Scenic International Group Limited v Richard Adenaike & Ors

The court refused the defendants' application to set aside default judgments obtained against them because they had no real prospect of defending claims that the claimant company was used as a vehicle for a large-scale labour‑supply fraud to evade VAT and PAYE/NIC. The court applied CPR 13.3(1) and relevant authorities on summary disposal in fraud cases, and assessed the available evidence (including HMRC's VAT registration and assessment, bank account analysis and RTI data) as establishing a compelling prima facie case of deliberate non‑payment of VAT and PAYE/NIC attributable to the first defendant.

Key statutory provisions and legal principles relied on included Schedule 1 and sections 73 and 83 of the Value Added Tax Act 1994 (VATA 1994) (the VAT assessment is binding and not appealable in the circumstances), the duties of directors under the Companies Act 2006 (notably s.172), and equitable causes of action for dishonest assistance and knowing receipt.

The judge concluded there was no real prospect that the applicants could defend the underlying liability findings, but considered that aspects of the default judgment sums required detailed assessment. Accordingly, the court varied the default judgment against the first defendant to a liability judgment in the sum of £5,667,050.55 (VAT and PAYE/NIC liabilities) plus interest and costs and ordered that judgments against certain other applicants (ELHR and Ms Ezed) be varied to liability‑only and assessed, with BCUK to be considered further.

Background and parties. The claimant, Scenic International Group Limited (in provisional liquidation), sued multiple defendants alleging that, between 2017 and 2023, the company was used as an umbrella employer in a deliberate scheme to evade VAT and PAYE/NIC. The first defendant (a director) applied to set aside default judgments entered against him and associated companies/individuals. HMRC investigations and assessments (including a VAT assessment and determinations of PAYE/NIC deficiency) and analysis of bank accounts and RTI data formed the core documentary background.

Nature of the application. The first defendant's application (CPR 13.3) sought to set aside default judgments dated 25 March 2024 on the basis that he and associated defendants had a real prospect of defending the claim.

Issues before the court. The court framed the issues as: (i) whether the applicants had a real prospect of defending the substantive allegations of fraudulent evasion of VAT and PAYE/NIC and associated equitable claims (fraudulent breach of directors' duties, dishonest assistance and knowing receipt); (ii) the effect of HMRC's VAT registration and assessment and of RTI/PAYE data; (iii) attribution of the first defendant's knowledge to the corporate defendants; and (iv) appropriate relief if liability were established, including whether default judgments should be varied to liability‑only and the correct measure of equitable compensation.

Court's reasoning. The court reviewed the claimant's detailed evidence (bank account summaries, HMRC analyses, RTI comparisons, contractual compliance documents and the VAT registration/application). It found that the company should have been VAT‑registered from 1 May 2017 (Schedule 1, VATA 1994) and that HMRC was entitled to register and assess (s.73, VATA 1994); because the company had not submitted returns it could not appeal the assessment (s.83(1)(p), VATA 1994). The judge accepted that the first defendant was the directing mind of the companies and that his knowledge was attributable to those companies for the purpose of establishing liability. The evidence showed significant receipts from recruitment agencies, significant payments to workers with little corresponding RTI reporting, use of another company's VAT registration, and bank routing through ELHR and BCUK accounts; these facts, taken together and allowing for reasonable trial evidence, meant the applicants had no real prospect of defeating the fraud and related equitable claims. The court noted the need for caution in summary disposal of fraud allegations but concluded the claimant's evidence was compelling.

Relief and consequential findings. The judge held that some of the default judgment figures required detailed assessment because account inflows were matched by substantial payments out to workers and other parties and it was not possible on a summary basis to determine net benefit or precise causation. The court therefore varied the default judgment against the first defendant to £5,667,050.55 (the combined VAT assessment and PAYE/NIC liability) plus interest and court fees and directed assessments of equitable compensation against ELHR and Ms Ezed (liability‑only judgments), reserving final relief against BCUK for further consideration. The application to set aside was otherwise refused. A consequential hearing was directed.

Application to set aside the default judgments refused because the applicants had no real prospect of defending the substantive claims of fraudulent evasion of VAT and PAYE/NIC. The court found the claimant's evidence (HMRC assessments, bank account analysis and RTI discrepancies) established a compelling prima facie case and that the first defendant's knowledge was attributable to the corporate defendants. The Default Judgment against the first defendant was varied to a liability judgment for £5,667,050.55 plus interest and costs; default judgments against ELHR and Ms Ezed were varied to liability‑only with the quantum to be assessed; the position as to BCUK is reserved for further consideration. The court gave reasons based on CPR 13.3(1), VATA 1994 (s.73, s.83), and the Companies Act 2006 (s.172 and related duties) and equitable principles governing dishonest assistance and knowing receipt.