balancing of matching invoices). But he makes the fair point (supported by an example) that any substantial variance quarter by quarter would run the risk of attracting the eye of an auditor. However, the mere fact that amongst the five instances of tipping invoice reduction there was one that was a bit obvious is not to my mind a strong pointer that the JAH Note was reverse engineered. It might simply show that in one quarter Martin and Jean Angela let their guard slip in working a “cross-invoicing” system. d) The first entry on the JAH Note relates to the £98,000 which does not take into account the 8-wheelers on the Rush & Tomkins contract. Mr Pritchett says that the “non-invoicing” of £84,000 in respect of the 8-wheelers on the Rush & Tomkins contract is simply a convenient contract upon which to seize for the purposes of producing a reverse-engineered account, chosen because the customer went into receivership so that the transaction could not be tested. Mr Pritchett goes on to analyse what he believes to be the true arrangement in 1989. Taking the final measure on the Rush & Tomkins contract (not referred to by the claimants at trial) as defining what had to be shifted, reaching a view about the appropriate “bulking factor”, taking as a “given” the metric load of spoil that could be conveyed in an 8-wheeler (he says 15 cubic metres whereas Martin says 8 cubic metres), making some assumptions about the tips to which the loads were conveyed, estimating the number of loads that could be conveyed each day, and making an assumption about whether the lorries returned empty or brought back hardcore, Mr Pritchett says that he “cannot find any proper basis for the figure of £84,000 and this appears to cast doubt on the whole JAH Note”. I cannot follow Mr Pritchett in making that leap. The events under examination occurred more than 25 years ago. They were the subject of some evidence on the part of Mr Pritchett outside the core area of his expertise and some evidence from Mr Andrew Wilson of Batty France Consultancy (a Quantity Surveyor) on behalf of Martin and Jean Angela (with which I will briefly deal hereafter). But even if each of the unproven facts and untested assumptions implicit in the conclusion were accepted, I do not see why a single potentially overstated figure throws doubt on the whole JAH Note. It might equally indicate that those operating the cross-invoicing scheme were at the time none too careful in calculating the mutual credits on which the scheme depended. It is not a significant indicator of reverse-engineering. e) There is an anomaly in June 1991 arising from the JAH Note. There are six invoices (I have examined them but need not clutter this judgment with further detail) raised on 30 June 1991 by Plant against Excavations. They total £287,740. They had the effect of reducing the profitability of Excavations by more than half, and themselves made up over 50% of Excavations’ expenditure during the year. Martin and Jean Angela think they may be cross-invoices (and have said so on various occasions): they may in part be (but cannot wholly be) “returning invoices” (reversing an earlier adjustment), or they may be generating invoices (initiating a new round of adjustments). But they do not themselves feature at all in the JAH Note. There is simply an entry “June 1991 invoices done back”, whatever that means. Mr Pritchett thinks (and I consider him to be probably right) that cross-invoices at this level cannot have been simply overlooked because of their distorting effect. Mr Pritchett suggests that “if the JAH Note was the product of reverse engineering then the June 1991 anomaly could be explained on the basis that, at the time at which it was compiled, it was not possible to ascertain a satisfactory matching process”. That indeed is possible: though as an explanation it invites the question “Why would someone who was reverse-engineering a document create such a problem?” On either view the “June 1991 anomaly” creates a difficulty, for one side or the other. f) There is another anomaly in June 1993. An invoice is raised by Excavations addressed to Plant for £41,500: it appears to be a “returning” invoice. June 1993 does not align with any year end. A “returning” invoice (i.e. one carrying back a previous overcharge) would have to have been dated after the payee’s year end and before the payer’s year end. This point was made in closing but not explored in evidence and there is no way of knowing whether this is a simple error in recording or a mistake in the operation of the system. Amongst the least likely explanations is that a master fabricator who had managed to accommodate all of Mr Pughe’s “datum points” (see below) and had manipulated invoices to match year-ends accordingly should overlook this obvious anomaly. g) Sometimes (on Martin and Jean Angela’s case) invoices were raised with false descriptions when Excavations or Plant could have raised invoices for genuine work. Mr Pritchett expresses the view that “the convoluted approach to these invoices…casts doubt on the authenticity of the JAH Note”. I agree that insofar as the alleged cross-invoicing scheme was more complex than it need have been, that must be weighed in the scale when assessing the authenticity of the JAH Note: but one would have to bear in mind that once a dishonest person embarks on a scheme of dishonesty the fact that the desired result can in fact be achieved honestly might easily be overlooked. h) In Hague 1 Martin said that certain invoices were “obviously fictitious” whereas the JAH Note now shows them to be treated as genuine. Mr Pritchett says this conflict has come about because in reverse engineering the JAH Note it has been necessary to leave some valid invoices, and the only ones available were those that Martin had earlier said were false. But I think this simply shows that once you start to spin a web of deceit you soon lose your bearings as to where the truth lies, and what in Hague 1 Martin thought (without the benefit of the JAH Note) to be “obviously fictitious” in the event turn out not to be so. i) The JAH Note shows invoices rendered to Excavations for “insurance and security”. Martin said in Hague 1 that these must be false because Excavations was not charged for these items. After the “cross-invoicing” is said to have stopped such invoices continue to be rendered i.e. genuine charges were made. Mr Pritchett says this is “indicative of the reverse engineering of the JAH Note”. I consider it might be a clue: but it is plainly not conclusive. Once cross-invoicing stopped it might well be necessary to start invoicing for services previously provided for free (but used as cover for “generating” or “returning” invoices) because the web of deceit is being unspun and all sorts of changes are having to be made.

[54]So much for Mr Pritchett’s criticisms of the content of the JAH Notes on behalf of David and Dianne. Martin and Jean Angela’s expert was Mr Richard Pughe of Begbies Traynor. He was an impressive witness, with, I thought, an air of detachment that someone who had lived with an issue for years could not hope to match. In his written report he expressed the view that for the JAH Note to be a fabrication its author would, for the period June 1999 to January 2004, also have had to fabricate the entirety of the backing sheets and haulage records and then tie these into the Grey Books. Mr Pughe identified what he called “datum points”, by which he meant documents (apparently genuine and contemporaneous and which were not the subject of direct challenge by David and Dianne) in existence which include clear references to figures and balances which the creator of the JAH Note would feel obliged to tie his figures into. If one ignored the “datum points” and simply worked from a complete list of all available invoices then Mr Pughe considered the creation of a Note designed to demonstrate the existence of a cross-invoicing scheme would be straightforward. But if the “datum points” exist these would force the creator of a Note to incorporate certain balances and figures at certain times, and the greater the number of “datum points” (there were more than a dozen) the more difficult it would be to reverse engineer a Note. So he concluded that it would be difficult to fabricate the JAH Note, particularly since the specific financial components of the reverse engineered Note would have to have been identified before disclosure had been given in Hague 1 (so as to ensure that the reverse engineered note would tie in with the previously disclosed documents).

[55]In response to the expressed view of Mr Pritchett that there were features which indicate reverse engineering, Mr Pughe opined:- “In my view, when these features are scrutinised in the context of all of the documents in this case certain features, in fact, represent the introduction of what are unnecessary complexities, and other features, actually, go against rather than support the proposition that the scheme and the JAH Note has been reverse engineered”. I have considered the detailed reasons which Mr Pughe gives for this view (at paragraphs 12.50 to 12.93 of his report). I consider them cogent and supportive of his expressed opinion. I do not consider that the points raised by Mr Pritchett from his 192,000 lines of data, and which presuppose the fabrication of many documents, are of any comparable weight. In my judgment the expert accounting evidence supports (rather than undermines) the evidence of the document experts that the JAH Note is authentic.

[56]The Blue File contains material the authenticity of which has never been challenged. The invoices are accepted as authentic (and not fabricated) and the payments they require are accepted as having been made. The invoices bear manuscript annotations and markings: and although disclosed in Hague 1, Plant did not in these proceedings require these to be examined by the document specialists. The argument was (as I have indicated) that Jean Angela had put it all together. The Blue File itself is a miscellaneous collection of schedules and invoices recording transactions between various Hague entities accompanied by computations and reconciliations. It covers dealings between Plant and Prospect Construction; between Excavations and Prospect Construction; between David and Plant; and between Mr Hague and Plant. Insofar as the transactions involve David(a) the invoices will have been prepared by Rosemary on the instructions of David: and

(b) David himself (or Rosemary) will have been responsible for settling invoices delivered to David’s company. Some samples of its contents will suffice.

[57]There is a schedule of invoices showing that in the year ending February 1988 Plant owed Prospect Construction £9,043 for work done (£10,399.45 inclusive of VAT). (The exact work is set out in detail on another schedule with a surviving adding machine computation). There is then an analysis sheet in the handwriting of Jean Angela. It records that Prospect Construction has at the year-end in fact rendered and been paid by Plant invoices totalling £57,642.74. There is then a marking in green ink “diff £47,243.29”. This difference is an overpayment by Plant to Prospect Construction which will have the effect of reducing Plant’s profit. Below that there is an endorsement in red “Invoices issued for difference as follows”, below which is a reference to three invoice numbers for invoices issued by Plant to Prospect Construction (so requiring payment by Prospect). These total £47,242 (just short of the identified £47,243 earlier overpayment by Plant to Prospect Construction). That is followed by the endorsement:

“Therefore all clear now and Prospect paid what owed”

. This is a cameo of how according to Martin “cross invoicing” works. It is evidenced by undoubtedly authentic documents.

[58]Included in the Blue File are invoices in round sums rendered by Plant to Prospect Construction in 1985 but which are marked with an endorsement “83/84”. It is a fair inference that the endorsement (and the collection of these invoices together) indicates that these invoices are the means by which Plant is recovering over-payments made to Prospect Construction in the financial year 83/84.

[59]A snapshot of invoices involving David may be gained from the following. On 31 March 985 an invoice was rendered by Plant to David in the sum of £3,365.76 (plus VAT) under the narrative “to hire of machinery/work carried out at your farm” (bearing an “out of sequence” number of 3701C, suggesting that it may have been created after the date it bears). It is annotated “Re 84/85”. This is followed by three invoices raised by Rosemary on behalf of David, which are annotated in Jean Angela’s hand “To balance 84/85”. The first was raised on 31 July 1985 in the sum of £1680 (plus VAT) for “Supply of storage facilities and [machine] and tool hire”; the second on 31 August 1985 in the sum of £1140 (plus VAT) for “Supply clay, stone, soil and tipping facilities”; and the third dated 17 June 1985 in the sum of £500 (plus VAT) for “Hire of JCB non-operated…..” (The oddity there is not the hire of a JCB - for there was a time when David had a particularly advanced model – but a hire for 5 weeks of non-use). On their face these disclose the classic pattern of “generating” and “returning” invoices where sums which cancel out are invoiced under unspecific narratives. (In this case there is a difference of £46.76 plus VAT).

[60]The Blue File also contained two further invoices prepared by Rosemary on David’s behalf and addressed to Plant. No.17 is internally dated on 7 July 1986 in the sum of £950 (plus VAT) for “tipping and [machine] hire”: whilst No 18, dated 20 July 1986, is in the sum of £85 (plus VAT) for the supply and delivery of stone gate posts (an uncharacteristically specific narrative). Both these are annotated by Jean Angela as referable to the financial year 1986/87. But the Blue File contains no balancing invoice (issued one might expect towards the end of March 1986) in the sum of £1035 rendered by Plant. So a question might be raised as to whether invoices 17 and 18 were issued within a “cross-invoicing” scheme. But in Hague 1 David gave disclosure of an invoice raised by Plant against him dated 28 March 1986 in the sum of £1035, and bearing the “out of sequence” number 5657a. This is likely to be the matching invoice.

[61]The Blue File is significant. It demonstrates the collection together and retention of a group of invoices (out of the total invoice run for a business), dated at the year end, being a set of invoices which amount to a balancing exercise (transfer out and transfer back), where a balance is clearly struck and recorded. Whilst evidencing true “cross-invoicing” (i.e. invoicing which goes beyond mere year-end adjustments on running accounts) it does not evidence the complex “cross-invoicing” to which Martin and Jean Angela speak in relation to Plant and to Excavations. (Whether it was specifically created with this in mind I deal with below: but I find it was not).

[62]The Yellow File (the authenticity of which is not challenged) contains a selection of invoices passing between Plant and Farming between 1986 and 2003, together with some analysis sheets. It was referred to in Hague 1 because it demonstrated an admitted insurance fraud perpetrated in 2003 by the generation of false invoices. In the context of the Issues it contains material relevant to the question of “cross invoicing”.(a) An invoice dated 30 September 1997 delivered by Plant to Farming on the final day of Farming’s accounting year in the sum of the £39,240 bears the endorsement in Jean Angela’s hand “To be swapped [back] before end Feb” which is overwritten with the word “Swapped”. This is consistent with the existence of an invoice dated 22 January 1998 and two invoices dated 6 February 1998 delivered by Farming to Plant and totalling £41,000. Across each of these is written word “swapped”.

(b) By invoices numbered 47767 and 47768 raised in September 2002 Plant charged Farming a total of £71,242.16 for unspecific items described as “Supply plant and equipment at your premises” and “Supply materials, consumables, drainage media”.

(c) On the front of invoice 47767 is a “post-it” note in the writing of Jean Angela bearing the words “£71,242.16 to be swapped back before end Feb 03”.

(d) By invoices numbered 3649 and 3650 raised in January 2003 Farming charged Plant £71,087.50 inclusive of VAT for general items such as “Supply stone and soil” and “Hire of non-operated machinery”. I consider this to be “the swap”.

(e) By three invoices dated 28 September 2001 Plant charged Farming round sum figures totalling (inclusive of VAT) £74,271.76 for generally described services such as “Supply materials, consumables”, “Haulage materials, livestock” and “Supply of plant”. A “post-it” note on one of those invoices in the hand of Jean Angela records “74,271.76 inc vat to exch”.

(f) By invoices 3447, 3489 and 3456 dated between November 2001 and January 2002 Farming charged Plant £75,352.75 for “Non-operated plant” and “Storage facilities”. I consider these to be the completion of the exchange.

(g) There is a batch of four invoices dated 30 September 2000 (Farming’s year end) by which Plant charged Farming £119,545 exclusive of VAT for “Works carried out” or “Supply of Plant” or “Haulage of materials”. The total is shown on an attached till roll.

(h) There is then a bundle of stapled-together invoices from Farming to Plant with dates ranging from November 2000 to February 2001. To the front of these is attached a till roll showing that they total £119,540 exclusive of VAT. I consider these to be balancing transfers.

[63]The Yellow File seems to me convincingly to demonstrate the operation of a year-end “cross-invoicing” system between Plant and Farming. By “cross-invoicing” I do not mean invoices which straighten up the accounts at the year-end. I mean accounts which shift value one way and then the other. But once again I note that the scheme claimed to exist between Plant and Excavations is different in manner of execution from that disclosed in the Yellow File.

[64]I shall at this stage mark where I have got in the analysis of the Issues. I have held that the documents are the most likely source of reliable evidence at this distance in time. It is common ground between the parties that there were occasions when false invoices were used to transfer value between the companies (see the repayment of the intercompany loan relating to Carlisle Street). I have considered the nature of the unchallenged documents and concluded that they establish the existence of year end invoicing in relation to some Hague family companies. In relation to the challenged documents I have considered the views of the documents experts and have been impressed with their agreed conclusion that the challenged documents are probably not fabricated. I have considered the views of the forensic accountants in so far as they bear upon matters going to the authenticity of the documents, and have been impressed with the view of Mr Pughe (shared by Mr Pritchett if account is taken of unchallengeable “datum points”) that the JAH Note would be difficult to reverse engineer (and all the more so because it would have to take account of material already disclosed in 2008). But this expert evidence forms part only of the evidence about authenticity: and before reaching a conclusion I must take into account other evidential matters looked at in the round.

[65]Counsel for Plant made four points material to this consideration. Their object was to demonstrate that there was a sufficient accumulation of inconsistencies in other material (relating to the business model and the cross-invoicing pattern) and the sheer improbability of the emergence of the JAH Note and of the “cross-invoicing” account itself to suggest that the whole “cross invoicing” scheme must be a fantasy and an-after-the-event fabrication to disguise a systematic pillaging of Plant by Excavations; so that whatever the documentary and accounting experts might say about the challenged documents, they must be wrong.

[66]First, it was submitted that the scheme, as described by Martin and Jean Angela is inconsistent with the commercial realities and with the business model. Second, it was said that the pattern of invoicing now put forward as the “cross-invoicing” scheme is not consistent with earlier accounts. Third, it was said that the JAH Note was deeply suspicious. Fourth, it was said that the whole emergence of the “cross-invoicing” scheme demonstrates that it is fantasy.

[67]First, inconsistency with the business model. Made in a number of ways, the submission addresses the relationship between Plant and Excavations in relation to the Carlisle Street operation. Martin was in effect the operations director (i.e. the board member charged with the supervision of the business) of both. The site was operated by Excavations. The operation involved taking in, processing, sorting, stacking and in some cases recycling waste products. Such material was received both from Plant itself (which had the benefit of reduced tipping rates, conferring upon it a substantial competitive advantage when quoting for work) and from third parties. The physical processing was undertaken by men and machines employed and owned by Plant but who worked under the direction of the Carlisle Street site manager. The relevant consents and licences were held by Excavations whose director (Martin) oversaw the operation. The essential question as to the business model is whether Plant was functioning as a subcontractor providing services all of which had to be paid for by Excavations; or whether it was conducting its own recycling business, processing everything in return for the right to sell the recycled material and to keep the sale proceeds for itself; or whether it occupied an intermediate position when it did a bit of both (some processing where it did levelling and stacking of recycling materials on its own account and some waste work where it did levelling and stacking for which Excavations had to pay). The relevance of the question is that the answer to it informs the decision what invoices passing between Plant and Excavations might be regarded as “genuine” and what might be regarded as fictitious invoices carrying into effect a “cross–invoicing” scheme.

[68]In these proceedings Martin adopts the third of those positions. But amongst the multiple Hague actions in which this question had arisen as a side issue, Martin had said something different. One of those actions had involved intellectual property rights. In his Defence in those proceedings Martin said that since 1986/87 “[Plant] has had no alternatively no substantial business in recycling and receiving third party waste as a tip operator”. That is a compound expression with several possible differing emphases: but amongst them is a suggestion that Plant did not have a (substantial) recycling business. Elsewhere he had once described Plant as a “subcontractor” in relation to recycling.

[69]I do not find these apparent inconsistencies surprising. This family litigation has been going on for a decade with different aspects of the relationship being brought into focus and fought over. What is a side issue in one action becomes the subject of intense focus in another. What suffices for a description in one case becomes inadequate in another.

[70]A variant on this criticism focused upon how the decision was made as to what to charge as between the two companies. Martin contended that the position at Carlisle Street was what I have described as the “intermediate” one; Plant both processed waste for its own recycling business and also provided levelling, stacking and haulage services to Excavations in respect of the pure tipping business for which Excavations had to pay. According to this model Martin would be called upon to decide for what services Plant should be remunerated.

[71]In this action Martin said that Plant was paid by Excavations only for the levelling, stocking, stacking, and haulage undertaken within Excavations’ “sphere of activity”, but that Plant bore its own costs in relation to the levelling etc of recyclable materials. On Martin’s case it was evident that the decision was made on most informal basis: he just “knew” what was going on, and he did not think it would be possible to cross check his knowledgeable “guesstimates” by reference to the Grey Books since those records noted the whereabouts of men and machinery and not the activities upon which they were engaged.

[72]Counsel for Plant submitted that this version does not accord with the evidence tendered in earlier actions by Martin and others (in particular Len Shepherd, the Carlisle Street site manager) and that it was not consistent with evidence tendered by Mr Shepherd in this action. Mr Shepherd now thought (contrary to his evidence in earlier proceedings and Martin’s evidence in these proceedings) that the Grey Books would record what the men and machines were actually doing: and his recollection of the processes actually undertaken (the technical distinction between “stacking” and “stocking”) differed in one respect from Martin’s. Given that both Martin and Mr Shepherd are trying to recall how things were done between 1987 and 2006, that a decade has since passed, and that these matters have assumed a significance in this action which they earlier lacked I am not surprised that there is a disparity in recollections both by individual witnesses and between witnesses. (In fact, as I read the Grey Books Mr Shepherd’s recollection is incorrect as to what they record about machinery and men at Carlisle Street. It was common ground between the quantity surveying “experts” Mr Pritchett and Mr Wilson that the Grey Books do not record the hours or work description of the men and machines engaged, and that one would have to make some assumptions about standard hours or average hours and have some further assistance with the work description before one could derive from the Grey Books any useful material as to who was doing what for whom at Carlisle Street. Mr Pritchett was prepared to make the assumptions. The Defendants’ expert was not).

[73]Moreover the supposed inconsistencies in Martin’s evidence in earlier cases are in my judgment overstated. The search for inconsistency in the mass of material emanating from the previous proceedings showed that in a witness statement made in November 2008 Martin described the Grey Books as “containing a full daily record of activities of Plant’s men and equipment”, elaborated in cross-examination in 2009 to say that an examination of the Grey Books would reveal “what men have been involved in Carlisle Street”. But even David and Dianne do not themselves contend that (nor do they assert that Martin has ever said that) the Grey Books are a comprehensive account of all of Plant’s activities sufficient to found invoices. Whilst Martin is undoubtedly keener in this action to emphasise the limitations of the Grey Books as source material for the calculation of invoices, I do not think it is a fundamental departure for him to say that looking at the Grey Books it would not be possible to discern whether a man and machine allocated to Carlisle Street on any particular day was doing work “for” Plant or “for” Excavations.

[74]Counsel for Plant made a similar point in relation to how haulage charges were calculated and raised. It is difficult to capture this area of controversy within this judgment: but in essence the question was what sum Excavations ought to have paid Plant for carting waste away from Carlisle Street when the Carlisle Street site was becoming overfull and material had to be taken to landfill sites. When describing the trading arrangements between Plant and Excavations and commercial advantages to each company from those arrangements, Martin’s solicitors had (in a letter dated the 29 June 2007) said that Plant was paid by Excavations all haulage costs for transporting waste materials and also for transporting all materials that were recyclable but either had not been resold or where (if sold) the resale price would be less than the haulage cost. In his evidence at this hearing (eight years later) Martin said that Plant would not be paid by Excavations if the material hauled was of any value at all (because it was low value recyclable material that was being moved from Carlisle Street simply in order to create space for Plant to recycle and store higher value material to its advantage): so he departed from his earlier instructions that Excavations would have paid Plant for hauling low value waste. I am not surprised that Martin cannot now remember exactly where he drew the charging line in this curious corner of the business. I do not think any fault in recollection is significant in deciding whether the expert documentary and accounting evidence about the authenticity of the disputed documents is undermined by the true nature of the business model.

[75]The final point made by Counsel for Plant under this rubric of “inconsistency with the business model” was that, as explained by Martin and elaborated in the original schedule and the JAH Note, the cross-invoicing scheme apparently involved treating as wholly or partially false some invoices for services provided in circumstances where a charge could have been made. They ask: why use a false invoice (on Martin’s account of the scheme) when you could have presented a genuine one?

[76]The answer to this apparently attractive criticism is that it depends upon the assumption that if a service had in fact been provided then any invoice subsequently rendered must have been a genuine one for the service actually provided. But even David and Dianne agree that this is not an assumption that can be made. For example, as part of their claim in the main action they asserted (see paragraph 19(1) of the Amended Particulars of Claim, now superseded) that certain invoices rendered by Excavations to Plant in respect of rental and storage charges for lorries and skips were false: yet it is common ground that Plant did use Carlisle Street as a depot and could have been charged. As a matter of practice Plant was not charged: and so David and Dianne can say that the invoices actually raised for rental and storage were false. The same is true of their complaint about invoices for use of the weighbridge: as I understand the pleaded case the position of David and Dianne is that Excavations could have charged Plant for this service, but it was not in truth meant to charge for this service, so the invoices which it raised for providing this service must be false. In short, in this strange world of mutual dealings between Hague companies there were times when goods and services were exchanged for which no charge was intended to be made, and it is possible to identify as false some invoices for services that were actually rendered: and the existence of such invoices is not inconsistent with the commercial realities or the business model.

[77]Second, it was submitted that the pattern of cross-invoicing set out in the JAH Note is not consistent with earlier accounts given by Martin and Jean Angela as to how the scheme worked.

[78]This submission picked up submissions made in other contexts that the scheme to which Martin and Jean Angela now speak as operating between Plant and Excavations is a great deal more complex than that suggested in Hague 1 or evidenced by dealings in the Yellow File. It does not simply operate at the year end. It does not simply involve reciprocal invoices. It does not simply involve entire invoices: it incorporates invoices which are part genuine and part fictitious, the rendering of false invoices when a genuine invoice could have been raised (provided that the service would ordinarily have been charged for) and the writing-off of matters that could have been invoiced and charged as expenses in the accounts.

[79]Counsel for Plant analysed the system of “cross-invoicing” to which Martin and Jean Angela spoke as involving a four stage cyclical process.

[80]Stage I was the issuing of “generating” invoices to deflate the profits of Company A. The size of the individual or aggregate invoices to be issued by Company B to Company A to deflate the latter’s profits would be determined by Martin, who said that it was “often by reference to what Mr Midgley told [him] were the likely taxable profits”: and generating invoices would be rendered before the year end of Company A.

[81]Stage II was the issuing of “returning” invoices by Company A to Company B. Here Jean Angela would tell Martin how much needed to be returned by Company B and Martin would then invent the appropriate narrative for the fictitious invoices. This would have to be done after the year end of Company A and before the year-end of Company B.

[82]Stage III was the issuing of “generating” invoices by Company A to Company B to deflate the profits of Company B. This mirrored the process at Stage I.

[83]Stage IV was the issuing of “returning” invoices by Company B to Company A to recover the amounts of the generating invoices. This mirrored the process at Stage II.

[84]In terms of analysis there is a distinction between Stage II and Stage III, although each of them involves Company A sending invoices to Company B. Counsel for Plant submitted that there would have to be a clear separation between these processes and that if they were confused there was a risk of permanent inflation of the profits of Company B. Company A would have to be sure of getting the artificial deflation of its own profits back before it assisted Company B to deflate that company’s profits.

[85]Provided, of course, that a sufficient record is kept, there is no actual necessity for “returning” invoices to be issued before “generating” invoices; nor is there any actual necessity for any given invoice to be wholly generating or wholly returning. But it obviously keeps things simpler (if more easily detectable) if the cyclical pattern outlined by Counsel for Plant is followed.

[86]David and Dianne say that it was not: and that in his oral evidence Martin changed his position to confirm that it was not followed. Further they say that Mr Midgley denied that he was “often” consulted about the prospective taxable profit, his evidence being that he was infrequently asked for the estimated profits of Plant and never asked for the estimated profits of Excavations. They are correct on this last point: and I prefer the evidence of Mr Midgley to that of Martin (who, I think, in an endeavour to give his dealings a more objective grounding than in truth they had, overemphasised the outside input and understated the extent to which the process depended upon his own subjective estimates).

[87]There is also some weight in the former point. Martin and Jean Angela’s earlier exposition of the arrangements certainly presents an idealised version, and not the version that the documents appear to show was actually operated on every occasion. But the fact is that whether or not “generating” and “returning” invoices were rendered in strict order or were always separated out, the forensic accounting experts accept that if Martin and Jean Angela are right about “cross-invoicing” then in fact there was broad balance in sums transferred: and this conclusion was not contested by Counsel for Plant (though they did have some points to make about constituent elements of the balance).

[88]Mr Pughe has analysed the mutual invoices actually rendered between Plant and Excavations from 31 December 1989, and compared them with an adjusted running balance taken from the entries on the JAH Note. (The entries on the JAH Note proceed of course on the basis that an invoice may be false even though a service has been provided for which a genuine invoice might have been raised: but I have accepted, as have the parties themselves, that this may in some instances be a feature of the curious relationship between Hague entities). If the actual invoices rendered were interpreted in the light of the commentary on the JAH Note then the accounts were in balance as at 31 January 1991, all but in balance on 30 June 1999 (there was a £106 discrepancy) and in balance as at 31 October 2000 (material to the middle years of the Relevant Years identified in the formulation of the Issues).

[89]Mr Pritchett agrees with this view as a matter of arithmetic: but he has difficulties with the entries on the JAH Note themselves. He takes the point that if a service was actually provided then an invoice the narrative of which refers to that service cannot be a “cross-invoice”. This is the issue about whether a false invoice would ever be raised when a genuine one could have been raised: and that in turn raises the issue about whether all services actually rendered were meant to be charged for. But he accepts that if you separate the decision not to charge for a service from the decision to raise a” cross-invoice” the “cross-invoicing” itself causes no loss and there is a genuine (not merely an arithmetical) balance.

[90]Third, it was submitted that the emergence of the JAH Note is deeply suspicious – so suspicious that, notwithstanding the expert view as to its creation, it ought to be treated as a clever fabrication. The two limbs to the argument are(i) that the JAH Note was not mentioned earlier than its actual emergence; and

(ii) the account of its emergence is not credible.

[91]The history of the emergence of the JAH Note is as follows. The “cross-invoicing” scheme was first pleaded out on 21 February 2008 in Martin and Jean Angela’s Reply to a Part 18 Request (signed by Martin) in Hague 1. It was said that “.. Cross invoicing occurred between [Excavations] and [Plant] and between [Plant] and [Farming] such that each would reduce its cash surplus at the end of its financial year, but would then be repaid this cash surplus after the end of its financial year….. The invoicing arrangement was a consequence of the fact that Martin, as a director of both [Excavations] and [Plant] had sufficient information in relation to both [Excavations’] invoices to [Plant] and [Plant’s] invoices to [Excavations] to make the preparation, provision and retention of additional documentary information and records otiose…”. There was in that pleading no mention of the creation by Jean Angela of an informal aide memoire (then lost) viz. the JAH Note (although its last entry had been made only two years previously and Martin said in evidence in this case that he remembered seeing it on Jean Angela’s desk over many years). But of course a statement of case is meant to be a concise statement of the material facts, not a recitation of the evidence by which those facts will be proved: so that whilst pleading that there were no purchase orders, costings, schedules of work etc (“the additional documentary information and records”) the draftsman of the response (and the person who verified it) may not have had in mind the former existence of different informal records not then available. But the terms of the answer to the Part 18 Request are worth noting.

[92]This pleading was supported by a schedule (which differs in some respects from entries contained on the Jean Angela Note) prepared in part from documents which Martin and Jean Angela had in their possession and in part from documents which David and Dianne disclosed, and in part (Jean Angela now says) from an informal note (now destroyed). Two points might be made. First, the fact that the schedule does not exactly match the JAH Note suggests that the JAH Note was not used in its preparation: either the JAH Note did not then exist (David and Dianne’s position), or it existed but was undiscovered (Martin and Jean Angela’s position). Second, in preparing the schedule Martin and Jean Angela had to “recognise” particular invoices as false or “cross-invoices”: their relative success in doing so (albeit with the expenditure of much time and effort and the alleged existence of an informal note) shows that it is possible to re-create (if not exactly reverse engineer) a “cross-invoicing scheme”.

[93]Upon consideration, these pleading points do not seem to me to provide a clear signpost to the non-existence (as opposed to the non-discovery) of the JAH Note at the time the statement of case was prepared. Indeed, if the JAH Note has been fabricated (and there would have to have been an accountant to produce the figures and a forger to produce the document) then Martin and Jean Angela have caused to be created a document that is deliberately inconsistent with what they have earlier said in their schedule. That does not seem a likely course to pursue.

[94]Then it is said by Counsel for Plant that in Hague 1 in 2008 there was no mention of anything like the JAH Note. But this is not entirely fair. In recounting the cross invoicing arrangements Jean Angela said (in paragraph 61 of her witness statement of 5 November 2008):- “I kept record of these arrangements so that I could check that the position was rectified. This would often be in the form of copy invoices with any relevant notes attached to them. The first example of such records which I have still got is copies of invoices from [Plant] to David in relation to his business at Loxley House Farm dated 31st March 1985.” This seems to me to be a clear reference to the maintenance of records of the arrangements, not all of which Jean Angela still has. That is consistent with the undiscovered existence of the JAH Note.

[95]Then it is said by Counsel for Plant that in these present proceedings there was no mention of any lost records until the miraculous production of the JAH Note. But again that is not entirely fair. In her witness statement of 12 April 2013 (before the alleged discovery of the JAH Note) Jean Angela said (at paragraph 7) :- “I kept a record of those amounts which I was told would cross from one business to the other in any one year…… I would cause these invoices, which, as I said, Martin would usually draft or “rough out” in manuscript, to be typed up in the office. I would frequently copy out again in neat Martin’s manuscript notes so that there was a neat and legible copy of the same. I would also keep a record of the information which had been provided to me so I could check that the position was rectified. I would often keep copies of invoices with any relevant notes attached to them. I provided Rosemary and [Mrs Hague] with copies of these cross-invoices… Whilst I kept records at the time, most of these records have been lost or destroyed. I have disclosed all the invoices and notes I have in my possession. It is quite remarkable that the documents I have referred to in this statement which relate to the cross invoicing in the period 1986/1987 and 1987/1988 still exist. I have been unable to find anything between that date and 1999.” (Emphasis supplied).

[96]This passage of evidence might, of course, be the devious preparation of the ground for the intended later disclosure of a document even then in the course of fabrication: or it might be what it says on its face – evidence that Jean Angela kept some records, most of which are now lost, and she thinks it remarkable that some have survived. (Of those bare alternatives I prefer the latter as less improbable). But what it plainly is not is a complete failure to mention the sometime existence of records of the arrangements.

[97]But one point can be fairly and squarely made. Martin and Jean Angela did not refer in any disclosure list in the present action to the JAH Note or its like as a document that had existed but no longer existed, even though they appear to have believed this to be the case. The disclosure statement (having regard to the witness statements I have quoted) would appear to be deficient in this regard.

[98]The actual emergence of the JAH Note occurred in this way. Martin and Jean Angela knew that they desperately needed to piece together the true position regarding the “cross-invoicing”, and they appreciated that their attempt to do so in the Schedule that supported the Part 18 answer was deficient. They were convinced that Jean Angela had kept some sort of informal record over and above those that had been disclosed. So further searches were made in obscure places. The JAH Note was found on 8 May 2013 in a plastic crate that was possibly used by Martin and Jean Angela when they had to accommodate the office papers of Excavations on being deprived of the use of Plant’s offices at the time of the family rift. The JAH Note was recognised immediately as being of great assistance in reconstructing what had taken place, and was that day taken to Martin and Jean Angela’s solicitors. They immediately prepared a Supplemental List of Documents which was the following day served on David and Dianne’s solicitors. Those solicitors in response described Martin’s conduct as shameless, and as evidence of dishonesty in the conduct of the proceedings. Counsel for Plant submit that it is suspicious the document was disclosed immediately, before any consideration by lawyers.

[99]Of course the circumstances of discovery are surprising and are bound to excite suspicion. They mean that the document must be scrutinised. But if that scrutiny leads to certain expert opinions being expressed about the document I do not think that the circumstances of discovery of themselves undermine the opinions given on scrutiny. Those opinions must stand or fall according to their cogency (though themselves they are not determinative of the factual questions). Nor do I regard as suspicious the immediate taking of the document to Martin and Jean Angela’s solicitors, or the immediate disclosure of the document to David and Dianne’s solicitors. As an apparently genuine document it must have seemed a nugget of pure gold.

[100]Upon consideration of all of these arguments the emergence of the JAH Note does not lead me to discount the expert evidence. The improbability of its being a truly brilliant fabrication seems to me greater than the improbability of its being a lately-discovered genuine document.

[101]Fourth, it is said that the whole emergence of the “cross-invoicing” scheme itself (as opposed to the evidence said to support it) demonstrates that it is fantasy, so that whatever the expert view the JAH Note must be a fabrication.

[102]I have dealt with some aspects of the emergence of the “cross-invoicing” claim already: but under this head other matters can be drawn into consideration. Following the great falling out between David on the one hand and Martin on the other David and Dianne convened a disciplinary meeting to consider Martin’s conduct as a director of Plant. David challenged Martin that Plant’s invoices to Excavations (sic) appeared to be significantly different to other company invoices because there was no order for the work, no predetermined price for the job, no schedule of works, and no marking off in the Grey Books. Martin’s response was that he would look into the matter. Thus Martin did not say (for example) that David’s comments were most surprising since, as David knew, many of these invoices would be cross invoices under the scheme that had operated between the companies for the preceding 20 years.

[103]Undoubtedly the disciplinary process was stressful: undoubtedly Martin did not know in what direction things were going: undoubtedly this first reaction would be to give noncommittal answers: undoubtedly the actual challenge was to the invoices that Plant had rendered to Excavations (with the implication that there were undercharges, not fictional overcharges). But it is still a factor of some weight that Martin did not take an early opportunity at least to mention to David the existence of the cross invoicing scheme and the distorting effect it might have on invoice amounts.

[104]The scheme emerged into the open in February 2008 with some reticence on the part of Martin and Jean Angela at its public deployment in Hague 1. When it emerged it is said that it did so in a very simple form, involving the balancing of reciprocal invoices (not involving partially incorrect invoices or the satisfaction of some generating invoices by the undertaking of services that were not charged for). Certain invoices identified in the schedule supplementing the answer to the Part 18 Request (or identified in the evidence in Hague 1) as genuine are now (on the trial of the Issues) said to be false and certain invoices there identified as false are now said to be genuine. In the evidence on the Issues the scheme is now said to a significant degree to involve not only reciprocal fictional invoices, but also partial invoices, misdescribed invoices, and the adjustment of generating invoices by the failure to charge for services that might have been charged for.

[105]Whilst I see some force in the submission that this process might indicate the elaboration of a fantasy to address increasingly penetrating questions it might also reflect an increasing attention to minutiae as the “cross-invoicing” scheme moved from a peripheral debate going to credibility of witnesses in a dispute about share ownership in Excavations (which was its role in Hague 1) to a central plank in the answer to a case of dishonest invoicing in the mutual dealings of Plant and Excavations (which is its role in this action).

[106]Upon consideration I do not think that this argument undermines the expert view about the fabrication of the JAH Note.

[107]In the result I find and hold that the Early Years Note, the Haulage Schedules, the JAH Note are not fabricated documents but documents created over time in the ordinary course of a somewhat extraordinary business. So also were the contents of the Blue File and the Yellow File. The evidence does not all point in one direction. But the weight of the evidence in favour of authenticity is very considerably greater than the weight of the points that are taken against it.

[108]This leaves Plant in a position of some weakness since the essence of its pleaded response to the “cross-invoicing” assertion is that the documents that support it are forged and the scheme is a fantasy. This is also the way the matter was put to Jean Angela. She was challenged with the proposition that the truth was that there was a simple fraud to extract money from Plant, that if money went only one way that would excite suspicion, so that invoices passed both ways and of such size that anyone looking would think there was substantial trade (but they did not really balance); and then in January 2008 in Hague 1 there was an application for forensic accounting evidence, so Martin and Jean Angela had to invent some explanation for invoicing that was commercially ridiculous: and the “cross-invoicing scheme” and its apparently supportive documents are the result. Indeed, that Jean Angela simply designated invoices as “cross-invoices” to help her story.

[109]Counsel for Plant say that even if they have pleaded no alternative case (and have no other case to put to Martin and Jean Angela) they are entitled to argue that the documents (even if genuine) do not support the “cross-invoicing” scheme alleged. They submit, first, that the documents might simply be a record of a fraud i.e. an informal record of the monies that have been wrongfully abstracted, prepared over the years for a purpose that is now lost in obscurity. Mr Pritchett hazarded that the JAH Note might have been something to do with VAT (though he could not explain what). Counsel submit, second, that it is not for them in any event to explain what function the documents perform, and that they are entitled to say that even as genuine documents they simply form part of the evidence which must still be looked at as a whole.

[110]I agree in part. In my judgment David and Dianne through Plant cannot put any positive case as to what the purpose of this whole group of documents is, not having put any such case to Martin, Jean Angela or the forensic accounting experts. Nor, not having raised it as a question for the documentary experts, can they suggest in argument that either the Blue File or the JAH Note (for example) is an authentic document with inauthentic later additions. But they can say that the authentic documents, whilst apparently supporting a “cross-invoicing” scheme, on examination cannot in fact do so because of other evidence. They can also submit (as Counsel for Plant did in closing) that the authentic documents may evidence a “cross-invoicing” scheme but that that scheme was itself simply a means of abstracting money from Plant: but that submission is seriously weakened(a) because it was not a charge put directly to Martin or Jean Angela;

(b) the expert evidence supports the view that a broad balance was achieved (so that there was no abstraction) and

(c) the Court is given not the barest inkling as to how such a scheme might work (even if a full explanation cannot be provided). These submissions each depend on the inherent probabilities.

[111]I turn to a consideration of the inherent probabilities. I preface this section with the observation that some caution is required when considering what are the “inherent probabilities” in the commercial world of Plant and Excavations and of the Hague family. The “inherent probabilities” of businesses that routinely employ bribery, cheating, false accounting, deceit and forgery (an account of which is contained in the judgment in Hague 1) may involve a recalibration of “the probable”.

[112]The central theme of the submissions on behalf the Claimant was the proposition that the “cross invoicing” scheme was pointless, and it defies belief that Martin, as a shrewd and successful businessman, would permit staff to dedicate considerable time and energy operating a “pointless” scheme. The development of the submission was along these lines. The “cross invoicing” scheme operated only to defer (not avoid) modest amounts of tax, and to do so against the contingency that there might be “a bad year” (which there never was): yet it involved a complex year-round scheme of false, partially false and misdescribed invoices which were deliberately mismatched in order to avoid detection on audit. Is it inherently probable that an astute businessman who had given the most careful consideration to the efficient operations of his business (to the extent that he would look out for a return tipping load on the last lorry run of the day so that a customer paid for the cost of Plant returning its lorry to the depot overnight) would operate such a complicated but pointless system throughout the financial year? It was, suggested Counsel, one thing to swap a couple of false “year-end” invoices: but quite another to operate during the course of the financial year a system that involves false invoices, partially correct invoices and the provision of uninvoiced services to transfer and to balance value. This is a powerful point.

[113]However, Martin and Jean Angela accept that the scheme was pointless. Indeed Martin’s observation was:- “It was just a tradition… I never really analysed it and if I had have analysed it years earlier it would have become [apparent]… It’s just a nonsense… The beginning of it isn’t a nonsense, but when you stop and start to think about the whole process on the basis that… you never have a bad year, then, you know it is not necessary….”

[114]One can pick up the strands of the argument. First, it is common ground that there was a practice of “year-end” invoicing. A simple illustration is invoice 4382 dated 31 March 1989 from Plant to Excavations in the sum of £81,150 generically described as:

“To works carried out at Lightwood Lane, Carlisle Street, Haighfield and Long Lane landfill sites to 31 March 1989.”

The question is whether its object was solely to reflect (approximately) the actual intercompany trade during the course of the year expressed as a single invoice sum or whether it also served the purpose of transferring excess value in order to depress profits by means of “year-end cross-invoicing”.

[115]Second, the Blue File and the Yellow file support the latter answer. There is no suggestion that Martin and Jean Angela were involved in the fraudulent extraction of money from Prospect Construction or Farming or by means of dealings between Mr Hague and Plant. Yet these documents clearly suggest on their face that within these companies there was not merely year end invoicing but year-end invoice swapping i.e. “cross-invoicing” operating. Selected invoices are grouped together and are cancelled out. They are marked to record the process that is going on. They are retained separately. The probability is that these documents are prepared and retained in this way because they record a process beyond merely “straightening the books at the year-end” and record “cross-invoicing”. In the light of that it is in my judgment not “inherently improbable” that year end invoice swapping operated as between Plant and Excavations, where the profits were much larger.

[116]Further, there is other documentary evidence which assists on whether it is inherently probable that “year-end” invoicing might have evolved into “year–end cross-invoicing”. I will take two examples.

[117]The first example is a letter which Mr Midgley sent to David and Rosemary on 10 March 1992. It accordingly deals with their affairs, and with family affairs generally but viewed from their perspective. It is apparent from the terms of the letter that Mr Midgley had received the accounting records for David and Rosemary’s farming business. He was preparing the accounts for the financial year that ended approximately 12 months earlier. He commented:- “You may recall when we met that I did briefly discuss with you the position relating to the work which [Plant] had been doing for you and which you had paid by allowing [Plant] to do some quarrying on your land. A similar situation has, I believe, arisen concerning animal feedstuffs, fuel et cetera which have been consumed during the course of your family activities. I assume that the feedstuffs and fuel have been supplied by either [Mr Hague] or [Farming] in return for work which you have done. For income tax purposes this situation is perfectly acceptable as of course on both sides the income and outgoings, if reflected, would appear on the Profit and Loss Account and there would be no more overall effect on profit. The position is not as straightforward for VAT purposes as in both cases the service has been supplied for which no invoice has been issued… I do think that it would be wise for invoices to be issued to show the services, it will be perfectly in order to the invoices to be issued in exactly the same amount so that no profit arises…”

[118]From this it is clear that there was cross-trading between family entities that did not appear in accounting records and was not the subject of documented valuations but was dependent upon an acceptance by David and Rosemary either that in any given year the exchanged services were of more or less equal value or alternatively that in the long run things would even themselves out. It is easy to see how the fixing of the amount of the cross-invoices was a process that afforded the opportunity for value shifting

[119]The second example is drawn from the Yellow File. By invoice 21762 Plant (the company in which David and Dianne are interested) charged Farming (the company for which David was responsible) for lorry hire at £60 per load for 717 loads: the nature of the work is otherwise unspecified. The speculation was that it related to the transport of sludge. The expert quantity surveying evidence (I heard from Mr Pritchett for the Claimant on this subject and from Mr Wilson for Martin and Jean Angela) was agreed that this was a wholly unrealistic charge: David and Dianne’s witness thought the proper charge would lie in the range £16-£25 per load. (I should record that he attempted to explain the overcharge by suggesting that the charge included the use of a loading shovel: but this was ungrounded speculation and demonstrates the great difficulty of trying to understand invoices delivered so long ago). It seems clear to me that this is not “year-end tidying-up”. This is “value shifting”.

[120]The third strand of the argument is this: if the inherent probabilities suggest the likelihood of year-end cross-invoicing between Plant and Excavations that is not limited to “tidying up” but includes “value shifting”, is it inherently improbable that that process should extend beyond the year-end, and should also extend beyond simple “invoice swapping” to a more sophisticated system? Here (if one is to try and assess “probabilities” in the context of an assumed dishonest scheme) I think there are competing considerations. The dishonest scheme operator will want to keep it simple to avoid the possibility of error and to reduce the number of transactions that might be subject to audit. But the dishonest scheme operator will want a sufficient degree of complexity to make as difficult as possible the detection of any particular invoice as “unusual” or “obviously matched”. He will not want to put an auditor on a train of enquiry. I do not think it improbable that the dishonest scheme operator would seek to avoid a concentration of activity at the year end and would spread the “cross-invoicing” operations beyond the narrow confines of that period provided he could still achieve the desired profit deflation.

[121]So, looking at the inherent improbability of pointlessly undertaking a complicated process, the criticism loses something of its apparent strength in the context of the Hague family and its companies.

[122]Next, Counsel for the Claimant submitted that even on its own terms (the protection of cash flow in the event of a bad year) the “cross invoicing” scheme was incoherent because the impact upon cash flow by paying the fictitious invoice was greater than would have been the impact of paying the tax on the accurately stated profits.

[123]That is to some degree true: but of course the timing of the “returning” invoice was under the influence (if not the control) of management common to both Plant and Excavations and if a cashflow problem had in fact arisen then a returning invoice could either have been accelerated or deferred as occasion required.

[124]Next, Counsel for Plant submitted that the scheme was inherently improbable because its operation involved such extensive falsification. The forensic accounting experts were agreed that as between Plant and Excavations about 60% by number of the mutual invoices were said to be in some sense “cross-invoices”. The attractiveness of the point is diminished when account is taken of the relatively modest number of invoices passing between the companies. Nonetheless the point might fairly be made that by value also the “cross invoicing scheme” touched the majority of the invoices passing. But that is simply a reflection of the desire to shift large sums whilst having only a limited number of invoices by means of which to shift it.

[125]The process of fact finding of course involves reaching a final conclusion on the evidence as a whole, rather than by making a succession of provisional findings that are reviewed in the light of further evidence. But it may be helpful to exposition simply to provide a signpost. Taking stock, I have held that the Early Years Note, the Haulage Schedules and the JAH Note are authentic and not fabricated documents, and noted that the genuineness of the invoices in Blue File and the entirety Yellow File are unchallenged. I have found that their entries support the existence of a “cross-invoicing” scheme. I am now addressing the argument that (whatever those documents appear to say) they in fact evidence some other (but unknown) scheme because of the inherent improbability of a “cross-invoicing scheme” ever having come into existence, and that the degree of improbability is such that Martin and Jean Angela cannot persuade me on the balance of probabilities that the documents mean what they appear to say. I reject that argument. Of course the evidence does not all point one way. But in my judgment the evidence of the authenticity of this group of documents (and the authenticity of the one in turn supports the authenticity of the other) and the nature of their contents (set in the context of other genuine accounting records) when weighed against the challenges to their genuineness clearly points to these being reliable evidence of the existence of a “cross-invoicing” scheme such as that advanced by Martin and Jean Angela. David and Dianne squarely built their challenge to Martin and Jean Angela’s defence on the foundation that key documents were fabricated: and it has turned out that they probably were not. So there is really nowhere that David and Dianne can go on the material so far examined. Mr Pughe put this way it in his expert report (when considering what the JAH Note might be):- “If the court finds that the JAH note is a genuine and contemporaneous document by reference to the factual and expert evidence then it seems to me that it follows the cross invoicing scheme has to exist as described in the JAH note, as I cannot see what else the JAH note is, if not a record of the cross invoicing scheme.” That expresses my own view.

[126]It remains to bring into account before reaching a conclusion on the whole of the evidence the oral evidence which I heard. Although the evidential burden lies upon Martin and Jean Angela I will deal first with the evidence of David, Rosemary and Dianne.

[127]Whatever might have been said about them in Hague 1, it seemed to me that each of these was an entirely sincere witness who (in their own minds) would not have dreamt of telling a deliberate lie. But they have felt such a deep sense of grievance ever since HHJ Behrens handed down his judgment (emotion that was evident as they gave their evidence), that it is no surprise to find that the reliability of their recollection had been fundamentally affected by the processes I have earlier alluded to.

[128]A small but telling incident will illustrate the problem. HHJ Behrens handed down judgment on 1 April 2009. David and Dianne reacted immediately by severing all relations with Martin and Jean Angela. Within a couple of days David and Dianne summoned a meeting with Martin. David’s evidence about the severance of relationships understandably presented himself in the best light, and Martin in the worst. It was suggested that at that meeting he had in effect summarily closed down Martin’s business on the site at Carlisle Street, a proposition he described in oral evidence as “a complete fabrication and a downright lie” saying that on the contrary Martin “had thrown his toys out of the pram”. There is a transcription of the meeting. It shows that it was David who proposed that Plant should cease work at Carlisle Street with immediate effect, that Martin resisted this as a drastic measure to take at 4.50 pm on a working day, but David said that he was stopping all of Plant’s services and pulling everything off-site. I do not think that this was an instance of David knowing the truth but deliberately lying: but it is a recollection so highly coloured by an entrenched perception that Martin is “the baddie” that, though advanced emphatically and with complete confidence, it is simply wrong. I cannot look to David, Rosemary or Dianne for reliable evidence. They have deluded themselves as to where the truth lies.

[129]Before dealing with their evidence individually I should address one major topic which has broad implications. It would come as no surprise, but in any event is as clear as can be on the documents and other evidence, that the waste disposal, waste transfer/recycling, skip hire and haulage businesses generated cash transactions: and that some of these cash transactions did not find their way into the accounting records.

[130]As to documents showing cash transactions, first, there is a surviving note (disclosed in Hague 1 in January 2009 and not identified in this action as inauthentic and so requiring submission to the documentary experts) which on its face appears to record the documents that would need to be amended or reconciled to eliminate traces of transactions paid for by non-accounted cash. It appears to note the need for amendment of the yellow sheets (which recorded the allocation of a particular lorry to the job), the “D Sheet” (which was the day sheet), the “W Sheet” (which was the weekly sheet), the “tickets”, to instruct the administrator to “check paid”, to look at the Grey Book, (the paid record and the Grey Book being maintained by Dianne), to check the M Book (i.e. the message book) and any copies and the “L/LDR” (which was the low loader book). The “M Book” and the “L/LDR” reference are both in the handwriting of Jean Angela: all the other entries were made by Dianne. So this is a written record made by Dianne of how to conceal cash transactions.

[131]Second, other documentary records are marked (or were marked, but have now been lost) with the initials “CNT” (which according to unimpeachable evidence stands for “Cash No Ticket”). It means that a service (haulage or skip hire, for example) has been provided but no paperwork exists.

[132]As to other evidence about cash transactions (and for this purpose excluding the evidence of close family members)(a) Sarah Kaye gave convincing evidence that cash was received in the office for work done, and that not all of it was banked, such unbanked cash being given to Mrs Hague and taken to Mr and Mrs Hague’s house.. (She also, incidentally, gave convincing evidence about the separate treatment of certain intercompany invoices at around the year-end which she termed “swap” invoices, though I am not convinced that this was a label applied in the office generally):

(b) Len Shepherd gave reliable evidence that every evening he would take from Carlisle Street up to Prospect Farm, where the offices were, all operational paperwork (consignment notes, conveyance notes, drivers’ timesheets etc.) together with two envelopes of cash, one of which contained cash for which no paperwork had been issued and which bore on its front a list of where the cash had come from:

(c) Michael Rogers (the former husband of Dianne, who separated from her in 2001) gave even-handed evidence which confirmed the existence of a body of cash transactions the proceeds of which were shared out within the family;.

(d) Sarah Kaye gave convincing evidence that on receipt of cash in the office Dianne would recover all relevant paperwork from the drivers (and if she could not would ask Sarah Kaye to do so) and would scribble out the relevant entries in the Grey Books covering them with Tippex;

(e) Len Shepherd said that he handed the cash transactions envelope (listing the relevant dealings) to Dianne;

(f) The evidence of Michael Rogers (which I accept) was that Dianne used to destroy paperwork relating to cash transactions by burning it in the kitchen stove, and used to pass the cash itself to Mrs Hague (on the occasions when she could not so pass it to Mrs Hague then putting it in the safe at her own home).

(g) Robert Couldwell (who worked for Plant between 1995 and 2009 and now works for Excavations) gave disinterested and reliable evidence that generally Dianne received cash at the end of the day (being both cash with an invoice or advice note which was put in a box file, and cash without such additional material which was kept separately and taken to Mrs Hague): and that when Dianne, Mrs Hague or Martin was not available he would receive the money. He said that the separated cash related transactions did not go into the Grey Books, or if they had gone in, were removed from the Grey Books.

[133]There is no doubt in my mind that significant sums of cash were, as she herself admitted, passed to Mrs Hague: and there is equally no doubt in my mind that she distributed this within the family or expended it for the family benefit e.g. by paying builders who were working on family properties. Included in the distribution were David/Rosemary and Dianne, even though they continue to deny receipt. Mrs Hague’s evidence was convincing: and it is in any event highly improbable that if undeclared cash receipts were generated, they either were not distributed or that any distribution would have excluded David or Dianne.

[134]Michael Rogers says that Dianne herself had £24,000 in cash safely put away in 2001 when they separated. But David, Rosemary and Dianne all deny that they received large sums of undeclared cash from Mrs Hague. The issue is: are they right? Are they the pure and innocent dupes who have been “ripped off” by their devious and wicked brother? Or did they share in the culture of deceit and dishonesty, the memory of which they have now suppressed or about which they are prepared to lie?

[135]In Hague 1 HHJ Behrens came to the clear conclusion that they had received cash payments along with other family members, and that insofar as they denied doing so “they [were] lying”. In doing so he relied on seven diaries (which had been disclosed in January 2009 and were the subject of objection by David and Dianne) which Mrs Hague said she had maintained and which contained coded entries as to how much she had paid each of her children: he did not consider these to be fabricated (though he did consider that Mrs Hague did not always understand her own coding). Faced with the assertion in the present proceedings that they had been paid undeclared cash, as so found by HHJ Behrens, David, Dianne sought to attack that finding and to re-amend the pleaded case to allege that the relevant entries in the diaries were all fabricated. HHJ Behrens in refusing the amendment ruled that such an amendment constituted a direct attack on his specific finding in Hague 1.

[136]The Court of Appeal held that he was right, and that Plant had no right to amend its statement of case in this action to raise that issue(a) because it was a direct attack on a specific finding; and

(b) because “to plead, positive, the fabrication of the document found in earlier proceedings between the same parties or their privies to have been genuine, in support of a mere non-admission in later proceedings of the genuineness of the different document” (emphasis supplied) was a clear abuse of process. Three points arise from this.

[137]First, in this action no challenge can now be raised to the authenticity of entries in Mrs Hague’s diaries (themselves not in evidence in this action) recording cash payments to David and Dianne.

[138]Second, David and Dianne must accept in this action the finding of HHJ Behrens that they received cash from Mrs Hague. But I would so find, in any event. The benevolent interpretation of their evidence to me is that they have completely deluded themselves into the shared belief that they received nothing: but that evidence is wholly unreliable. On the basis that there are genuine diary entries recording payments of cash to David and Dianne I would myself reject the evidence of David, Rosemary and Dianne about non-receipt of cash and hold afresh that they did participate along with the rest of the family in receipt of undeclared cash.

[139]Third, the question arises as to how far the approach of the Court of Appeal may be carried. Counsel for Martin and Jean Angela submit that there are other findings in the judgment in Hague 1 or admissions made in evidence which are binding between the same parties or their privies in this action. These are set out in a 23 page schedule served by the Defendants in response to an Order which I made in October 2014. I will consider “admissions” and “findings” separately.

[140]In my judgment the entries in that Schedule which refer to statements made by David, Dianne or Rosemary in evidence in Hague 1 do not constitute binding admissions. To the extent that they differ from statements made by David Dianne or Rosemary in evidence in these proceedings they may be put in cross-examination as prior inconsistent statements, or made the subject of submission in closing. But I must make my findings on the evidence I have received.

[141]In my judgment the entries in the Schedule which refer to “findings” in the judgment cannot be treated in their entirety as “binding” in this action. The “findings” are said to be:-(a) that Dianne must have known about the “cross invoicing” (para [248] and [264] of HHJ Behrens’ judgment);

(b) that Dianne was involved in acts of dishonesty (para [262]);

[142]At the very least these findings have to be viewed in the context of the issues which fell for determination in Hague 1. “Cross-invoicing” was not a central issue. Martin and Jean Angela’s assertion that the practice existed was accepted and was used as a basis for attacking their credibility. “It is submitted that the credibility of each of Martin, [Mr Hague], [Mrs Hague] and Jean Angela was destroyed by their willing participation in a false invoicing practice (which the claimants [sc. David and Dianne] do not dispute in relation to Plant and Excavations)” said Counsel for David and Dianne in closing in Hague 1.

[143]Counsel for Plant in closing in this action say that there is no question of any finding in Hague 1 having any bearing upon the findings in this action because(a) the identified issues were not fundamental to the judgment (see Spencer Bower & Handley “Res Judicata” (2009) para 8.23; and

(b) Plant is not a “privy” of David and Dianne.

[144]In my judgment the second of those points is not open (even though Counsel drew to my attention much learning to which the Court of Appeal had not referred). The Court of Appeal plainly regarded Hague 1 and this present case as being “between the same parties or their privies”, and the proposed challenge to the authenticity of Mrs Hague’s diaries as being a direct attack on the findings made in Hague 1. So that is that.

[145]On the other hand, the Court of Appeal clearly did not treat HHJ Behrens’ findings about “cross-invoicing” as precluding any enquiry as to whether “cross-invoicing” did indeed exist: for they commented upon the very trial of these Issues without suggesting that the logic of their holding in relation to the diaries meant that the outcome of this issue also had already been determined in Hague 1.

[146]In my judgment Counsel for Plant are right when they say that HHJ Behrens’ “findings” on the matter of “cross-invoicing” (which was not truly in issue in Hague 1) do not bind me in this action: and that it is not oppressive or abusive for David and Dianne now to raise the issue.

[147]Counsel for Martin, Jean Angela and Excavations identified the relevant principle as being that of issue estoppel: I agree. They cited the speech of Lord Brandon in The Sennar

[1985] 1 WLR 490

at 499B as authority for the constituent elements of the principle: and I agree also with that. The third of the requirements is that the issue raised in the later action, in which the estoppel is raised as a bar, must be the same issue as that decided by the judgment in the earlier action. But I do not consider that “cross-invoicing” was truly an “issue” in Hague 1. That case was all about the ownership of shares in Excavations, and “cross-invoicing” was a peripheral matter going essentially to credibility, and it is not surprising that the existence of “cross-invoicing” was (for that purpose) not contested. Parties who choose to focus on the central issues and not at trial to contest every single matter of difference are not to be disadvantaged by finding that they thereby inevitably become bound by an issue estoppel as regards that matter of difference. The existence and extent of “cross-invoicing” is one of the central issues in this case and a rigorous and inflexible application of the principle of “issue estoppel” would work real injustice.

[148]Nor do I think that a different conclusion would be reached if the matter is examined from the perspective of “abuse of process”. It is to a degree right that David and Dianne could have pursued in Hague 1 a challenge as to whether “cross-invoicing” existed at all. But, once again, in circumstances in which parties are encouraged to focus on the central issues of the case and not to “turn over every stone”, Sir James Wigram’s words in Henderson v Henderson (1863) 3 Hare 100 that “The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of the litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time” must be given a sensible application. Ultimately I am required to make the broad merits-based judgment focused upon the crucial question whether in all the circumstances a party is misusing or abusing the process of the court of which Lord Bingham spoke in Johnson v Gore Wood & Co

[2002] 2 AC 1

at 31D. Undertaking the exercise, identifying the central issues for determination in Hague 1, noting the significance of “cross-invoicing” to those issues, taking into account the present availability of forensic accounting evidence, I hold that it is not an abuse for the Claimant to contest in this action the existence and extent of “cross-invoicing”.

[149]The evidence in chief of David was very short and did not seek to address many strands of the case against him advanced by Martin and Jean Angela (leaving those to be dealt with in cross-examination). But it acknowledged that certainly for a time invoicing arrangements between family members were fairly informal and involved an element of non-invoiced setting-off of services and supplies made by one family entity to another or to an individual. His evidence suggested that from 1992 the process was formalised, and procedure of “year-end invoicing” adopted. But David insisted that this did not involve “cross invoicing” i.e. value shifting and that the first time he heard of it was during Hague 1. He described “cross-invoicing” as “damned ridiculous fantasyland”.

[150]I do not accept that the family accounting procedures were limited to year end invoicing or that the first time David heard of “cross-invoicing” was in Hague 1. I consider that “cross-invoicing” existed (as the documents suggest) and that David knew of its existence.

[151]I find, first, that David has a recollection of events that tends to edit out his own participation in evident wrongdoing.

[152]His continued refusal to accept that he was in receipt of undeclared cash from Mrs Hague (despite the finding of HHJ Behrens) is typical of this tendency, but is not the only instance. A further instance is that whilst he accepted that Hague Plant did work on properties that he owned personally (in particular the construction of two new houses and the restoration of another at Dungworth which he and Rosemary rent out), he insisted that this was properly accounted for by adjustments to his loan account. Mr Midgley (who was a more reliable witness) said there were no such adjustments. (In fairness to David I should record that he believes that the position arising from the improper receipts has now been corrected within a tax investigation: but whether that belief is properly founded was not examined at trial).

[153]Further, he insisted that “cross-invoicing” did not happen as between Plant and Farming or as a between Farming and himself: yet in my view unchallenged documents show otherwise.

[154]Yet further, he insisted that although there was trade between Plant and himself personally (and between Plant, for which Martin was responsible, and Farming, for which he was responsible) all such work was invoiced and every invoice was carefully calculated. But I simply do not accept that this was so. Four points will suffice.(a) I do not accept as credible that it was pure coincidence that David’s calculations (based on his diary entries and any loose pieces of paper that he retained) as to what was due to him happened to match Martin’s separate and independent calculations of what was due to Plant, and that this coincidence went unnoticed over the years. Nor do I accept that it is coincidental that the mutual trading increased in step.

(b) David’s evidence in this case about the maintenance of accurate records and the scrupulous rendering of invoices represents a significant strengthening of the evidence that he gave in earlier rounds. Hague 1 was opened by his Counsel on the basis that intercompany trade was very informal with some items not being charged for. In Hague 3 David was prepared to accept that he did not keep a detailed record of the benefits he received and that Rosemary kept a record of only some of the works. Yet before me he insisted that everything was strictly accounted for.

(c) Glen Dransfield (since 1990 a self-employed agricultural contractor having no apparent interest in this litigation) gave evidence (which I accept) that in 1983 he had been engaged by Mr Hague as an agricultural worker and was deployed to work for Plant or Farming or for David’s personal businesses without distinction and without any record being kept. I was unimpressed by David’s answer that “[he] would know what [Dransfield] had done”.

(d) Amongst the welter of material some original invoices were examined. One was invoice 21762 which Plant rendered to Farming in 1996 for the hire of lorries. (It is in the Yellow File and Martin and Jean Angela say that it is a “cross-invoice” but Plant says in its statement of case is a genuine carefully calculated invoice relating to the transport of “sludge”). The Grey Books show that in fact about 1200 loads of sludge were transported by Plant in the relevant period: and it is common ground that there is no other relevant invoice. As I have noted, the charge made is £60 per load. The expert evidence is agreed that this is wholly unrealistic. This is not an invoice that someone who was careful in relation to inter-company invoicing would have paid. This examination severely undermines David’s case that for himself and the companies with which he was concerned the practice was complete and careful invoicing (and in fact goes to strengthen Martin and Jean Angela’s case that this is not a genuine invoice). .

[155]The fact, as I find on the evidence I have heard, that David himself was in receipt of undeclared cash, benefited from work undertaken by workers employed by and machinery owned by other Hague companies without accounting for it, and conducted intercompany trade on the basis that did not involve strict accounting but did involve false invoices is not, of course, probative of the existence of the “cross invoicing” scheme alleged (save for the illumination provided by invoice 21762). It does mean that the notion of “cross-invoicing” as a value-shifting rather than account-straightening exercise is not quite so outlandish as it otherwise might seem. It does mean that if such a scheme existed there would be no pressing necessity to conceal it from David. It does mean that because of his great ability to “edit out” his own participation in wrongdoing his denial of the existence of or his knowledge of the scheme lacks the weight it otherwise would have.

[156]I find, second, that David was not as detached from what went on in the family as he would have me believe. Part of Martin and Jean Angela’s case was that everything including issues relating to “cross-invoicing” was openly discussed when the family met to eat together at the start of or during the working day. David sought to say that such was not the practice and that he was often not there. But his evidence in Hague 1 and Hague 3 had very different emphasis.

[157]In Hague 1 David was anxious to establish that all businesses were part of a family enterprise. He was therefore at pains to stress that everybody knew what went on. He explained that the means by which this would generally happen was that the Hague family would take their meals at Prospect Farm farmhouse, with most people in attendance, and with people coming in and out at various times of the day to talk about what was going on and what they were doing. I prefer this account to the account given to me (after years of brooding) of David’s non-involvement in such family conversations.

[158]In Hague 3 a side issue concerned the transfer by Mr and Mrs Hague of the farming business and farmland to Farming; another concerned the circumstances in which Martin and Jean Angela’s house called “Parkside” was constructed at Prospect Farm and whether it was theirs (as they contended and Mr and Mrs Hague agreed) or whether it remained part of Prospect Farm subject to a life interest in their favour (as David and Dianne contended).

[159]As to the first side issue David said:- “Everyone in the family was aware of those discussions and by that I mean, myself, Rosemary, my father and my mother, Martin and Jean Angela and Dianne and her husband Michael. As I’m sure my father would agree, everything was openly and fully debated and thoughts and ideas exchanged on this and indeed on any other matter relating to the family. Everyone knew what was going on in that regard.”

[160]As to the second side issue, David’s position was that there could not be an agreement because he knew nothing of it. He said in his witness statement dated 6 September 2011:- “as I have said previously everything was openly discussed in the family and my father always prided himself on saying that everyone in the family knew what was going on and we were all treated equally”. Once again, I prefer the evidence that was given about these general events before the intense focus of this action invested everything said or done with heightened significance.

[161]Again, this is not probative of the existence of the “cross-invoicing” scheme alleged. Nor does it follow that the detail of actual cross invoicing would have been the subject of discussion (as opposed perhaps to discussion of anticipated profit levels and the amount that should be subject to year-end invoicing). But it does mean that concealment of any particular activity from any particular section of the family would have been difficult, and it greatly reduces the likelihood that if the scheme existed nonetheless David was ignorant of it.

[162]I find, thirdly, that taking into account this factor and other evidence, David did in fact know that a “cross-invoicing” scheme was from time to time utilised and that he himself participated in it, as documents demonstrate.

[163]As I have indicated, at trial a number of original invoices were examined. At this distance in time the actual subject matter of the charge made in these invoices cannot be investigated or proved by reliable oral evidence. The Court has to work on inherent probabilities.

[164]One such original invoice was invoice number 14, rendered by David to Plant on 31 July 1985 with the general narrative “To the supply of storage facilities and [machinery] and tool hire”. Mrs Hague gave clear evidence that at the time this invoice was rendered she could not think of any storage facilities of which Plant would have been in need (since it had ample land and buildings of its own) nor could she think of any machinery or tools which Plant would have needed to hire from David (having a full complement of its own). I was unconvinced by David’s speculation as to what storage or machinery hire might have been involved. In my judgment this is probably a fictitious invoice rendered by David as part of an operative “cross invoicing” scheme, satisfied by a payment or credit the following month.

[165]Another was an invoice (No.009) dated 27 February 1987 from Excavations to Plant for 54,043 tonnes of topsoil at £1.50 per tonne totalling £96,064.50 exclusive of VAT supplied in the period from September 1985 to February 1987. The context in which this invoice is rendered is a business model (if then operative) in which Plant has the right to dispose for its own benefit of any recycled material and Excavations should not have the product of any recycling process: and where (if that model was not then operating) neither the former factory site at Carlisle Street nor the smaller site at Lightwood Lane could produce topsoil for sale. David’s initial position was that this was a genuine invoice. But he was forced to concede that there were no circumstances that he could think of in which Excavations would have nearly £100,000 worth of topsoil to dispose of or indeed that Plant would wish to acquire it: and that if he had seen such an invoice he would have known it was not realistic. It is in my judgment a false invoice. It is now necessary to tie this false invoice into David’s dealings.

[166]On 30 March 1987 Mr Midgley met with Martin and with David to consider the estimated profit for Plant for the year. He had in preparation done a calculation as at 28 February 1987 over consecutive pages in a hardback work book following his aide memoire for the meeting. He estimated profits at £703,855 before allowing for salaries and NIC. That would have left about £500,000. David made a note of or about this meeting (“the David Note”): I think it was probably made after the meeting with Mr Midgley and works on some of the figures he then provided. The working was done with Martin (whose writing also appears on the Note. David recorded “£500 taxable so £185 tax”. Then he noted “Spend £300 so leaves £155 tax”. Then he added “Bill from Hague excavations for £100 leaves £115 tax”. Then he did a calculation:- “£300 new machines £100 Tip fee Top soil purchases excavations £50 1st June £450 £65 Tax December” £100 Tip fee Top soil purchases excavations £50 1st June £65 Tax December”

£50 1st June

[167]In my judgment the “Bill from Excavations for £100” and the “Topsoil purchases excavations” (which might as easily have been labelled “Tip fee”) which had the effect of deflating profits and reducing the tax immediately payable was the false invoice number 0009. Since at this stage (as HHJ Behrens found) David had an interest in Plant but it was intended that Excavations should be in the beneficial ownership of Martin and Jean Angela, it is extremely unlikely that David should have been intended to make a gratuitous transfer of £100,000 from Plant to Excavations disguised as a purchase of fictional topsoil: the probability is that this is one leg of a “cross-invoicing” transaction whereby Excavations is billing Plant for £100,000 which is later to be returned. I regard this as documentary evidence of David’s knowledge of and participation in cross invoicing. I find David’s speculation that the date on invoice 0009 is mistyped (and that it relates to a genuine later sale) and that the David Note relates to a tax planning meeting 7 months earlier to be wholly unconvincing, being entirely inconsistent with the evidence of Mr Midgley (supported by his workbook) and unsupported by any entries in the Grey Books.

[168]The evidence of Rosemary and of Dianne may be taken together, because each of them had an administrative role in the offices of the Hague businesses. Rosemary was concerned with invoicing for David’s businesses. As for Dianne, she acknowledged in Hague 1 that she handled the “tickets” for every load coming into the business from third party customers as well as collecting together the figures to be entered into the Grey Books collected from Plant’s lorry drivers. (Included in this material, according to wholly reliable evidence given in this action, were dishonest returns for the carriage of loads that had not in fact been undertaken: Dianne played her part in processing these with her eyes open). By the time of this action she had forgotten about the existence of “the tip book” into which she entered this information (although such a book had clearly existed) and indeed could not remember the evidence that she had given in Hague 1. She readily acknowledged that there were gaps in her memory. In the light of that I consider that she underestimated the significance of her administrative role in the affairs of Plant and of Excavations (as evidenced by the frequency with which her handwriting appears on material documents, and by the evidence of other witnesses).

[169]Each of Rosemary and Dianne gave her evidence with conviction: but it was a confidence borne of long cogitation about the case and is no help in judging its reliability. It is, in fact, unreliable.

[170]Rosemary strongly asserted (sometimes with heightened emotion) that she knew nothing of “cross-invoicing”. Rosemary was from about 1983 responsible for the invoices raised by David (or Loxley House Farm) addressed to Plant, and at least some of the invoices exchanged between Plant and Farming. She said that she did not give Jean Angela copies of such invoices for “cross-invoicing” purposes. Yet such are to be found in the Blue or Yellow Files marked as “cross-invoices” by Jean Angela: as to these Rosemary said that they were not “cross-invoices” but genuine recharges with coincidentally matching invoices just picked out, and that it was “wicked” to try and “put her in the frame”. But the authenticity of these documents (i.e. as genuine invoices with genuine endorsements) has not been challenged for several years: and the nature of the charges, the “coincidences” and their recurrence is so striking that I accept them for what they are. Further, Sarah Kaye said that Rosemary used to give her certain invoices between Plant and Farming to be kept separate from the general invoice typing (evidence which I believe): this singling out of some invoices is consistent with their generation for a purpose other than “account straightening”. For all her denials of receipt by David of undeclared cash and for all her assertions that the Blue File and the Yellow File are somehow artificial constructions to support the existence of an invented “cross-invoicing scheme” I am not convinced that the evidence of Rosemary is reliable.

[171]Dianne too denied receipt of cash from Mrs Hague. She attacked the notion that there was a “cash” side to the business. She asserted that “CNT” simply meant that a part of the paperwork for a skip hire was missing, but the cash otherwise went through the books: she professed to no recollection of the cash being in two envelopes that were treated differently. But to my mind all this evidence (at one point delivered through tears) is contradicted by a note in her own writing as to what steps had to be taken to “correct” paperwork where a cash receipt was intended to go unrecorded, is contradicted by the evidence of other witnesses who have far less at stake in this action than Dianne, runs counter to a specific finding in Hague 1 and is inherently improbable. I have no doubt that there was a “cash” element in the business with which Dianne was fully conversant and in which she played the important role of collecting in the cash, maintaining a file of cash transactions and calling in paper records from drivers relating to “CNT” transactions. It damages her credibility on other issues, in particular her denial of knowledge about any “cross-invoicing” scheme and participation in the “extra loads” fraud.

[172]There is one particularly telling piece of evidence. On 30 June 1999 Plant rendered to Excavations an invoice for haulage in the sum of £292,328 under the general narrative “to transporting materials”. Supporting the invoice is a manuscript schedule. This schedule demonstrates that the compiler had looked at the timesheets for individual drivers and the Grey Books for individual vehicles and calculated a charge of £88,328. To this has been added an arbitrary sum of £204,000 (an additional 250% of the true haulage charge). The schedule was endorsed “June 99”. On the final schedule some of the figures (including the corrected total adding the extra £204,000) appear to be in Dianne’s writing. One cannot assume that at the time the corrections were made the endorsement “June 99” was already on the document.

[173]In Hague 1 Dianne said that she did not recognise the script in which the corrections were made as her own: and in this action she denied that it was her writing. But both the evidence of the experts and that of other office workers says that it is probably Dianne’s writing: and I so find.

[174]Dianne says that, on the assumption that the writing is hers, all she would have done is simply correct some calculations and she would not have noticed the addition of an extra £204,000 to the invoice (being an extra charge levied by the company in which she was interested against the company in which Martin was principally interested). I do not find this believable. As she said in Hague 1, Dianne was responsible for taking the orders for Plant: she ran the “tip book” (the existence of which she had forgotten until two pages were produced in this action). She must have been aware whether or not Plant had received a £200,000 unspecified order from Excavations. She would have noticed. The fact that Jean Angela must have given this schedule (with its large and blatantly non-attributed charge) to Dianne to check (with the clear risk that she would notice) suggests that no-one is trying to hide anything. The fact that Dianne corrects the calculation but evidently raises no query and that the invoice is then prepared, booked and paid very strongly suggests she knew that some scheme was afoot (for she would not assume that Martin’s company would make a £200,000 gift to the company of which she was a shareholder and director).

[175]Although Dianne too professed her complete innocence of dishonesty, she was undoubtedly in receipt of undeclared cash, and she also had a property at Loxley Road and a property called “the Burnthill barn” built on what could politely be called a “non-invoiced basis”: and I think she was comfortable with such arrangements, and would have been as comfortable with a scheme that involved unattributed transfers of £200,000 as she was with the “extra loads” fraud.

[176]Put in the balance the evidence of David, Rosemary and Dianne does not seem to me to have the weight of the evidence derived from the documents: and indeed the documents which directly affect them tend to support rather than to undermine the conclusions to be drawn from the other documents.

[177]I will deal as briefly as I can with the evidence on Martin’s side. I was impressed with the evidence of Mrs Hague, and also with the evidence of witnesses who were not close family members. Of course, even such witnesses had their historic connections and loyalties and I have been alert to the need to bear these in mind when addressing reliability and accuracy of recollection. But they have not lived with this case in the way that the main participants have: and I trust them more.

[178]I should address one non-family witness who was not called: Gill Horton. Her evidence was intended to cover much of the same ground as that of Sarah Kaye as to the administrative arrangements within the offices at Prospect Farm, as to the receipt of cash payments and as to the existence of “swap invoices”. At the conclusion of Sarah Kaye’s evidence it was decided by the defendants not to call Gill Horton. Counsel for Plant invited me to draw an adverse inference from this namely that Gill Horton could not have been trusted to support some of the evidence given by Sarah Kaye in cross-examination, and on that account I ought to devalue the evidence of Sarah Kaye. I decline to do so.

[179]Whether any and if so what inference ought to be drawn from the failure to call a witness is highly fact-sensitive: it is not some blunt evidential presumption. What is involved in this case is not a failure to call some central witness who might have been expected to be called to deal with key circumstances which are otherwise not addressed; what is involved here is a forensic decision not to call an additional witness in a case already overwhelmed by documents and witness evidence of a highly granular nature. In times when every effort is to be made at trial only to do what is really necessary in a case, a decision to discard a witness as to matters already covered elsewhere should not be punished. But this hearsay evidence was not critical.

[180]At the very end of their closing submissions Counsel for Plant, David and Dianne then said that they themselves wanted to put the statement of Gillian Horton in as hearsay evidence under CPR 32.5(5) (too late for Counsel for the Defendants to cross-examine her). The object of this was so that Plant could criticise part of the evidence of Sarah Kaye as inconsistent with the evidence of Gillian Horton. But of course the effect was to admit the whole of the witness statement, including those parts that were confirmatory of the evidence of Sarah Kaye and others about the roles of Dianne (“skip” invoicing, running the “tip” book, providing the information for the tip invoices, dealing with the drivers, correcting the Grey Books, checking Excavations’ invoices to Plant against the purchase ledger and against the cheques drawn for payment) and of Rosemary (some Plant invoicing and a lot of the work on the farming side); and those parts that spoke of the awareness of David, Rosemary and Dianne of what Gillian Horton called “cross/swap/year end invoicing”.

[181]The evidence of Mrs Hague impressed me. A trial judge must not take too ready refuge in the demeanour of a witness: but there seemed to me to be something authentic about Mrs Hague’s evidence which was absent from the blanket denials of David, Rosemary and Dianne and the carefully constructed evidence of Martin and Jean Angela. She was, as I have said, an elderly lady who was easily led in oral evidence (and might have equally been easily led by those who prepared her witness statement for her) and was occasionally confused. But I have allowed for that. She had clearly tried to treat her children fairly (notwithstanding a temporary rift with David), and the attempt by David and Dianne to show that they had been disadvantaged (by not receiving cash payments and by having to account strictly for all benefits received) wholly failed. She was clearly distressed at the accusations levelled against Martin and Jean Angela by Martin’s siblings, particularly because Dianne had been very close to Martin and Jean Angela (a matter to be taken into account when assessing the likelihood of successful concealment of a scheme from her). This very elderly lady was not maintaining a pretence: nor do I think that she had been deluded by the machinations of Martin and persuaded that she had to lie “to keep him out of prison”, although she quite plainly regarded him with a mother’s pride as the real source of the family wealth (because like Mr Hague himself, Martin was a “workaholic” who did not miss an opportunity). I thought she dealt very firmly and very well with the frequently pressed point that she was “lying” and had been “put up to it”.

[182]I accept her evidence that the origins of “cross-invoicing” are to be found in the dealings which Mr Hague had with a company called “Marlaville” (which also supplied services to British Tissues, who were the source of the pulp contract) and another called “Norwood Engineering” where the company asked if an invoice could be sent which they would “clear up” the following financial year. This was (in the terms I have used elsewhere) “value shifting” not “account-straightening” invoicing: and it led to Mr and Mrs Hague thinking why they should not do the same sort of thing, and discussing it within the family sometime around 1978. A further contribution came from Mr Sharrock who formed a company with Martin in the 1980s called “Prospect Construction (South Yorkshire) Limited”, and also used the same technique. She confirmed that the technique was used in dealings between Mr Hague and Plant and (when her attention was drawn to particular invoices) was able to confirm (from the endorsement “Re D H 86/87 a/cs”) that these were all part of the scheme. She gave evidence about the sort of words they would to describe what was being charged for (being what I have called general or unspecific narratives). All this was impressive.

[183]I accept her evidence that there was no need for Plant to hire anything that David owned for use in Plant’s business (save perhaps for a 4x4 JCB which David appears to have acquired when they first became available): so that invoices from David to Plant for machine hire are likely to have been fictional (indicative of “cross-invoicing”). All in all her evidence supported the account given by Martin and Jean Angela and evidenced in the documents: though she was as unable as anyone else to explain what they thought they achieved by the scheme. She was crystal clear that the scheme existed and that David and Dianne knew of it.

[184]Martin has made no secret of his dishonesty. Challenged by Counsel for Plant that he was manipulating obscurities in the relationship between Plant and Excavations for his own benefit, he responded:- “I accept that I have tried hard to advance us all, and if this has involved telling lies and deceit and false documents then I have done it. And it is all I have done all my life. But they cannot hold their heads up. They did it too”. Both limbs of that answer are accurate. I do not think Martin is a ruthless businessman attempting to drag his scrupulously honest siblings into a mire of alleged dishonesty. His acknowledged dishonesty means that I have approached his evidence with caution, but a caution no greater than I applied to the evidence of David, Rosemary and Dianne with their unacknowledged dishonesty.

[185]Martin’s witness statement was very substantial (in marked contrast to that of David). It was so because he sought to address the matters of detail set out in the Points of Claim with the desire to get his answers correct “because I have no wish to be tripped up in cross examination on, frankly, silly points of detail which it would be easy to get wrong”. This meant that it was carefully constructed and, to a significant degree, a commentary upon the documents. The account given is therefore consistent with the documents (although not always consistent with everything that has been said in the five earlier cases when the detail deployed in this case was not relevant to the issues in those cases). It is to the documents that I have paid the greater attention.

[186]I should, however, record the principal parts of Martin’s narrative (the list is not exhaustive) which I have accepted and drawn upon in the foregoing account and in my assessment of evidence of other witnesses and my weighing of the evidence as a whole. I should record that Martin stood up well to some penetrating cross-examination (though he certainly did not emerge unscathed):- a) I accept Martin’s description of Prospect Farm as the “hub” of the family businesses where those engaged in those businesses met regularly at mealtimes or at the end of the working day to chat about what was going on in the businesses and to speak openly and without inhibition, and to deal with such matters as the distribution of undeclared cash. b) I accept that such was the beneficial effect of pulp spreading and such the quantity of land available within the family on which to spread it that inter-company charges concerning pulp are very probably fictitious (and likely to be elements of a “cross-invoicing” scheme). c) I accept the history of the acquisition of the various tipping sites and in particular the circumstances surrounding the acquisition of Carlisle Street and the formation of the business of Excavations, and the evolution of the basic business model. d) I accept that Martin learned of the “cross-invoicing” scheme from Mr Hague and employed it in relation to Prospect Construction and then in relation to Plant and Excavations. I find that the determination of the amount to be “cross invoiced” and the selection of the narrative to accompany the invoice was the responsibility of Martin, (though I reject Martin’s evidence that this was generally done after consulting Mr Midgley on the draft figures) but that the actual execution of the scheme was left to Jean Angela (with the participation, where necessary, of Diane and Rosemary): and that the scheme as operated included the creation of fictional invoices for matters that could have been charged for but which by convention had not been charged for e.g. pulp spreading or soil tipping. e) I accept that because of Martin’s role both in Plant and in Excavations it was his responsibility to value the benefits derived by each company from their working arrangement, and that what Martin did (as he told HHJ Behrens in Hague 1) was to keep a mental record (based on the information provided to him by Len Shepherd) of what materials were going out, a mental record of what men and equipment were at Carlisle Street, of the benefit that Plant gained by having discounted tipping rates (as they did) and the revenue that they obtained from undertaking the sale of recycled materials: but that there is no note which is capable of being audited. In consequence the fact that there is an arithmetic balance between invoices passing between Excavations and Plant is not necessarily indicative of an equality of benefit. The equality of benefit is dependent upon the integrity of Martin’s assessment at the time. f) I accept that the overall strategy of the family (in which Martin played his full part) was to build family wealth by investing cash generated by Plant in the acquisition of commercial sites by Plant and agricultural sites by Farming. In that context it is unlikely that Plant would be rendering substantial invoices to Farming (thereby restraining its growth) so that such invoices are more likely to be “cross-invoices” than genuine invoices. g) If one attempts to drill down into the detail of individual transactions some remarkable feats of memory are required. Some have been displayed. For example Martin can credibly recall (in relation to an apparent sale of materials by Excavations to a third party, where the business model would suggest that any sale would have to be by Plant of recycled material) that on 31 May 1989 a driver arrived with a single cheque for(a) the tipping of waste for sorting and

(b) a return load of recycled material. Rather than require a separate cheque in favour of Plant for the recycled material Excavations “sold” that material. But it is wholly unreal to think that anyone can recall this level of detail for each and every transaction going back to 1986: and if they purported to do so the likely explanation would be subsequent rationalisation from what is known about the way the business operated and the probability of events. h) As part of the valuation exercise Martin carried out an exercise in which he analysed the amount historically charged to Plant by Excavations for tipping at Excavations’ sites and the amount historically charged by Plant to Excavations for stacking and levelling that material. The result of this exercise (in fact conducted by Jean Angela) was that it was possible to calculate a standard charge per £1 for stacking and levelling. The document by which this was done was in the trial bundle. One element of the mental record that Martin kept was therefore reduced to a formula. i) There are significant areas in which the absence of documents means that one can only now guess at the basis of charge for individual transactions. There are equally significant areas where the nature of the documents is such that a high degree of interpretation is required (drawing upon a detailed knowledge of the items of equipment and the contracts, and the basis of charging when used), such that the existence of the documents itself provides no complete answer to the question of assessing benefit.

[187]It is unsurprising that, given the nature of the evidence, I find that it confirms rather than obscures the picture presented by the documents and the overall probabilities.

[188]The evidence of Jean Angela was (to an even greater extent) document based. It is of similar length to that of Martin and to a greater degree a commentary upon the documents. Much of her cross-examination was directed at those documents, and I have taken into account her answers when making my findings of fact upon them. However there were two significant points put in cross-examination with which I ought to deal in a little more detail.

[189]First, the tipping charges paid by Plant are recorded as a separate item in its accounts. For the year ending 31 August 1984 they amounted to about £15,000. In 1985 they amounted to £8,633. But for the 18 month period ending February 1987 they were £216,037. Counsel for Plant put it to Jean Angela that this was a false overcharge i.e. that Excavations had fraudulently extracted money from Plant. Jean Angela resisted this, saying that she thought the figure must be true, and hazarding that perhaps it covered more tips. It was, I think, an instinctive answer from a witness determined to adhere to her story (and thereby sounding a note of caution).

[190]But it struck me as so spectacular an increase that David and Diane (as directors) must have noticed it and since they evidently did not query it, must have known that something odd was going on. On examination it seems to me that this spectacular increase is due principally to the rendering of £130,000 worth of false invoices to write off the loan that Plant had made Excavations to purchase Carlisle Street – a piece of false and dishonest invoicing about which everyone knew. It is also in part because of the coming on-stream of Carlisle Street itself. I am satisfied that it is not an indicator of a fraudulent overcharge.

[191]Second, in her witness statement in Hague 1 Jean Angela referred to “a spreadsheet showing year end invoicing taking place at various times between 1996 and 2003”. In her witness statement in this present action she said that she had created this schedule “from a note I had of cross-invoicing at the time” though she had no clear recollection of creating the schedule nor of the content of the note that she used, nor of the form it took. She stated that she no longer had the note, and believed that she must have thrown it away but could not recall doing so. She had not, in fact, disclosed in Hague 1 any such “note” of cross-invoicing that she had made “at that time”. The schedule produced from this “note” in Hague 1 covered the period from 1999 to 2003. Following the discovery of the JAH Note (which Jean Angela says is contemporaneous and the experts agree is not fabricated but was created over time) and which covers the period 1990-2005, it appears that for the period 1999-2003 Jean Angela kept two notes of cross-invoicing: one being the JAH Note and the other being the “note” that no longer exists in the form that cannot be recollected. When this was pointed out to Jean Angela in cross examination I did not think that she dealt with the point very well (and understandably so). I think the probability is that the idea that the Hague 1 Schedule was created from a contemporaneous note (not disclosed in or mentioned in evidence in Hague 1) is false. I cannot see that Rachel Hague (who helped prepare the original spreadsheet) refers to using a “note”: and the original schedule (supposedly based on this “note”) omits invoices which were only disclosed by Diane and David in Hague 1 (and it would be odd if the original “note” had coincidentally also failed to record those selfsame invoices). This invention (or mis-recollection) demonstrates a degree of unreliability about Jean Angela’s evidence when unsupported by documents, though certainly to no greater a degree than David, Rosemary and Diane’s refusal to accept that there was undeclared cash distributed by Mrs Hague to them or personal benefits received from companies which were not accounted for.

[192]I consider Jean Angela’s commentary upon the JAH Note and other invoices to be generally reliable and coherent, but it is to the documents themselves that I have had principal regard.

[193]I should at this point deal explicitly with the challenge put to Jean Angela concerning the Blue File in particular (but other documents in a more general way): that is that whilst the invoices were genuine and the payments were genuinely made, what Jean Angela has done is simply selected matching (or approximately matching) transactions in order to create the illusion of “cross-invoicing”: see paragraph 108 above. Implicit in this is the suggestion that her annotations are not contemporaneous but are later additions (probably made around 2008) designed to deceive (though this was not put directly to her, nor was it an enquiry made of the documents experts). Jean Angela of course denied this. I accept her denial.

[194]The Blue File is of a piece with the Yellow File, which itself is unchallenged. Its nature, content and notation is remarkably similar. I have found that cross-invoicing occurred in relation to Prospect Construction (see paragraphs 182 and 186 above as instances). The Blue File contains the documentary material showing a “cross-invoicing” scheme in operation in relation to Prospect Farm (see paragraph 57). So that part of the Blue File is unlikely to have been artificially constructed. I have pointed out (see paragraph 115) that there is no suggestion the Martin and Jean Angela were involved in the fraudulent extraction of money from Prospect Construction or Farming or by means of dealings between Mr Hague and Plant: yet documents in the Blue File on their face show “cross-invoicing” in operation in these contexts. If I ask myself whether it is more probable(a) that these admittedly authentic invoices have been selected from the main run of invoicing and have been copied and separately preserved because they record “cross-invoicing” or

(b) that they were selected (including the selection of some invoices that would only be balanced by disclosure from the other side), doctored and placed in a separate file in 2008 in order to provide background material to assist fending off a challenge to credit in earlier proceedings about something else, then the former seems to me more probable than the latter. I have observed (paragraph 154) that I do not regard the recurrent balance in the mutual dealings of (for example) Plant and Farming to be co-incidental: there is some policy at work, and the contents of the Blue File show what it is. I have made findings that particular invoices (whilst genuine documents) do not record genuine transactions but are probably “cross-invoices”. The Blue File provides a coherent explanation as to why such invoices might be created. Finally, the genuineness of other documents (apart from the Yellow File) disclosing the “cross-invoicing” scheme makes it less likely that the Blue File is itself an early fabrication.

[195]Of course not all the evidence points clearly in one direction. The Blue File contains invoices which do not exactly conform to the general pattern because they contain specific narratives, or do not exactly balance. But overall it has seemed to me unlikely that the Blue File is a post-dispute creation.

[196]The evidence of Rachel Hague and of Katie Hague did not add significantly to the evidence derived from other sources. While strongly supportive of their parents it must be recalled that they were very young at the time when the truly significant events occurred: and the “cross-invoicing” scheme ceased shortly after each of them became significantly involved in the affairs of the family companies. Their evidence was of use in enabling me to understand both the administrative arrangements in the offices at Prospect Farm and the process of writing up the Grey Books (which I have borne in mind when assessing other evidence). There is one particular matter I should draw out. I accept Katie’s evidence that she was able to identify an impression of her handwriting on the JAH Note, and that it is a shopping list which predates 2006. This reinforces the expert view that the JAH Note is not a reverse engineered fabrication created at around the time when, or after, the “cross-invoicing” issue was first raised in February 2008 in Hague 1.

[197]Of the other witnesses, I have approached the evidence of Michael Sharrock (Martin’s former partner in Prospect Construction) with circumspection. Now resident in South Africa he had been paid £20,000 in expenses and compensation for lost earnings to attend trial. He was bound to have felt that Martin and Jean Angela had “invested” in him even though there has been minimal contact for 23 years. But I accept that he used “cross-invoicing” for Prospect Construction: and that it was openly spoken of.

[198]Michael Rogers had given witness statements to both Hague factions over the years: but in this battle was called by Martin and struck me as straightforward. I have accepted his evidence about Dianne having substantial cash sums (he said £24,000) in the safe at their home. In 2009 he expressed dissatisfaction at the terms of the Consent Order made when he divorced Dianne in 2004: one of the grounds on which complained was that he had “learned of undeclared cash payments… which were not disclosed to our client”. This is apparently inconsistent with his present professed recollection of Hague cash in the home safe: but I accept that whilst he knew of the cash at home, he did not know the extent of the undeclared cash (which he subsequently discovered to be larger than he thought) or that Dianne continued to be in receipt of cash after they separated. I was struck by the authenticity of his answer to Counsel: “You keep saying there was no cash. But that is not correct, sir”.

[199]Peter Westley was a former machine operator, who now worked for Excavations. He gave telling evidence of the receipt by Dianne of cash (though fairly said that it sometimes went to Martin or David). He also dealt with the amount of work done on properties for David and Dianne: but he could not speak authoritatively as to the invoicing arrangements. It is the small details (like the evidence of Kaye, Dransfield, Shepherd, Couldwell and the unchallenged evidence of Webster) that contribute to the accuracy of the overall picture.

[200]Of the remaining witnesses I need refer only to Mr Midgley. His evidence was of greatest value in understanding the “David Note”, in his confirmation that building works done by Plant for properties belonging to David were not accounted for through the directors’ loan accounts, and in making clear that there was no routine discussion of year-end figures with Martin (a matter I have had to take into account in weighing Martin’s evidence and in assessing the probability of the existence of a “cross-invoicing” scheme operating in the manner suggested). The sheer fact that Mr Midgley was able to “audit” the accounts for so many years without stumbling across the “cross-invoicing” scheme (and was able on instructions to write convincing explanatory letters to HMRC on challenged invoices) is of course something that I have had to take into account in looking at the inherent probabilities: but the fact is that he never saw much significant material that I have seen. He simply saw the ledgers: and was lied to.

[201]On one occasion HMRC queried an invoice rendered by Farming to Plant for “non-operated equipment” – the sort of narrative employed within the cross-invoicing scheme”. Mr Midgley was able to give (on instructions from someone) a convincing explanation as to how this had come about. He included in his explanation this observation:- “Although the two companies are owned by the same family members they are run as two distinctly separate businesses… There is also a certain degree of sibling rivalry between the two brothers [Martin] who is the managing director of [Plant] and [David] who is the managing director of [Farming]. Each of the brothers (and perhaps more significantly their wives) do their utmost to protect the companies which they manage and are anxious to ensure that the results as shown by the annual accounts do show the maximum profits which can be justifiably generated by the businesses. This does mean that whenever one company uses assets belonging to the other company a note is kept and invoices are issued at periodic intervals to reflect the commercial charge for the use of those assets…….”

[202]I have no doubt at all that that is what Mr Midgley was told, and that it correctly reflects his understanding. Having seen the documents, considered the probabilities in the light of those documents, and considered the evidence, I am satisfied that he was lied to and that his observation is not accurate.

[203]I must now draw together these many strands, collect together the findings and holdings that I have made, and state the conclusions I have drawn. In doing so I should make explicit (if not already apparent) that this is not a case in which all the evidence points one way. I am not sure what really happened over the many years I have had to consider: but I can be clear about what probably happened.

[204]It is admitted by Martin and by Jean Angela that payments were made by Plant that were not commercially justified. I am satisfied on the evidence that such unjustified payments were made pursuant to a cross-invoicing arrangement between Excavations and Plant.

[205]At this distance in time the contemporaneous documents are the most reliable guide. The contents of the Blue File and the Yellow file were not the subject of challenge as to authenticity: they cannot be said to be forged. On their face they record simple “cross-invoicing” between Hague companies i.e. exchanges of invoices that do more than “set the record straight” at a year-end but also involve “value shifting”. The companies include those where David and Rosemary were the creators of invoices and the payers of cheques. They demonstrate the actual existence of the phenomenon of “cross-invoicing”, and its use as a tool in Hague family businesses.

[206]I am convinced by the expert evidence that the Early Years Note, the Haulage Schedules and the JAH Note are not recent fabrications generated in around February 2008 to support the case on “cross-invoicing” that was then openly raised for the first time. The physical state of the documents is wholly in keeping with what is to be expected of genuine documents and there is only an extremely remote possibility that that condition was artificially created. The documents were clearly created over time and not the product of a process of fabrication. They give every appearance of being “course of business” documents, so the probability is that the time over which they were created is contemporaneously with the transactions they record. Some of the transactions they record relate to invoices which are themselves anchored in primary accounting records (“the datum points”). The entries relate to actual invoices and actual payments, supported in some cases by surviving calculation sheets.

[207]I am unpersuaded by the attack on those opinions (on which the experts are agreed) based on “probabilities”. The documents actually exist (and are not fabricated) so they existed for some purpose. If one asks whether the documents establish on balance(a) that they do what they appear to do (record a “cross-invoicing” scheme) or

(b) that they disclose the existence of some other unspecified tax saving scheme (the nature of which is unknown) or

(c) that they are “cover” for some means of Martin extracting money from Plant (which cannot be identified) maintained over two decades against the possibility of the discovery of the supposed fraud, then option (a) is the answer. The probability is that the documents actually do what they purport to do.

[208]The finding that the documents are not fabricated demolishes the key platform on which the case of David, Rosemary and Dianne has been built. But it does not of itself establish Martin and Jean Angela’s case (which involves complex “cross-invoicing”). That depends on accepting (as I do) the probability of the documents actually doing what they purport to do, providing a record of the “cross-invoicing” scheme of which Martin and Jean Angela speak (and which Mrs Hague affirms).

[209]Of course the pointlessness of the scheme (and Mr Midgley’s failure to discover it) raises questions whether the documents have been correctly understood. But then the invoices recorded were not mere “book entries”. There were undoubtedly actual payments by Excavations to Plant on invoices rendered by Plant, and that makes an “extraction” fraud practised by Excavations upon Plant as alleged by David and Dianne also improbably difficult (though possible). These Hague businesses were run on dishonest lines (which were not discovered by Mr Midgley): what is “probable” in that context requires careful assessment.

[210]I find that payments made by Plant to Excavations and by Excavations to Plant were intended to balance out so as to create no substantial net loss to either company. In the middle year of each tranche of Relevant Years the payments each way did broadly balance arithmetically so as to create no substantial net loss to either company.

[211]Where the mutual dealing is the exchange of fictitious invoices then arithmetic balance is fine. But what I cannot be sure about is whether, where a returning invoice is satisfied by a credit for a service actually provided, the credit or offset is accurately valued. But any accurate valuation is now dependent on the ability to recall the detail of individual apparently routine transactions undertaken perhaps 30 years ago. Where a claimant seeks to allege and prove that an item is wrongfully valued they will therefore face a great degree of difficulty. On the other hand, where a claimant seeks to cast onto the defendant a duty to account and to explain the content of particular invoices, delay in challenging ancient entries has the potential to cause great unfairness.

[212]I find that “cross-invoicing” was known by, permitted by and participated in by Plant, by Dianne and by David. It is not possible to point to any body of evidence which demonstrates that they specifically authorised it as between Plant and Excavations (in the way that they must have done in relation to some of the transactions in the Blue File and the Yellow File), save for invoice 009 to which I refer in paragraph 165 above. But there are number of clear indicators. Dianne was close to Martin, and David was not as remote from family events as he would have me believe. The hub of the Hague business life was Prospect Farm where matters were the subject of open discussion. Rosemary and Dianne were involved in administration in an office where undeclared cash transactions were openly conducted and where some invoices received special treatment. Concealment was not a realistic option.

[213]Nor did it happen. Surviving documents show active participation in the falsification of books to hide cash transactions, in the calculation and preparation of invoices containing arbitrary additions, in the production of false invoices (in relation to intercompany accounting and in relation to the billing of customers), and the use of the “cross invoicing” scheme in areas of business that were the responsibility of David/Rosemary or in which Dianne had an invoicing responsibility.

[214]Of course, David, Dianne and Rosemary all deny knowledge of or participation in any such scheme: but that denial is of a piece with their denial of receipt of undeclared cash payments. Of course, David, Dianne and Rosemary seek to say that if any of this happened then it was all down to Martin: but they are no better than Martin, taking cash and other benefits from the Hague businesses for which they did not (as they would have me believe) strictly account. There was no evidence to suggest that non-family members (who evidently knew about the cash transactions and about the intercompany invoices that had to be treated differently) were under any sort of instruction only to report to Martin and Jean Angela and not to mention these matters before David, Dianne or Rosemary. Since, as I find, the “cross-invoicing” scheme existed, its successful concealment from David and Dianne is wholly improbable. The Blue File and the Yellow File, the David Note, and the calculation sheet for the Plant June 99 invoice show that to be so.

[215]This brings me to the last issue for decision. If Plant, its directors and shareholders were involved in any “cross-invoicing” arrangement, then did Plant know that it could not rely upon the accuracy of inter-company invoicing? Can Plant now complain that invoices are inaccurate? Can Plant put forward a case based upon the accuracy of such invoices or the expectation that they would be accurate?

[216]In answering the question “Can Plant now complain?” it is necessary to untangle two strands. The first is to identify what Plant may be taken to have agreed to. The second is to establish whether there is any legal bar to complaint about any departure from that agreement. In answering this question I must avoid determining limitation questions (which are raised in the Defence but are not Issues), though obviously some of the matters determined in the Issues have an impact on those questions.

[217]Plant mandated Martin to use in the conduct of its affairs the “cross-invoicing” scheme that had been used in other Hague family companies. This involved a limited breach of the fiduciary duties that Martin owed to Plant. Martin owed a duty not to cause Plant to pay invoices he knew to be false: but he was relieved of that duty in relation to invoices raised by Excavations as part of the scheme. Plant did not authorise Martin to pay any false invoice he chose. So he could not cause Plant to pay a false “generating” invoice that was raised by Excavations if he knew that it could not or would not be cancelled out by a corresponding false “returning” invoice from Plant to Excavations, or if he intended purportedly to cancel it out with a “return” invoice that was in fact genuinely rendered by Plant, or if he intended to “write off” the generating invoice with a credit achieved by over-valuing services provided by Excavations for Plant.

[218]So in my judgment it is too simple to say (as Counsel for Martin submitted):

“Plant knew the invoices were false in that they did not reflect the true trade between the companies, so it would be farcical for Plant to be able to criticise Martin for not producing accurate invoices”

. Of course, considerations of limitation or laches may prevent those criticisms being litigated, but that is not an issue for determination at this hearing.

[219]As to the question of a legal bar, the argument advanced by Counsel for Martin and Jean Angela was(a) that it was against public policy to enforce an arrangement whose purpose was to defeat the proper claims of HMRC by postponing the time at which tax was payable (reliance being placed upon Beauvale Furnishings Ltd v Chapman

[2000] All ER (D) 2038

): and

(b) since Plant must rely upon the product of such an arrangement (false invoices and falsified records) in order to advance its claim the principle ex dolo malo non oritur actio must apply. It would, they submitted, be preposterous and an affront to the judicial system if Plant was permitted, having been found to have knowingly participated in a conspiracy to create false documents, to waste further public funds by using judicial time to adjudicate on whether the fraud was carried out correctly as between the conspirators.

[220]Counsel for Plant did not really engage with this argument until oral closing submissions. In written argument their position was(a) that there was no cross invoicing: alternatively

(b) Plant, David and Dianne did not know about any cross invoicing: so

(c) the argument on illegality did not need to be addressed. But in oral closing they accepted that if “cross invoicing” was established, and if knowledge on the part of Plant, David and Dianne was established then they could not complain about inaccuracy of the fictitious invoices, but argued that they could explore the accuracy of genuine invoices. So, for example, if they could establish that Plant had provided services to the value of £X but had only been paid £X/2, then Excavations could properly be held to account for another £X/2. Counsel did not consider the position of the “cross-invoice” that was in part a genuine charge and in part a “cross-invoice”.

[221]This is not a satisfactory basis on which to make a ruling. The position is further complicated by the decision of the Supreme Court in Patel v Mirza

[2016] UKSC 42

, which has substantially altered the terms of the debate. The question now appears to be whether allowing recovery for something involving an illegality would produce inconsistency and disharmony in the law, and so cause damage to the integrity of the legal system, having regard to(a) the underlying purpose of the prohibition

(b) any other public policies that might be rendered less effective by denial of the claim and

[222]Whilst I would dearly love to give any answer that had the effect of bringing to a rapid conclusion to this decade of family litigation (with the enormous demands that it makes upon the court system) I am bound to answer the question “Can Plant now put forward a case based on an expectation that invoices would be accurate?” in the sense “Perhaps”.

[223]Plant authorised Martin to raise and pay false invoices if they were part of the “cross-invoicing” scheme. Plant did not authorise Martin to raise and pay false invoices that did not form part of the “cross-invoicing” scheme e.g. where the invoice was not achieving the return of fair value. If Plant wishes to say that Martin exceeded his mandate and issued invoices which had the net effect of benefiting Excavations e.g. because a “returning” invoice was satisfied by a credit for a service provided by Excavations that was over-valued, then whether the public policy of not permitting claims under arrangements designed to defeat the proper claims of the revenue should prevail over the policy of requiring company directors to account for their dealings with company assets and not to line their own pockets will have to be addressed in the context of the claim actually made (if any limitations or laches difficulties can be overcome).

[224]I therefore answer the Issues in the following sense.

[225]Were unjustified payments made pursuant to a cross-invoicing arrangement between [Excavations] and [Plant] as admitted and averred in paragraph 56(c)(i) and (ii) and paragraph 56(f)(i) (last substantive paragraph beginning “For the avoidance of doubt…”) of the Re-Amended Defence of the First and Third Defendants and the parallel paragraphs in the Re-amended Defence of the Second Defendant (“the Defences”)? Yes.

[226]If unjustified payments were made as part of a cross-invoicing arrangement, were the payments each way calculated to balance out so as to create no substantial net loss to either company as alleged in paragraph 56(c)(iii) of the Defences? Yes, the payments were calculated to balance out. But sometimes the calculation of the arithmetic balance involved assessments of value.

[227]If such unjustified payments were made as part of a cross-invoicing arrangement, was the practice known by, consented to and authorised by and participated in by [Plant] and/or Dianne and/or David (as alleged in paragraph 56(c)(iv) of the Defences)? Yes.

[228]In the middle year of each tranche of Relevant Years did the payments each way broadly balance out so as to create no substantial net loss to either company as alleged in paragraph 56(c)(iii) of the Defences? (In answering this question there will be no detailed account taking and no final determination of figures). Yes. But the equality of benefit may be dependent on the integrity of Martin’s assessment of value. That may involve detailed accounting. It may be that that detailed accounting cannot now be done.

[229]If [Plant], its directors and shareholders were involved in any cross-invoicing arrangement, then (as raised in response 65 in an Answer dated 7 December 2012 to [Plant’s] Part 18 Request) did [Plant] know that it could not rely upon the accuracy of inter-company invoicing? Can [Plant] now complain that invoices are inaccurate? Can [Plant] put forward a case based upon the accuracy of such invoices or the expectation that they would be accurate? Perhaps Plant can put forward a case based on a challenge to the accuracy of some invoices. Plant may be able to complain that invoices are inaccurate where part of a cross-invoice is said by Martin to take into account a genuine charge the value of which he has assessed: see paragraph 223.

[230]I do not think it necessary to set out the answers to the other Issues (which are contained in this judgment and which are merely steps to these answers).

Hague Plant Ltd v Hague & Ors [2016] EWHC 2663 (Ch)

so this actually covers levelling of tips to February 1987

£50 1st June

Cited in 2 later judgments