Revenue & Customs (HMRC) v Sunico A/S & Ors

Fraud must be pleaded expressly and with sufficient particularity to identify the fraud alleged, the primary facts relied upon and the defendant’s alleged knowledge. Mere allegations of fraud or knowledge are insufficient. Inferences of dishonesty require an adequate factual foundation.

Under Insolvency Act 1986, section 423, a voluntary transfer to an intermediary may constitute a transaction at an undervalue even where the intermediary is expected to pass the assets to others. Whether relief should be granted is fact-sensitive and calls for a tailored remedy.

Defendants who face arrest risks may in appropriate circumstances give evidence by video link. Case-management directions concerning a sample of transactions do not necessarily exclude evidence about other transactions when it is responsive to evidence adduced by the opposing party.

HMRC brought proceedings alleging that the defendants participated in a missing trader intra-community VAT fraud. The applications arose at a pre-trial hearing and included applications by Dayal and Nari for summary judgment or strike-out, HMRC’s applications to amend its pleadings, applications for evidence by video link, and disputes concerning witness evidence and disclosure.

The fraud claims depended on allegations that payments under a commission arrangement represented proceeds of fraud and that the defendants knew of, or participated in, the alleged conspiracy. An alternative claim under section 423 of the Insolvency Act 1986 concerned payments made to Dayal’s bank account. The central issues were whether the claims were adequately pleaded, whether late amendments should be permitted, and whether the alternative statutory claims were arguable and within time.

1. Fraud pleading. A fraud allegation need not use the words fraud or dishonesty, provided the pleaded facts are inconsistent with innocence. The defendant must nevertheless be told the fraud alleged, the facts relied upon to establish it, and the knowledge said to be possessed. Knowledge may generally be inferred from primary facts, but a bare allegation that a defendant was party to a conspiracy does not identify the case to be met.
2. Nari. On the pleadings as they stood, the only material allegation connecting Nari with the alleged fraud was that he negotiated the commission agreement. The evidence did not support that allegation. Nari therefore obtained summary judgment on the conspiracy claim. HMRC’s proposed amendments and particulars of knowledge were refused because they were sought very late and rested on a weak case that could have been pleaded earlier.
3. Dayal. The existing pleading did not adequately identify the knowledge or dishonesty to be inferred from payments into and out of his account. Dayal obtained summary judgment on the conspiracy claim. The proposed amendments were also refused because of lateness and real prejudice, including prejudice arising from Dayal’s incapacity and the difficulty of investigating historic transactions.
4. Section 423. HMRC had an arguable case that PT Naina directed its share of the alleged proceeds to Dayal and that the transaction was a gift or transaction for no consideration. A transfer to an intermediary to hold or pass on assets may fall within section 423(1)(a), and a transfer involving significantly less consideration may fall within section 423(1)(c). Whether Dayal was beneficially entitled, held the money subject to an obligation, or retained a commission was fact-sensitive. The section 423 claim therefore required trial, and a change-of-position defence could not justify summary judgment.
5. Video evidence and case management. Applying the majority reasoning in Polanski v Condé Nast Publications Ltd [2005] UKHL 10, the court held that the general rule permitting video-link evidence could apply to defendants concerned about arrest in England. Orders were to be made for Sunil and Mangharam, subject to HMRC’s ability to provide satisfactory undertakings if physical attendance was essential. Evidence concerning non-sample transactions could be admitted where responsive to the defendants’ evidence, subject to appropriate disclosure. Mr Marsden’s report required reformulation as a factual exercise, and Mr Stone and Ms Ogburn were not to express conclusions properly belonging to the trial judge.