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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Revenue & Customs (HMRC) v Sunico A/S & Ors [2012] EWHC 4156 (Ch) (16 October 2012) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2012/4156.html Cite as: [2012] STI 3015, [2012] EWHC 4156 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		The Rolls Building 7 Rolls Buildings Fetter Lane London, EC4A 1NL
		16 October 2012

1. MR JUSTICE WARREN: On 4 October and 5 October 2012 I conducted a pre-trial hearing of this action. It is a claim by HMRC against all eight defendants. It is based on an alleged missing trader intra community (or MTIC) fraud depriving HMRC of millions of pounds of VAT. HMRC are represented by David Chivers QC and Peter Shaw. The first to fifth defendants are represented by Abbas Lakha QC and Graham Brodie. The sixth and seventh defendants do not appear and have taken no part in these proceedings at any stage. The eighth defendant is represented by Andrew Hunter QC and the ninth defendant is represented by David Scorey and Jern-Fei Ng
2. I shall refer for ease of reference to the first defendant, a company incorporated in Denmark, as "Sunico", the second defendant as "Sunil", the third defendant as "Mangharam", the sixth defendant, a company incorporated in Indonesia, as "PT Naina", to the seventh defendant as "Hashu", to the eighth defendant as "Dayal" and the ninth defendant as "Nari". Hashu and Dayal are brothers currently now estranged. The eighth defendant appears by his litigation friend, Rishi (inaudible) to whom I will refer as "Harishi". Dayal is old and is suffering from mental incapacity which has developed in recent years because of his aging.
3. There are a number of applications with which I have to deal: an application by Dayal under CPR 24 for an order dismissing the claims against him; an application by Nari under CPR Part 24 for an order dismissing the claims against him, further or alternatively, an order striking out the Amended Particulars of Claim insofar as they refer to him pursuant to CPR Part 3, Rule 3.4(2) on the basis that they disclose no reasonable grounds for bringing the claim against him and/or are an abuse of the court's process and/or are otherwise likely to obstruct the just disposal of the proceedings; an application by HMRC to re-amend the Amended Particulars of Claim.
4. I also need to resolve certain issues concerning the evidence of witnesses on behalf of HMRC and the first to fifth defendants. HMRC seek a direction for all witnesses to attend at the trial for cross-examination failing which their evidence should be excluded. The first to fifth defendants, Dayal, Rishi and Nari all seek directions on the provision of evidence by video link, assuming that Dayal and Nari do not succeed in the applications which I have already mentioned, a direction, which is opposed by HMRC, save in the case of one of Dayal's witnesses who is his carer and is unable, in practice, to leave Hong Kong where Dayal lives.
5. I take the first three applications together, although they were argued separately. Logically, of course, the applications by Dayal and Nari come first since their applications relate to the Amended Particulars of Claim as they stood when the applications were made. HMRC's position is that the Amended Particulars of Claim are good as they stand and that the application should fail even without amendment. Amendments are proposed which, according to Mr Chivers, meet the objections which are made to the Amended Particulars of Claim. Mr Hunter and Mr Scorey oppose the amendments for a variety of reasons to which I will come.
6. I start with the relevant principles. In relation to the pleading of fraud and also in relation to the granting of summary judgment, I do so only very briefly since there is no dispute about the applicable principles. The relevant principles in relation to pleading fraud can be sufficiently derived from Armitage v Nurse [1997] EWCA Civ 1279 (in particular, the judgment of Millett LJ), Mullarkey v Broad [2007] EWHC 3400 (Ch)) (Lewison J, upheld by the Court of Appeal) Fattal v Walbrook Trustees (where the same judge cited from Three Rivers District Council v Bank of England [2000] 3 All ER 1) and the recent decision of Seaton v Seddon (2012) EWHC 735 (Ch) (where Roth J provided a full analysis of the requirements). It is not through idleness that I do not carry out the same exercise, but rather from the absence of anything useful to add and a desire to avoid cluttering the authorities with yet more material that lawyers would feel it necessary to read and to cite.
7. I do, however, draw attention to two separate aspects of the requirements relating to the pleading of fraud. The first is that there must be an express allegation of fraud. The words "fraud" or "dishonesty" do not have to be used. The use of words which are inconsistent with the absence of fraud and dishonesty is enough. It is enough, therefore, to plead that the defendant was party to an unlawful means of conspiracy since such involvement is wholly inconsistent with an absence of fraud or dishonesty. It is in this sense I consider that the authorities tell us that there is no proper pleading of fraud if the pleaded facts are consistent with the absence of fraud or dishonesty. In that sense, the Amended Particulars of Claim in the present case clearly allege fraud against both Dayal and Nari.
8. But simply to allege fraud or knowledge is not enough. The second requirement in a fraud case is that a defendant is entitled to know from the pleadings the fraud which he is alleged to have perpetrated and the allegations as to facts which are made against him in order to establish the fraud alleged. Since knowledge is the essence of fraud, he is entitled to particulars of knowledge. It is however a rare case where direct evidence of knowledge of fraud can be adduced. It would be a stroke of the most extreme luck for a claimant to find, for instance, a letter passing between conspirators setting out the detail of their plot. Usually the knowledge of a defendant is to be inferred from all of the facts. Accordingly, a plea of fraud is certainly not to be struck out on a pleading point if, first of all, fraud or dishonesty and, secondly, the primary factor relied on at the time of the inference and, thirdly, the extent of the knowledge of the fraud could be said to be inferred or alleged. I will return to this in the context of the facts in due course.
9. It is now convenient to turn to the relevant part of the Amended Particulars of Claim and to look at the proposed amendments later. Paragraphs 1 to 11 identify the parties, paragraph 12 is a brief description of MTIC fraud generally, paragraph 13 states that HMRC has identified 719 MTIC fraud transaction chains between August 2004 and January 2006, bearing each of a number of listed characteristics. Paragraph 40 alleges that by reason of relevant transactions chains, HMRC had suffered a loss in the sum of over £40 million. Paragraphs 16 to 99 identified the importance of others involved in the transactional chain (who do not include Dayal or Nari).
10. Coming to the meat of the pleading, paragraph 100 alleges that in the relevant transaction chains between those two dates each of the defendants, thus including Dayal and Nari, "fraudulently conspired" with various persons involved in the chains or with persons who had hijacked the identity of certain suppliers in the chains and with each other, alternatively with one or more of the same:

"... with the object of inflicting harm on HMRC as an end in itself or as a means to another end, to injure HMRC by unlawful means ..."

11. The unlawful means are then set out in sub-paragraphs (a) to (d) and (d) itself is divided into paragraphs (i) to (v). I am not going to read them out but paragraphs (a) to (c) should be taken as read into this judgment. In paragraph (d) the following unlawful means are pleaded:

"... the entering into by the Default of a transaction defrauding creditors pursuant to section 423 Insolvency Act 1986 in circumstances in which ..."

There follows a number of sub-paragraphs which I do not need to set out.

12. It can be seen, therefore, that section 423 is introduced as part of this conspiracy claim, it being relied on as one of the unlawful means by which the conspiracy was implemented. Paragraph 101 alleges that, pursuant to the unlawful conspiracy, monies that were properly paid into HMRC were diverted to Sunico and later to the fourth and fifth defendants and to Dayal. Paragraph 102 states that, in support of the allegation that of each of the defendants, thus including Dayal and Nari, conspired, HMRC would rely on the matters set out in paragraphs 13 to 98 and also paragraphs 103 to 109. As to those later paragraphs, it is said in paragraph 103 that the transaction chains were contrived and inconsistent with bona fide trading with each transaction following the same identical pattern (the details then being set out but to which I do not need to refer). Paragraphs 104 to 109 make various allegations about the movements of goods and payment of sums of money. There is no mention of Dayal or Nari in these paragraphs which are really directed at making the case against Sunico, Sunil and Mangharam. Paragraphs 110 to 117 identify the claims against them and against the fourth and fifth defendants. Again, there is no mention of Dayal or Nari in those paragraphs.
13. The next section of the Amended Particulars of Claim is headed "Claims against PT Naina, Hashu, Dayal and Nari Premchand". I would like paragraphs 118, 119, 120 and 122 to be taken as read into this judgment. I come to 124, the opening of which reads as follows:

"The arrangements between Sunico and PT Naina as recorded in the Commission Agreement are not bona fide arms length commercial agreements. In addition to the matters set out at Paragraphs 105-111 HMRC rely on the following facts and matters ..."

There are then set out paragraphs (a) to (c), which are directed essentially at Sunico with no mention again of Dayal or Nari.

14. It is alleged that the arrangements were not bona fide arm's length commercial arrangements; but it is not expressly alleged that the commission agreement was a sham or that amounts payable under it were not properly due from Sunico to PT Naina. I do not know what line HMRC propose to take about that at trial.
15. The central allegation again Dayal then comes at paragraph 125. The commission payments of US$14,764,612 million referred to at paragraph 120 above, were not paid to PT Naina but to an account in the name of Dayal at UCO Bank Hong Kong. That amount is the amount of commission payable according to the commission agreement. It is pleaded in paragraph 126 as follows:

"It is inferred from the facts set out at paragraphs 117-124 that [pausing there for a moment; this is an inference, it is not a pleading of primary fact which is essentially proved by evidence] (a) the commission payments pursuant to the Commission Agreement were not for the introduction of genuine commercial customers of Sunico; (b) they were a mechanism for the division of the proceeds of MTIC fraud; (c) PT Naina, Hashu, Nari Premchand and Dayal were parties the unlawful means conspiracy set out at paragraph 100; (d) Hashu and Nari Premchand, holding themselves out as officers of PT Naina directed that PT Naina's share of the proceeds of the unlawful conspiracy be paid to Dayal, rather than PT Naina; (e) Dayal's role in the conspiracy was to receive PT Naina's share of the proceeds."

As to paragraph (b), the Amended Particulars of Claim do not indicate which of the conspirators is ultimately to share in the proceeds of the fraud, let alone in what shares.

16. At paragraph 127 it is concluded that by reason of the matters set out in paragraphs 117 to 124, Sunico, Hashu, Dayal and Nari Premchand are personally liable for conspiracy for all the losses suffered by HMRC. It is to be noted that prior to paragraph 126 Dayal is not mentioned in the pleadings save to identify who he is.
17. An alternative claim is made against Dayal at paragraphs 129 to 131. It is put forward expressly on the basis that he was not a party to the unlawful conspiracy. It is said that the payments into his account are transactions defrauding creditors:

"HMRC rely on the following matters set out in paragraphs (a) and (b):

(a) Pursuant to the unlawful conspiracy set out above, PT Naina were to receive its share from Sunico; (b) PT Naina directed its share to be paid not to it but to Dayal."

18. It is put forward expressly on the basis that Dayal was not a party to the unlawful conspiracy, and that appears from the evidence which I have not read into the judgment. It is said that the payments into his account were transactions defrauding creditors, in accordance with paragraphs (a) and (b) which I have just read. It is to be noted that in this paragraph the relevant transactions for the purposes of section 423 were the payments made to Dayal's account. However, curiously, the paragraph does not state expressly whether the person entering into the transaction for the purpose of the section is Sunico or PT Naina or both.
19. The primary fact relied on, therefore, is that PT Naina received its share from Sunico and that it in turn directed its share to be paid to Dayal. Thus, although the hypothesis that on which the pleading is based is that Dayal was not implicit in the conspiracy, it is not part of the hypothesis that there was no conspiracy. On the contrary, the pleading is that the payments represented PT Naina's share of the conspiracy and, for the purposes of the pleaded point, it is to be assumed that there was such conspiracy. In other words, Dayal may still need to meet the inference pleaded in paragraph 126, other than that he was a party to the conspiracy, and that he had a role in it (paragraphs (c) and (e)) and, in particular, paragraphs (a) and (b) in relation to the commission of the agreement are important. The question then is whether receipt of payment by Dayal falls within section 423.
20. The pleading in paragraph 130 invites a number of inferences, including this in paragraph (a):

"the direction by PT Naina to Sunico to pay its shares to Dayal was a transaction between PT Naina and Dayal in that it was a gift by PT Naina to Dayal or, alternatively, was a payment to him for no consideration, pursuant to section 423."

This paragraph indicates that the section 423 claim, adumbrated in paragraph 129, is one under which PT Naina rather than Sunico is the person entering into the transaction. However, the relevant transaction is not the one pleaded, the actual payment of money into Dayal's account; rather there is a single transaction which a direction by Sunico to PT Naina to make such payments. For completeness, I read the rest of paragraph 130 so I do not need to return to it. Paragraph (b):

"(b) The transaction was entered into by PT Naina for the purpose of putting its assets (its share of the proceeds of the unlawful conspiracy) beyond the reach of a person who is making of may at some time make a claim against him or otherwise prejudicing the interests of such person. (c) Having engaged in a fraudulent conspiracy PT Naina wished to ensure that its share of the proceeds were paid to a person who was not so involved and thereby may be beyond the reach (or would otherwise prejudice the claims of) persons who may make a claim against PT Naina."

21. Finally, paragraph 131 pleads that HMRC are a victim of the transactions pursuant to section 423(4).
22. In order to understand the section 423 point, it is convenient to refer to the section on this point. Sub-section 1 commences:

"(1) This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if - (a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration; ... (c) he enters into a transaction with the other for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by himself.

(2) Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for - (a) restoring the position to what it would have been if the transaction had not been entered into, and (b) protecting the interests of persons who are victims of the transaction ...

(5) In relation to a transaction at an undervalue, references here and below to a victim of the transaction are to a person who is, or is capable of being, prejudiced by it; and in the following two sections the person entering into the transaction is referred to as "the debtor"."

23. From all of this it can be seen that the claim against Dayal and Nari can be summarised for material purposes in this way:

a. there is a general allegation in paragraph 100 that they, along with a number of others, conspired to defraud HMRC.

b. The nature of the fraud is set out in considerable detail, but until paragraph 102 there is no mention of Dayal or Nari and even then it is only as one of the defendants. There is not a hint up until then about how they might have been conspirators in the MTIC fraud.

c. Paragraph 102 states that HMRC would rely on earlier paragraphs of the pleading, but there is nothing in those paragraphs which connects Dayal or Nari with the transactions described. Paragraph 102 also relies on paragraphs 103 to 109 in support of the allegations of fraud against each defendant but, again, there is nothing in those paragraphs which connects Dayal or Nari with the uniformity, movement of goods or the payments referred to.

d. Paragraphs 110 to 117 deal with the claims against other defendants. There is nothing in them to connect Dayal or Nari with the claims made against those other defendants.

24. However, a connection begins to be shown in the following paragraphs. First of all, the commission agreement is pleaded on the assumption, which is appropriate to make for the purposes of the pleading issue, that Sunico and PT Naina were complicit in the alleged MTIC fraud. It is clear that the commission agreement was used if the facts pleaded are substantiated as part of the mechanism for distributing the proceeds of fraud. This is so even if the commission agreement also covers transactions which were not tainted by fraud. Accordingly, there is at least a good arguable case that the inference as pleaded in paragraphs (a) and (b) of paragraph 126 should be drawn.
25. It is not necessarily the case that the commission agreement was entered into at the start of the conspiracy. There is, however, an arguable case that can only be determined at trial if that was so. Moreover, even if it had been entered into as a genuine commercial agreement, it could subsequently have been seen as a convenience, therefore, for the division of proceeds of the MTIC fraud.
26. It is possible, in light of the evidence as it comes out as to precisely when the commission agreement was negotiated and how it was actually used, that those who negotiated it must have known what it would actually be used for. They might not have known the detail of how the MTIC fraud was to work, let alone the details of any particular transaction chain, but they might have understood or be taken to have understood, because there was no other plausible explanation, that the commission agreement would be used as a vehicle to divide the proceeds of the fraud. It might then be difficult for such a person to show that they were not complicit in the MTIC fraud. All of that, however, is irrelevant to Dayal since it is not alleged that he was involved in the alleged negotiation of the commission agreement. Nor is it relevant to Nari, unless it is established that he was involved in the negotiation of the commission agreement.
27. In that last context, I turn to look at the facts as they are known in relation to Nari and how it is that HMRC might make up their case against him. The whole case against him as I see it on the footing of the Amended Particulars of Claim depends on HMRC establishing that Nari negotiated the commission agreement. There is no alternative case pleaded, for instance, that he was an officer of PT Naina or involved in the implementation of the commission agreement and fully appreciated the source of the payments. The pleaded case against him did not depend on any such involvement. In an attempt to obtain further details of the claim against Nari, his advisors issued a Part 18 request and Mr Scorey describes the replies as vague, and brief to the point of being useless. Rather than providing details of the particulars, HMRC chose to reserve their position pending provision of disclosure and service of witness statements by the defendants, perhaps hoping that other defendants such as Sunil would give first-hand evidence about the negotiations.
28. There was a request, for instance, of the allegations that Nari held himself out to the first defendant, Sunico, to be an officer and/or agent of PT Naina. Pending disclosure and/or the giving of witness statements of the defendants of the Particulars of the Claims, the claimant is presently unable to identify the precise dates on which the fraud would have occurred. Between 1998 and 1990 and 2006, the seventh and the ninth defendants were the only contacts of the first defendant and the sixth defendant. The best particulars that the claimant is presently able to provide is summarised at paragraph 559 of the affidavit of Ms Ogburn sworn on the 17 May 2010. This was the affidavit sworn in support of the application for the freezing order.
29. The oral communications which took place in face-to-face meetings and on the telephone between, on the one hand, the first defendant and, on the other hand, the seventh and ninth defendants: There was a request for details that the allegation of the commission agreement was negotiated by the seventh and ninth defendants. The reply: pending disclosure and/or the provision of witness statements from the defendants and their Particulars of Claim as presently provided based on the information provided by the first defendant to SKAT (SKAT being the Danish tax authority as summarised at paragraphs 553 to 559). The claimant is presently unable to identify what other negotiations were carried out by the seventh and ninth defendants jointly or separately.
30. How then do HMRC intend to prove that Nari did negotiate the commission agreement? Nari's case is that he did not do so. The only evidence which HMRC has arises out of interviews held between the Danish tax authorities, SKAT, and Sunil on 9 July and 11 October 2007. The contents of those interviews are brought before the court in the affidavit of Ms Ogburn, which I have already mentioned. She has adopted that affidavit as her witness statement for trial. In relation to the first meeting on 9 July 2007 she said this, which I have on the basis of notes of the meeting prepared by SKAT and not on the basis of her knowledge:

"Sunil is said to have stated that in 2001 a written agreement had been entered into when he had met an individual called Hashu on PT Naina's behalf. The agreement was made in Singapore. Sunil did not know Hashu's formal name only that it was the owner of PT Naina."

(Quote unchecked)

31. There is reference to Hashu there but nowhere in that paragraph 553 is there a mention of Dayal or Nari. In paragraph 554 she says further explanations for residence were given by Sunil at another meeting with SKAT on 11 October 2007. So far as is relevant, at paragraphs 7 to 10 she says this:

"There was continuing phone contact with PT Naina. PT Naina ...(reading to the words)... gift items of money(?) and electronic goods. His family owned a business where the ownership lies with sister or sister-in-law of Nari. Nari was estimated to be 60 or 75 years of age with much experience. At an earlier date PT Naina had a business of general trading ...(reading to the words)... electronic goods and mobile phones. Nari and Hashu have been in contact with PT Naina since 1998/9. Originally, it was Hashu and later it was broadly Nari."

(Quote unchecked)

32. Reference to the record prepared by SKAT of the meeting (which I have read out) suggests that the commission agreement was concluded in Singapore where Sunil had met with Hashu. To repeat, there is no reference to Nari on record of that interview. In the later meeting it is also recorded that Sunil had asked Nari the reason why the commission was sent to Hong Kong. Nari had answered by saying that it would also be okay to pay it to Jakarta.
33. Therefore, although there may have been contact between Sunil and Nari this was only "later on". Whether 2001 can be said to be "later" in the context of Sunil's statement is impossible to say but it seems unlikely given that the contact was originally with Hashu and that it was with Hashu that Sunil says the commission agreement was made. There is no suggestion that it was Nari rather than Hashu who had negotiated a written agreement in 2001, assuming that this was the commission agreement which is pleaded in the Amended Particulars of Claim. What Sunil said to SKAT does not connect Nari in the negotiation of the commission agreements. The only primary fact which is pleaded and which alone forms the basis of the inferences, which it is sought to make in paragraph 127 of the Amended Particulars of Claim, is that the commission agreement was negotiated by Hashu and Nari who held themselves out (that is to say, implicitly for the purposes of making the agreement and not generally as representatives of PT Naina).
34. This pleading is simply not good enough in the context of an allegation of fraudulent conspiracy. There is no evidence anywhere that they held themselves out in this way. Nor is it good enough in the context of this pleading to say that something may come out of cross-examination of Sunil or Nari themselves to establish that Nari did in fact negotiate the commission agreement or hold himself out in the way alleged. I should not divorce myself entirely from reality by ignoring, firstly, Nari's own evidence that he was not involved and, secondly, thinking that HMRC might extract from Sunil's evidence something in their favour, contrary to what he had told SKAT, that it was Nari as well as Hashu who attended the meetings which the commission agreements had been agreed and then expect the court to accept that evidence, rather than what he told SKAT, especially since Sunil himself is accused of fraudulent conspiracy.
35. It might be said that the fact that the meeting at which the commission agreement was made was attended only by Hashu does not preclude Nari having negotiated the agreement. But where is the evidence for that? The answer is that it is nowhere to be found. Hashu could give evidence to that effect without inconsistency with his statement to SKAT about the meeting, but it would be inconsistent with his statement to SKAT that his dealings with PT Naina were initially with Hashu and only later with Nari.
36. In my view, the evidence presently before the court is insufficient to support the allegation that Nari negotiated the commission agreement on behalf of PT Naina. Since that allegation is the only allegation currently pleaded in support of the fraud claim, the inferences sought to be drawn against him in paragraph 126 and, in particular, 126(c) and 126(d) are unsustainable. I consider that Nari is entitled to summary judgment against HMRC, dismissing the claim against him in the absence of any amendment to the pleading.
37. I ought to say something about the position if, contrary to that view, the pleaded allegation could be made out. I doubt very much that the mere negotiation of the commission agreement would be enough to implicate Nari in the conspiracy, even if it is accepted that the commission agreement was used by PT Naina itself as a vehicle for dividing of the proceeds of the fraud. Rather more involvement in the affairs of PT Naina by Nari would have to be pleaded and established to give rise to a (rebuttable) inference of fraud. If there were a primary allegation of fact that Nari, holding himself out as an officer of PT Naina, directed that PT Naina's share of the proceeds be paid to Dayal, that might be enough, but there is not. In any case, such an allegation would need to be supported by some evidence. It is not enough to say that that factual finding is to be inferred (as is pleaded in paragraph 126(d)) from the mere fact and no more that Nari negotiated the commission agreement.
38. So far as Dayal is concerned, the primary allegation of fact is that commission payments were not paid to PT Naina but were put into an account in his name in UCO Bank Hong Kong. Dayal, or at least those now representing him, have consistently taken a position that the pleading is inadequate. The material parts of his defence are found at paragraph 98. This is a paragraph running over 2½ pages and divided into 9 sub-paragraphs. I am not going to read it into this judgment but again, the parties will be familiar with it and able to refer to it.
39. It is part of Dayal's defence that payments out of the account were made as set out in annex 1 to the pleading. Many of the outgoing payments were made either to Mrs Harwani or to Tallister Services Limited. It is possible that this is something that the Mrs Harwani referred to is the wife of Mangharam, the mother of Sunil. It can be seen that there are large sums of money going in and out of the account during the period October 2002 to August 2006, including during the period of the alleged fraud and the transaction chains in issue. Dayal's case is that he had nothing to do with the payments in and out of his account from the period 23 October 2002 until 13 July 2006. His defence in relation to paragraph 126 of the Amended Particulars of Claim (the inference allegations) is described in paragraph 99 of his defence, again a long paragraph divided into seven sub-paragraphs. I will only read paragraph 4(d) which is part of the defence that the inference sought to be drawn in 126(c) cannot possibly be drawn from the alleged facts:

"4(d) HMRC make no allegation whatsoever in these paragraphs (or anywhere else) of any knowledge of Dayal of any part of the alleged conspiracy, or of any proper basis for inferring any such knowledge. This is embarrassing."

40. In relation to that paragraph, it is indeed the case that no particulars of knowledge were given. The pleaded case rests on the allegations of payments into Dayal's account, although, in my view, HMRC are entitled to rely also on what Dayal says in his own pleading about the destination of the payments out.
41. However, it is not quite accurate to say that there was no allegation of the knowledge of Dayal of the alleged conspiracy. It is necessarily implicit in the allegation that he was a party to the conspiracy to damage HMRC and that he knew of the conspiracy to damage HMRC. The problem with that general allegation is that it does not tell Dayal what it is that he is said to have known. Is it said that he knew about each transaction and each transaction chain? Or is it said that he knew that an MTIC fraud was to be effected without detailed knowledge of each chain? Or is it said that he knew a fraud was to be effected on HMRC without knowing or understanding the nature of the MTIC fraud? Is it said that he knew there was some sort of dishonest activity which he would be assisting, without knowing that it was a fraud on HMRC (perhaps a fraud on the Danish tax authorities or somebody else)?
42. Any of those possibilities, if established as a matter of fact, can no doubt be enough to make him liable but Dayal is entitled to know which of these is alleged against him or whether it is something else. In the present case that is particularly so. In a case where the alleged fraudster is able to give evidence, it might be said that some actions require an explanation, even if an inference cannot be drawn. Thus, suppose that Dayal was capable of giving evidence but refused to do so, it might be said that the unexplained receipt of monies into his account and that payment out to Mrs Harwani and Tallister Services cry out for an explanation and that a failure by Dayal to give one justifies the inference that he was involved in a conspiracy. Here one needs to be very careful because there are two ways to go about analysing the way in which the conclusions involving him in a conspiracy might be reached.
43. The first approach, which Mr Hunter supports, is that the unexplained payments do not in themselves give rise to an inference at all. It is true that, unexplained, one possibility is that Dayal did indeed know that the payments represented the proceeds or part of the proceeds of fraud against HMRC. Were he able to give evidence, a failure by Dayal to give an explanation when one could, if it existed be given is what, on this way of looking at matters, justifies the inference. Dayal is, unfortunately, now incapable of giving evidence and no weight at all can therefore be given to the absence of an explanation from him. Furthermore, since he is the only person who could give it, there is insufficient evidence on this second approach to draw the inference of involvement in a conspiracy.
44. Under the second approach (which Mr Chivers supports) it could be said that the payments of monies into the account, payments which for the purposes of analysis are to be regarded as the proceeds of fraud, gives rise to the inference that Dayal knew that the monies were being fraudulently obtained. That inference is rebuttable. For instance, Dayal might have been able to provide either a wholly innocent explanation of why the monies were received into his account and paid out in the way in which they were, or he might have been able to persuade the court that he simply allowed the account to be used and had been duped into thinking that it was for wholly innocent reasons. Perhaps he genuinely gave it no thought at all. In the absence of any rebuttal, however, the original inference on this approach stands.
45. On this approach too, and since Dayal cannot give evidence, those representing him will, if the case against him proceeds, have to meet that case without the advantage of being able to deploy his evidence and, of course, on the other hand, without the risk of his being shown in cross-examination to be dishonest and totally lacking in integrity. To meet the different possible inferences of knowledge (and I have given four examples already) will require different evidence. It might be easy to show that Dayal had no knowledge at all of any actual transaction chains or even of the nature of MTIC fraud generally. It might be harder to rebut an inference, if one is to be made, to the effect that he knew or ought to have known that he was involved in some sort of activity designed to damage HMRC and harder still to rebut the inference that he was involved in some sort of nefarious activity.
46. I might add that if the only inference which is alleged should be drawn is that Dayal had knowledge of some dishonest activity but not that he knew it was directed at HMRC, then a difficult question arises, although it is really a matter for legal argument at trial if the case against him is allowed to proceed.
47. The difficulty is this, can it then be said that he was a party to a conspiracy to damage HMRC when on this scenario he did not know that HMRC was the victim? He may have been party to a conspiracy by which the other conspirators, but not Dayal himself, were intending to damage HMRC. Is that enough to make him liable? The answer to that is not, to my mind, obvious and I express no view.
48. An inference that Dayal knew that the monies passing into his account had been dishonestly obtained is not, however, the way in which the matter is pleaded. There is no allegation of any inference about his knowledge about the tainted nature of the payments received by him. Instead, all that is pleaded is an inference that he was a party to the conspiracy pleaded in paragraph 100 of the Amended Particulars of Claim. It is entirely unclear from the actual allegation exactly what case he has to meet. It seems to me, therefore, that the Amended Particulars of Claim, even read together with the defence, do not provide the details of the allegations of what wrong is to be inferred that Dayal is entitled.
49. I go further than that; it seems to me that no inference of any sort of dishonesty on the part of Dayal could be inferred from the mere receipt into his bank account and paying it out to Mrs Harwani and to Tallister Services Inc. Nothing else is pleaded on which reliance is placed to show that Dayal was a party to a conspiracy or in any other way dishonest. Accordingly, I consider that Dayal, like Nari, is entitled to summary judgment against HMRC, dismissing the conspiracy claim against him in the absence of any amendment to the pleadings.
50. Section 423. As to the alternative claim under section 423, Dayal's case is that it is not possible to draw the inferences sought to be drawn in paragraph 130 of the Amended Particulars of Claim. So far as paragraph 129 is concerned, there must, I think, as I have said, be a good arguable case that if HMRC will be able establish paragraphs (a) and (b), that is to say that PT Naina would keep its share of the conspiracy proceeds from Sunico and that PT Naina directed its share to be paid to Dayal.
51. Paragraph 130(a) reads that "the direction by PT Naina to pay a share of the conspiracy to Dayal was a transaction between PT Naina and Dayal in that it was a gift from PT Naina to Dayal or, alternatively, that the payment is of no consideration, pursuant to section 423". The focus appears to be on the direction given by PT Naina rather than the payments made pursuant to that direction. The direction is said to be a gift, alternatively a "payment", to Dayal for no consideration. Although paragraph 129 focuses on the payments as being the relevant transactions, as referred to in section 423, I do not think that anything turns on the fact that paragraph 130(a) refers to the direction rather than the payments, (but if it does, it can easily be corrected by a minor amendment to which I do not think there could really be any objection). The importance of section 130 is that it demonstrates that the section 423 claim was focussed on PT Naina as the person entering into a transaction and not on Sunico. The sense of paragraph (a) is probably clear, namely, that there was a transaction between PT Naina and Dayal and the nature of that transaction was a gift or other transaction at undervalue. I will return to that in a moment but before I do so, I want clear paragraphs (b) and (c) out of the way.
52. Whatever may have been Dayal's purpose, it is a properly pleaded allegation and not one that can be struck out or said to be unarguable on the facts that PT Naina's purpose in entering into the transactions was to put its assets beyond the reach of the person who is or might make a claim. It is also a properly pleaded allegation and one which may be established on the facts that PT Naina wished to ensure that its share of the proceeds was paid to a person not involved in the conspiracy.
53. It is, however, said on behalf of Dayal that the claim as pleaded cannot succeed. The basis of the alternative case is that Dayal was not a party to the alleged conspiracy. The defence suggests that the payment into Dayal's account was a payment for no consideration is different from the requirement of section 423(1)(a) which refers to a transaction on terms that provide for the person concerned, that is to say, PT Naina in the present case, to be a payment for no consideration. I do not think that this is a good point; it is perfectly clear that the pleading is intended to reflect the requirements of this section and if there is a drafting infelicity which fails to match paragraph 130 with section 423, it is one which could be put right by amendment.
54. Mr Scorey submits that there is clearly no gift and no transaction under which PT Naina is to receive no consideration. It is said that there is no gift as Dayal could not receive the benefit of the direction on the actual claim beneficially. He makes and has never made any claim to retain any of the payments into his account. The evidence is consistent with this in showing that each payment-in was swiftly followed by a payment out to Mrs B Harwani and Tallister Services Inc., of all but a small percentage. Hashu, it is said, directed some of the payments out to himself. Only a small amount was left to which Dayal makes no claim.
55. In my view, paragraph 130(a) alleges what is perfectly a good claim in law. Further, the facts relied on by Mr Scorey do not justify summary judgment in Dayal's favour. This is for a number of reasons. First

(a) First, the fact that Dayal now makes no claim to the payments-in or what is left does not mean that he was never entitled to them. It may, for instance, have been hoped and have been expected that he would pay them on to other intended recipients but giving him entire discretion over the payments as a matter of actual entitlement.

(b) Secondly, the fact that Dayal actually paid the monies out to third parties does not, for similar reasons, mean that he was not beneficially entitled to them before he did so. It is possible, particularly in the context of the fraud by PT Naina, albeit one to which Dayal was not a party, that PT Naina was willing to trust Dayal to do what it wished without attempting to impose any obligation on him.

(c) Thirdly, it is well arguable and I think probably correct, although I do not decide the point on this summary judgment application, that a transfer of property (for instance a payment of money) by A to B for B to hold in trust for a number of beneficiaries is a gift by A to B, not, of course, beneficially but as a gift in settlement. If it is not a gift to B, it is well arguable in the alternative that it is a transaction entered into by A with B on terms that provide for A to receive no consideration. If neither of those propositions is correct, section 423 could not bite on a voluntary transfer of assets by A to B as trustee since there would then be no qualifying transaction between A and B unless it could be said that there was a gift from A to the beneficiaries, a result which could easily be avoided by the creation of a discretionary trust.

56. The same will apply I think if A transferred assets to B subject to an agreement that B would transfer them to named third parties. It must be strongly arguable, although again I do not decide this on this application, that the case falls within section 423(1)(a). Viewed from the perspective of A, he has disposed of the assets and has received no consideration of value to himself in return. He has, I accept, received consideration in the sense that B has given a contractual promise to transfer the assets to C, but I doubt very much that such a consideration counts for the purposes of this section.
57. Putting that into the context of the present case, the Amended Particulars of Claim contend that the payments by Sunil to Dayal, at the direction of PT Naina, were gifts by PT Naina to Dayal. These possibilities then arise for consideration:

(a) Dayal received the payments beneficially, in this case it would clearly have been a gift for the purposes of the section;

(b) Dayal received 100 per cent of the payment, subject to a legal obligation to pay them on to identified recipients. In my view it is well arguable that this is also within the section;

(c) Dayal received the payments with the right to retain as some sort of commission payment - retained 2.5 per cent or 3 per cent - subject to the same legal obligation. As in the previous case, it is well arguable that this fits within the section. However, in addition, the payment would clearly be the subject matter of a gift, unless Dayal was under an obligation to deal with that as well at the direction of PT Naina or Hashu. If the case does not fall within section 423(1)(a) it would be within section 423(1)(c). Although this is not a pleaded inference under the Amended Particulars of Claim, I do not see why HMRC should not be allowed to rely on paragraph 129 of the Amended Particulars of Claim to give rise to an alternative inference that the transactions fall within sections 421 or 423(1)(c) or, if the amendment is strictly necessary, why such an amendment should not be allowed since such an amendment would not create a new factual issue which did not arise out of the facts already in issue;

(d) Dayal had nothing to do with the payments in or out at all. Since payments out of the account at some stage (before and after but not during the period that the chains of transactions are relied on in the Amended Particulars of Claim) were made pursuant to directions signed by Dayal, there is clearly a triable issue here. It is not unreasonable to draw an inference from the fact that he was directly involved in those payments and that he was also involved in putting payments through his account during the period of the transactions in issue.

58. Once it is accepted, as it has to be in my view for the purposes of the present application, then it is arguable that section 423 is engaged. Dayal can succeed on his summary judgment application only if he can show that no order would be made against him under section 423(2). His defence against any order being made rests on change of position. He points out that the alternative case against him is made on the hypothesis that he was not party to any unlawful conspiracy and cannot, therefore, be seen as anything other than an innocent recipient of monies paid into his account and an innocent payer of monies out of that account. On that hypothesis, he claims to be able to rely on a change of position defence: so far as the monies paid out of the account are concerned, he cannot be made liable and so far as the small residual amount in the account is concerned he makes no claim to them and will pay them to whoever is entitled to them.
59. Mr Hunter relies on 4ENG Limited v Harper & Others [2009] EWHC 2633 and, in particular, on paragraphs 14 to 16 of the judgment of Sales J. I do not dissent from anything which the judge said, and it may well be that a change of position which would defeat the restitutionary claim would also defeat the claim under section 423.
60. But the judge himself observed in paragraph 16, in choosing what relief is appropriate in the given case, a great deal will depend on particular facts. One of the reasons the court is given such a wide jurisdiction as to remedy under the regime is to allow flexibility in fashioning relief which is carefully tailored to the justice in a particular case. Helpful analogy is made and drawn with other areas of law to guide the court in reaching its conclusion and, given the wide range of situations which the statutory regime is intended to deal with, it would be wrong to be unduly prescriptive in trying to lay down hard and fast rules to the application of these provisions.
61. I do not accept Mr Hunter's submission that the case against making the order under section 423 against Dayal, is so clear that he should obtain summary judgment. Whether he could be ordered to make a payment PT Naina or some other person in order to restore the position to what it would have been if the transactions (that is to say the payments to him by Sunico at the direction of PT Naina) had not taken place, is heavily fact-dependent. The fact that he was not, on that hypothesis, party to a conspiracy does not mean that he was wholly innocent and entirely free of blame.
62. Once it is shown that the case is within the scope of section 423 (as to which HMRC have a case which is not fit for summary judgment against them) it is for the court to make such an order as it thinks fit and in making its assessment the court will want to be in possession of the full facts, which is only possible after a trial. Absent any evidence on behalf of Dayal explaining why the payments were made, it would be open to the court to assess the conduct overall and, without holding that he was a party to the conspiracy, that he should have satisfied himself that he was acting properly in dealing with the large amounts of money concerned but failed to do so. I do not say that he will be unable to establish a change of position defence. All I say is that this is a matter which can only be decided after the trial.
63. I now turn to the proposed amendments. It is convenient firstly to look at the new additional fraud allegations which are sought to be made in the proposed paragraphs 16(a) to (b). Again, I am not going to read these, even if they are important (several inaudible words). In relation to section 126A, there can be no objection to this on the part of Dayal since it reflects what comes out of Dayal's own evidence. Nor I think can there be any objection on the part of Nari, since, (a) first of all, he has known of the factual allegation made by Dayal in his defence and has been in a position to meet it; but (b) he has said his whole defence is effectively that he knew nothing about any of this.
64. As to paragraph 126B, this pleading effectively treats the commission agreement as a sham. The payments were made to Dayal, not at the directions of PT Naina, but "at the direction of Sunil and/or Sunico (through Hashu)."
65. It is not entirely clear what this means. I can understand the allegation that the payments, in fact made by Sunico, were made at the direction to Sunil, one of its directors. But it is not entirely clear what is alleged when it is said that the payments were made at the direction of Sunico (through Hashu). I take it to mean that directions were given by Hashu to someone, as a result of which the payments were made by Sunico to Dayal.
66. As to paragraph 126C, this is really a conclusion to be drawn from the facts already pleaded including the unobjectionable paragraph 126A, this, it can be seen, asserts alternative inferences, different from those asserted in paragraph 126, and based on different facts from those pleaded in the Amended Particulars of Claim in its current form.
67. The proposed amendments like the Amended Particulars of Claim, say nothing about the knowledge of Nari and Dayal. Mr Chivers and Mr Shaw say that the Amended Particulars of Claim in the proposed amended version plead the case adequately and that Particulars of Knowledge are not necessary. I do not agree with that proposition, so that Particulars of Knowledge do need to be given. That being so, they have produced some Particulars of Knowledge, that is to say, knowledge of the conspiracy alleged in paragraph 100.
68. They are not pleaded as Particulars of Knowledge in relation to the particular matters alleged in the later paragraphs, starting at paragraph 118 relating to Nari and Dayal, along with others, although to the extent that the Particulars inform those paragraphs, they can be applied to both paragraph 100 and, indeed, later paragraphs.
69. In relation to Nari, the Particulars run to just over a page. At paragraph 1, the Particulars are introduced by words asserting that the ninth defendant knew of the conspiracy pleaded at paragraph 100 because…" and there follow (i) to (iii); (i) being divided into four subparagraphs (a) to (d).
70. I will not read out the details of (i) again, but it refers to the SKAT meeting and an extract from an undated Indian business directory that purports Nari had contact with PT Naina Exim Indo. What the relationship is between that company and PT Naina I do not know. It refers to an extract of a Letter of Appeal to the then tax authorities stating that Nari was Sunico's contact (that was the letter dated 25 June 2008), and an extract of a letter from Sunico to the National Tax Tribunal again in Denmark, asserting a connection between Nari and Hashu and that the contact was with Nari with references in the appendices linking Nari to PT Naina. (ii) Is that PT Naina's dealings with Sunico were confined to the conspiracy; and (iii) relates to payments into an account held jointly by Nari with his brother-in-law.
71. In relation to Dayal, there is a separate set of Particulars of Knowledge. There is a missing line that says "The eighth defendant knew of the conspiracy pleaded at paragraph 100 because…", which I will take as being present. The opening at paragraph (a) reads as follows:

"Dayal was aware sums stated to be Sunico's commission of between 2 per cent and 5 per cent of receipts from Sunico were deducted from monies paid by Sunico into his account at UCO Bank. The claimants will rely on the following documents."

72. As I understand it, there is no dispute about the contents of the documents then listed in paragraphs (i) to (x). It has been noted, however, that none of those documents relates to the period of the fraudulent transaction chains alleged in the Amended Particulars of Claim, August 2004 to January 2006. These documents all pre-date or post-date that period. Nor is the authenticity of emails referred to in paragraph (b) disputed. HMRC wish to rely on those documents to show that Dayal himself was aware of what was going on because (a) he knew that money was going back to Sunico in the form of payments into Mrs Harwani's account and (b) he had actually done calculations himself on what was to be repaid. Similarly, the documents referred to in paragraph (c) are not disputed documents and HMRC seek to draw similar conclusions from them.
73. Let me take the proposed amendments first in relation to the Particulars of Knowledge and those amendments so far relevant.
74. In relation to Nari, the inferences which it is said are to be drawn from the amended paragraph 126D are based solely on the alternative facts pleaded, namely the facts in paragraphs 126A to C. The facts pleaded in the Amended Particulars of Claim, as they currently stand, or in an amended form if further amendments are allowed, disclose that Nari and Dayal were part of a conspiracy. Paragraph 126B would be unnecessary and the inference sought to be made from paragraphs (b) and (c) might properly be drawn. But if the facts pleaded elsewhere are not enough, then there is nothing in paragraphs 126A to C which could justify the inference is sought to be drawn in paragraph 126D(a) so far concerns Nari.
75. The questions then are whether the Particulars of Knowledge on which HMRC wish to rely are enough to establish the conspiracy, as alleged in paragraph 100, and if they are, whether the amendment should be allowed to introduce those Particulars.
76. If those Particulars had been included in the original pleading; and had the proposed new paragraphs 126A to D also been included, I do not consider that Nari would now be entitled to summary judgment for his strike-out claim. Enough of the case is made out to justify the matter proceeding to trial against him.
77. Should the amendments then be allowed? Mr Scorey says, "No". Firstly, because the proposed amendments would produce only a very weak case. Secondly, that weak case is made even weaker by some of Nari's answers to the allegations. Thirdly, the amendments comes far too late to be allowed, especially in the case of a fraud trial, and more especially when the relevant amendments, the allegations of knowledge, have been sprung without notice shortly before the commencement of the hearing before me.
78. The case is certainly very weak. Consider the documents relied on in relation to Nari's knowledge.

(a) The documents in (i), the source of all these allegations is Sunil, the person who, according to Ms Ogburn, is "one of the biggest participants in MTIC fraud trading". In any case, these documents at best show that there was contact between Nari and Hashu at the later stage with nothing showing during the course of the fraudulent activity. To allow HMRC to rely on these documents to justify the introduction of a plea of knowledge (which for reasons already given I consider to be necessary) as a makeweight to other strong evidence would be one thing, but to allow it, as sought to rely on it, to form an important plank in those allegations in such a case, is quite another.

(b) The facts at (ii). This is, of course, relevant to the claim against PT Naina. But it is only relevant vis-à-vis Nari if he knew not only of the fact that these transactions were occurring but had some idea of their nature. Item (ii) is certainly consistent with there being a fraud and consistent with Nari knowing of it, but it lends no support to the proposition that Nari in fact knew.

(c) Payment into the joint account that was held with his brother-in-law is dealt with in paragraph 37 and following of Mr Scorey's skeleton argument. He correctly points out that this is made very late in the day. I am quite sympathetic to the description of this as an ambush. If one turns to the substance of the point in paragraph 40, the case is weakened. I do not say that this is a complete answer, but the case is weakened by what Mr Scorey says there. He says that HMRC conveniently ignored the fact that notwithstanding Nari and Mr Mahabros(?) are joint account owners of the relevant bank account, they have at all times between themselves kept a fair division of their expected beneficial interests. It is pointed out that Mr Mahabros is lending $300,000 to Nari to fight this litigation. It was explained that that loan was to be made from monies forming Mr Mahabros' share in the joint account. I bear in mind, as Mr Scorey points out, that the explanation about the fact that both men kept a clear account of their respective shares in the joint account was given at a time when the allegations that Nari's share of the commission payments were paid via this account were yet to surface.

79. As I have said, this amendment was sought to be made very late in the day. But this is not a case where new material has come to light in relation to Nari. The application to amend came only as a result of an application to strike-out, or for summary judgment, after witness statements had been exchanged. In my judgment, HMRC should not be allowed to amend their case against Nari and, as a result, I consider that he is entitled to summary judgment on the claim against him.
80. As with Nari, I do not consider that the proposed amendments in paragraph 126A to C justify any of the inferences against Dayal, sought to be drawn from paragraph 126D. It is necessary for HMRC again to rely the Particulars of Knowledge which they seek to introduce in order to show that he has been part of the conspiracy and thus to justify the drawing of the inferences in paragraph 126D(b) through to (e).
81. The documents on which HMRC now wish to rely to demonstrate that Dayal knew about the conspiracy, all relate to transactions outside the period of the alleged transaction chains. HMRC suggests that these documents show that Dayal was actively involved in the management of his account for the periods both before and after the periods of those chains, and that is to be inferred that he was actively managing the accounts during that period, as much as before and after. Or, as it was put in the Particulars, "As Dayal was aware."
82. These documents go some way to filling the lacuna in HMRC's currently pleaded case which, for reasons already given, I regard as inadequately pleaded. As I have already said, the payments into and out of Dayal's account are something which Dayal could reasonably be expected to explain if he was able to do so. Even more so is that the case in the light of these documents and the reliance that HRMC seek to place on them. As with Nari, had the proposed amendments and Particulars of Knowledge appeared in the original pleadings, I would not consider this to be an appropriate case for summary judgment or strike-out. But the fact that it is sought to make amendments so late presents HMRC with some real difficulties.
83. First of all, those acting on behalf of Dayal have all along been seeking Particulars of Knowledge so that they may know precisely what case it is they have to meet. The proposed particulars reveal for the first time that it is knowledge about the source and destination of the payments into his account and that some money would be "sent back" to Sunico by way of Mrs Harwani and Tallister. Dayal's own hand-written calculation shows that he was closely involved with (unexplained) amounts derived from Sunico, but not arising out of the transaction chains with which this action is concerned. That is not to say that HMRC accept that those amounts were not also derived from fraud; it is simply that such fraud is not alleged in this action.
84. Given that request for details of knowledge have not previously produced any results, given that Dayal had expressly reserved his position in his defence and given that not even the witness statements on behalf of HMRC indicated what that knowledge might be, Dayal cannot be criticised from bringing this application when he did. HMRC have not suggested that his application should be dealt with by the trial judge.
85. But the case is weak and there is a difference between allowing a weak case to proceed and allowing an amendment to be made at this very late stage to raise it for the first time. In particular, the new allegations may indicate that Dayal was actively involved in the management of his account, but knowing that the monies came from Sunico is a pretty flimsy basis on which to decide that Dayal personally was involved in an unlawful conspiracy to damage HMRC. Of course, the payments call out for an explanation, but Dayal cannot give it.
86. The second difficulty facing HMRC is the prejudice which it is said will be faced by Dayal. The first prejudice relates to his mental health. Everyone accepts that he is now incapable of conducting his own affairs or giving evidence. The case against him cannot succeed if it is shown on his behalf that he is not capable of conducting his own affairs at the time of the alleged conspiracy and what is equally significant is that even if he was not seriously impaired, evidence of the state of his mental and physical health at the time might well influence the court in its assessment of his understanding of what he was doing. The court is likely to be extremely cautious about what findings of dishonesty it is prepared to make as a matter of inference from the documents which I have referred to.
87. As a matter of fact, Dayal's advisors have not sought to obtain medical evidence of his state of mental health at the time of the conspiracy alleged. It is suggested that they were not keen to do so because no allegations were made of Dayal's knowledge at any time: and if HMRC seek, as they do, to raise matters of knowledge at this 11½^th hour, they have to accept that Dayal is prejudiced by not having had raised against him at an earlier time, the case which depends on his knowledge.
88. It is said that, had knowledge been an issue from the time when these proceedings were commenced in May 2010, a medical examination at the time, coupled with monitoring to the present time, would enable good assessment to be made of his likely state of mental health at the time of the conspiracy alleged. Instead of that, all that is disclosed as evidence, no doubt evidence which HMRC might categories as self-serving, from his family that he was suffering from physical ailments, including the onset of diabetes, which made him distracted and unable to concentrate on his affairs.
89. There is, I acknowledge, something in the point of prejudice, although it might be countered that there was an allegation of a conspiracy from the outset, which implicitly carried with it an allegation of knowledge, and that mental incapacity would have provided the knockout defence which Dayal's advisers and family would have pursued if they had thought there was anything in it.
90. Thirdly, those advising Dayal are prejudiced in the investigations which they might wish to undertake in relation to each of the documents now relied on by HMRC and the transactions which they reflect. One might think that such enquiries would be unlikely to reveal anything but that is not something that can simply be dismissed as so clear against Dayal that it should not present any impediment to amendment. The prejudice is even greater given passing of time, during which the bank reference and the bank records may have been lost.
91. Fourthly, even if I were to allow the amendments and the introduction of Particulars of Knowledge, those acting for Dayal would be entitled to a proper opportunity of investigating the new allegations and Particulars, to make an appropriate investigations and to formulate a defence and responsive evidence. I consider that this would produce a real risk that the trial date be lost if HMRC persist in pursuing the amended claim.
92. Taking all the factors into account, I refuse to allow the amendment and the introduction of Particulars of Knowledge. Accordingly, my decision in relation to the conspiracy claim against Dayal, as currently pleaded in the amended statement, is not affected. He is entitled to summary judgment on that claim.
93. The alternative section 423 claim. That leaves the alternative claim under section 423 which is found in a proposed new paragraph 131A, which again is taken as written into this judgment. A new claim is sought to be made against both Dayal and Nari. There was previously no claim under section 423 against Nari. It is to be noted that the new claims, unlike the existing section 423 case against Dayal, are not premised on the footing that the target of the claim is not a party to the unlawful conspiracy. I shall, nonetheless, address the new claims on that basis since, if the relevant target of the claim was in fact a party to the unlawful conspiracy, the claim seems to me to add nothing.
94. The new claims do not focus on PT Naina as the person who entered into the transactions in the immediate section 423. That is the case under the existing claim but the new claims focus on Sunico as the relevant person. The remedy, if one is available, must be entirely different. Under the old claim, Dayal and Nari would both likely to be ordered to make a payment to PT Naina. In contrast, under the new claims, any target who is found liable would most likely be able to make a payment to Sunico. The different claims are very likely to lead to different remedies.
95. The new claim seeks to characterise the payments to Dayal's account as having been made by Sunico out of its own assets. It is said that the payments were made by Sunico, which makes its assets beyond the reach of its creditors in contrast to the original claim, where it was alleged that PT Naina was putting its assets beyond the reach of its creditors. In effect, it can be said that the commission agreement is a sham, although that word is not used; that is the only explanation for the use of the words actually used, "ostensible guise of a commission agreement" and for the allegation that the payments to Dayal's account in that guise were in fact used to make payments to Mrs Harwani and Tallister. That at least would tie in with the proposed amendment, although the grammatical sense of the new paragraph 1 is not entirely clear.
96. The new claims assert a new cause of action. That is to say, they seek to apply section 423 to Sunico instead of PT Naina. It is common ground that the usual limitation period for making a claim under section 423 is six years and that that period has now passed in relation to all the claims for section 423 claims. Accordingly, unless a claim falls within section 32(2) of the Limitation Act 1980, new claims can be made only if they arise out of the same, or substantially the same, facts as an existing claim made by HMRC in this action.
97. Mr Chivers submits that the claims rise out of the same facts as are already pleaded against them. I do not agree because it is no part of the original section 423 claim that Sunico made payments to Dayal's account to avoid its creditors. The claim was that PT Naina directed the payments to avoid its creditors. Those are different. In my judgment, the allegation of the proposed new paragraph 131A(a)(ii) was an entirely new allegation of fact. It is not, or at least it is not pleaded as, an inference to be drawn from the previous paragraphs. That fact is not the same or substantially the same as any pleaded matter.
98. As for section 32(2) Mr Chivers submitted in his skeleton argument that HMRC could not have discovered the facts which emerged only on disclosure and in the witness statements. In oral submissions, this was not pursued. It was accepted that the issue turned on there being similar facts. For my part, insofar as the section 423 claim relies on fraud by Nari or Dayal, I would, in any case, refuse to allow the amendment for the same reasons that I refused to allow an amendment to the conspiracy claim.
99. It is, therefore, difficult to see how an allegation of deliberate concealment could be substantiated against either of them unless he was part of the conspiracy. In other words, to defeat the limitations then, HMRC would have to rely on allegations of dishonesty. But that is precisely what I have held they cannot fairly do that at this late stage.
100. Accordingly, I consider that the new claims under section 423 are time-barred and cannot now be raised.
101. Video evidence. A number of applications to allow evidence to be given by video link were made. The power to make a direction to that effect is found in CPR 32.1. There is such an application by Sunil and Mangharam, who are both resident in Denmark. The sole ground for the application is that they are concerned that they may be arrested if they come to the United Kingdom and be charged with offences in relation to the same MTIC frauds as are alleged in the present proceedings. HMRC has declined to give any assurance that they will not be arrested or that they could have, as it were, a safe passage for the duration of the trial.
102. There is no doubt that the court has power to make such an order in these circumstances. The principles were fully considered by the House of Lords Polanski v Condé Nast Publications Limited [2005] UKHL 10. In that case, Mr Polanski, a French citizen, was not amenable to extradition to the United States from France but he was amenable to extradition to the United Kingdom. He had been convicted in the United States for certain sexual offences. He would have been extradited to the US if he had come to the UK. He commenced a libel action against Condé Nast in England and sought to give evidence by video link. Were he not allowed to give evidence in that way, he would be unable to give evidence at the trial since he would not come to the United Kingdom. The House of Lords decided by a 3-2 majority that an order should be made allowing him to give such evidence.
103. There is in front of me a dispute about what the true ratio of the decision of the majority was. Mr Lakha submits that the position is clear. The general rule is that where a person properly brings a claim before an English court and a fortiori where he is a defendant having no control over whether, and if so where, proceedings are brought to which he is the party, his unwillingness to come to England because he is a fugitive from justice was a valid, and could be a sufficient, reason for making a video link order. Mr Chivers submits that a careful reading of the judgment discloses that the general rule is applicable where the issue is whether the person concerned is liable to be extradited but not where he is a fugitive from justice in England.
104. I think that is Mr Chivers' submission. I reject it.
105. The starting point is that, in the present case, Sunil and Mangharam are defendants. They have had no choice whether or not to be parties. If it is correct to describe them as fugitives from justice - there has not, so far as I am aware, been any threat by HMRC to prosecute them - it is not suggested, nor could it be, that their status as fugitives from justice would justify their being barred from defending the action, any more than it is suggested that Mr Polanski should not have been entitled to commence his proceedings in England. In other words, there can be no suggestion that their ability to defend the action would bring the administration of justice into disrepute.
106. With that point out of the way, let me start with Lord Nicholls, one of the majority. Again, I shall refer to paragraphs of his judgment without reading them out. I start at paragraph 13, and I would say that the same applies to the present case. Although the physical presence of the witness in court would be important, that is not necessarily so, and the modern judicial process for giving video link evidence is set out by Lord Nicholls at paragraph 14. At paragraph 15, he identifies serious prejudice to Mr Polanski. In the present case, there may also be a prejudice. It may be, I am told, that if the direction is not made, Sunil and Mangharam will not appear to give evidence, which would be detrimental to their case. But, unlike the position facing Mr Polanski, they are not outside the reach of the English courts. The European arrest warrant is available and could be used to arrest them in Denmark and to bring them to justice here if it is thought that there is a criminal case against them.
107. "The trend", Lord Nicholls said in paragraph 17, "on matters of this kind, is to look broadly at the requirements of justice. Whether the use of court procedures in a particular way will bring the administration of justice into disrepute or, as it is sometimes put, be an affront to the public confidence from an overall balanced view".
108. He deals with fugitives from justice at paragraphs 20 to 24. Paragraph 24 is very important. It would be inconsistent with what Lord Nicholls says there, to treat an offence in this country and an offence in a country to which extraditions from the UK could take place for an offence in that country, any differently. If Lord Nicholls had been of the view that Mr Polanski should not be heard in the English court by video link, if he had been convicted of a crime here, then the result of the actual case before him should, on his analysis, have been different.
109. In paragraph 28, he deals with another matter namely the concern that the making of a video link might assist in the avoidance of justice. The position may be slightly different in the present case; Sunil and Mangharam may come here even if no order is made. However, in a very real sense, it makes no difference to their evasion of justice or not whether or not an order is made, since they could be brought here pursuant to the European arrest warrant.
110. The final paragraphs of Lord Nicholl's judgment to which I now refer, paragraph 34 notes that Mr Polanski was convicted of a serious crime. His reluctance to return to this country was grounded in a fear that he may be extradited and receive a custodial sentence in California. That did not take the case out of the general rule. However, the trial jury would resolve these facts and would take them into account if it is thought that they are relevant.
111. Lord Slynn dissented; I do not propose to address his reasons for coming to a different conclusion. Mr Chivers nonetheless relies on paragraph 55 and I would say that what Lord Slynn says there is clearly inconsistent with Lord Nicholls' approach. It is also inconsistent with the ratio of Lord Nicholls' decisions for the reasons which I have given in considering paragraph 24 of his judgment. Lord Hope agreed with Lord Nicholls. Baroness Hale agreed with both Lord Nicholls and Lord Hope for the reasons which they gave. Lord Carswell dissented.
112. The majority decision is, however, clear and the reasons for that decision are also clear. The general rule applies as much to a fugitive from English justice as it does to a fugitive from justice of another country to which a fugitive can be extradited from the United Kingdom. I therefore have a discretion. In the exercise of my discretion, I propose, subject to one matter, to allow evidence to be given by Sunil and Mangharam by video link. In the present case, their concerns about arrest are sufficient reason for granting the order. If it is correct, as I believe to be the case, that HMRC can bring them to the UK by a use of the European arrest warrant if it is considered that criminal charges should be brought against them, then it lies in HMRC's own hands to bring them here. If I am wrong in that belief, then they cannot be brought here against their will; their position is no different from that of Mr Polanski.
113. The matter to which this decision is subject is this: if HMRC consider that the presentation of their case will suffer if Sunil and Mangharam are not physically present to be cross-examined, I will decline to make a video link order if HMRC are willing and able to give satisfactory effective undertakings which will ensure that they will not be arrested for offences in relation to any MTIC fraud, whether or not the transaction chains which are the subject matter of this litigation, until seven days after the earlier of the end of the trial and the completion of their respective evidence.
114. Evidence. Objections are taken by the first and fifth defendants about some of the contents of the evidence of Ms Ogburn and Mr Stone on behalf of HMRC. There is also an issue about the evidence of Mr Marsden on behalf of the third defendants. I shall try to deal with the issues, but I am afraid that there will be some problems in terms of the submissions I received and the time that I have had to deal with them.
115. The claim brought by HMRC relates to over 700 relevant chains. A trial of so many chains would be impossible, in practical terms, to deal with. At the case management conference before Norris J, it was agreed that this was the way forward to deal with it: the decision was to select (the selection being made by the judge) a number of relevant chains in the hope and expectations that the answers in those cases would indicate the answers in other chains. An issue that has now arisen in relation to what evidence of chains which were not selected can now be given.
116. Norris J selected 26 chains, referred to in his order as the sample. He ordered that there should be trial of the sample. He ordered standard disclosure in relation to the sample. Having restricted the trial to the sample, it is clear that disclosure was required only in relation to the sample. As a matter of construction of his order in isolation, that might not have meant that the other chains would necessarily be relevant to the trial of the sample. If those other chains were thought by HMRC be relevant to the trial of the sample, for instance because they demonstrated dishonesty on the part of the defendants, evidence of those other chains or samples might be admissible as relevant. But if they are relevant, disclosure would need to be given in relation to them, just as in relation to any other on which HMRC intend to rely.
117. This was debated to some extent before Norris J. The relevant passages appear from transcript of the argument in Mr Lakha's closing. I need to read it in the judgment. In the skeleton it says that the stance (and this is correct) of HMRC at the case management conference was that there should be a trial on liability based on a sample number of representative chains with quantum being dealt with later if liability was established. Originally the trial of the sample number of representative chains was opposed by the first defendant unless there was standard disclosure relating to the 719 chains.
118. Norris J resolved the dispute (and this is correct too) by determining that there should be an initial trial limited to 26 samples (and not representative) chains, which he proceeded to identify from the 719 on which the overall claim is based. Then if you read in this exchange between Mr Shaw and Norris J and then Mr Lakha after discussing the samples, Mr Shaw said:

"Yes, I accept that. That is absolutely right. All that will then be left over to be dealt with will be the quantum of the remaining transactions if it does not form part of the sample group.

Mr Justice Norris: Yes, the question would then be the extent to which you have to try out the remaining transactions whether the findings would be in relation to the sample in practical terms ...(reading to the words)...

Mr Lakha: Yes.

Mr Justice Norris: So you would still have ...(reading to the words)... quantum largely in relation to the non-sample transactions, but you would hope that the ground the defence advanced in relation to the sample …(reading to the words)... failed. That failed to be accepted in relation to the other transactions.

Mr Shaw: Yes.

Mr Lakha: So, if we were proceeding on the basis of, let us say, 40 samples or 60 samples, it would be quite wrong in those circumstances then for the claimants to make the sort of that they do in their Particulars of Claim because they would necessarily be entitled to try to in fact assume the remaining chains ...(reading to the words)... that they had chosen.

My Lord, if one looks at paragraphs 13, 14 and 15 of the Amended Particulars of Claim, we say that ...(reading to the words)... claim. They claim that they have identified 719 MTIC transactions traders bearing each of the following characteristics."

(Quote unchecked)

119. Pausing there, that assertion simply could not be made if each of these transactions bears these characteristics if (a) we are only dealing with a sample of 60 but (b), we have not had the opportunity of examining its core material in relation to the remainder. "Just going through those" (Norris J), "If the trial is directed to take place in relation to the identified samples, that allegation would be confined to the identified sample." It is clear from that exchange that the case would be proceeding without disclosure in relation to the non-selected chains and disclosure would be directed only at the 26 sample transactions.
120. The evidence of Ms Ogburn is now sought to be adduced in relation to the sample claims. It is the reintroduction, by the incorporation into a witness statement of her evidence for the application for the freezing order. That, of course, covered all 719 chains and, to the extent that she is seeking to rely on those chains as primary evidence in support of HMRC's case, it is unsatisfactory, from the point of view of the first to fifth defendant because there has been no disclosure of core material. Similarly, in relation to Mr Stone, what he says goes as a matter of evidence somewhat beyond evidence in relation to the 26 claims. I will be coming back to all of this, of course.
121. In relation to Mr Marsden, he said on behalf of the defendants that he was giving factual evidence. He is not called as an expert but there had been a request by the solicitors for the defendants asking HMRC whether there was any objection to his evidence being given. No objection was made and it is now too late to object to it. Against that, Mr Chivers says that there was no objection to Mr Marsden performing what was essentially a number crunching exercise in his witness statement of fact to enable submissions by counsel to be rather shorter than they perhaps would have been. But it was not anticipated that he would give expert evidence, which he would say is what he is doing now.
122. Mr Lakha's point is a very short one. It is that disclosure has not been given in relation to the pleaded transaction chains, apart from the 26. It was part of the case management decision in front of Norris J that there would not be disclosure of the others until after the trial of the 26 issues. It is not open, therefore, to HMRC to bring evidence of those other chains, as it were, to effect the case against the defendant who had set out in relation to the 26 chains.
123. It is not possible for me to get to proper grips with the detail of those arguments without very careful analysis of precisely what it is that is pleaded and precisely what it is that people are saying in their witness statements. I have not read, and I do not think I make any apology for not having had the time to read, those witness statements in huge detail in order to understand properly precisely what paragraphs of any of them, (that is on both sides – in relation to Mr Stone, Mr Marsden and, indeed, to Sunil himself) to know what fairness dictates. Mr Chivers makes this point, which I think has considerable force, that what is sauce for the goose is sauce for the gander; so that if chunks of Ogburn and Stone are to be deleted from the evidence before the court, so too should chunks of Sunil and perhaps the entirety of Marsden, which should also be taken out of the equation.
124. There is a difference between HMRC producing evidence to support its case and evidence to rebut what the defendants have now said in their own evidence. If the defendants had put in no evidence going beyond the 26 chains then it would be clear, I think, that Mr Lakha is correct in his submission and that HMRC should not be allowed to introduce evidence of the other chains. The whole basis of Norris J's decision was to keep out from disclosure the other hundreds of chains to ensure that the trial remained manageable. Suppose then that when it comes to exchange of evidence, the defendants put in evidence, as they have done from Sunil and Mr Marsden, which goes way beyond the 26 chains and it is a type of evidence which HMRC would wish to rebut; in particular, Sunil speaks of his trading pattern and he speaks about freight forwarding.
125. It seems to me that it should be open to HMRC to produce evidence to show that Sunil's trading arrangements are not as clean as he suggests they are and that genuine commercial freight forwarding transactions operate in different ways from the way in which he suggests they are operating. I do not think that Norris J would have said that such evidence was inadmissible and if the evidence on which it is sought to rely, to rebut what is said by Sunil and Mr Marsden, involves consideration, to some extent, of some of the chains, other than the sample, it is admissible. Suppose, for instance, that in the original claim, HMRC had only raised the samples and had not raised 719 transaction claims. Why, I ask, should they not be entitled to rely on other chains when it comes to formulating their evidence in support of their claim in relation to the 26? Of course, disclosure would be required in relation to the evidence, which they do seek to produce, but then that would only happen if HMRC were bringing in this evidence that they wished to respond to, having seen the evidence on the part of the defendants.
126. In the other direction (this goes to the disclosure) Mr Lakha tells me, and I do not think Mr Chivers challenged this, that disclosure has been given in relation to the evidence on which the defendants seek to rely. There was an exception to that in relation the computer system which was used by Mr Marsden in preparing his report but I am told that that system has now been provided to HMRC. However, Mr Chivers said that that is all a bit late in the day and that they are not in a position to produce any expert evidence in response to Mr Marsden, if indeed Mr Marsden's evidence is of an expert nature.
127. The issues, therefore, seem to me to be strictly about case management rather than about admissibility. HMRC accept that the trial will not investigate the specific transactions over and above the 26 but that otherwise it is evidence in relation to the trading pattern and the agreements made between the first to fifth defendants and the sixth and ninth defendants which may be relevant. As I have said, and I repeat, it is impossible for me in this CMC to form a clear view about what parts of Ms Ogburn, Mr Stone and Mr Marsden should be allowed in at all or without further disclosure. To resolve that will entail more work than it is reasonable to expect on a CMC and it would involve a far greater examination of the witness statements and the pleadings than is appropriate at this stage.
128. I can, however, say a few things. The first is that the trial date must, if at all possible, be held. If Mr Marsden is correct about disclosure from HMRC, then clearly disclosure could not be completed, let alone considered, in time for the defendant to be in a position to have prepared their case by the trial date. The date would be lost. If the result of that is that HMRC obviously cannot rely on the other chains at all, so be it. But appropriate disclosure in relation to the other transaction chains, for the purposes for which HMRC intend to rely on them, does not necessarily mean disclosure to the full extent which would be required if each chain were being fully investigated.
129. The disclosure objection applies to Sunil and Mr Marsden's evidence as much as it does to HMRC's witnesses, although, as I have said, it is the defendants' position that that disclosure has already been given. But there is, in my view, considerable force thought in Mr Chivers' submission that what is sauce for the goose and sauce for the gander. Things are not so clear as is submitted on behalf of the first five defendants. Mr Lakha says that the defendants' evidence is factual, certainly coming from Mr Sunil, but HMRC's evidence in response would require expert evidence. I am not sure whether that is correct. Mr Stone gives evidence which he states is from his own knowledge. I accept of course that he expresses opinions and reaches conclusions which are really matters for the judge, which would be better excised from his evidence. But a large amount of what he says is from his own knowledge.
130. It seems, in any case, to me that it would be sensible that both sides should be able to give evidence about MTIC generally. Mr Stone shall be able to give evidence of actual experience and Sunil should be should be entitled to give evidence about his own trading position and his dealings with freight forwarders. But against that, if he, Sunil, is to be allowed to do that, HMRC should be allowed to produce whatever evidence they see fit to rebut the evidence Sunil is now giving in his own favour.
131. Fortunately, no one is entitled to adduce expert evidence in this action. There has been no order for such evidence to be adduced and no application has been made to me. Mr Marsden's report therefore needs recasting. Not only does it look like an expert report, in terms of its structure, but it reads like an expert report in expressing opinions. He should not be giving an expert opinion, but should be carrying out a purely factual exercise as a way of producing a result which could be done without expert assistance, which is being provided in a more efficient way. I would say that Mr Marsden's report does need reformulation.
132. Similarly Mr Stone should not be expressing opinions or expressing conclusions, which I say are a matter for the judge. The problem with Ms Ogburn's evidence is that it is cast, one can understand the attempt to save time and expense, by reference back to her affidavit from the freezing order where, as I remarked, all 719 chains are referred to. It seems to me that HMRC must identify precisely which paragraphs of her evidence they now rely on in the light of what I have said in this judgment and the submissions which they have heard from the other parties and indicate what they say is to remain.
133. Notwithstanding what I have said about the helpfulness of general statements about trading from both sides, the defendants are entitled, strictly, to disclosure. But, if they insist on it, the same goes for Sunil and Mr Marsden. Quite apart from that, to the extent that Ms Ogburn and her team have responded to Sunil to rebut what he said, HMRC are entitled to adduce that evidence.
134. The problem here again is disclosure. It seems to me that there exist the following possibilities in relation to Ms Ogburn. First of all, her evidence should be admitted but only on the basis that there is disclosure of everything which HMRC relies on, in particular of the remainder of the transaction chains, which will inevitably result in the loss of the trial date. The second is to admit that evidence without any further disclosure. The third is to refuse to admit it full stop. The fourth is to refuse to admit it but only if Sunil's evidence, which has led to the need for rebuttal, to be excluded also. All these solutions are imperfect, one might say. The first is entirely undesirable because this will lose the trial date almost certainly. The second is manifestly unfair to the defendants. The third is, I suggest, unfair to HMRC to the extent that the need for this evidence was responsive to what Sunil and Mr Marsden have said.
135. The fourth solution is one that I would favour. But, it seems to me, the actual decision would be best left to the trial judge who will be in a much better position to decide what to do. I acknowledge the defendants, and indeed HMRC themselves, will then be left in something of an unsatisfactory position; not knowing what precisely will happen. But then there is no prejudice and, indeed, there may well be advantages in leaving matters to the trial judge. He or she will know much more about how to treat this issue after hearing openings and having had the opportunity to read the uncontroversial evidence and at least to read de bene esse the disputed evidence. Thus he or she could still adopt any of the four possibilities which I have adumbrated. The first, that he or she could still allow reliance on any of the chains but only if disclosure was given (that might go against the course anticipated by Norris J); the detail of the disclosure can then be a matter for the trial judge. I doubt very much that a judge would adopt either the second or the third possibilities which I have mentioned, but if he or she does the parties are in no different a position than if I were to do it today.
136. The fourth is the route which I would favour, which is the sauce for the goose, sauce for the gander point. The judge at trial will be able to assess far better than I can today, the extent to which it should be admitted on either side and the extent of any further disclosure. I am aware that that is not an entirely satisfactory result from anyone's point of view, but this is the decision I reach today. That is the end of this rather long judgment.