England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
DIVISIONAL COURT

		Royal Courts of Justice Strand London WC2A 2LL
		17th July 2007

1. LORD JUSTICE SEDLEY: Although two appellants are formally before the court, one of them has wisely abandoned his appeal, leaving as the sole appellant before us Eurfan Ahmad Chaudhry, and it is to him that I shall be referring as Mr Chaudhry. He is represented today by Mr Gibbons on a case stated by District Judge Cadbury, sitting at the Sutton Coldfield Magistrates' Court. Before him, Mr Chaudhry faced two charges under section 171(4) of the Customs and Excise Management Act 1979. Each charge was a charge of consenting to, conniving at or through neglect making a taxable supply of goods and services (I paraphrase) at a time when, by reason of failure to comply with a notice to give security, it was an offence to do so. The two charges related respectively to 30th April 2004 and 31st May 2004.
2. The charges were laid in March 2005, but the period to which they related was a period when Mr Chaudhry, together with his relative, Mr Tariq Chaudhry, was involved with the Steel Window Company Limited. Tariq Chaudhry, who was appointed a director on 13th January 2004, resigned, but not until 15th June 2004. He was therefore the sole appointed director during the period with which we are concerned. Mr Eurfan Chaudhry, who had been a director, had resigned on 14th January 2004. He nevertheless admitted running the company during the relevant period and in particular being responsible for the accounts, the book-keeping, the issuing of invoices and VAT. He was therefore, as the District Judge found, a de facto director of the company at the time when each of the offences was alleged to have been committed.
3. The reason why trading had become an offence was that on 10th March 2004 a notice of requirement to pay security for Value Added Tax was served upon the company. It was addressed "For the attention of the directors:" and in the next line "The Steel Window Company Limited". It required security in the sum of £61,500 for the payment of any VAT due or to become due. It offered, alternatively, acceptance of a lesser sum if monthly returns were submitted. It went on:

"I must warn you that if this security is not given to the Commissioners you will render yourselves liable to prosecution under Section 72(11) of the Value Added Tax Act 1994 if you make any supply of, or are supplied with, goods or services under a taxable supply. Although the security is required immediately, the Commissioners will allow you a period of 30 days from the date of this letter in order to give you the time to make the necessary arrangements. If you do not provide the required security by the end of this 30 day period, and you continue to trade, further action will be taken."

A leaflet was enclosed, giving advice about the recovery of Value Added Tax and the procedures surrounding it, and to this I will return in a moment.

4. The appellant admitted that the notice that I have quoted from came to his attention on the day it was served or very shortly afterwards. He also admitted continuing to raise invoices in the knowledge that security had not been paid as demanded.
5. The company's accountants, however, wrote to Customs and Excise and secured agreement to a lesser amount, £20,000 payable in three instalments, the first of them by the end of April 2004. Although Customs and Excise accepted this, the company failed to make any such payment.
6. On 17th May 2004 Customs and Excise wrote to the company, addressed in the same manner as I have already quoted, demanding payment of the outstanding sums and pointing out the risk of prosecution. The letter ended:

"I must request that the debt on file of £26,890.67 and the Security instalment of £7,000.00 be paid immediately. Failing to do so will render your agreement to pay Security by instalments null and void. In that instance, The Steel Window Company Limited will have failed to comply with the obligations of the Notice of Requirement within 30 days of service. The 30 day expiry date in this case is 9th April 2004 and you may be liable for prosecution under Section 72(11) of the VAT Act for any supplies of goods or services made after this date."

Nevertheless, taxable supplies were made and invoices raised.

7. Then, on 1st June 2004, well beyond the 30 day period, a notice of appeal was lodged against the requirement for security and sent by the company's solicitors to the VAT Tribunal, who received it two days later. There was no application in terms for an extension of time to appeal, but the notice appears to have been accepted by the Tribunal because a full hearing date was set without objection. A hearing, however, never occurred because the appeal was withdrawn in May 2005.
8. The questions raised by the case stated are, first, whether the notice of appeal had a suspensory effect, notwithstanding its lateness, so as to preclude prosecution for acts committed after 9th April 2004, the last date for giving notice of appeal. Secondly, whether, having ceased to be a director by the time of the alleged offences, the present appellant was properly prosecuted for them. A third question, whether the District Judge ought to have refused, as he did, to refer one or more questions to the European Court of Justice for a preliminary ruling, has not been pressed by Mr Gibbons today - wisely, in my view, because even if he were right in his major submission that by omitting the magistrates' courts from those permitted to make a reference, Rule 75 of the Magistrates Courts Rules fails properly to transpose Article 234, there was in any event no question of such difficulty as to justify a reference.
9. So I return to the first question. In contrast to other kinds of appeal for which, for example, sections 83 and 84 make express provision in relation to retrospectivity, there is no provision that an appeal against a notice to give security has any suspensory effect at all. What there is, however, is the document to which I have referred (its official title is Notice 700/52 dated April 2003, from Customs and Excise), which gives advice that Mr Hall, for Customs and Excise, readily accepts will in the ordinary way generate a legitimate expectation that it will be followed and complied with. That notice contains the following paragraphs:

"3.7 What will happen if I don't provide the security?

It is a criminal offence to continue to trade without providing the security and we may prosecute you.

You may be liable to a penalty of up to £5,000 for each taxable supply you make without providing the security.

If you neither provide the security, nor enter an appeal against our decision to require security within 30 days, we may prosecute you for the whole period of trading from the date the Notice of Requirement was issued.

3.8 Can I be prosecuted as well as my company?

Yes. If you are involved in a business that continues to trade without providing the security you may be prosecuted individually. You may also be personally responsible for paying any fines and compensation awarded by the court.

...

5.1 Right of appeal

If you have been issued with a Notice of Requirement to provide security as described in sections 2 to 4 of this notice, you have a right to have the decision reviewed and reconsidered.

...

5.4 Can I continue to make taxable supplies if I appeal to a VAT and Duties Tribunal?

If you have been served with a Notice of Requirement for security as a condition of our releasing a VAT credit (see section 2) you may continue to trade.

If you have been served with a Notice of Requirement for security because we feel that tax is at risk from your business (see section 3) or from a business or individual in a supply chain in which you trade (see section 4), you can continue to make taxable supplies until the result of the Tribunal hearing is known. However, if the Tribunal dismisses your appeal, we may prosecute you for trading after the 30 day appeal period (see paragraphs 3.7 and 4.7)."

10. In my judgment, the legitimate expectation which Customs and Excise have generated of non-prosecution if a notice of appeal is served has no effect in generating a similar expectation if a notice of appeal is served outside the 30 days limited for this purpose, even if it is accepted and acted upon by the VAT Tribunal without demur as to its timing. That is not to say that Customs and Excise are not free to refrain from prosecution; it is to say that they are not expected by law to do so. I would therefore answer the first question posed by the District Judge by holding that the lodging of a late notice of appeal did not amount to a defence to either charge.
11. The second question is whether Mr Chaudhry rendered himself liable to prosecution by functioning as a director when he was not one. Section 171(4) of the 1979 Act provides:

"Where an offence under any enactment relating to an assigned matter which has been committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any director, manager, secretary or other similar officer of the body corporate or any person purporting to act in any such capacity, he as well as the body corporate shall be guilty of that offence and shall be liable to be proceeded against and punished accordingly."

12. It is clear beyond a peradventure in the light of the findings of fact that I have cited that Mr Chaudhry, in the period to which the two charges related, was purporting to act in the capacity of a director and/or manager of the Steel Window Company Limited. Mr Gibbons, recognising the difficulty that any frontal assault would therefore place him in, has wisely tempered his submission to the proposition that the notice, which I have already quoted, was not apt in its terms to implicate Mr Chaudhry since it was addressed "For the attention of the directors: The Steel Window Company Limited".
13. This seems to me to be a hopeless submission. The whole point of section 171(4) is to place liability not only on directors, but on those who, not being directors, act as if they were, as Mr Chaudhry admitted doing. A notice addressed to the Steel Window Company Limited is for the attention of anybody running the company. It may be specifically brought to the attention of the directors, but that does not mean to say that it is not something with which anybody purporting to act as a director was expected to familiarise himself. Mr Eurfan Chaudhry therefore had, at the very least, constructive knowledge of this notice. On the evidence and findings, moreover, he had actual knowledge of it. It was a sufficient notice to bind him and to make him responsible if, notwithstanding a failure to comply with a notice, the company of which he was now purporting to act as a director continued to make taxable supplies. That means that the District Judge was right in holding that the notice was sufficient to render Mr Eurfan Chaudhry criminally liable if he proceeded to act as if he were a director and in that capacity to make taxable supplies.
14. For these reasons, I would answer the questions posed by the District Judge in the way I have indicated and dismiss the appeal.
15. MR JUSTICE NELSON: I too would dismiss the appeal for the reasons given by my Lord.
16. MR HALL: My Lord, in terms of costs, I know that the appellant is legally aided. I would ask for him to pay the respondent's costs, but not to be enforced without the leave of this court.
17. LORD JUSTICE SEDLEY: Mr Gibbons?
18. MR GIBBONS: I would be content with that.
19. LORD JUSTICE SEDLEY: You are not asking for costs against the fund, you are asking for a football pool order, as we used to call it.
20. MR HALL: Yes, thank you.
21. LORD JUSTICE SEDLEY: Well, your client had better win the pools, Mr Gibbons -- or better not win the pools.
22. MR GIBBONS: Better not win the pools.
23. LORD JUSTICE SEDLEY: Costs to the respondent, not to be enforced without further order.