“The court may give summary judgment against a claimant or defendant on the whole of a claim or on an issue if— (a) it considers that the party has no real prospect of succeeding on the claim, defence or issue; and (b) there is no other compelling reason why the case or issue should be disposed of at a trial.”
“a) A collateral attack on an earlier decision of a court of competent jurisdiction may be but is not necessarily an abuse of the process of the court. … c) If the earlier decision is that of a court exercising a civil jurisdiction then it is binding on the parties to that action and their privies in any later civil proceedings. d) If the parties to the later civil proceedings were not parties to or privies of those who were parties to the earlier proceedings then it will only be an abuse of the process of the court to challenge the factual findings and conclusions of the judge or jury in the earlier action if (i) it would be manifestly unfair to a party to the later proceedings that the same issues should be relitigated or (ii) to permit such relitigation would bring the administration of justice into disrepute.”
“the doctrine of abuse of process is best framed, at least in the context of a ‘collateral’ attack on a prior civil decision, by reference to the test expounded by Lord Diplock and Morritt V-C.”
“8. The question whether parties in successive litigation are in a relationship of privity, so as to give rise to estoppel per rem judicatam is not the subject of a wealth of authority. In Carl Zeiss Stiftung v Rayner & Keeler and ors[1967] 1AC 583 , Lord Reid said, at page 910 G: ‘It has always been said that there must be privity of blood, title or interest: here it would have to be privity of interest. That can arise in many ways, but it seems to me to be essential that the person now to be estopped from defending himself must have had some kind of interest in the previous litigation or its subject-matter. I have found no English case to the contrary.’ At page 936 G Lord Guest said: ‘“Privies” have been described as those who are “privy to [the party] in estate or interest.” (Spencer Bower on Res Judicata, p.130). Before a person can be privy to a party there must be community or privity of interest between them.’ 9. In Gleeson v J Wippell & Co Ltd[1977] 1WLR 510 , at 515, having rejected mere curiosity or concern, including reputational concern, as sufficient to establish privity of interest, Megarry VC continued as follows: ‘…it seems to me that the substratum of the doctrine is that a man ought not to be allowed to litigate a second time what has already been decided between himself and the other party to the litigation. This is in the interest both of the successful party and of the public. But I cannot see that this provides any basis for a successful defendant to say that the successful defence is a bar to the plaintiff suing some third party, or for that third party to say that the successful defence prevents the plaintiff from suing him, unless there is a sufficient degree of identity between the successful defendant and the third party. I do not say that one must be the alter ego of the other: but it does seem to me that, having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase “privity of interest.”
“… it appears that for privity with a party to the proceedings to take effect, it must take effect whether that party wins or loses. As was said by Buckley J in Zeiss No. 3[1970] Ch. 506 , 541 (where the question was rather different) ‘The relationship cannot be conditional upon the character of the decision.’”
“to ask not merely whether it would be just to hold the losing party in the earlier proceedings bound, but whether it would be just if the decision in the earlier proceedings had gone the other way.” ‘It has always been said that there must be privity of blood, title or interest: here it would have to be privity of interest. That can arise in many ways, but it seems to me to be essential that the person now to be estopped from defending himself must have had some kind of interest in the previous litigation or its subject-matter. I have found no English case to the contrary.’ ‘“Privies” have been described as those who are “privy to [the party] in estate or interest.” (Spencer Bower on Res Judicata, p.130). Before a person can be privy to a party there must be community or privity of interest between them.’ ‘…it seems to me that the substratum of the doctrine is that a man ought not to be allowed to litigate a second time what has already been decided between himself and the other party to the litigation. This is in the interest both of the successful party and of the public. But I cannot see that this provides any basis for a successful defendant to say that the successful defence is a bar to the plaintiff suing some third party, or for that third party to say that the successful defence prevents the plaintiff from suing him, unless there is a sufficient degree of identity between the successful defendant and the third party. I do not say that one must be the alter ego of the other: but it does seem to me that, having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase “privity of interest.”
“17. In my judgment Mr Potiwal and Red 12 were clearly privies in the context of the proceedings before the VAT Tribunal, even though he was neither asserting a personal claim of his own, nor was he exposed to personal liability for costs in the event (as occurred) that the appeal failed. He was only slightly less obviously in privity of interest with his company than Mr Johnson was with his company in Johnson v Gore Wood. In my judgment the fact that he was only a 40 per cent shareholder in Red 12 by no means undermines an otherwise clear case for privity of interest between the two.”
“whether the degree of identification of interest makes it just for the one to be bound by the outcome of proceedings about that issue involving the other, and bound regardless which way that outcome goes. The effect of identification of two parties as privies is automatic, and gives rise to an estoppel which prevents the dispute or the issue being revisited, regardless of the circumstances of the first trial, and of the outcome. It is precisely because those consequences are automatic and potentially far-reaching that the law should in my view be slow to recognise privity of interest between different persons.”
“a new class of privity of interest between two very different arms of government pursuing different aspects of the public interest, and being motivated in particular cases by different policy and funding considerations when doing so.”
“23. It by no means follows from my conclusion that it would not be just to treat the Secretary of State and HMRC as privies that the relitigation of the issue as to Mr Potiwal’s knowledge is nonetheless not an abuse. That question requires an examination of the circumstances of the hearing before the VAT Tribunal, from which it appears that HMRC expended over£400,000 of taxpayers’ money in successfully resisting Red 12’s appeal, by the meticulous presentation of the intricacies of the MTIC fraud in a way sufficient to persuade the experienced tribunal that Mr Potiwal knew about it, notwithstanding his detailed and determined challenge, through Red 12, of every element of HMRC’s case. Red 12 went into creditors’ voluntary liquidation after the conclusion of the proceedings, and no part of that expenditure on costs was recouped by HMRC from Red 12, despite the Tribunal’s order that it should be. 24. The Secretary of State’s evidence on this application demonstrates that, if Mr Potiwal is to be permitted by a simple denial of the requisite knowledge to require the case to be proved against him a second time, hundreds of thousands of pounds of further costs, again funded by the taxpayer, will have to be incurred by the Secretary of State, again with no evidence that, if successful, a costs order will be practically enforceable against Mr Potiwal at the end of the day. 25. True it is that, as Miss Graham-Wells submits, Mr Potiwal does not now put in issue the existence of the underlying fraud. But proof against the management of an exporter of the requisite knowledge in an MTIC case is nonetheless an intricate process, requiring meticulous deployment of the underlying facts, and of the circumstances in which those facts were, or ought to have been, apparent to the company’s senior management. Taking a broad brush, I consider it reasonable to assume that the cost to the Secretary of State of relitigating the issue as to Mr Potiwal’s knowledge is likely to equal or exceed£200,000 . The question is whether it would be manifestly unfair to visit that expenditure upon the Secretary of State in all the circumstances. 26 Those circumstances include the fact that Red 12 pursued but lost an appeal against the decision of the VAT Tribunal, and was refused permission for a second appeal, and that Mr Potiwal’s evidence in the present proceedings, far from placing a different complexion on matters, consists of little more than a simple denial of knowledge. No challenge is or could be made to the substantive fairness of the proceedings before the VAT Tribunal. It is in my judgment nothing to the point that its procedure rules may be different and, in certain respects, less formal than those applicable to these disqualification proceedings. Furthermore, Mr Potiwal had every opportunity both in giving evidence and subjecting himself to cross-examination to defend himself against the allegations of knowledge which the Tribunal found to be proved, when rejecting swathes of his testimony as incredible. 27. In those circumstances I consider that it would indeed be manifestly unfair to impose the cost of relitigating that issue upon the Secretary of State. The critical distinction between this case and Secretary of State v Bairstow is that, prior to the disqualification proceedings against Mr Bairstow, the taxpayer had incurred no costs at all in relation to the issues which Mr Bairstow wished to relitigate. The previous proceedings had been between him and his solvent company. By contrast in the present circumstances, the taxpayer has been the funder of the litigation involving Red 12 and Mr Potiwal throughout, first for the purpose of defending the public purse from a fraudulent claim, and now for the purpose of seeking the disqualification of the sole director of a corporate participant in that fraud.”
“16 [Counsel for the Applicant] also submitted, and I agree, that this case is on all fours with the decision in that case of an abuse of process. She particularly submitted, and I accept, that it would be manifestly unfair for this applicant to have to undertake the expenditure required to conduct what would, in effect, be a re-trial of the many days spent before the Tribunal concerning the MTIC fraud and the respondent’s knowledge. She also submitted that the respondent had had every opportunity at that hearing, both in giving evidence and during cross-examination, and indeed in regard to the preparation of the company’s case, to defend both the company and himself against the allegations of knowledge. She also submitted, with which I also agree, that account should be taken of the thoroughness and fairness of the hearing – apparent from the judgment – before the VAT Tribunal, in circumstances of the respondent being in control of the company and its appeal, and the company being represented. Finally, she submitted it was clear that to ask this court to carry out the same exercise using the court’s relatively limited resources would bring the administration of justice into disrepute, in particular taking into account also resources that the applicant would have to use. In all those circumstances, her submission is that the respondent must be held to the outcome before the Tribunal, both as to findings of fact and decision. 17 I agree. In my judgment, it would be an abuse of process for him to cause the company to run a defence and seek to re-argue precisely the same facts and matters without being bound by the findings and any decision relevant to them. He was, after all, the director in charge of the conduct of the litigation, with a duty to ensure that it was properly conducted. It is apparent from the First-tier Tribunal’s decision that this was a full-scale witness action, involving a complete denial by the company that the VAT input was not deductible. That might not have precluded new matters being asserted in evidence in this case (an issue which has not arisen) but it cannot be right that the respondent should, in effect, be allowed two bites of the cherry. Not only would it bring the administration of justice into disrepute, but it would be contrary to the overriding objective which applies to these proceedings.”
“169. The passage in the judgment of the Vice-Chancellor in Secretary for Trade and Industry v Bairstow to which I referred earlier might be taken to suggest that the answer is supplied by applying a broad test of unfairness, but I question whether that is so. If the Law Society had not taken disciplinary proceedings against Mr. Simms in the present case, the claimants would have had to plead and prove their case against him in the ordinary way and it could not have been suggested that it would be unfair to require them to do so. One is therefore bound to ask what makes it unfair to require them to do so simply because another tribunal has made certain findings of fact in proceedings to which they were not parties.”
“173… Mr. Conlon and Mr. Harris were not parties to the disciplinary proceedings against Mr. Simms; nor did they have any direct interest in them. It is difficult, therefore, to see why as against Mr. Conlon and Mr. Harris Mr. Simms should be bound by the tribunal’s findings and why it should be an abuse of process for him to relitigate the issues in this action. A perception of unfairness arises mainly from the fact that the issues in this action overlap to a significant degree with those in the disciplinary proceedings and that it would be expensive and time-consuming for Mr. Conlon and Mr. Harris to obtain the evidence needed to prove their case, but if that were sufficient to render it an abuse of process for Mr. Simms to put in issue the allegations against him the result would be that decisions reached in previous proceedings between different parties by tribunals of all kinds would effectively become binding on those parties for all purposes. 174. As Jonathan Parker L.J. has pointed out, this is not a case in which Mr. Simms invoked the process of the court in order to challenge the findings made by the Solicitors’ Disciplinary Tribunal. As the defendant to the proceedings he simply put in issue the claimants’ allegations and thereby required them to prove their case by any admissible evidence available to them. That there may be circumstances in which it is an abuse of the process for a party to seek to put in issue by his defence a matter determined against him in previous proceedings is demonstrated by cases such as Reichel v Magrath (1889) 14 App. Cas. 665 and North West Water Ltd v Binnie & Partners , but the facts of those cases were unusual and not at all comparable to those of the present case. In these circumstances I am unable to accept that it would be unfair to require Mr. Conlon and Mr. Harris to prove their case in the usual way or that to do so would bring the administration of justice into disrepute. It follows that I am unable to accept that the course taken by Mr. Simms was an abuse of process.”
“In the present case, the position is the other way around to that in the Michael Wilson case. The claimant is the non-party to the arbitration, seeking to argue that the defence raised by the defendant is a collateral attack on the award. Again, the fact that it was the defendant in both proceedings was relied on by Glencore as a reason to refuse relief. However, it has been held in relation to court proceedings that it can be an abuse of process for a defendant to seek to reopen issues decided against it as defendant in previous court proceedings (North West Water Ltd v Binnie & Partners[1990] 3 All ER 547 ). In Conlon v Simms [2008] 1 W.L.R. 484 at [174], Moore-Bick L.J. said that the facts of that case were unusual, but he did not disapprove the decision. On this basis, Glencore’s status as defendant in both proceedings is a relevant factor, but is not in itself a reason for refusing to grant Petrom relief which would otherwise be available.”
“4. The criminals involved in MTIC fraud exploit the fact that imports and exports of goods between Member States of the EU are VAT-free. Like all successful forms of fraud, the essential mechanics are simple. A trader (‘the defaulter’) imports goods from State A into State B, and sells them on within the latter State. No VAT would be payable on the goods when imported, but the onward sale (and any sales further down the chain within State B) would attract a liability to VAT until such time as the goods are exported to another Member State (which could be State A or State C). The final link in the chain will be the person who exports the goods, who is often an accomplice of the defaulter. The intervening sales and purchases are known as ‘buffer transactions’. 5. The initial buyer in the chain in State B will pay the price of the goods plus VAT to the defaulter, or sometimes to a third party nominated by the defaulter (often, ostensibly, the person from whom he purchased the goods). The buyer would then be able to offset the VAT he had paid to the defaulter against any liability which he had to account to the revenue authority in State B for VAT received on the price of the goods he sold on. The exporter at the end of the chain can claim back from the revenue authority in State B the VAT that he has paid to the person from whom he purchased the goods, because the goods have now been exported to another EU State in a zero-rated transaction. Meanwhile, the defaulter would pay the price of the goods to its supplier in State A, syphon off the VAT (or pay it to an associate) and then vanish or, if a company, go into liquidation without accounting to the revenue authority in State B for the VAT.”
“224. We were satisfied HMRC had established fraudulent tax losses and that there was an orchestrated scheme for the fraudulent evasion of VAT connected with the transactions which form the subject of this appeal. 225. As to the issue of knowledge, we have based our decision on the totality of the evidence and we were careful not to focus unduly on the issue of due diligence or judge the evidence with the benefit of hindsight. We were wholly satisfied that the circumstances of the Appellant’s transactions viewed as a whole indicate that Mr Khan had actual knowledge that the transactions were connected to fraud. We found that some reasons carried more weight than others and we did not base our decision solely on one reason but rather the cumulative effect of our findings viewed in totality. 226. The factors identified above would in our view also support a finding of means of knowledge. That the deals were quite clearly ‘too good to be true’ must have been obvious to Mr Khan; the casual manner in which business was conducted, the little known about trading partners, the lack of any basis or substance to support Mr Khan’s assertions that he was satisfied as to their integrity, the scant due diligence and the substantial turnover made for no added value and little work.”
“[I]f a summary of the applicable law is required along the lines of paras 86—87 of the UT’s decision, I would simply summarise the principles as follows. (i) The test promulgated by the Court of Justice in the Kittel case[2008] STC 1537 was whether the taxpayer knew or should have known that he was taking part in a transaction connected with fraudulent evasion of VAT. (ii) Ultimately the question in every Kittel case is whether HMRC has established that the test has been met. The test is to be applied in accordance with the guidance given by the Court of Appeal in the Mobilx case[2010] STC 1436 and the Fonecomp case[2015] STC 2254 . (iii) It is not relevant for the F-tT to determine whether the conduct alleged by HMRC might amount to dishonesty or fraud by the taxpayer, unless dishonesty or fraud is expressly alleged by HMRC against the taxpayer. If it is, then that dishonesty or fraud must be pleaded, particularised and proved in the same way as it would have to be in civil proceedings in the High Court. (iv) In all Kittel cases, HMRC must give properly informative particulars of the allegations of both actual and constructive knowledge by the taxpayer.”
“The key point, in my judgment, is that, whilst HMRC can, of course, allege that a taxpayer has acted dishonestly and fraudulently in relation to the transactions to which it was a party, they do not need to do so in order to deny that taxpayer the right to reclaim input tax under the Kittel test. The exercise upon which Judge Mosedale was engaged was, therefore, inappropriate. It was simply irrelevant for the F-tT to ask whether the allegations in the statement of case, if all proved, would necessarily lead to the conclusion that the taxpayer had been dishonest or fraudulent. It was even more inappropriate for Judge Mosedale to direct HMRC to plead dishonesty when it had expressly informed her that it did not wish to make any such allegation. It might be, of course, that if some or all of the allegations made in the statement of case were proved, that might (in theory, though not, of course, in practice) have allowed a tribunal to go on to make a finding that the taxpayer had been dishonest. But if HMRC does not seek such a finding, and if such a finding is not needed to support the conclusion that the taxpayer cannot recover its input tax, there is neither any need nor any utility in asking the F-tT to undertake that exercise.”
“I should say something about what Judge Mosedale said at paras 31-32 of her decision. She concluded there that there was nothing in the Mobilx case[2010] STC 1436 which cast any doubt on what Briggs J had said to the effect that ‘A person who knows that a transaction in which he participates is connected with fraudulent tax evasion is a participant in that fraud’ and ‘has a dishonest state of mind’, so that what he (Briggs J) had said must be right in law. For the reasons I have already given, I do not think that such a bald proposition is right in law, because, as is acknowledged by all parties to this case, a person who knows that a transaction in which he participates is connected with fraudulent tax evasion may or may not have a dishonest state of mind.”
“103. It is common ground that HMRC does not need to allege or plead dishonesty in order to deny the trader its claims to repayment of input VAT. The Kittel test does not require proof of dishonesty. However, if it does allege dishonesty, HMRC is obliged to plead the facts, matters and circumstances relied upon to show that the trader is dishonest. This is to ensure the trader knows in advance the case it must meet and to ensure a court or tribunal does not make a finding of dishonesty, with all the serious consequences that such a finding entails, on an inappropriate basis. Where serious allegations of fraud are made, cogent evidence commensurate with the gravity of the allegations made must be adduced. 104. Turning to the definition of dishonesty, this has proved controversial in both the criminal and civil law. The Court of Appeal Criminal Division in R v Ghosh[1982] 1 QB 1053 attempted to reconcile a line of authorities that had provided different definitions of dishonesty for different criminal offences. It concluded the authorities were irreconcilable and provided a two stage objective and subjective test for dishonesty namely: (i) Was the conduct dishonest by the ordinary standards of reasonable and honest people? (ii) Must the defendant have realised that what he/she was doing was, by those standards, dishonest? However, the second, subjective part of the test has itself been the subject of significant criticism. … 107. I recognise that proof of participation in an MTIC fraud with actual knowledge of the fraud may be powerful evidence of conduct contrary to normally acceptable standards of honest conduct, and dishonesty in that objective sense. It may also provide powerful evidence of dishonesty in the subjective sense, if that additional element is required (as E Buyer appears to maintain). The line between honest conduct and dishonest conduct may be a fine one, in such circumstances. Nonetheless, there is a line and entering into a transaction knowing that it is connected with fraud does not necessarily equate to dishonest conduct in either the objective or the subjective sense. 108. I understood this to be accepted by the respondents, who expressly disavowed an intention to equate, in every case, an allegation of actual knowledge that a transaction was connected with fraud with an allegation of dishonesty. I was, therefore, puzzled by reliance on paragraph 41 of the judgment in Megtian(supra) in apparent support of the proposition that a “person who knows that a transaction in which he participates is connected with fraudulent tax evasion is a participant in the fraud” andhas a dishonest state of mind. I do not believe that Briggs J (as he then was) intended to lay down any general proposition of law to that effect. If he did, I would respectfully disagree, because to do so would be to import the concept of dishonesty into every case in which actual knowledge is alleged, under the first limb of the Kittel test, and would not take account of the additional requirements attached to a plea and finding of dishonesty. … 111. If, contrary to my view already expressed, it is necessary to import the concept of dishonesty into such allegations, more would be required to justify the assertion that these allegations are ‘tantamount’ to allegations of dishonesty. It is not clear to me from the UT’s judgment why, having acknowledged that not every case of alleged actual knowledge of an MTIC fraud will involve an allegation of dishonesty, the UT concluded that in these two cases it did. In paragraphs 92, 93 and 101 of their judgment, the UT appear to have placed considerable reliance on HMRC’s use of the words “orchestrated and contrived” to describe the scheme in each case, but, as I have endeavoured to explain, most MTIC frauds are by their very nature “orchestrated and contrived.”
“5. Mr Khan’s email went on to confirm that the only area of dispute was the issue of knowledge or means of knowledge and he asked for clarification as to the appeal process as he felt ‘somewhat disadvantaged.’ HMRC responded by letter dated14 May 2014 in which it was proposed that all of the witnesses be called to ensure that the Appellant understood the evidence, did not feel pressured into accepting it and was given the opportunity to test the witnesses. Mr Khan clarified on15 May 2014 that he fully understood the evidence and the issues. 6. As a result of these exchanges the Tribunal took time prior to hearing any evidence to discuss with both parties the way forward. We were anxious to ensure that Mr Khan was not and did not feel in any way disadvantaged by his lack of representation without prolonging proceedings and costs unnecessarily. Mr Khan presented as an intelligent man who fully understood the nature of the HMRC’s case. We bore in mind that the burden of proof rests with HMRC and concluded that in the interests of justice and fairness to both parties, and to ensure that the Tribunal was in a position to consider and assess the evidence fully, all witnesses would remain available to give evidence.”
“(1) If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, the following has effect. (2) The court, on the application of the liquidator may declare that any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned are to be liable to make such contributions (if any) to the company’s assets as the court thinks proper.”
“(1) This section applies if in the course of the winding up of a company it appears that a person who— (a) is or has been an officer of the company, … has misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company. … (3) The court may, on the application of the official receiver or the liquidator, or of any creditor or contributory, examine into the conduct of the person falling within subsection (1) and compel him— (a) to repay, restore or account for the money or property or any part of it, with interest at such rate as the court thinks just, or (b) to contribute such sum to the company’s assets by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just.” … (a) to repay, restore or account for the money or property or any part of it, with interest at such rate as the court thinks just, or (b) to contribute such sum to the company’s assets by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just.”