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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> QEB Metallics Ltd v Peerzada & Ors  EWCA Civ 728 (30 May 2012)
Cite as:  EWCA Civ 728
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
HIS HONOUR JUDGE KAYE QC
Strand, London, WC2A 2LL
B e f o r e :
| QEB METALLICS LIMITED (IN LIQUIDATION)
|- and -
|PEERZADA & OTHERS
Mr Rupert Butler (instructed by Moon Beever) for the Respondent
Hearing date : 21st May 2012
Crown Copyright ©
Lord Justice Patten :
"(1) This section applies if in the course of the winding up of a company it appears that a person who—
(a) is or has been an officer of the company,
(b) has acted as liquidator or administrative receiver of the company, or
(c) not being a person falling within paragraph (a) or (b), is or has been concerned, or has taken part, in the promotion, formation or management of the company,
has misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company.
(3) The court may, on the application of the official receiver or the liquidator, or of any creditor or contributory, examine into the conduct of the person falling within subsection (1) and compel him—
(a) to repay, restore or account for the money or property or any part of it, with interest at such rate as the court thinks just, or
(b) to contribute such sum to the company's assets by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just."
"6. In June 2007 QEB started to trade with a smelting company known as Engelhard Sales Ltd ("ESL"), a subsidiary of a German company, BASF. There is no reason to suppose ESL is other than a bona fide reputable company.
7. HMRC assessed QEB for some £1,849,422.41 VAT but over a 9 month period between 18 July 2007 and 4 April 2008 the liquidators identified 70 transactions between QEB and ESL whereby QEB sold precious metals (platinum, palladium and silver) to ESL for refinement generating a turnover of £12,255,655.58 giving rise, in turn, to a VAT liability of £2,141,510.80.
8. Over the same period the company should have made four VAT returns for quarters ending June, September and December 2007 and March 2008. Only 3 VAT returns were filed (for June, September and December 2007) all (falsely) purporting to show a "nil" return despite substantial trading in the period to which the return related other than the quarter ending June 2007 (there was no relevant trading before about July 2007). No VAT return at all was filed for the last quarter ending 31 March 2008. In consequence none of the VAT has been accounted for and paid to HMRC which is how they come to be creditors of QEB.
9. ESL was instructed to pay the VAT element on the transactions into a sterling bank account and the net proceeds of sale (after deducting charges for ESL's refinement services) into a dollar bank account, both with Credit Suisse in Switzerland from whom bank statements were eventually obtained.
10. QEB apparently obtained the precious metals it supplied to ESL either from addresses in Columbia (CI Encol SA) or Dubai, UAE (Passi Jewellers LLC or Ibrahim Al Hammadi Garage) though there is some uncertainty as to this given the limited documentation on this aspect of the case. Assuming there were genuine imports, no input tax would arise on such foreign purchases."
"59. In my judgment Mr Hafiz was the controlling mind behind QEB, he was, as I have said, at the epicentre. He it was who, on the balance of probabilities with others, set up the business in QEB and directed its operations and gave Mr Khan instructions as to how the operations were to be conducted. He knew, in my judgment, precisely what was going on and knew there was a fraudulent design behind the activities of the company, namely to deprive HMRC of VAT. His instructions emanated, as it were, from the board of directors for the simple reason he was the board of directors. I infer (which does not seem to me unreasonable having regard to the evidence) that Mr Peerzada was as much his creature as others like Mr Khan. Mr Hafiz was more than a mere manager. He controlled the company and its activities. He was the person with real influence in the corporate affairs of the company. He was sufficiently implicated in the fraud carried on by QEB to make him accountable in equity (see Dubai Aluminium Co Ltd v Salaam  2 AC 366 per Lord Millett at para. 141). Despite his protestations I find it more probable than not that he had full knowledge of the attempt to cheat and defraud HMRC and knew it was a dishonest plan and was morally and culpably responsible for it.
60. Accordingly, since the action is brought by the liquidators, it does seem to me that Mr Hafiz's activities fall within both s 212 and s 213 Insolvency Act 1986. So far as the former section is concerned Mr Hafiz was the management and as such owed fiduciary duties to the company. As to the latter it follows he well knew the activities of the company were carried on with intent to defraud HMRC. If it were necessary I would also find Mr Hafiz guilty of a dishonest conspiracy (with Mr Peerzada and with others unknown) to defraud the company of its claim to the VAT. The effective result is the same via a number of different routes, whether by the statutory provisions referred to or in equity or at common law, they all point in the same direction that Mr Hafiz is in my judgment liable."
"63. Mr Brown [Mr Hafiz's counsel]… submits that the liquidators should have disputed even the amounts assessed on the basis that the goods were not bought from another EU member state (on which no VAT would be paid) but from Dubai (VAT being payable on the importation by the importer) and accordingly, as I understood the argument, there would have been input VAT to deduct from a similar output figure. Mr Ingram [one of the joint liquidators of QEB] fairly accepted this point but his evidence was that he had little material with which to challenge HMRC on the assessments. Given the difficulties the liquidators have faced in this case owing to the lack of documentation (save, as I say, such as has been largely supplied by ESL) I do not consider the liquidators are under any obligation, particularly where the loss was occasioned by fraud or inequitable conduct, to embark on what might be an expensive and speculative challenge to the amounts claimed by HMRC where I am by no means convinced they would or could succeed. It is by no means even clear the material was paid for or how, or whether it was in fact imported into the UK, apart from an obvious inference it must have been obtained from somewhere, somehow.
64. In my judgment therefore, whichever way one looks at it Mr Hafiz is liable for the full loss of the VAT namely £2,141,510.80."
"9. Mr Brown articulates before me various factual scenarios which could account for the way in which these goods were sold to ESL and imported. I only need to deal with two of them because only two of them were ways which were advanced at the trial and put to one of the joint liquidators, Mr David Ingram, and articulated before the Judge. One possibility is that the sale transaction between QEB and ESL took place before importation. This arises because, as I have said, it appears there is evidence that ESL had allowed its duty deferment account to be used for the importations and there is no clear documentary evidence showing QEB as the importer. On that scenario there would be no VAT payable by QEB at all because the sale took place before there was any importation into the United Kingdom. The second scenario that was put to the liquidator and advanced at the trial was that, even if there had been an importation by QEB of the metals which were subsequently sold to ESL, QEB would be entitled to reduce the output tax by the input tax referable to the purchase cost that was paid by QEB itself on importation.
10. So far as the latter scenario is concerned, Mr Brown articulated various ways in which it would have been feasible and indeed not particularly difficult for the liquidators to have established what the amount of input tax should be. They could have referred to ESL itself, whose duty deferment account, as I have said, may well on the evidence have been used for importation. Secondly, they could have inquired into details of import entries on the airways bills. And thirdly, they could have inquired of Brinks, the freight agents, as to import entries in their own records. Those matters, combined with the invoices and other documentation available in respect of the sale of these materials by people in Dubai, would, Mr Brown submitted, have led to either a significant reduction of the VAT liability or indeed its reduction to nil."
"13. The Judge's assessment of compensation is based on his findings of fact. First, he held that, although QEB "apparently", by which I think the Judge means "ostensibly", obtained the precious metal from Colombia or Dubai, there was some uncertainty as to that, given the limited documentation: paragraph  of the judgment quoted above. Secondly, he found that the enterprise of QEB was characterised by "smoke and mirrors" and the picture was "opaque", which are the hallmarks of fraud: paragraph  of the judgment. Thirdly (this is the most critical of all), he found that the liquidators would have faced difficulties in challenging the assessments in view of the lack of documentation. They would have had to embark on an expensive and speculative challenge to the amounts claimed, the success of which would have been doubtful: paragraph  of the judgment. The Judge's conclusion on that last point depended upon the evidence that was before him. That was not merely the documentary evidence and the witness statements, but also the questions that were put to, and the answers on behalf of, the liquidators. When I asked Mr Brown whether he had put to Mr Ingram, one of the joint liquidators who gave evidence, the precise points which he has raised on this application as to the means of establishing what input tax there might have been to reduce the output tax, he candidly said that he put, he thought, some of the points but could not in all honesty say whether he put all of those points and put them in the way that he addressed me. The difficulty is there is no transcript of the oral evidence. The further difficulty is that, even without a transcript, we do not have any agreed or other record of the questions put and the answers to them in cross-examination.
14. I asked Mr Brown whether he put to the witnesses or to the Judge the first scenario which I have mentioned, which was that the transaction between QEB and ESL took place outside the United Kingdom altogether. He frankly, fairly and candidly accepted that he could not say precisely that he had done so. In my judgment, the inference must be that, because the Judge does not deal with this point at all in his judgment, the point was not raised or not clearly raised."
"…not merely that the fresh evidence demonstrates a real possibility that an erroneous result was arrived at in the earlier proceedings (first instance or appellate), but that there exists a powerful probability that such a result has in fact been perpetrated. That, in our view, is a necessary but by no means a sufficient condition for a successful application under CPR 52.17 (1). It is to be remembered that apart from the requirement of no alternative remedy, "[t]he effect of reopening the appeal on others and the extent to which the complaining party is the author of his own misfortune will also be important considerations" (Taylor v Lawrence, 547). Earlier we stated that the Taylor v Lawrence jurisdiction can only be properly invoked where it is demonstrated that the integrity of the earlier litigation process, whether at trial or at the first appeal, has been critically undermined. That test will generally be met where the process has been corrupted. It may be met where it is shown that a wrong result was earlier arrived at. It will not be met where it is shown only that a wrong result may have been arrived at."
See Re Uddin (a Child)  EWCA Civ 52.