Payroller Ltd & Ors v Little Panda Consultants Ltd & Ors

A court may strike out a defence where a defendant, without explanation, neither attends trial nor adduces evidence in support of the pleaded case. The court may then proceed to determine the claim on its merits rather than enter default judgment, particularly where the claimant has elected to continue an already commenced trial.

Adverse inferences from a defendant’s silence or absence require evidence from the opposing party sufficient to raise a case to answer. Dishonest assistance is established where the defendant assists a breach of trust or fiduciary duty dishonestly, applying the standards of ordinary decent people to the defendant’s actual knowledge or belief. Knowing receipt requires receipt of trust property in circumstances making retention unconscionable.

The claimants, including the liquidators of Payroller Limited, brought claims concerning the dissipation of proceeds of a large-scale VAT fraud. The first and second defendants admitted liability and agreed monetary orders during the trial.

The fourth defendant, Keith Ellis, did not attend the trial and provided no witness evidence. The claimants applied to strike out his defence and sought judgment concerning payments made to him and companies he controlled. The issues were whether the defence should be struck out, whether the court should enter default judgment or determine the claim on its merits, and whether Ellis was liable for dishonest assistance and knowing receipt.

1. The defence of the fourth defendant was struck out. The court had a discretion under CPR 39.3, and it was appropriate to exercise that discretion against a defendant who neither attended trial nor provided evidence supporting his defence, without explaining that failure.

2. The court declined to enter default judgment under CPR Part 12. The claimants had elected to commence and pursue a trial against the fourth defendant. The appropriate course was therefore to complete the trial and determine the claim on its merits. The unresolved issue concerning the effect of the abolition of CPR PD 39A was left for another case.

3. The VAT fraud and dissipation of its proceeds were established. The documentation offered to justify payments exceeding £1.8 million was inadequate and contradictory. The court inferred that the fourth defendant had no honest explanation for receiving the monies. Applying Wisniewski v Central Manchester Health Authority [1998] PIQR 324, an adverse inference was permissible because the claimants had produced strong evidence raising a case to answer and the defendant, who possessed material first-hand evidence, offered no explanation for his absence or silence.

4. Dishonest assistance was established. A person who dishonestly assists a breach of trust or fiduciary duty is personally liable for the resulting loss. The test of dishonesty required the court first to ascertain the defendant’s actual knowledge or belief as to the facts and then to apply the objective standards of ordinary decent people, following Ivey v Genting Casinos [2017] UKSC 67. It was unnecessary for the defendant to know of the precise VAT fraud or its legal significance. Knowledge, or wilful blindness, that company funds were being misapplied was sufficient.

5. The fourth defendant assisted breaches of fiduciary duty by arranging for companies he controlled to receive the payments and by providing invoices and bank details. The transactions were dishonest because there was no legitimate consideration, the paperwork was sham documentation, and he knew or wilfully closed his eyes to the wrongful dissipation.

6. Knowing receipt was also established in relation to the £30,000.95 paid personally to the fourth defendant. It was sufficient that he knew enough about the misapplication of the money to make retention unconscionable. Judgment was entered for the claimants, and the fourth defendant was ordered to pay £1,806,623.22, with interest, for dishonest assistance and knowing receipt.

First instance decision. No earlier appellate decision is stated in the judgment.