England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		30 March 2007

MR. JUSTICE PITCHERS:

1. This is a return date for a freezing order granted ex parte by Treacy J on 14th March 2007. The facts arise out of, first, the evidence given by the defendant in 1999 during his trial for attempted murder. It became relevant to an issue in the case that he tell the court what his legitimate income was and he set out in his evidence on oath that he had substantial sources of legitimate income, varying somewhat but amounting to up to £300,000 per annum. He admitted in cross-examination in the trial that he had never declared this income.
2. Her Majesty's Revenue and Customs have thereafter examined his income and in addition to that evidence have found that in 1999 he made a re-mortgage application and self-certified his income as £180,000 per annum, plus income from rental property. In the tax year 1999/2000 the unidentified deposits in his UK bank accounts totalled £130,000 odd. Adding £10,000 for rental income, that would give a total income for that tax year of £190,000. However, only £130,000, as I have said, was deposited into UK bank accounts which suggests he was in receipt of a further income of approximately £60,000 for that tax year which was not deposited into his UK bank account. It was either spent in the UK or used to fund overseas assets, the evidence being that he has property abroad to which he regularly travels.
3. That proportion of unbanked income has been used in arriving at estimated amounts for trading income in 97/8 to 2004/5 and an estimate of £10,000 rental income has been used for each year. That gives a total estimated unpaid tax of something over £875,000. During this period he has submitted no tax returns, nor indeed has he paid the £110,000 which he had agreed in a compromise with the Revenue to pay for the previous five years.
4. The present claimant, the Director of the Assets Recovery Agency becomes the claimant because of the provisions of the Proceeds of Crime Act 2002, Part 6. That Act provides that if the qualifying condition contained in section 307 is satisfied then the present claimant assumes all the functions of previously the Commissioners of the Inland Revenue, now the Commissioners of Her Majesty's Revenue and Customs.
5. The qualifying condition is, among other things, that for the purposes of section 317 the director has reasonable grounds to suspect income arising or gain accruing to a person in respect of a chargeable period is chargeable to income tax or is a chargeable gain as the case may be and arises or accrues as a result of the persons or another's criminal conduct whether wholly or partly and whether directly or indirectly.
6. The evidence upon which the Claimant bases the allegation that that condition is satisfied is set out in the affidavit which accompanied the claim and the application for the freezing order and from which I quote now starting at paragraph 2.5:

"The Respondent has convictions for road traffic offences, conspiracy to commit burglary, carrying a firearm with intent to commit an offence and assault over a period from 1975 to 1986." [The convictions were listed in an exhibit] "Whilst these offences are spent within the meaning of Section 4 of the Rehabilitation of Offenders Act 1974, I believe that they are indicative of the Respondents dishonesty and criminality. I therefore request that the court admit evidence of these convictions in accordance with Section 7(3) of the Rehabilitation of Offenders Act 1974.

2.6 On 5th May 1999, whilst on trial for attempted murder, the Respondent gave his occupation as director and named two companies he was a director of. He also stated that he had property in the UK and in Southern Ireland from which rental income was received. The Respondent further stated that at least some of these properties were held by an overseas registered property company called JNM Holdings Ltd. He was unable to give the full addresses of all the properties owned. The Respondent also stated he had a shop in Oxford Street from 1992 to 1995 from which he received income of £2,000 a week. In addition he also claimed to be involved in a corporate hospitality company with a subsidiary office in the US and have a jewellers business in Hatton Garden, London. The Respondent was questioned about his tax affairs and he referred to a tax investigation which his accountant was dealing with on his behalf. He acknowledged he had not declared all his income to the Revenue and claimed that his earnings were between £100,000 and £300,000 per annum. The Respondent was acquitted by the jury." [A transcript of the evidence was exhibited]

"2.7 On 19th January 2002 the Respondent was stopped by a Customs Officer at the port of Harwich. The Respondent stated that he was a property developer and spent 6 months in the Netherlands and 6 months in the UK." [Again omitting the reference to the exhibit]

"2.8 On 20th April 2005 the Respondent and his second wife, Anetta Zietek, were stopped by the police and the car in which they were travelling was searched. A carrier bag containing a bundle of £20 and £5 notes was found and when questioned by the police the Respondent advised that the amount of cash totalled £15,000 and that it was not a lot of money to have. He was arrested on suspicion of theft of money. The Respondent gave his occupation as a director and his wife stated she was unemployed. No explanations for the origin of the cash were offered. The result from Mass Spec Analytical Ltd revealed that a proportion of the notes were contaminated with diamorphine (Heroin) which was greater than typically detected on notes in general circulation. There were reasonable grounds to believe that the seized cash was either recoverable property obtained through unlawful conduct or was intended for use in further unlawful conduct. The Respondent and his wife did not contest the matter and the monies were forfeited under Section 298 POCA 2002 ..."

7. On that evidence the claimant argues that she is entitled to serve on Her Majesty's Revenue and Customs a notice stating that she intends to carry out in relation to the defendant the general functions of the Revenue. The general functions for these purposes are the collecting of income tax, capital gains tax and national insurance contributions.
8. On 13th September 2006 the claimant served a notice under section 317(2) of the Proceeds of Crime Act on Her Majesty's Revenue and Customs in respect of the defendant for the chargeable periods 97/98 to 2004/5 stating an intention to carry out their functions in relation to income tax, capital gains tax and national insurance.
9. The sole point for today's decision is one of jurisdiction. The defendant concedes, for the purposes of today's hearing although not for the purposes of proceedings as a whole, that the other matters that have to be established, both to continue the freezing order and also to reclaim the unpaid tax, are made out prima facie. The argument that the defendant advances in relation to jurisdiction may be shortly stated. He argues that the court only has jurisdiction to make a freezing order where a cause of action already exists. That properly analyzed no cause of action yet exists in this case and, therefore, there is no jurisdiction, he argues, to make a freezing order unless this case can be brought within one of the categories of quia timet orders and he says it cannot be.
10. How then does the claimant put her case? First it is argued that there is an existing cause of action. The argument is that there is a legal obligation to pay tax on income earned and therefore there is a duty to account for and pay tax during the following tax year. This arises under sections 7 and 8 of the Taxes Management Act 1970. Under section 7.1 as follows:

"(1) Every person who --

(a) is chargeable to income tax or capital gains tax for any year of assessment, and

(b) has not received a notice under section 8 of this Act requiring a return for that year of his total income and chargeable gains,

shall, subject to subsection (3) below, within six months from the end of that year, give notice to an officer of the Board that he is so chargeable ....

(5) A source of income falls within this subsection in relation to any person and any year of assessment if all income from it for that year has been or will be taken into account --

(a) in determining that person's liability to tax, or

(b) in the making of deductions or repayments of tax under [PAYE regulations] ...."

8 Personal return

(1) For the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax for a year of assessment, [and the amount payable by him by way of income tax for that year] he may be required by a notice given to him by an officer of the Board --

(a) to make and deliver to the officer, on or before the day mentioned in subsection (1A) below, a return containing such information as may reasonably be required in pursuance of the notice ...."

11. So far as the years with which we are concerned, in respect of the first four, section 8 notices have been issued and no response to them has been received. So far as the last three years are concerned, no section 8 notice has been issued but a duty to account for the income still remains. The liability to pay on account is to be found in section 59(2) of the Act:

"(2) Subject to subsection (3) below, the taxpayer shall make two payments on account of his liability to income tax for the year of assessment --

(a) the first on or before the 31st January in that year, and

(b) the second on or before the next following 31st July;

and, subject to [subsections [(4) to (4B)] below, each of those payments on account shall be of an amount equal to 50 per cent of the relevant amount."

12. In my judgment, at this stage there is an existing cause of action in respect of unpaid tax. The exact amount has at this stage not been quantified. That is the purpose of section 29 headed Assessment Where Loss of Tax Discovered. That sets out the procedure in subsection (1):

"(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a [year of assessment --

(a) that any [income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax,] have not been assessed, or

(b) that an assessment to tax is or has become insufficient, or

(c) that any relief which has been given is or has become excessive,

the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax."

13. The liability to pay that quantified amount under section 29 arises at the earliest 30 days later but, in my judgment, the cause of action has already arisen. I reject the argument for the defendant that that cause of action only arises after the expiration of 30 days from the service of assessments. Therefore, there being an existing cause of action this case falls within the general rule that a freezing order will normally only support an existing cause of action.
14. That finding is enough to dispose of the case but in deference to the other arguments that have been deployed before me I will deal with them as well.
15. Second, the claimant says that even if there were not an existing cause of action this is a case where there is a threatened breach of a current obligation. That is a form of basis for a freezing order which was dealt with by the Court of Appeal in the case of Zucker v Tyndall Holdings plc [1992] 1 WLR 1127. There, in giving judgment, Neill LJ after dealing with the situation where there was an existing cause of action described in the case as an invasion, also dealt with the question of a threatened invasion and said this at page 1136 at C:

"But what of threatened invasion. That must cover a threat to break a contractual obligation" I interpose there because counsel agree that one may properly add here or statutory obligation "which is presently performable. But does it cover a threatened breach of some term of a contract which is not presently performable ...

If there was no actual breach at the date when the injunction was granted and no threatened breach of an obligation which was then presently performable, there should be no injunction. In this case, there has been no actual breach and no threat to break a term which is presently performable. If there has been any threat at all, which is challenged, it is threat to break a term which is not yet presently performable."

16. In that case there was a finding that there was no threatened breach but the possibility of issuing interlocutory relief of the kind that we are concerned with if there was a threatened breach of a current statutory obligation is clearly confirmed.
17. In my judgment the very lowest that can be said of the sections of the Taxes Management Act to which I have referred are that they clearly establish a statutory obligation which is presently performable. It is conceded for the purposes of this hearing that the evidence establishes a clear threat to break those obligations by the defendant failing to pay his tax due and dissipating his assets against which that obligation could be enforced.
18. There is also a final argument which again is not directly relevant to these proceedings but I deal with since it has been argued. That is the possibility of there being an equitable quia timet freezing order in the present case. That is based upon the review of the authorities and the decision of Rix J as he then was in the case of David John Rowland and Ors. v. Gulfpac Limited and Ors. [1999] LLR 86. The learned judge reviewed the authorities whose facts it must be conceded are far from the present. He then said this at page 98:

"In my judgment it would appear from the authorities which I have cited above that the following can be said. In law there is no right to Mareva relief unless there is a pre-existing cause of action. Equity, however, will give relief in circumstances where the common law will not and will even give relief in the situation of quia timet before a loss has actually occurred, but only where there is reasonably good, perhaps clear, evidence that a liability will fall on the party entitled to be indemnified and that the person obliged to indemnify clearly proposes to ignore his obligations. What is needed is a sufficiently clear right to an indemnity even if the cause of action at law is not yet complete, together with a clear indication that the indemnifier is going to ignore his obligations."

19. In the later case of Papamichael v National Westminster Bank plc [2002] 2 All E R 60 this principle was applied and arguably extended by His Honour Judge Chambers QC sitting as a judge of the Commercial Court to a set of facts which were different both to the present case but also very different to the Gulfpac case. I can see no reason in principle why there should not be jurisdiction to provide this discretionary remedy to a party where there is clear evidence to support what Lord Hanworth in Re Anderson-Berry [1928] 2 Ch. 290 called "a procedure which prevents the court from allowing its action to be stultified". Here the prima facie case, I stress that because no substantive response has yet been made by the defendant, is of an intention to stultify the action of the court by removing assets which would otherwise be available to meet a judgment debt.
20. The evidence of that, prima facie, could not possibly be clearer. Therefore, in my judgment, were it necessary to do so, this would be a case where a freezing order would be appropriate under the equitable jurisdiction set out in Gulfpac even though the facts plainly here are far from those of that case.
21. For all those reasons I propose to confirm the freezing order.
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