Deepak Bhatia v Christopher Purkiss

On an appeal against findings of fraudulent trading and misfeasance arising from MTIC VAT fraud, an evaluative finding of dishonesty will not be disturbed unless an identifiable flaw undermines the conclusion. A person need not know every detail or participant in the fraud. Knowledge of its general nature may suffice.

Evidence such as inadequate due diligence, uncommercial trading features and deliberate avoidance of checks may cumulatively support an inference of actual knowledge and dishonesty. For a misfeasance claim, each fraudulent transaction may constitute a separate breach, with the resulting losses aggregated. A penalty caused by the breach may be recoverable, but an insurance expense cannot both be treated as absent when assessing liability and deducted when calculating the loss.

The appellant, a director of JD Group Ltd, appealed against findings made by Deputy ICC Judge Agnello on 3 February 2022. The judge held that he knowingly caused the company to participate in 12 MTIC VAT fraud transactions in April and May 2006, making him liable under sections 213 and 212 of the Insolvency Act 1986. She ordered payment of £1,785,892 plus interest.

The appeal challenged the assessment of his knowledge and dishonesty, alleged failures to consider matters said to support his case, and the calculation of damages. The liquidator also sought to uphold the result on an alternative non-fraudulent breach of duty. The central issues were whether the findings satisfied the applicable dishonesty test and whether the losses had been correctly assessed.

1. Liability. The appeal against the findings under sections 213 and 212 of the Insolvency Act 1986 was dismissed. The finding of actual knowledge was an evaluative conclusion based on primary facts and credibility assessments. Applying the appellate approach in Re Sprintroom Ltd [2019] WECA Civ 932, there was no identifiable flaw justifying intervention.
2. The judge was entitled to find that the appellant knew enough about the general nature and implications of the MTIC scheme. It was unnecessary for him to know every detail, the precise mechanics, or the identity of every company in the chain. The approach in Morris v Bank of India [2004] EWHC 528 (Ch) and Alpha Sim v CAZ Distribution Services [2014] EWHC 207 (Ch) supported that conclusion.
3. The judge was entitled to assess the evidence cumulatively. The absence of proper due diligence, the deliberate creation of a false appearance that checks had been undertaken, premature release of goods, uniform mark-ups, lack of contractual documentation and other uncommercial features were capable of supporting dishonesty, even if individual matters might also have been consistent with negligence. The two-limb approach in Ivey v Genting Casinos [2018] AC 391 was satisfied.
4. Quantum. For the section 212 claim, each fraudulent transaction was a separate breach capable of generating a separate loss, and the losses could be aggregated. The misdeclaration penalty was recoverable as loss caused to the company. The approach was consistent with Morphitis v Bernasconi [2003] EWCA Civ 289.
5. The award required a small downward adjustment because the judge had included an insurance expense in the calculation despite treating the absence of valid insurance as an adverse feature. The parties were to agree the adjusted figure. The alternative section 213 claim and the limitation issue were unnecessary to decide.

• High Court, Insolvency and Companies List (ChD): Deputy ICC Judge Agnello made findings of fraudulent trading and fraudulent breach of duty and ordered payment of £1,785,892 plus interest: [2022] EWHC 202 (Ch).
• High Court (on appeal): The appeal was dismissed on liability. The final sum was adjusted downwards to remove the insurance expense.