QEB Metallics Ltd v Peerzada & Ors

An application to reopen a permission hearing on fresh evidence requires more than a real possibility that the earlier result was wrong. The applicant must show a powerful probability of an erroneous result and, ordinarily, a critical undermining of the integrity of the earlier litigation process. The absence of an alternative remedy, the effects of reopening and any responsibility for the applicant’s own misfortune are also relevant. Those requirements were not met where the proposed tax analysis was inconsistent with the case previously advanced. In any event, a possible dispute over the company’s liability to HMRC, or the liquidator’s handling of it, did not give the applicant title to money extracted from the company.

QEB, a company in liquidation, obtained an order requiring its third defendant, Mr Hafiz, to pay £2,141,510.80 under section 212 of the Insolvency Act 1986. The order followed findings that he was a de facto director who had participated in a fraudulent scheme involving VAT.

Permission to appeal was refused by Etherton LJ on 13 May 2010. The proposed appeal concerned only the amount payable and alleged that the company’s VAT liability had been calculated on the wrong basis. HMRC later disclosed import entries which Mr Hafiz said showed that the relevant transactions had a different tax treatment. He sought to reopen the permission hearing. The central issues were whether the fresh evidence satisfied the stringent reopening jurisdiction and whether the disputed tax treatment affected the liquidator’s claim to recover the money.

The application to reopen the permission hearing was dismissed. The Court held that an appeal against the order of Judge Kaye QC would have no real prospect of success.

1. The governing standard for reopening an appeal or permission decision on fresh evidence was the stringent test stated in Re Uddin (a Child) [2005] EWCA Civ 52. A mere possibility of an erroneous result was insufficient. The applicant had to establish a powerful probability that the result was wrong and a critical undermining of the earlier litigation process. These requirements were necessary but not sufficient, since the absence of an alternative remedy, the effect on others and the applicant’s responsibility for the position also mattered.
2. The newly disclosed import entries supported a possible analysis under which ESL, rather than QEB, was the importer. That analysis differed materially from the case advanced before Judge Kaye and Etherton LJ, and from other positions previously taken by Mr Hafiz. The lack of documentation, the absence of a transcript and the failure clearly to raise the alternative case below made it impossible to establish that the earlier decision was erroneous or that the liquidator had acted improperly in failing to challenge the assessment.
3. The decisive point was that Mr Hafiz had extracted the £2.14 million paid by ESL as VAT and paid it into a Swiss bank account to his order. On the face of the evidence, that money was a company asset which he had unlawfully retained or misappropriated. The power under section 212(3) of the Insolvency Act 1986 to require repayment, restoration or an account was not dependent on resolving the company’s ultimate tax liability.
4. Any possible liability of the liquidator to creditors or contributories for failing properly to defend the company against HMRC was a separate matter. It did not give Mr Hafiz title to the money, and the way in which recovered funds might later be applied was irrelevant to his liability to restore them.

• Court of Appeal (Civil Division): The application to reopen the permission hearing was dismissed. The court held that an appeal would have no real prospect of success: [2012] EWCA Civ 728.
• Court of Appeal (Civil Division): Etherton LJ dismissed the application for permission to appeal at an oral hearing on 13 May 2010.
• High Court of Justice, Chancery Division: HH Judge Kaye QC ordered Mr Hafiz to pay £2,141,510.80 to QEB under the Insolvency Act 1986.