“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…”
“[470]…we have to consider the facts of the particular case to decide if HMRC have proved on the balance of probability that Mr Trees knew at the time that CCA’s transactions were connected to fraud. [471] It should be clear from what we have said above that we do find that it is proved. There were a number of factors even by themselves showed on the balance of probabilities that Mr Trees did know of the fraud: all of them combined put the matter beyond any doubt.”
“[474] We have found that CCA did know that its deals were dictated to it (§§304-309) and that its banking was dictated to it (see §299-303 and §§310-324): knowing any one of these matters meant Mr Trees could not have been in any doubt that CCA was participating in transactions orchestrated for the purpose of VAT fraud. He knew CCA was not trading as a free agent in any grey market. [475] But even if we were to put those findings of fact aside, we would still conclude that Mr Trees knew that CCA’s transactions were connected to fraud. CCA was offered deals far too good to be true: it was offered the opportunity to make phenomenal profits over a short space of time for doing virtually nothing; the deals required no special skill nor utilisation of any carefully cultivated contacts, they involved few costs and no commercial risk. CCA knew that its customers had little interest in the product traded, it knew about the patterns in the trading that had no rational explanation, it knew that its trading environment was uncommercially benign (see §§269-298). The only explanation for all of this was clearly that the transactions were orchestrated for the purpose of fraud; that conclusion is all the more obvious when Mr Trees was well aware that there was VAT fraud taking place in mobile phone trading. From this we would conclude that it was very clear that Mr Trees knew that CCA’s transactions were connected to fraud. [476] But it is even more certain that he did: he acted as a person who did know of the connection; CCA’s deal documentation was inadequate reflecting that Mr Trees knew that it did not really matter; similarly CCA did not inspect the goods; CCA’s due diligence was inadequate and undertaken to satisfy HMRC; negative indicators were ignored; CCA held inadequate insurance against some risks and none against others despite the high value of the goods; CCA was not willing to cooperate with HMRC over IMEI numbers where such cooperation might have helped reveal circulation of the phones and thus the fraud. Mr Trees had a relationship of trust with Future which was clearly involved in the fraud and this relationship continued long after the suspicions of an innocent trader would have been raised.”
“[477] None of factors put forward by appellant as indicating Mr Trees did not know actually countered or explained away any of these findings. CCA’s cooperation with HMRC was limited and self-interested; Mr Trees did not rely on [HMRC Officer] Mr D’Rozario’s opinions; HMRC was definitely not better placed to spot the fraud than Mr Trees; while Mr Trees did choose to put his own money at risk, this was at least as consistent with confidence that HMRC would not discover any fraud, as with any innocence; CCA’s prior trading could only have given CCA confidence that HMRC would continue to repay it its input tax claims; its employees were not aware of anything untoward but there was no reason why they would know as it was Mr Trees who exclusively conducted the deals and in any event their evidence was so general it does not exonerate Mr Trees.”
“We are in no doubt that Mr Trees knew that all of CCA’s transactions in the period in question were connected to fraud. As we have found that they were so connected, CCA’s claim for input tax on the transactions was correctly denied by HMRC on the basis of Kittel. The appeal is DISMISSED.”
“In any case where— (a) for the purpose of evading VAT, a person does any act or omits to take any action, and (b) his conduct involves dishonesty (whether or not it is such as to give rise to criminal liability), he shall be liable…to a penalty equal to the amount of VAT evaded or, as the case may be, sought to be evaded, by his conduct.”
“the Tribunal may give a direction substituting a party if— (a) the wrong person has been named as a party.”
“I was unknowingly the victim of a very sophisticated fraudulent operation and I have emphasised this, under oath, throughout all proceedings. Even now I don’t know how the scam worked…I didn’t know, I had no suspicion whatsoever…the truth is I didn’t know, I had no suspicion whatsoever, I now know that I was undoubtedly manipulated but I was not instructed what to do at all.”
“First and foremost I would like to emphasise, as I have right from day 1 and under oath in the witness box, I was duped into participation in these fraudulent activities and had no knowledge that the transactions were connected to fraud.”
“The Tribunal may strike out the whole or a part of the proceedings if (a)-(b)… (c) the Tribunal considers there is no reasonable prospect of the appellant's case, or part of it, succeeding.”
“In our judgment an application to strike out in the FTT under r8(3)(c) should be considered in a similar way to an application underCPR 3.4 in civil proceedings (whilst recognising that there is no equivalent jurisdiction in the FTT Rules to summary judgment under Pt 24). The tribunal must consider whether there is a realistic as opposed to a fanciful (in the sense of it being entirely without substance), prospect of succeeding on the issue at a full hearing, see Swain v Hillman[2001] 1 All ER 91 and Three Rivers[2000] 3 All ER 1 at [95],[2003] 2 AC 1 per Lord Hope of Craighead. A “realistic” prospect of success is one that carries some degree of conviction and not one that is merely arguable, see ED & F Man Products Limited vPatel[2003] EWCA Civ 472 , [2003] 24 LS Gaz R 37. The tribunal must avoid conducting a “mini trial”
“[63] I am satisfied that Rule 8(3)(c) does extend to striking-out as an abuse of process. That was the decision of the Court of Appeal (Patten and Sales LJJ) in Shiner and Sheinman v Commissioners for HMRC[2018] EWCA Civ 31 . There, HMRC had issued closure notices against the Appellants amending their self-assessment returns. Those notices were the subject of appeal to the FtT, which included a challenge on the footing that the retrospective effect of FA 2008 section 58 contravened Article 56 of the EC Treaty: see Para [6]. But, in that regard, the taxpayers had also, as a 'pre-emptive strike' sought permission to bring a claim for judicial review against HMRC. The judicial review claim came to an end when it was dismissed by the Court of Appeal and the Supreme Court refused permission to appeal. On the basis of the Court of Appeal's decision, HMRC applied to the FtT for an order striking out the FtT appeals against the closure notices insofar as they relied on a breach of Article 56 EC, on the basis that the point was either (i) res judicata or (ii) an abuse of process because the taxpayers were seeking to relitigate a point which had already been decided against them. [64] Patten LJ remarked (at Para [19]): ‘The need to exercise caution in relation to any power to strike out proceedings prior to a full hearing is obvious. But it is a consideration which goes to the exercise of the power rather than to whether such a power exists. The Upper Tribunal in its decision at [55] did not take Mr McDonnell to have submitted that there was no power to strike out for abuse of process but in any event, in my view, the power contained in Rule 8(3)(c) is wide enough in its terms to include a strike out application based on those grounds. Such an application, if successful, would result in the First-tier Tribunal concluding that the relevant part of the appellant's case could not succeed. A power to strike out could also be said to be part of the power of regulation by the First- tier Tribunal of its procedure under Rule 5(1) (which was the view of the Upper Tribunal), but Rule 8(3)(c) is enough. There is no need to imply a power. It is worth observing that the equivalent provision inCPR 3.4 (2) separates out a case where a statement of case discloses no reasonable grounds for bringing or defending the claim from a case where the statement of case is an abuse of the court's process. But for the First-tier Tribunal the Tribunal Procedure Committee has chosen a different but composite criterion of no reasonable prospect of success, which is wide enough to cover appeals which are legally hopeless as well as appeals which can be said to amount to an abuse of process. There is in my view express power to strike out on both grounds.” ‘The need to exercise caution in relation to any power to strike out proceedings prior to a full hearing is obvious. But it is a consideration which goes to the exercise of the power rather than to whether such a power exists. The Upper Tribunal in its decision at [55] did not take Mr McDonnell to have submitted that there was no power to strike out for abuse of process but in any event, in my view, the power contained in Rule 8(3)(c) is wide enough in its terms to include a strike out application based on those grounds. Such an application, if successful, would result in the First-tier Tribunal concluding that the relevant part of the appellant's case could not succeed. A power to strike out could also be said to be part of the power of regulation by the First- tier Tribunal of its procedure under Rule 5(1) (which was the view of the Upper Tribunal), but Rule 8(3)(c) is enough. There is no need to imply a power. It is worth observing that the equivalent provision inCPR 3.4 (2) separates out a case where a statement of case discloses no reasonable grounds for bringing or defending the claim from a case where the statement of case is an abuse of the court's process. But for the First-tier Tribunal the Tribunal Procedure Committee has chosen a different but composite criterion of no reasonable prospect of success, which is wide enough to cover appeals which are legally hopeless as well as appeals which can be said to amount to an abuse of process. There is in my view express power to strike out on both grounds.”
“The rule of law depends upon the existence and availability of courts and tribunals to which citizens may resort for the determination of differences between them which they cannot otherwise resolve. Litigants are not without scrupulous examination of all the circumstances to be denied the right to bring a genuine subject of litigation before the court…This does not however mean that the court must hear in full and rule on the merits of any claim or defence which a party to litigation may choose to put forward. For there is, as Lord Diplock said at the outset of his speech in Hunter v Chief Constable of the West Midlands Police[1982] AC 529 , 536, an ‘inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people’.” ‘inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people’.”
“there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole.”
“Two subsidiary arguments were advanced by Mr ter Haar [QC for the plaintiff] in the courts below and rejected by each. The first was that the rule [of abuse of process] in Henderson v Henderson 3 Hare 100 did not apply to Mr Johnson since he had not been the plaintiff in the first action against GW. In my judgment this argument was rightly rejected. A formulaic approach to application of the rule would be mistaken. WWH was the corporate embodiment of Mr Johnson. He made decisions and gave instructions on its behalf. If he had wished to include his personal claim in the company's action, or to issue proceedings in tandem with those of the company, he had power to do so.”
“…it seems to me that the substratum of the doctrine [of abuse of process] 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..'”
“The question therefore is whether, in all the circumstances, it would be an abuse of process for Mr Hackett to argue in his own appeal against the personal liability notice, and as part of that against the penalty assessed on the company, matters which either were the subject of determination by the tribunal (in respect of the 09/06 period) or in relation to other periods could have been determined by the tribunal had the appeals in those respects not been withdrawn.”
“So far as the 09/06 period is concerned, the relevant issues were the subject of a final determination by the tribunal in Intekx 2014, having considered on a hearing of the substantive appeal all the facts and evidence including the evidence of Mr Hackett. I have no doubt in that respect that it would be an abuse of process for Mr Hackett to seek to re-litigate the relevant issues determined by the tribunal in that appeal. Mr Hackett, in his capacity as director of Intekx, has had an opportunity to put forward his case that in that period there was no connection between the transactions of Intekx in that period and fraudulent evasion of VAT, and that Intekx did not know of any such connection. It would be contrary to the principle of finality of litigation to allow that determination to be re-visited on this appeal. It would be a clear abuse of process to do so, and there are no circumstances that could justify such a course.”
“The circumstances for the other periods are different. In those cases there hasnot been any determination by the tribunal, whether on a substantive hearing or otherwise. There has been a withdrawal of those appeals…Although there is sufficient identification between Mr Hackett and Intekx not to preclude the application of the abuse of process principle, the fact that the present appeal is made by Mr Hackett and not by Intekx is also a relevant factor. It is also relevant that, at the time when the earlier appeals were withdrawn, Mr Hackett was unaware that he might be exposed to a personal liability notice in respect of a penalty assessment not then made upon Intekx.”
“In the case of the prior appeals of Intekx for which on account of the withdrawal of those appeals there has been no determination of the facts and issues by the tribunal, it would in my judgment not be an abuse of the processes of the tribunal for those facts and issues to fall to be determined by the tribunal on this appeal by Mr Hackett. I would go further. To fix Mr Hackett with deemed findings in respect of those appeals, in the circumstances where he is appealing against a personal liability which has arisen only after those appeals were withdrawn would in my judgment be contrary to the interests of justice. Nor do I consider that requiring HMRC, on whom the burden of proof is accepted to fall in this appeal, to prove relevant facts which have so far not been substantively determined could be regarded in any sense as oppressive.”
“(1) It would be an abuse of process for Mr Hackett to dispute in the presentappeal facts and issues determined by the tribunal in Intekx Limited v Revenueand Customs Commissioners[2014] UKFTT 277 (TC) . His grounds of appealmust therefore be read subject to that caveat. (2) Otherwise, I conclude that it would not be an abuse of process for MrHackett to dispute in the present appeal facts and issues in the appeals of Intekx in relation to VAT periods 07/09 to 07/13 inclusive. (3) Subject to (1), I refuse HMRC’s application to strike out any part of MrHackett’s grounds of appeal.”
“[73] I am entirely satisfied that it would be an abuse of process for the Appellant now to seek to re-litigate the relevant issues which were already determined by the FtT in 2017. [74] I am entirely satisfied that the matter of the Appellant's knowledge in (3) is a matter which was the subject of a final determination by the FtT in the 2017 Decision. [75] … [76] “The Appellant had a full opportunity to put forward its case as to the absence of connection to fraud, and its want of knowledge of such connection. In short, and in alignment with Hackett, it would be contrary to the principle of finality of litigation to allow the FTT’s determinations in 2017 to be re-visited in this appeal. There are no circumstances which could justify such a course.”
“In our judgment, the essential requirement of Article 6 is that in the current proceedings the Appellant has a right to a fair trial…The exact requirementsnecessary to ensure a fair trial will depend on the nature of the issue to be tried, its seriousness and all the circumstances of the individual case. What is required is a broad assessment of whether the particular charge brought against the Appellant is dealt with in a manner which provides a fair hearing when the proceedings are viewed as a whole.”
“[59] The Appellant received fair notice of the case against it in the form of HMRC’s detailed Statement of Case and evidence. Both parties were legally represented. The Appellant had the right to present its evidence and to have HMRC’s witnesses cross-examined. The burden of proof lay upon HMRC, albeit to the civil standard of proof (see the 2017 Decision at §275). Both parties were entitled to make submissions to the FTT on both the law and theevidence. The FTT gave a carefully considered decision which was meticulous in detail. The Tribunal Rules governing the FTT’s procedure required the FTT to act fairly and justly in accordance with the overriding objective. As we have already discussed, the findings of the FTT in the 2017 Decision are, in effect, determinative of the issues raised by the penalty assessment, and in respect of those issues, taking all of the above factors into account, we conclude that the Appellant received a fair hearing. [60] In relation to HMRC’s strike out application resulting in the 2020 Decision, we are again satisfied that the Appellant received a fair hearing at the 2019 Hearing. The hearing, again held in public, took place before an independent tribunal. The Appellant received notice of HMRC’s strike out application. Both sides were legally represented and were able to present their respective cases to the FTT. The FTT again gave a carefully reasoned decision.”
“Mr Trees is self-representing (albeit assisted by Mr Adamson). HMRC submits it would be inappropriate to take this into account as part of the broad merits-based approach propounded in Johnson v Gore Wood. When a person is self-representing the Tribunal and HMRC will of course assist the taxpayer to ensure a fair process, but this should [not] and does not impact upon the application of the law.”
“The line between honest conduct and dishonest conduct may be a fine one, in such circumstances. None the less, there is a line and entering into a transaction knowing that it is connected with fraud does not necessarily equate to dishonest conduct.”
“It is only by cross-examination that a witness's evidence can be properly tested, and it loses much of its effectiveness in counsel's hands if the witness is given time to think out the answer to awkward questions; the very gist of cross-examination lies in the unbroken sequence of question and answer.”
“we reject the appellant’s case that the co-operation CCA offered to HMRC indicated that it had a clear desire to assist HMRC combat fraud and was not aware of the connection of its own deals to fraud”
“It follows from my conclusion that there can be no dispute as to the facts and issues determined by the tribunal in Intekx 2014 that, in relation to period 09/06, the decision of the tribunal in that appeal is admissible.”
“This is a case where, although questions of input tax recovery are necessarily viewed by reference to individual accounting periods, transactions must be examined not in isolation but having regard to their attendant circumstances and context, the relevance of ‘similar fact’ evidence and the fact that the tribunal, in examining the state of knowledge of the company and Mr Hackett, is entitled to look at the totality of the deals effected by Intekx, and their characteristics…It will be for the tribunal that hears Mr Hackett’s appeal to determine what weight, if any, is to be accorded to the Intekx 2014 decision outside the confines of its own facts and circumstances. It cannot, however, in the circumstances of this appeal, be regarded as irrelevant, nor have I been able to identify any compelling reason why the decision should not be admitted.”
“The FTT decided that the decision in Intekx 2014 was relevant for the reasons it gave at [49] of the Decision. We can detect no error of law in the FTT’s approach. The FTT made the point that it will be for the tribunal that hears Mr Hackett’s appeal to determine what weight, if any, is to be accorded to Intekx 2014 outside the confines of its own facts and circumstances. In those circumstances, there is no basis on which we can interfere with the FTT’s decision on this point and indeed we agree entirely with the FTT’s reasoning.”