“ This case concerns what is called "Missing Trader Intracommunity Fraud" ("MTIC fraud"). Anyone reading this judgment is likely to be familiar with this expression, which has been explained in several tribunal and High Court decisions. The classic way in which the fraud works is as follows. Trader A imports goods, commonly computer chips and mobile telephones, into the United Kingdom from the European Union ("EU"). Such an importation does not require the importer to pay any VAT on the goods. A then sells the goods to B, charging VAT on the transaction. B pays the VAT to A, for which A is bound to account to HMRC. There are then a series of sales from B to C to D to E (or more). These sales are accounted for in the ordinary way. Thus C will pay B an amount which includes VAT. B will account to HMRC for the VAT it has received from C, but will claim to deduct (as an input tax) the output tax that A has charged to B. The same will happen, mutatis mutandis, as between C and D. The company at the end of the chain – E – will then export the goods to a purchaser in the EU. Exports are zero-rated for tax purposes, so Trader E will receive no VAT. He will have paid input tax but because the goods have been exported he is entitled to claim it back from HMRC. The chains in question may be quite long. The deals giving rise to them may be effected within a single day. Often none of the traders themselves take delivery of the goods which are held by freight forwarders. The way that the fraud works is that A, the importer, goes missing. It does not account to HMRC for the tax paid to it by B. When HMRC tries to obtain the tax from A it can neither find A nor any of A's documents. In an alternative version of the fraud (which can take several forms) the fraudster uses the VAT registration details of a genuine and innocent trader, who never sees the tax on the sale to B, with which the fraudster makes off. The effect of A not accounting for the tax to HMRC means that HMRC does not receive the tax that it should. The effect of the exportation at the end of the chain is that HMRC pays out a sum, which represents the total sum of the VAT payable down the chain, without having received the major part of the overall VAT due, namely the amount due on the first intra-UK transaction between A and B. This amount is a profit to the fraudsters and a loss to the Revenue.”
“55. Where the tax authorities find that the right to deduct has been exercised fraudulently, they are permitted to claim repayment of the deducted sums retroactively … It is a matter for the national court to refuse to allow the right to deduct where it is established, on the basis of objective evidence, that that right is being relied on for fraudulent ends... 56. In the same way, a taxable person who knew or should have known that, by his purchase, he was taking part in a transaction connected with fraudulent evasion of VAT must, for the purposes of the Sixth Directive, be regarded as a participant in that fraud, irrespective of whether or not he profited by the resale of the goods. 57. That is because in such a situation the taxable person aids the perpetrators of the fraud and becomes their accomplice. 58. In addition, such an interpretation, by making it more difficult to carry out fraudulent transactions, is apt to prevent them. 59. Therefore, it is for the referring court to refuse entitlement to the right to deduct where it is ascertained, having regard to objective factors, that the taxable person knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, and to do so even where the transaction in question meets the objective criteria which form the basis of the concepts of ‘supply of goods effected by a taxable person acting as such’ and ‘economic activity’. 60. It follows from the foregoing that the answer to the questions must be that where a recipient of a supply of goods is a taxable person who did not and could not know that the transaction concerned was connected with a fraud committed by the seller, Article 17 of the Sixth Directive must be interpreted as meaning that it precludes a rule of national law under which the fact that the contract of sale is void – by reason of a civil law provision which renders that contract incurably void as contrary to public policy for unlawful basis of the contract attributable to the seller – causes that taxable person to lose the right to deduct the VAT he has paid. It is irrelevant in this respect whether the fact that the contract is void is due to fraudulent evasion of VAT or to other fraud. 61. By contrast, where it is ascertained, having regard to objective factors, that the supply is to a taxable person who knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, it is for the national court to refuse that taxable person entitlement to the right to deduct.”
“The scope of VAT is identified in Art. 2 of the Sixth Directive. It applies, in addition to importation, to the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such. A taxable person is defined in Art. 4.1 as a person who carries out any of the economic activities specified in Art. 4.2. Art. 5 defines the supply of goods and Art. 6 the supply of services. The scope of VAT, the transactions to which it applies and the persons liable to the tax are all defined according to objective criteria of uniform application. The application of those objective criteria are essential to achieve:- “the objectives of the common system of VAT of ensuring legal certainty and facilitating the measures necessary for the application of VAT by having regard, save in exceptional circumstances, to the objective character of the transaction concerned.” (Kittel para 42, citing BLP Group [1995] ECR1/983 para 24.) And at [30]: “...the Court made clear that the reason why fraud vitiates a transaction is not because it makes the transaction unlawful but rather because where a person commits fraud he will not be able to establish that the objective criteria which determine the scope of VAT and the right to deduct have been met.”
“ …The nature of any particular necessary connection depends on its context, for example electrical, familial, physical or logical. The relevant context in this case is the scheme for charging and recovering VAT in the member states of the EU. The process of off-setting inputs against outputs in a particular period and accounting for the difference to the relevant revenue authority can connect two or more transactions or chains of transaction in which there is one common party whether or not the commodity sold is the same. If there is a connection in that sense it matters not which transaction or chain came first. Such a connection is entirely consistent with the dicta in Optigen and Kittel because such connection does not alter the nature of the individual transactions. Nor does it offend against any principle of legal certainty, fiscal neutrality, proportionality or freedom of movement because, by itself, it has no effect. Given that the clean and dirty chains can be regarded as connected with one another, by the same token the clean chain is connected with any fraudulent evasion of VAT in the dirty chain because, in a case of contra-trading, the right to reclaim enjoyed by C (Infinity) in the dirty chain, which is the counterpart of the obligation of A to account for input tax paid by B, is transferred to E (BSG) in the clean chain. Such a transfer is apt…to conceal the fraud committed by A in the dirty chain in its failure to account for the input tax received from B.”
“4. Two essential questions arise: firstly, what the ECJ meant by "should have known" and secondly, as to the extent of the knowledge which it must be established that the taxpayer had or ought to have had: is it sufficient that the taxpayer knew or should have known that it was more likely than not that his purchase was connected to fraud or must it be established that he knew or should have known that the transactions in which he was involved were connected to fraud? 52. If a taxpayer has the means at his disposal of knowing that by his purchase he is participating in a transaction connected with fraudulent evasion of VAT he loses his right to deduct, not as a penalty for negligence, but because the objective criteria for the scope of that right are not met. It profits nothing to contend that, in domestic law, complicity in fraud denotes a more culpable state of mind than carelessness, in the light of the principle in Kittel. A trader who fails to deploy means of knowledge available to him does not satisfy the objective criteria which must be met before his right to deduct arises… 53. Perhaps of greater weight is the challenge based, in Mobilx and BSG, on HMRC's denial of the right to deduct on the grounds that the trader knew or should have known that it was more likely than not that transactions were connected to fraud. The question arises in those appeals as to whether that is sufficient or whether, as the Chancellor concluded in BSG, the right to deduct input tax may only be denied where the trader knows or should have known that the transaction was connected to fraud (see judgment, § 52). In short, does a trader lose his entitlement to deduct if he knew or should have known of a risk that his transaction was connected to fraudulent evasion of VAT? HMRC contends that the right to deduct may be denied if the trader merely knew or should have known that it was more likely than not that by his purchase he was participating in such a transaction. It contends that if it was necessary to show more than appreciation of a risk then the Court's decision in Kittel would not represent a development of the law and would fail to achieve the objective, recognised in the Sixth Directive, to which the Court referred at § 54… 56. It must be remembered that the approach of the court in Kittel was to enlarge the category of participants. A trader who should have known that he was running the risk that by his purchase he might be taking part in a transaction connected with fraudulent evasion of VAT, cannot be regarded as a participant in that fraud. The highest it could be put is that he was running the risk that he might be a participant. That is not the approach of the Court in Kittel, nor is it the language it used. In those circumstances, I am of the view that it must be established that the trader knew or should have known that by his purchase he was taking part in such a transaction, as the Chancellor concluded in his judgment in BSG:- "The relevant knowledge is that BSG ought to have known by its purchases it was participating in transactions which were connected with a fraudulent evasion of VAT; that such transactions might be so connected is not enough." (§ 52)… 58. As I have endeavoured to emphasise, the essence of the approach of the court in Kittel was to provide a means of depriving those who participate in a transaction connected with fraudulent evasion of VAT by extending the category of participants and, thus, of those whose transactions do not meet the objective criteria which determine the scope of the right to deduct. The court preserved the principle of legal certainty; it did not trump it. 59. The test in Kittel is simple and should not be over-refined. It embraces not only those who know of the connection but those who "should have known". Thus it includes those who should have known from the circumstances which surround their transactions that they were connected to fraudulent evasion. If a trader should have known that the only reasonable explanation for the transaction in which he was involved was that it was connected with fraud and if it turns out that the transaction was connected with fraudulent evasion of VAT then he should have known of that fact. He may properly be regarded as a participant for the reasons explained in Kittel. 60. The true principle to be derived from Kittel does not extend to circumstances in which a taxable person should have known that by his purchase it was more likely than not that his transaction was connected with fraudulent evasion. But a trader may be regarded as a participant where he should have known that the only reasonable explanation for the circumstances in which his purchase took place was that it was a transaction connected with such fraudulent evasion. 61. Such an approach does not infringe the principle of legal certainty. It is difficult to see how an argument to the contrary can be mounted in the light of the decision of the court in Kittel. The route it adopted was designed to avoid any such infringement. A trader who decides to participate in a transaction connected to fraudulent evasion, despite knowledge of that connection, is making an informed choice; he knows where he stands and knows before he enters into the transaction that if found out, he will not be entitled to deduct input tax. The extension of that principle to a taxable person who has the means of knowledge but chooses not to deploy it, similarly, does not infringe that principle. If he has the means of knowledge available and chooses not to deploy it he knows that, if found out, he will not be entitled to deduct. If he chooses to ignore obvious inferences from the facts and circumstances in which he has been trading, he will not be entitled to deduct.”
“…HMRC may, for instance, discover that the taxpayer has been a participant in a series of transactions with extremely long chains. The length of those chains may itself be a powerful, albeit not conclusive, factor in showing that there is fraud. It would be unacceptable for HMRC to be denied the right to prove those chains if the taxpayer claimed (possibly wrongly) that he knew nothing about the participants in the chain other than his supplier and customer. Such a rule would also place a premium on wilful blindness. A taxpayer who studiously avoided any inquiries which, had he made them, would have shown him that there was fraud, should not be allowed to deny the authorities the ability to establish the fraud by asserting total ignorance of, and an inability to refute, the facts that establish it. There could also be much scope for debate as to whether such evidence was "irrefutable", given that the taxpayer can seek to adduce evidence from any or all of the participants in the chain of their good faith. It is important to remember that the right to deduct input tax cannot be denied unless HMRC establishes the requisite knowledge (actual or constructive) on the part of the taxpayer. Proof of facts unknown to the taxpayer as part of the proof of fraud will not itself disentitle the taxpayer to a refund. Proof of knowledge (actual or constructive) must, by definition, be proof of what the taxpayer knew or which, had he used reasonable precautions, he ought to have known. He will be able to give evidence of what he knew and what checks he made; and thus, if he can, to refute the allegations of knowledge made against him If the tribunal may only consider evidence that was before HMRC when it made its decision there would be a risk of unfairness (quite apart from wasted cost) to both sides if the appeal could be dismissed or allowed despite the availability of exculpatory or incriminating evidence. In the present case, as the Tribunal pointed out, most of the evidence of Red 12's due diligence was produced after HMRC's decision. Further HMRC are under a duty to keep investigations under review: per Lightman J in R (UK Tradecorp) Ltd v HMRC[2005] STC 138 at para 18….”
“I t is plain that if HMRC wishes to assert that a trader ’s state of knowledge was such that his purchase is outwith the scope of the right to deduct it must prove that assertion. ”
“41. In Kittel after § 55 the Court developed its established principles in relation to fraudulent evasion. It extended the principle, that the objective criteria are not met where tax is evaded, beyond evasion by the taxable person himself to the position of those who knew or should have known that by their purchase they were taking part in a transaction connected with fraudulent evasion of VAT:- "56. In the same way , a taxable person who knew or should have known that, by his purchase, he was taking part in a transaction connected with fraudulent evasion of VAT must, for the purposes of the Sixth Directive, be regarded as a participant in that fraud, irrespective of whether or not he profited by the resale of the goods. 57. That is because in such a situation the taxable person aids the perpetrators of the fraud and becomes their accomplice. 58. In addition, such an interpretation, by making it more difficult to carry out fraudulent transactions, is apt to prevent them." 59. Therefore , it is for the referring court to refuse entitlement to the right to deduct where it is ascertained, having regard to objective factors, that the taxable person knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, and to do so even where the transaction in question meets the objective criteria which form the basis of the concepts of 'supply of goods effected by a taxable person acting as such' and 'economic activity'. [emphasis added]" The words I have emphasised "in the same way" and "therefore" link those paragraphs to the earlier paragraphs between 53-55. They demonstrate the basis for the development of the Court's approach. It extended the category of participants who fall outwith the objective criteria to those who knew or should have known of the connection between their purchase and fraudulent evasion. Kittel did represent a development of the law because it enlarged the category of participants to those who themselves had no intention of committing fraud but who, by virtue of the fact that they knew or should have known that the transaction was connected with fraud, were to be treated as participants. Once such traders were treated as participants their transactions did not meet the objective criteria determining the scope of the right to deduct. By the concluding words of § 59 the Court must be taken to mean that even where the transaction in question would otherwise meet the objective criteria which the Court identified, it will not do so in a case where a person is to be regarded, by reason of his state of knowledge, as a participant.”
“Ms Helvacioglu, as sole director of Swindon Liquors caused goods, namely 20 pallets of beer being 19,200 litres to be condemned pursuant to Section 139(6) and Schedule 3 to theCustoms and Excise Management Act 1979 by importing goods into the UK and causing Swindon Liquors to fail to pay the relevant duty of£42,542 on them.”
“Discussed business activities with Llion Rowland (Dir.) He said that he has been discussing the future activities of the company with Alan Gould, and feels that they may pull out of the export market. He said they have significant concerns about getting their refunds back quickly on any future claims they may submit, particularly that they have been verbally informed by HM C & E that all the deals within period 09-04 begin with a defaulting/missing trader. Mr Rowland went on to say that for moral reasons they may get out of this trade (back to back bulk deals) – that VAT is going unpaid in the UK and that they are in some way unwittingly playing a part in this…”
“…whatever interaction I had, whether it was on the telephone or at a visit, I would have recorded it either -- if it was at the principal place of business, their premises, it would be in my notebook and then transferred to a visit report or if I rang him or he rang me I would put it in the case progress log. Q. I see. Whichever method was used, would you have done your best to make this as accurate a record of the conversation as you could? A. Yes.”
"He stated that they employ KPMG, who carry out all necessary due diligence checks on their immediate suppliers. They do not conduct full deal line checks as this would cost the company too much, Mr Rowlands said. He went on to say that he cannot be held accountable for those traders sitting in a chain of supply that fall prior to his immediate supplier. I agreed but I replied that I believe that a full verification is necessary."
"She went on to state that Syskal undertake all necessary due diligence checks and cannot be more helpful to our department. I replied that I accept what she is saying."
“it was decided that each company should have a separate director.”
“Included in other loans is a loan due to Pickering Financial Services Limited of£565,002 (2005:£684,400 ). As part of the loan facility a debenture over all present and future assets of the company has been granted in favour of Highwater Properties Limited.”
“Q. In your subparagraph (e) I think you say that if you look at the deal sheet and your paragraph, you say, as we can see from the deal sheet, that the goods were split? A. That's right. Q. I think you say that could be understood if the goods were to go to separate customers? A. Right. Q. You say the goods were sold to Sirrnet on the same day? A. That's right. Q. If you look at the deal sheet, the goods did go to separate customers, didn't they, they went to Berkshire and High Level Trading? A. They went to Sirrnet's separate customers, but not to Syskal's separate customers. They went to Sirrnet which was the same customer. Q. Yes, but Sirrnet sold the goods to two different customers. A. They did but Syskal sold them to one. Q. Yes, so it's possible, isn't it, that because it was administratively easier, Sirrnet placed two separate orders with Syskal? A. Why would Syskal split them if they were selling to the same customer? I think that was my point. The goods had been split at Syskal; how would they know Sirrnet were going to split them to different -- Q. I am asking you to speculate here, but it's possible that Sirrnet said to Syskal: "We want X of that and Y of that"? A. I don't know, Mr Holland.”
“Q. …Within your knowledge, is there a grey market for Intel CPUs? A. Yes, there is. Yes. Q. Was there a grey market in 2006? A. Yes, there was.”
“ Q. You refer to the stolen list, which again is in the top right-hand corner of the report at B6/1. He says the reports appear to indicate the check had been undertaken but it does not indicate he compiled the list of stolen CPUs. A. Yes. Q. Did you ask Forward that question? A. I didn't, no. Q. Any particular reason why not? A. I would have -- if I had been Sirrnet, I would have like to have known a bit more about the stolen list I think. Q. But the report is prepared by Forward though, isn't it? A. It is, yes. Q. So they are more likely to know the answer to that, aren't they? A. There's no evidence that Sirrnet asked them though either.”
“ I didn't trace an exact sum of money because obviously as goods move from trader to trader there was always a slight difference in the sums of money. So whenever I was tracing the UK, I looked at the invoice amount for each transaction and traced the amount to that invoice amount and again looking at the FCIB transaction statements to verify that the actual amounts that I was identifying were the ones that did actually apply to that deal. As far as being in Europe goes, obviously I didn't have the invoices or transaction sheets so, again, I looked to see if I could find a narrative that actually linked the deals with the actual transactions so I could tie the two together. Q. If you are trying to show circularity, isn't it important to show that, for example, A pays to B and then B receives that and pays to C, rather than A pays to B but before B has received A's payment, A makes a payment to C? A. When I was doing this, I didn't actually tie myself up to that at that point. I really looked to see: could I actually just find the money moving around? If there was collusion and fraud and everyone was aware of it. It wouldn't really matter when they paid because they all knew they would be -- you know, they would be certain of getting their money but I was more concerned with seeing whether I could actually trace the money flow and then after that I looked at the dates and times. A….at the beginning it’s my best judgment but when the Paris server material became available I looked at the Paris server narrative and quite often that narrative made references to the actual goods that were being dealt in and quite often it was possible to tie the actual quantity and the type of goods to the actual payments. Q. If you don't tie yourself to dates and times you can always prove circularity, can't you? A. You cannot prove circularity if the money does not go to another trader. You know, over the years, I haven't worked in VAT, but I used to work in direct tax and special civil investigations and going through bank statements there, looking for amounts of money. You know, quite often the money goes to lots of different places. You know, it's not easy to show the amounts going, but in these transactions there are amounts of money going around from trader to trader and the amounts of money are very similar and quite often equate to the invoice amounts. And I wouldn't have found that in other exercises I've been given. So I do believe there is circularity of the funds irrespective of the dates and quite often the funds do move within 24 hours from trader to trader, from out of Europe and into the UK and back out to Europe again.”
“ Q. …As part of the seven-year investigation, was anything from Sirrnet or Gandalf detained, interviewed, charged? A. No, the people that were charged were the people who were effectively running the fraud itself. In other words, the main men behind it, not the actual brokers involved, not the buffers. Just purely the people that were behind the fraud. Q. So nobody from Gandalf or Sirrnet was interviewed as part of your investigation? A. Not to my knowledge. But what I might want to clarify is that the investigation Operation Apparel was into the mobile phone side of the fraud. So effectively we had no interest in the CPU side of the fraud because the gang that we were looking at -- rather than say criminal associates, let's call it a gang -- were based in Glasgow and Manchester. So the 129 million, as I say that we were going to indict on was on the mobile phone side. The CPU side was of no interest to us. So Gandalf, from what I know, were only involved in the CPU side. In fact I didn't know anything about a Gandalf until such time as the diaries were -- I was asked to provide a witness statement for the diaries. Q. Right. A. So they wouldn't have been interviewed, no.”
“A. We took advice from KPMG on how best to achieve tax advantages. Q. Yes. A. And on stability. Q. Yes. A. On their view on the market generally and how best to -- Q. Yes. A. -- structure the business so -- Q. Are you suggesting that KPMG told you that this was the best set-up for your business or are you saying that's one of the things you discussed with them? A. It's one of the things we discussed. There would have been a number of -- we would have sat down with them and told them what we wanted to achieve and they would have come up with a suggestion on structure. Q. You see, we'll, if we need to, look at the KPMG report in due course but can I suggest this to you: that there is nowhere in the detailed and lengthy KPMG report where they suggest this structure at all? A. Which report? We had numerous reports. Q. You mentioned a KPMG report, did you not? So did they advise you at all that this was the best structure, that Syskal be at the head of the pyramid siphoning products to either Sirrnet or Gandalf who then sell on? A. I forget the detail of the documents, but we paid KPMG over a period of time to produce many reports for us. Q. I see. A. So I am not sure what specific report you are referring to. Q. All right. We have only been given one of the many reports you refer to.”
“ Q. Yes. So why have Sirrnet and Gandalf at all? Why not just have Syskal, the way you were, happily trading before this new structure? Syskal buys, there's no risk about five people being (sic) Syskal sells. What's wrong with that? A. Well, we just set up five companies. When you do something you set up a company and -- Q. I see. All right. A. If it was five… Q. But the way you've set up this system is that Syskal is at the bottleneck, so suddenly you've got two separate companies, Sirrnet and Gandalf, that may be in trouble and they're passing their troubles straight up to Syskal, who are at the top of the pyramid, do you see? A. Yes, but clearly if -- you know, if a customer doesn't pay, it's a problem… Q. All right. Would you accept this as a proposition: that the relationship between the group of companies, by which I mean Syskal, Gandalf Asia, IT, Sirrnet and the others in the group, which I'll come to -- A. Yes. Q. -- the relationship between them was such that the trading activity of any one in that group was affected if the trading activity of any others was affected? A. I think the question that you're asking me is probably simpler than that, in that if we don't have a company that pays us or HMRC don't pay us, then we have a cash flow issue within the group and quite clearly that affects everyone. Q. You're right. And so if I put it even simpler than that: if there's a problem at the bottom it goes to the top, which is Syskal and Pickering? A. If we've got a cash flow problem, we've got a cash flow problem.”
“ I think initially Crestvalley introduced Highwater to us or --…And then the relationship developed --… Q. So Crestvalley, who were getting about 20 per cent return on their investment -- A. Yes. Q. -- introduced Syskal to Highwater, who eventually agreed less than half of that interest rate; was that correct? A. Approximately, yes. Q. That wasn't an odd introduction for Crestvalley to make? A. It wasn't for me to question who they introduced us to, really. I am happy to go to a meeting and discuss whatever they want. Q. It was a gift, wasn't it, because you're suddenly paying half the interest rate or less than half the interest rate you've been paying? A. I am not sure whether "gift" would be the word. Q. All right, that's my word, I agree. A. Absolutely, yes. Q. You tell me how you see -- A. It was another meeting, that's all. Q. Well, you tell me how you see an introduction by someone who is getting 20 per cent from you introducing to someone who is going to charge you less than 10 per cent. A. That wasn't the purpose of the introduction. Q. Ah, what was the purpose? A. It was just a meeting to -- my understanding was that they did business together and -- Q. I see. A. -- out of respect for the relationship I was happy to have the meeting. Q. As it happened, shortly after that meeting Syskal were interested in a finance agreement that would result in a 9.25 per cent repayment? A. I think it took some months but, yes.”
“Trader A is going to a huge bankruptcy auction or has heard about a large quantity of stock someone has just imported. Trader A will contact Trader B who he knows is a major wholesaler of stock. The conversation usually goes like this: Trader A, I have stock do you want it? Trader B, how much stock do you have? Trader A, how many do you want? Trader B, at the right price I will take whatever you can get me. They agree on a price. This conversation will almost never happen on the day the deal takes place as, if Trader A is good at his job, he would have set up the deal a few days before the auction. Then, Trader A has to bid at the auction at the maximum price that will give him the ability to sell the whole stock to Trader B at the negotiated price or negotiate with the importer a price that will make it worth while for him. Then, what is usual is the date on Trader A’s paperwork for his purchases will very often, if not always, be dated the same day as the sales. Trader A has turned over the stock on the same day.”
“ Q. So when was your first involvement in large-scale buying or selling of CPUs or mobile phones? A. I think it was when we set up Syskal Distribution. Q. I see. And Syskal Distribution was set up in late 2004, was it? A. I think so, yes. Q. Did you quickly come to the conclusion that these were shark-invested waters when you're dealing with high volumes of mobile phones and CPUs? A. I think business generally is -- is, you know, the skills are transferable, aren't they? If you're buying something and selling it to try and make a profit there is always someone out there who is trying to stop you from doing that. Q. You weren't aware that you could have people that you're dealing with that may cease to be in existence within a day of trading within them? A. No. Q. You weren't aware that further up the chain there may be people who disappear without paying their VAT? A. It's impossible to be aware of something that you're not aware of so, no, I didn't know that, no. Q. So you, by the time Crestvalley invested in your business, believed that you were in an industry which was no different from any other business? A. No, I think it was the same principles to any other business applied. Q. What about MTIC fraud? Did you think your business in high volume CPUs and mobile phones particularly attracted MTIC fraudsters? A. Well, we -- when we started the company we'd never heard of MTIC fraudsters, so –”
“…we were very pleased to show the level of work that we have done in conjunction with KPMG with a view to achieving full and extensive compliance and due diligence on our suppliers and clients on a deal by deal basis…We were even more pleased to hear that you were very impressed with our due diligence…”
“ Q. All right. Now Mr Rogelj at the same time as running Sirrnet was also involved in a company called Manatlantic, was he not? A. Yes. Q. You would have known that because you would have done your due diligence checks on Mr Rogelj, because you wouldn't have wanted to take on a director of a company, Sirrnet, that might have also been in direct competition with the group, would you? A. Maybe not, no. Q. Maybe not? A. I am trying to remember the exact relationships. As I said, it is eight years ago. I know you've gone through this in detail but I haven't so -- Q. But as a business you would not want to take on someone who could be running a company in direct competition to yours, would you? A. I think the answer to that question would probably remain on the finance, because if you have sufficient contracts or customers available then you're limited to the amount of deals you can do anyway. Q. All right. Now, Manatlantic -- and Mr Rogelj was a director of Manatlantic -- were trading in March 2006 and in June 2006. A. Okay. Q. They were in fact trading in March 2006 and June 2006 with GigaAsia? A. Okay. Q. So this is Mr Rogelj, a director of Sirrnet, a company that you and your friends have now effectively taken over, who is running a company in March and June 2006, Manatlantic -- A. Yes. Q. -- that is directly trading with the very company your companies are trading with? A. Okay…I can see that there potentially would be issues, yes. I can only think that because they would have had a certain amount of finance available that they would only do a certain amount of deals anyway. Q. I see. So that was your hope? A. I wasn't aware of all this, so -- Q. I see. A. So, you know, Steve would have been doing whatever he does with Igor and -- Q. You wouldn't have checked before bringing Mr Rogelj into this what other directorships he had? A. No. Q. You wouldn't have checked that he's a director of Manatlantic? A. No. Q. No? Therefore the fact that he might be in direct competition had not entered your thought process? A. It's not a case of entered thought process. I mean, you meet people and if you know them and trust them anyway then there is -- you know, you take a view on it at the time.”
“ Q. And therefore the best way, and possibly the only way, to guard against the round and round and the stolen phones is to have a proper list of IMEI numbers? A. Yes, which we did. Q. Where are they? We've been served -- when I say "we", on our side of the fence we have been served with one set of numbers on a number of A4 sheets of paper for one deal. A. Um. (Pause) Q. Where are they? Where would they be? A. In your documents I don't know. Q. All right. No, where would they be in your documents? A. Well, I haven't seen any, so -- Q. But you say that you did keep them? A. Our IT manager internally bespoked a system which kept a record of every single CPU trade box that we bought and every single phone as well... Q. Your response at your paragraph 59: "IMEIs were not kept because of concerns over scanning inaccuracies." Explain that sentence to me, please. A. I can't. I don't remember saying that but I have signed the thing so ... We had a system where we kept IMEIs and we kept everything, so I can't -- maybe Robert could help with that but I can't.”
“Q. Mr Mason said that he had lived in France for several years. His main occupation had been running camping sites." Does that ring any alarm bells with you, if you had known that? A. If we had known that then -- Q. And he gave his mother's address who lives in Newport Lane in Lincoln. A. Okay. Q. "Mr Mason claimed that he had no previous experience in the operation of the mobile phone trading business." Are the alarm bells now deafening? A. Well, it is all news to me. I didn't know that, so I am just seeing this now. Q. No, if you knew that then would the alarm bells have been ringing very loudly? A. Yes, we would probably have done more due diligence than we would ordinarily have done and for some customers, for example, we would send KPMG out to visit premises and do due diligence on companies.”
“…I actually don’t know as we sit here.”
“Indeed the Company did not know that Syskal was buying stock from Multisystems.”
“These computer chips were destined for computer builders who were not interested in the packaging…”
“ Q. What is Sirrnet purchasing? A. It says here "Nokia 8800 black". Q. Okay. Why do you emphasise "black"? A. I guess that was the colour that was requested by the customer… Q. Is that an inspection report? A. It is. Q. What was inspected? A. 8800 -- it doesn't mention colour. Q. Are you sure? A. Oh, stainless steel. Yes. Q. Oh dear. So no doubt someone would have spotted that and returned the goods? A. Or called the customer and told them and said, "Do you want them? They're not black." Q. And they would have kept a note of that, wouldn't they, because otherwise the customer will say, "I ordered black," and no one has a note of that phone call to say, "We're actually selling you stainless steel"? A. No, you're correct but someone would -- as soon as we realised that they were a different colour, someone would have called them. In this case it would have been Steve would have called them and said, "They've turned up and they're not black they're stainless steel. Do you still want them?" Q. So Mr Timothy Mason, our tent man again, has signed a document accepting the black phones? A. Yes. Q. So no one seems to have phoned him because if they did he might have said something on that form saying, "They're not black, you just told me it's stainless steel"? A. I understand what you're saying, but, you know, typically if someone sends someone -- if when they had faxed this to him, I don't how much notice he would have taken of the black or not, but -- Q. But I thought you said black is important? A. Well, it is, yes. I don't know whether they were black when they went there or whether they were stainless steel and the freighter made a mistake. I don't know… Q. And again, if I suggest to you that those sorts of -- not exactly that but a number of anomalies crop up again and again on inspection reports. A. Mm.”
“ A. I knew a gentleman locally, who was at that time a JP, a very capable man, and I paid him a reasonably large fee to interview Mr Rowlands in Birmingham and he must have spent three or four hours interviewing him -- Rowlands said he said he would never want to see the man again, he took his skin off. But I was satisfied with the report which this man, Mr Deutsch, made and that I relied on reasonably.”
“Q. Did he tell you before you loaned the money that he had been told of tax losses within his deal chains in the period September 2004? A. I don't believe so. If any of them -- all your questions are such that no one would invest in a company. Q. I agree. A. It's being told by Marks & Spencer's that their burgers are horsemeat. Q. I agree. A. They would not buy those burgers; I would not trade with Mr Rowlands.”
“ …the familiar four principles summarised by Brooke LJ in Wisniewski v Central Manchester Health Authority ( [1998] PIQR 324 , at p 340: “(1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action. (2) If a court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness. (3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue. (4) If the reason for the witness's absence or silence satisfies the court then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”… What is true, however, is that the question of whether there is a case to answer does depend on the individual case and the allegations in question. If the court is to draw adverse inferences, they cannot simply be of a general nature; they must be specific inferences in relation to specific pleaded issues. I am mindful that this is a case where very serious allegations of fraud have been made against the Defendants and, whilst this does not affect the standard of proof, it does have some bearing on my approach to the evidence and the burden on HMRC to prove its claim.”
"(1) Why was…a relatively small company with comparatively little history of dealing in mobile phones, approached with offers to buy and sell very substantial quantities of such phones? (2) How likely in ordinary commercial circumstances would it be for a company in [the Appellant’s] position to be requested to supply large quantities of particular types of mobile phone and to be able to find without difficulty a supplier able to provide exactly that type and quantity of phone? (3) Was [the supplier] already making supplies direct to other EC countries? If so, he could have asked why [the supplier] was not making supplies direct, rather than selling to UK traders who in turn would sell to such other countries. (4) Why are various people encouraging [the Appellant] to become involved in these transactions? What benefit might they be deriving by persuading [the Appellant] to do so? Why should they be inviting [the Appellant] to join in when they could do so instead and take the profit for themselves?"