QEB Metallics Ltd v Peerzada & Ors

This appeal concerned an application by Mr Nouman Hafiz to re-open his earlier application for permission to appeal an order made under section 212 of the Insolvency Act 1986 requiring him to pay £2,141,510.80 to QEB Metallics Limited in liquidation. The court reaffirmed the trial judge’s findings that Mr Hafiz was the de facto controller of QEB, was centrally implicated in the fraudulent VAT scheme and had appropriated the sum in question into a Swiss bank account. The applicant relied on late-disclosed import entries (C88s) said to show that the correct VAT treatment would have left QEB with no liability and therefore that he should not be liable to account for the money. The Court of Appeal applied the test for re-opening under the Civil Procedure Rules (CPR 52.17/52.12 and authority in Re Uddin and Taylor v Lawrence), held that the late evidence did not demonstrate a powerful probability of a wrongful result, and concluded that even if the tax treatment were different the money remained an asset of the company which Mr Hafiz had no title to. The application to re-open permission was dismissed.

Background and parties: QEB Metallics Ltd (in liquidation) obtained an order under s.212 Insolvency Act 1986 that Mr Nouman Hafiz pay £2,141,510.80, representing VAT identified by HMRC and reflected in ESL’s self-billing. Judge Kaye QC found that QEB had engaged in a fraudulent design to avoid VAT, that Mr Hafiz was the de facto director exercising real influence, and that he had extracted the VAT element and paid it into a Swiss account.

Procedural history: The order was made on 22 December 2009 by HH Judge Kaye QC. Permission to appeal was refused orally by Etherton LJ on 13 May 2010. Mr Hafiz sought to re-open that refusal on the basis of fresh evidence disclosed after the hearing (import entries/C88s disclosed by HMRC in July 2010). The application to re-open was heard in the Court of Appeal on 21 May 2012 and dismissed on 30 May 2012.

Nature of the application and issues: (i) The relief sought was permission to re-open the earlier application for permission to appeal so that Mr Hafiz could pursue an appeal based on fresh evidence. (ii) Issues framed: whether the late-disclosed import entries showed that QEB was not liable to the VAT claimed (because ESL or its agents had been the importer or the sale took place before importation), whether that fresh evidence established a powerful probability of an erroneous result such as to justify re-opening under CPR 52.17/52.12 and the authorities, and whether any differing tax treatment would entitle Mr Hafiz to keep the funds he had received.

Court’s reasoning and decision: The Court of Appeal reviewed Judge Kaye’s findings that the company’s operations were opaque, that documentation was scarce, and that Mr Hafiz had the dominant role and knowledge of the fraudulent scheme. The court applied the established test for re-opening an appeal on fresh evidence (as explained in Re Uddin and Taylor v Lawrence) and concluded that the C88s did not create the necessary powerful probability that the earlier result was wrong. Further, even if the tax analysis were right, Mr Hafiz had appropriated money that was an asset of QEB and had not established any title to it; thus the liquidator’s claim to recover the money was unimpaired. The re-opening application therefore had no real prospect of success and was dismissed.

The application to re-open the earlier permission hearing was dismissed. The Court held that (a) the fresh evidence (import entries/C88s) did not show a powerful probability that the earlier result was wrong or that the integrity of the earlier process had been critically undermined under the CPR test; (b) given the paucity of documentation it was not unfair for the liquidators to decline an expensive and speculative challenge to the HMRC assessments; and (c) in any event the sums in question had been extracted by Mr Hafiz and remained assets of the company to which he had no title, so differing tax treatment would not defeat the liquidator’s claim.

Order by HH Judge Kaye QC (High Court, Chancery Division) dated 22 December 2009 (HC05C00158). Application for permission to appeal dismissed orally by Etherton LJ on 13 May 2010. Application to re‑open permission heard in the Court of Appeal (Patten LJ) and dismissed on 30 May 2012 ([2012] EWCA Civ 728).