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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> CCA Distribution Ltd v Revenue And Customs [2017] EWCA Civ 1899 (23 November 2017) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2017/1899.html Cite as: [2017] EWCA Civ 1899, [2017] STI 2684, [2018] STC 206, [2017] BVC 60 |
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ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
(Mr JUSTICE MORGAN and JUDGE TIMOTHY HERRINGTON)
[2015] UKUT 0513 (TT)
Strand, London, WC2A 2LL |
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B e f o r e :
and
LORD JUSTICE DAVID RICHARDS
____________________
CCA DISTRIBUTION LIMITED (in administration) |
Appellant |
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| - and - |
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| THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS |
Respondent |
____________________
Jeremy Benson QC, Christopher Kerr and Ben Hayhurst (instructed by The General Counsel and Solicitor to HM Revenue and Customs) for the Respondents
Hearing dates: 12 July 2017
____________________
Crown Copyright ©
Lord Justice David Richards:
Introduction
CCA
Distribution Limited (
CCA)
appeals against the decision of the Upper Tribunal (Tax and Chancery Chamber) (Morgan J and Judge Timothy Herrington) (the UT) to allow an appeal by The Commissioners for HM Revenue and Customs (HMRC) against a decision of the First-tier Tribunal (Tax Chamber) (the FTT) released on 22 April 2013. By that decision, the FTT allowed an appeal by
CCA
against HMRC's decision to deny
CCA
a right to deduct input tax in excess of £9.8 million on its purchases of mobile telephones made in the VAT periods 04/06, 05/06 and 06/06 (May to July 2006).
CCA
were connected with the fraudulent evasion of VAT and that, through its controlling director Ashley Trees, it knew or should have known that the purchases were so connected.
CCA
in question in this case were connected with transactions constituting MTIC fraud. In each case, the seller was a "contra-trader", actively engaged in the fraudulent evasion of VAT. The UT gives a concise description of "contra-trading" and the part played by
CCA
in its Decision at [4]-[5].
CCA
were in fact connected with the fraudulent evasion of VAT but
CCA
denied that it either knew or should have known of the connection. That was the issue before the FTT.
CCA
either knew or should have known of the connection, while the other member, Mr John Agboola ACCA, concluded that it had known of the connection. The Judge exercised his casting vote in favour of allowing
CCA's
appeal, pursuant to article 8 of the First-tier Tribunal and Upper Tribunal (Composition of Tribunal) Order 2008.
CCA
was refused permission to appeal to this court by the UT and on the papers by Patten LJ, but it was given permission by Kitchin LJ following an oral hearing.
CCA
therefore seeks to reverse the Decision of the UT on the two grounds of appeal upheld by the UT in favour of HMRC. HMRC resist the appeal and, by a respondent's notice, seek to uphold the UT's Decision on the further ground that was not considered by the UT.
CCA
and Mr Trees (Ground 3). Secondly, the Judge erred in law in failing properly and consistently to apply the correct test to the issues and to apply the correct approach to the evidence (Ground 5). Thirdly, the Judge erred in his approach to the banking evidence (Ground 8).
CCA,
reminded us of the limitations on an appeal court as regards the decision of the fact-finding tribunal, as expressed in many authorities dealing both with appeals generally and, more specifically, with appeals from tribunals governed by the Tribunals, Courts and Enforcement Act 2007 which lie only on a point of law (section 11(1)).
Ground 3: the criminal investigation
CCA,
through Mr Trees, did not have actual knowledge that
CCA's
purchases were connected to the fraudulent evasion of VAT.
CCA
through Mr Ashley Trees was a knowing participant in a fraud on the Revenue". So expressed ("therefore"), this is a conclusion drawn from the evidence and factors identified by the Judge in the preceding paragraphs under the heading "Mr Trees' knowledge".
"The same was true when it came to the question of the rationality of trading patterns now apparent – for example,CCA's
main suppliers also selling direct to
CCA's
EU customers (of which Mr Trees was unaware), or the customers not cutting
CCA
out as they could have done. The case was very properly put to Mr Trees that these and suchlike factors indicated a contrived pattern of trade designed to suit a non-commercial purpose. The responses Mr Trees made included the assertion that he did not spend time speculating idly about possible other trade patterns that might be taking place, but that he just got on with buying and selling when the opportunity was there. My impression was of a businessman who was essentially pragmatic in his approach to situations and not given to theorising about how the markets could most efficiently operate knowing that they frequently do not do so, and being unable to know of course what other factors – commercial or otherwise – might or might not be at work."
CCA's
trade connections, at its request, by KPMG and Deloittes, especially in connection with the very transactions under appeal, Mr Trees was at the same time consciously collaborating in an organised fraud, particularly given the absence of any evidence of bad character or duplicity on his part.
"Nor can it be irrelevant that the criminal investigation begun on 1 June 2006, leading as it did to trials and convictions of one ofCCA's
main trading partners, paid no attention to Mr Trees, to the point of even taking a formal witness statement from him. The conspiracy encircling
CCA's
trading was, as Mr Birchfield put it, a very large scheme in which it was possible for an innocent party to be caught up. It is quite credible that traders who had built up the trust of
CCA
over several years by offering them advantageous trading terms should have seen the company as a useful cog in their machinery – and one which, if things went wrong, would be exposed to risk on its own account alone while leaving the conspirators holding the profits of the fraud."
"The relevance of the criminal investigation and subsequent proceedings is seen by the tribunal as being that if, as was the commissioners' primary submission, Mr Trees had actual knowledge that he was collaborating in a fraud on the Revenue it would be probable that in the investigation he would at least be examined as a possible co-conspirator with those with whom he traded and who were themselves later charged and convicted."
"80. It is clear that when the Judge came to his overall conclusion in relation to the question whether Mr Trees knew that theCCA
transactions were connected with fraud, he took into account the matters referred to in the first sentence of [392] as a relevant consideration. The contrary was not argued before us. HMRC submits that those matters were irrelevant to the question of Mr Trees' knowledge.
CCA
submits that these matters were relevant and the Judge was entitled to take them into account and give them the weight which he thought fit.
81. We agree with HMRC on this point. The matters referred to in the first sentence of [392] were irrelevant to the question whether Mr Trees knew that theCCA
transactions were connected with fraud. What the Judge seemed to be saying was: (1) the persons responsible for the criminal investigation must have thought that
CCA
was not involved in the fraud which they were investigating; and (2) that indicated that Mr Trees did not know that the
CCA
transactions were connected with fraud. We consider that it is not possible to draw any inference as to what those persons actually thought about the involvement of Mr Trees and
CCA
from the fact that they did not contact Mr Trees in connection with the criminal investigations. There are many possible reasons why they did not contact Mr Trees, apart from the suggested reason. But even if it were appropriate to infer that those persons actually thought that Mr Trees did not know of the relevant fraud, the belief of those persons has no probative value as to what Mr Trees did know. The Judge was required to determine on the evidence before the F-tT whether it had been demonstrated on the balance of probabilities that Mr Trees knew that the
CCA
transactions were connected with fraud. What other people thought at an earlier time, probably by reference to material which was different from the evidence before the F-tT, was irrelevant.
82. We therefore conclude that HMRC has established that the Judge took into account an irrelevant consideration. The question as to Mr Trees' knowledge was one of the central questions to be determined by the Judge. At [387], the F-tT stated that the case was a borderline case. In determining a central question in a borderline case, the Judge took into account, in favour of Mr Trees andCCA,
an irrelevant matter.
83. HMRC submitted that this irrelevant matter was considered by the Judge to be highly material. WhileCCA
accepted that the Judge regarded this matter as relevant, it submitted that it had not been demonstrated that the Judge regarded it as highly material. We have no way of knowing what precise weight the Judge gave to this matter. He plainly gave it some weight. In a borderline case, a matter which has some weight is capable of affecting the outcome.
84. We consider that, on this ground alone, the Decision as to Mr Trees' knowledge cannot stand. We will consider at the end of our decision, when we have assessed the other grounds of appeal, what should now be done"
CCA
challenge this analysis and conclusion on a number of grounds.
CCA
did not suggest any alternative interpretation. But in any event, as the UT said, whatever the reason for the criminal investigation not involving
CCA
or Mr Trees, the criminal investigation had no probative value as regards Mr Trees' knowledge, and
CCA
does not submit the contrary.
CCA
submits that it is apparent from the Judge's choice of the words "Nor can it be irrelevant" that he was not placing significant reliance on the criminal investigation. As recorded by the UT at [83],
CCA
accepted before the UT that the Judge regarded it as relevant but argued that it had not been shown to be "highly material". I agree with the UT that, while it is impossible to know the precise weight placed by the Judge on this matter, it is plain that he gave it some weight. Why else would he include it as a separate paragraph in a short passage of just four paragraphs setting out his reasons for his finding on the central issue of Mr Trees' actual knowledge? Moreover, it is not sufficient for a judge to have regard solely to the manner in which a witness gives evidence, which the Judge addressed in one of the paragraphs (388). A judge must also look at the other evidence and circumstances, and only three paragraphs were concerned with those, including paragraph 392. That the Judge did in fact place weight on this factor is also demonstrated by what he said when giving permission to appeal on this point.
CCA
emphasises that the FTT had the advantage of seeing and hearing Mr Trees give evidence over four days and the Judge's conclusion reflects a careful assessment of his credibility. It submits that, on any fair reading of the Decision, it is inconceivable that the Judge would have reached a different decision, if he had ignored as irrelevant the criminal investigation. With respect, this cannot possibly be so. Once it is accepted that it played some part in the Judge's conclusion, it cannot be known what his conclusion would otherwise have been, all the more so in a case that he himself described as borderline.
CCA's
appeal as regards Ground 3.
Ground 5: (i) circumstantial evidence
CCA's
challenge to the UT's Decision on Ground 5, the parties have before us divided it into two components: (i) the approach to circumstantial evidence and (ii) a challenge to the sufficiency of the reasons given by the Judge in rejecting HMRC's alternative case that
CCA
should have known of the connection of its transactions with a fraudulent scheme and the UT's decision to allow HMRC to pursue the appeal on this basis.
CCA
submitted to the UT that this was not a fair criticism of the Judge's reasoning, as paragraph 411 demonstrated.
CCA
was admittedly trading. At paragraph 380 they stated:
"Many of the practices and patterns of trade revealed by the evidence seem to require explanation: the buying and selling of large quantities of goods with little or no subsidiary detail in regard to them; the apparently formulaic nature of the trading in the UK to UK deals; the standard margins of profit in such deals; the substantial absence of written terms of business; the payment of monies decoupled from the passing of title; the use of the UK as a trading hub for intra-European continental trade; the use of sterling as the currency in the case of all the export trades; the course of trading between the same parties; the peak in trade volumes in 2006, and so on."
"In the circumstances, we cannot regard any of the peculiar features just described as inevitably pointing to uncommercial trading or as clear indicators of bad faith. They may so do, but it has not been shown that the probability is that they do so point and the only firsthand evidence of the way this market works is that of the appellant himself."
CCA
through Mr Trees was a knowing participant in a fraud on the Revenue".
CCA's
purchases were connected with the fraudulent evasion of VAT. I shall return to these paragraphs when dealing with the second component of Ground 5.
"411 Having regard to all these considerations, neither of the two circumstances required by the authorities to be present has been established on the balance of probabilities in relation to the transactions under appeal and the appeal must therefore succeed."
"I see Mr Birchfield's banking analysis of six transactions (which are not those in this appeal) as inconclusive, capable of more than one explanation and as establishing, in so far asCCA's
involvement is concerned, no more than a prima facie case requiring further investigation. That is not to deny that the evidence from the FCIB statements is suggestive of uncommercial behaviour overall or to deny that it is consistent with a large scheme of organised fraud potentially involving several parties. It is not, however, sufficient to demonstrate on the balance of probabilities that
CCA
were knowingly participating; to my mind, it only shows the probability that some or all
CCA's
partners were themselves implicated."
CCA
being aware of an uncommercial and contrived pattern of business…and Mr Birchfield [an HMRC officer who gave evidence] accepted that it was possible for an innocent trader to be caught up in what he described as 'a very large scheme'". In paragraph 399, the Judge said that the banking evidence did not demonstrate that
CCA
was not free to choose its own trading partners nor did it say anything about the "obvious possibility, which is as likely as not, that
CCA's
customers had been put forward by the conspirators". He concluded this paragraph by saying that where the evidence is equally consistent with honesty as dishonesty, the burden of proof has not been discharged.
CCA's
due diligence,
CCA's
trading was at all material times monitored by an HMRC officer who expressed dissatisfaction with only one aspect of
CCA's
due diligence. As to that, "the evidence shows that Mr Trees addressed the issue frankly and openly, and that it is improbable that his opposition to collecting the data was the result of a calculated desire to conceal fraudulent trading over at least three years".
CCA
deliberately excluded cover for the one country where the goods would be held.
CCA's
business created any legitimate expectation that it would in some way be kept safe from involvement in fraudulent schemes, but he said in paragraph 408:
"However the very close, not to say bothersome, attention which Mr D'Rozario paid toCCA's
trading and the routine checking of the circumstances of the transactions which he put in hand, are an additional reason why Mr Trees should not be taken as seeing as the only reasonable explanation for the circumstances of the transactions being concluded was that they were connected with fraud. If HMRC, who had much more information about the surrounding circumstances at their disposal, were checking the deals and releasing repayments of input tax after doing so, how could
CCA
nonetheless have concluded that the only reasonable explanation for them was that they were connected with fraud?"
CCA
had for a period been dealing in significant quantities of two models of mobile phones that were not then on the market in anything like those quantities. As to HMRC's reliance on this, the Judge said "it is more likely that
CCA
was duped by people who it is now known are persons convicted of serious fraud, than that
CCA
themselves were knowingly trading as a pretence".
CCA
without regard to the evidence about the banking transactions, due diligence, insurance and the non-existent phones and that when he later dealt with that evidence (separately) he effectively said, "because I have decided that Mr Trees neither knew nor should have known that the transactions were concerned with fraud, these later matters are not inconsistent with that finding".
"We have hesitated before reaching the above conclusions as to the Judge's treatment of the circumstantial evidence. We should not be over ready to subject the Decision to a detailed syntactical analysis. Nonetheless, having attempted to read the Decision in a fair and realistic way, we do reach the conclusion that the Judge erred in law in his handling of the circumstantial evidence in this case. Given that the Judge regarded the case as a borderline one, it was very important for him to approach the circumstantial evidence in the correct way and find that he failed to do so."
Ground 5: (ii) insufficient reasons
CCA
challenges the decision of the UT to permit this ground to be argued.
CCA's
challenge is to the exercise by the UT of its discretion in this regard and it is well-established that an appellate court will not interfere with the exercise of a discretion by the lower court or tribunal except on well-known and limited grounds.
CCA's
point is that a reasons challenge should have been clearly stated when permission to appeal was sought from the FTT. If it had been clearly stated, the FTT could have reviewed its Decision and considered whether to expand its reasons.
CCA
and was considered by the UT. While acknowledging there was force in the point, the UT nonetheless concluded that HMRC should be permitted to proceed with this ground. In my judgment, that was a decision that they were entitled to reach and there is no basis on which this court can interfere with it.
CCA
should have known that its transactions were connected with a fraudulent scheme. The conclusion was stated in paragraphs 394-395 of the FTT Decision which read as follows:
"394. HMRC's officers all agreed thatCCA
could not have verified the transactions upstream and downstream of its own [sic]. Mr Kerr has nonetheless put forward a list (at paragraph 354 above) of some 20 grounds on which Mr Trees should have known that there was no reasonable explanation for his transactions other than a connection to fraud. These concerns relate essentially to the pattern and manner of
CCA's
trading in regard to which it has been indicated that the expert evidence about the market is conflicting; features which appear to the outside observer as unusual – the types of trade, the peaks in volumes, the apparently incestuous character of dealings, and so on – may on Mr Attenborough's evidence be consistent with the peculiarities of a specialised wholesale market, especially during the boom years of the economy.
395 I do not see therefore an adequate basis on which to support the conclusion that a bona fide trader, taking reasonable precautions and being of normal prudence, should have realised that his transactions were connected to fraud. That the transactions might have been so connected, could well be argued and on that basis I might be persuaded; but that is in itself insufficient to lose the appellant its right to deduct input tax."
CCA.
At paragraph 395 he went on to reject them as an adequate basis for HMRC's case that
CCA
should have known of the connection with fraud.
CCA
should have known that its transactions were connected to fraud. Nor therefore was it open to the UT to rely on that challenge. By refusing permission to appeal on Ground 1, the UT had precluded any challenge to the FTT's reasons for rejecting the 20 points.
CCA's
transactions with a fraudulent scheme. I do not think that paragraph 390 provides a free-standing basis for this aspect of Ground 5.
CCA's
submissions on this aspect of Ground 5 are well-founded.
Ground 8: the banking evidence
CCA
had been involved. It was common ground before the FTT that these were chains of fraudulent transactions and HMRC relied on this analysis as part of the evidence to show that
CCA
had known or should have known that its transactions were connected to fraudulent transactions. The significance attached to it by HMRC is demonstrated by the fact that it occupied over 30% of its closing submissions before the FTT. By contrast,
CCA
devoted only 5% of its submissions to it.
CCA
knew or should have known of the connection with fraudulent transactions. Mr Agboola placed considerable weight on this evidence as showing, in his view, that Mr Trees knew that
CCA's
transactions were connected with fraudulent transactions.
CCA's
account. These paragraphs do not summarise the case made by HMRC on the banking evidence.
CCA's
submissions on the banking evidence, as part of a long section, between paragraphs 241 and 306, summarising
CCA's
submissions on all aspects of the evidence. Surprisingly, in the equivalent section summarising HMRC's evidence (paragraphs 307-356), there is no reference to or acknowledgement of HMRC's submissions on the banking evidence, still less a summary of it. In paragraphs 396-399, the Judge states his conclusions on the banking evidence, while in paragraphs 413-415 Mr Agboola states his own, very different, conclusions on that evidence.
CCA
without stating or dealing directly with HMRC's case. In doing so, the Judge made clear errors. For example, he treated as fatal to HMRC's case that, if Mr Trees' explanation given for the first time in oral evidence was accepted, the book-keeper's annotations on invoices differed from the actual payments. However, it has no impact on the core elements of HMRC's case which concerned the evidence of circularity, the rapid transfers of funds and the pattern of payments.
CCA
accepts that the FTT's Decision was less than full in its summary of HMRC's submissions, it submits that it is "inconceivable" that the Judge did not take into account those detailed submissions or that they were ignored.
CCA
is, of course, right to say that it was not necessary to set out all the written and oral submissions advanced by HMRC. But, given that the Judge was rejecting those submissions, it was necessary for him to summarise their essential elements and explain why he was rejecting them. His failure to do so constituted, in my view, an error of law and, on this additional ground also, I would uphold the order of the UT and dismiss this appeal.
Conclusion
CCA's appeal for the reasons given in this judgment. The order of the UT, setting aside the Decision of the FTT and remitting the case to be determined by a differently constituted tribunal, therefore stands.
Lady Justice Arden: