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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Commissioners for His Majesty's Revenue and Customs v Payroll & Pension Services (PPS Umbrella Company) Ltd [2024] EWCA Civ 995 (23 August 2024) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2024/995.html Cite as: [2024] WLR(D) 382, [2025] 1 WLR 349, [2024] STC 1538, [2024] EWCA Civ 995 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Steven Gasztowicz KC (sitting as a Deputy High Court Judge)
Case No: CR-2023-006028
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE NEWEY
and
LORD JUSTICE LEWIS
____________________
THE COMMISSIONERS FOR HIS MAJESTY'S REVENUE AND CUSTOMS |
Petitioners/Appellants |
|
- and - |
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PAYROLL & PENSION SERVICES (PPS UMBRELLA COMPANY) LIMITED |
Respondent |
____________________
Timothy Harry and Ben Elliott (instructed by Noble Solicitors) for the Respondent
Hearing date: 23 July 2024
____________________
Crown Copyright ©
Lord Justice Newey:
Facts
"The Company's business is as an 'umbrella company'. The Company acts as the employer for various agency staff placed by employment agencies. The Company charges the employment agencies, who are its customers. The Company administers the payroll functions for the employees and pays the employees their wages. The Company is liable to account for PAYE income tax and NIC contributions (both employer's and employees' NICs), and also to account to HMRC for the VAT it must charge on the payments it receives from its customers."
"The Company appears to have committed 'labour supply fraud'. This is a relatively unsophisticated fraud, which involves charging sums to customers made up of the gross wages due to the Company's employees and the tax on those wages, but failing to pay the tax across to HMRC. The aim of the fraud is to remain undetected indefinitely, or at least long enough to obtain a significant amount of money at the expense of honest taxpayers."
It was argued that provisional liquidators should be appointed for "two main purposes: preserving the Company's assets and securing its books and records".
"99. [A]ny recovery of money, by way of debt or otherwise, by any public body will generally be for the public benefit. That in itself does not mean a cross-undertaking in damages should not be required of the body in order for the grant of an interim remedy. It is considered indisputably appropriate as a matter of course in contract actions, for example, where the contract and its enforcement are for the public good.
100. The appointment sought of a provisional liquidator pursuant to a winding up petition, and the winding up petition itself, is not 'a case of a public authority seeking to enforce the law by the only means available under the governing statute', as referred to in paragraph 36 of Lord Mance's judgment in Sinaloa Gold, and they are not public law enforcement proceedings.
101. It is true that HMRC is a public authority charged with the responsibility of assessing people to tax and collecting tax due.
102. However, as was pointed out by David Richards J (as he then was) in Abbey Forwarding Limited (In Liquidation) v HMRC [2015] EWHC 225 (Ch), at paragraph 28, assessments to tax when notified to the taxpayer are deemed to create debts which HMRC then collect as a creditor. So too does the liability to pay NI contributions create a debt, in their case without notification.
103. That is the basis on which HMRC brings its winding up petition for a debt. That is in contrast to what would generally be understood to be law enforcement action, of the type spoken about in the cases for example by an injunction to prevent breach and protect the public."
"It is also not appropriate in my judgment to limit the monetary extent of the undertaking, as was suggested by the petitioners as a fallback position. It is said that the Treasury will require HMRC to ring fence an amount from its budget to cover the cross-undertaking. However, that does not in my view override the need to protect those affected by the without notice interim order it has chosen to apply for here. The Government, and indeed HMRC, obviously has sufficient assets to satisfy any amount of damages that could conceivably be awarded, but if they need to do so, it will be for them to make an accurate assessment of what their potential liability may be, as well as the chances of the undertaking being called upon."
"In conclusion, it is not necessary for me to reach a final decision as to whether the Workers were employees of the Company. The conclusion I have reached is that there is a bona fide dispute (or, more accurately, that HMRC have failed to satisfy me that there is no bona fide dispute), for the following reasons:
i) The specimen contract which I have seen between the Company and a Worker does not contain the provisions one would expect to find in a contract of employment.
ii) HMRC will have an uphill struggle in seeking to displace the natural meaning of the specimen contract. That exercise would require an examination of the factual matrix and might also require cross-examination.
iii) On the present evidence I am unable to reach a concluded view that the specimen contract is a sham.
iv) Mr Ajibola [i.e. the Company's sole director and shareholder] says that the 98% of the Workers who elected to become self-employed did so on the terms of the specimen contract. I have seen no evidence to the contrary.
I reach this conclusion with no great satisfaction, given my finding that there appears to have been a fraud of some sort in which the Company is involved."
"I am satisfied that the four sources of evidence relied on by HMRC are strong prima facie evidence of a fraud which was committed by the Company (acting by Mr Ajibola) or in which the Company at least participated. I am satisfied that the Company has produced documents which contradict one another and it does not appear that this was attributable to innocent error or mere incompetence. I do not accept Mr Ajibola's attempt to excuse the Company's conduct in producing these contradictory documents . However, what is less clear is whether this was an apparent fraud by the Company alone or whether it was perpetrated in conjunction with the Workers and/or the Agencies. No Workers or Agencies are before the court and hence they have had no opportunity to explain themselves. Further, I would be reluctant to make a final finding of dishonesty without Mr Ajibola having the opportunity to give oral evidence."
The statutory framework
Authorities
"My Lords, now that the Crown no longer enjoys its former general immunity from legal liability for damages apart from those which were recoverable by and in accordance with the special procedure of petition of right, I see no reason why, when the Crown applies for an interlocutory injunction in an action brought against a subject to enforce or to protect its proprietary or contractual rights (jus privatum), the Crown should not be put upon the same terms as a subject as respects the usual undertaking as to damages.
The instant case, however, is not an action to enforce a jus privatum of the Crown. It falls into another category that has no counterpart in ordinary litigation between subject and subject. It is what may conveniently be called a 'law enforcement action,' in which civil proceedings are brought by the Crown to restrain a subject from breaking a law where the breach is harmful to the public or some section of it but does not necessarily affect any proprietary or contractual rights of the Crown. Its purpose is to enforce or to protect jus publicum."
At 364, Lord Diplock said:
"I agree therefore with all your Lordships that the practice of exacting an undertaking in damages from the Crown as a condition of the grant of an interlocutory injunction in this type of law enforcement action ought not to be applied as a matter of course, as it should be in actions between subject and subject, in relator actions, and in actions by the Crown to enforce or to protect its proprietary or contractual rights. On the contrary, the propriety of requiring such an undertaking from the Crown should be considered in the light of the particular circumstances of the case."
"Ultimately, there is a choice. Either the risk that public authorities might be deterred or burdened in the pursuit of claims in the public interest is accepted as a material consideration, or authorities acting in the public interest must be expected generally to back their legal actions with the public funds with which they are entrusted to undertake their functions. That latter approach could not be adopted without departing from the Hoffmann-La Roche case, and the Hoffmann-La Roche case draws a distinction between public and private claims which depends upon accepting the former approach. The Hoffmann-La Roche case stands at least for the proposition that public authority claims brought in the public interest require separate consideration. Consistently with the speeches of Lord Reid and Lord Diplock (and probably also of Lord Cross), it indicates that no cross-undertaking should be exacted as a matter of course, or without considering what is fair in the particular circumstances of the particular case. A starting point along these lines does not appear to me to differ significantly from the practice subsequently adopted at first instance . I accept its general appropriateness."
As regards the position of the FSA, Lord Mance said in paragraph 36:
"The present case resembles the Hoffmann-La Roche [1975] AC 295, Kirklees [Metropolitan Borough Council v Wickes Building Supplies Ltd] [1993] AC 227, [Director General of Fair Trading v] Tobyward [Ltd] [1989] 1 WLR 517 and [Securities and Investment Board v] Lloyd-Wright [1993] 4 All ER 210 cases. It is a case of a public authority seeking to enforce the law by the only means available under the governing statute. The FSA was acting under its express power to seek injunctive relief conferred by section 380(3). It was acting in fulfilment of its public duties in sections 3 to 6 of the 2000 Act to protect the interests of the UK's financial system, to protect consumers and to reduce the extent to which it was possible for a business being carried on in contravention of the general prohibition being used for a purpose connected with financial crime. I therefore approach this appeal on the basis that there is no general rule that the FSA should be required to give a cross-undertaking, in respect of loss suffered either by the defendants or by third parties. It is necessary to consider the circumstances to determine whether a cross-undertaking should be required in this particular case."
"As to the requirement of a cross-undertaking, it seems to me that, on the spectrum of types of case where the Crown seeks relief, this is neither at the law enforcement extreme (as in In re Highfield Commodities Ltd. [1985] 1 W.L.R. 149) nor is it at the other, proprietary right enforcement, extreme (to adopt the expressions of Lindsay J.); however, it is right to say that it is significantly nearer the former than the latter. I would accept that, in a more normal case than this where Customs are seeking an injunction to prevent an arguable dissipation of assets by a person who does or may owe duty or VAT, it would ordinarily not be right to require a cross-undertaking in damages from Customs. In principle Customs would be seeking to protect their ability to recover sums publicly due. However, on the unusual facts of this case, I consider that, in the absence of such a cross-undertaking in damages, it would be oppressive on A.F.L. if I were to grant the Mareva injunction. I have in mind the speculative nature of Customs' case, the openness and absence of improper motive on the part of A.F.L., the independent valuations obtained of A.F.L., the risk of substantial and otherwise uncompensatable potential damage to A.F.L. and the fact that the relief is ancillary to Customs' primary function."
"At the heart of the argument before me was whether it was appropriate to require a public body, such as HMRC, to give such an undertaking. The general rule of practice followed by the courts is that where in support of proceedings brought by a public body to secure enforcement of the law or in pursuance of a public duty interim relief is granted against another, for example a freezing injunction, that body will not normally be required to provide an undertaking in damages. This stands in contrast to a private litigant pursuing his private interest where the almost invariable practice is to require such an undertaking. The rationale behind this is that whereas a private litigant has a choice (guided no doubt by what he regards as being in his own best interests) whether to litigate and if so whether to apply for interim relief, a public body, discharging a public function or duty, does not. This practice, which is not absolute, is well established in the authorities. But, as the authorities show, the rule of practice is not cut and dried. The question here is whether it should apply to HMRC acting as collectors of the public revenue, and even if it otherwise should whether it should apply where the interim relief claimed is likely to have (and has had) such a terminal effect on the company's trading."
In paragraph 100, Sir William Blackburne said:
"the main thrust of the argument which [counsel for the company] advanced was that HMRC should be treated like any private litigant petitioning for the winding-up of a company for non-payment of a debt and that other, lesser, interim remedies should have been considered. I do not accept that when petitioning to recover unpaid tax HMRC should be treated like any private litigant. When suing to enforce a claim for unpaid tax HMRC are exercising a public function; they are a public authority bringing a claim in the public interest. Any recovery is for the public benefit since it goes to increase the general revenue without which the modern state cannot function. Nor, for the reasons explained earlier, is it the case that lesser remedies would have sufficed."
"166. I acknowledge the force of the points made and relied on by Sir William Blackburne. As I earlier observed, plainly HMRC as collectors of tax are not in the same position as an ordinary private litigant. Nor, however, for the reasons which I have also given are they in the same position as a public law enforcement agency such as the FSA or the Secretary of State when presenting a petition in the public interest under section 124A of the Insolvency Act 1986. The judgments of the Court of Appeal in Revenue and Customs Comrs v Rochdale Drinks Distributors Ltd [2012] STC 186 spell out clearly not only the existence of a practice of requiring an undertaking in damages from HMRC on an application to appoint a provisional liquidator but also spell out the reasons for that practice.
167. The basis for departing from that practice relied on by Sir William Blackburne and apparently put before other judges of the Chancery Division has been the decision of the Supreme Court in Financial Services Authority v Sinaloa Gold plc [2013] 2 AC 28. However, that decision did not involve any departure from the existing practice that undertakings in damages were not required in public law enforcement proceedings, as established by the majority decision of the House of Lords in F Hoffmann-La Roche Co AG v Secretary of State for Trade and Industry [1975] AC 295. So far as relevant to applications for the appointment of a provisional liquidator, the decision in the Sinaloa Gold case adds little to the position existing before then save to re-assert the decision in the Hoffmann La-Roche case and to make clear that undertakings in damages are also not required to protect the position of innocent third parties. In my judgment, it is not a decision which can justify the departure from the well established practice of this court on applications by HMRC for the appointment of provisional liquidators, the correctness of which was clearly affirmed by the Court of Appeal in the Rochdale Drinks case."
"The position of HMRC, as the public authority charged with the responsibility for assessing persons to tax and collecting tax due, was not considered in Financial Services Authority v Sinaloa Gold plc [2013] 2 AC 28. They may be thought to occupy a middle ground between law enforcement action as discussed in that case and purely private litigation. The fact that the Crown is the claimant does not of course mean that it cannot bring what is essentially private litigation. If for example it brings proceedings for breach of contract and seeks a freezing order against the defendant on the grounds of a threat of dissipation of assets, it would I think be treated as in the same way as an ordinary private litigant, even though the contract may itself have been made pursuant to the exercise of public law functions. HMRC are in a different position, because when they bring proceedings they do so in order to collect tax, which is essentially a public function. However, HMRC do not do so as a public law enforcement agency. Assessments to tax, when notified to the taxpayer, are deemed to create debts which HMRC then collect as a creditor. It was in the capacity as a contingent or prospective creditor that HMRC presented the winding up petition in the present case. The bringing of proceedings which in ordinary litigation would require the giving of an undertaking in damages is not the only means open to HMRC to fulfil this function. They can enforce payment in the usual way, by serving the assessment on the taxpayer and, subject to an appeal to the First-tier Tribunal, exercise their statutory rights of enforcement and/or bring court proceedings either to obtain judgment or to wind up or make bankrupt the taxpayer."
HMRC's case in outline
Discussion
Conclusion
Lord Justice Lewis:
Lord Justice Lewison:
Background
Public authorities in proceedings
"In my judgment, there is no generally applicable principle that all public bodies should enjoy a protected status as parties to litigation where they lose a case which they have brought or defended in the exercise of their public functions in the public interest."
"Sir Robert Megarry V-C drew a distinction valid in that case between the position of the Crown pursuing litigation for a proprietary claim and litigation pursued in the performance of a statutory duty to bring proceedings in the public interest. The distinction was valid in that case, but it appears unfortunately to have given rise to the convenient phrase "public interest litigation" which has then been uncritically extended to provide an entirely unwarranted public interest immunity for the consequences of unjustified initiation of such proceedings which, it must be assumed, is also to be regarded as in the public interest. I can think of no practice less in the public interest or more calculated to encourage indiscriminate initiation of proceedings at the unjustifiable expense of an individual."
"The High Court has regarded the prospect of an adverse costs order as beneficial on the basis that it will encourage better decision-making within government, a more realistic appraisal by the respondent department of the merits of defending any particular application and the efficient and proportionate conduct of proceedings. It is also considered just that a person wronged by the actions of a public body should be reimbursed his or her costs. Thus, Lord Neuberger MR said in R (M) v Croydon London Borough Council [2012] 1 WLR 2607, para 52, that the costs follow the event rule applied in the Administrative Court just as much as to other parts of the civil justice system and it made no difference that a defendant was a public body:
"The court's duty to protect individuals from being wronged by the state, whether national or local government, is every bit as vital as its duty to enable them to vindicate their private law rights. And the fact that the defendants are public bodies should make no difference, as Pill LJ explained in the Bahta case [2011] 5 Costs LR 857, para 60.""
".. there is, in my opinion, as I hope I have made clear, a lamentable lack in the statutory procedures prescribed for section 30 applications of reasonable safeguards for the absent respondents against whom these applications, ex parte and without notice, can be made. The remedy lies, surely, in the amendment of the procedures so as to incorporate safeguards on the lines of those that attend applications in the High Court for ex parte orders. My opinion that the role of the magistrate is, by itself, an inadequate safeguard against injustice to absent respondents is not based on any adverse opinion of the quality of magistrates but rather on the inability of any judge hearing an ex parte application in the absence of the respondent to guard against potential injustice. A judge, or magistrate, may often be sceptical as to whether assertions of imminent risk of disaster made by an applicant for an ex parte order are well founded but, lacking any means of testing them and faced with the possibility that they may be well founded, has often no real alternative but to accept them at their face value and to make the order sought.
[38] The remedy for this does not, in my opinion, lie in the creation and imposition on the registered authority of an inappropriate duty of care owed to the proprietors of the nursing homes in question. It lies in the formulation and application of procedural safeguards comparable to those attendant upon ex parte applications in the High Court. The Secretary of State has power, under section 9(2) of the Protection of Children Act 1999, by regulations to "make provision about the proceedings of the tribunal" before which now, under the Care Standards Act 2000, appeals against orders made by magistrates under section 20 of that Act, replacing section 30 of the 1984 Act, must be brought. It is doubtful whether this power would permit the Secretary of State to make a regulation enabling the tribunal to grant a stay of a magistrate's order pending the hearing of an appeal. But procedure for an expedited appeal could surely be provided. As to the proceedings in the magistrates' court, a discretionary power for magistrates to require cross-undertakings in damages to be given by applicants for ex parte orders, coupled with means of enforcement, would be an obvious and important procedural safeguard."
The injunction cases
" compliance with any such order shall be enforceable by civil proceedings by the Crown for an injunction or for any other appropriate relief."
"The instant case, however, is not an action to enforce a jus privatum of the Crown. It falls into another category that has no counterpart in ordinary litigation between subject and subject. It is what may conveniently be called a "law enforcement action," in which civil proceedings are brought by the Crown to restrain a subject from breaking a law where the breach is harmful to the public or some section of it but does not necessarily affect any proprietary or contractual rights of the Crown. Its purpose is to enforce or to protect jus publicum."
"Different considerations arise in relation to law enforcement action, where a public authority is seeking to enforce the law in the interests of the public generally, often in pursuance of a public duty to do so, and enjoys only the resources which have been assigned to it for its functions. Other than in cases of misfeasance in public office, which require malice, and cases of breach of the Convention rights within section 6(1) of theHuman Rights Act 1998, it remains the case that English law does not confer a general remedy for loss suffered by administrative law action. That is so, even though it involves breach of a public law duty. In the present context, the fact that an injunction is discharged, or that the court concludes after hearing extended argument that it ought not in the first place to have been granted, by no means signifies that there was any breach of duty on the public authority's part in seeking it."
"For reasons indicated in para 31 above, there is in my view a more general distinction between public and private claims. Ultimately, there is a choice. Either the risk that public authorities might be deterred or burdened in the pursuit of claims in the public interest is accepted as a material consideration, or authorities acting in the public interest must be expected generally to back their legal actions with the public funds with which they are entrusted to undertake their functions. That latter approach could not be adopted without departing from the Hoffmann-La Roche case, and the Hoffmann-La Roche case draws a distinction between public and private claims which depends upon accepting the former approach. The Hoffmann-La Roche case stands at least for the proposition that public authority claims brought in the public interest require separate consideration. Consistently with the speeches of Lord Reid and Lord Diplock (and probably also of Lord Cross), it indicates that no cross-undertaking should be exacted as a matter of course, or without considering what is fair in the particular circumstances of the particular case. A starting point along these lines does not appear to me to differ significantly from the practice subsequently adopted at first instance: see para 27 above. I accept its general appropriateness."
The appointment of a provisional liquidator
"In any event, the main thrust of the argument which Mr Lilly advanced was that HMRC should be treated like any private litigant petitioning for the winding-up of a company for non-payment of a debt and that other, lesser, interim remedies should have been considered. I do not accept that when petitioning to recover unpaid tax HMRC should be treated like any private litigant. When suing to enforce a claim for unpaid tax HMRC are exercising a public function; they are a public authority bringing a claim in the public interest. Any recovery is for the public benefit since it goes to increase the general revenue without which the modern state cannot function."
"The position of HMRC, as the public authority charged with the responsibility for assessing persons to tax and collecting tax due, was not considered in Financial Services Authority v Sinaloa Gold plc [2013] 2 AC 28. They may be thought to occupy a middle ground between law enforcement action as discussed in that case and purely private litigation. The fact that the Crown is the claimant does not of course mean that it cannot bring what is essentially private litigation. If for example it brings proceedings for breach of contract and seeks a freezing order against the defendant on the grounds of a threat of dissipation of assets, it would I think be treated as in the same way as an ordinary private litigant, even though the contract may itself have been made pursuant to the exercise of public law functions. HMRC are in a different position, because when they bring proceedings they do so in order to collect tax, which is essentially a public function. However, HMRC do not do so as a public law enforcement agency. Assessments to tax, when notified to the taxpayer, are deemed to create debts which HMRC then collect as a creditor. It was in the capacity as a contingent or prospective creditor that HMRC presented the winding up petition in the present case. The bringing of proceedings which in ordinary litigation would require the giving of an undertaking in damages is not the only means open to HMRC to fulfil this function. They can enforce payment in the usual way, by serving the assessment on the taxpayer and, subject to an appeal to the First-tier Tribunal, exercise their statutory rights of enforcement and/or bring court proceedings either to obtain judgment or to wind up or make bankrupt the taxpayer."
"The basis for departing from that practice relied on by Sir William Blackburne and apparently put before other judges of the Chancery Division has been the decision of the Supreme Court in Financial Services Authority v Sinaloa Gold plc [2013] 2 AC 28. However, that decision did not involve any departure from the existing practice that undertakings in damages were not required in public law enforcement proceedings, as established by the majority decision of the House of Lords in F Hoffmann-La Roche Co AG v Secretary of State for Trade and Industry [1975] AC 295. So far as relevant to applications for the appointment of a provisional liquidator, the decision in the Sinaloa Gold case adds little to the position existing before then save to re-assert the decision in the Hoffmann La-Roche case and to make clear that undertakings in damages are also not required to protect the position of innocent third parties. In my judgment, it is not a decision which can justify the departure from the well established practice of this court on applications by HMRC for the appointment of provisional liquidators, the correctness of which was clearly affirmed by the Court of Appeal in the Rochdale Drinks case. While it may be said that hard cases make bad law, it appears to me that the facts of the present case underline the importance of the requirement for an undertaking in damages."
A limited cross-undertaking?
Result