United Kingdom VAT & Duties Tribunals Decisions

Global Active Holdings Ltd v Revenue & Customs [2006] UKVAT V19715 (18 August 2006)

19715

PROCEDURE – assignment of right to continue the appeal to associated company – whether champertous – no

LONDON TRIBUNAL CENTRE

GLOBAL ACTIVE HOLDINGS LIMITED Applicant

in the appeal of

GLOBAL ACTIVE TECHNOLOGIES LIMITED

(a dissolved company) Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: DR JOHN F AVERY JONES CBE (Chairman)

Sitting in public in London on 12 June 2006

Elisa Holmes, counsel, instructed by Dass, solicitors, for the Appellant

Sarabjit Singh, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1. This is an application by Global Active Holdings Limited ("Holdings") to be substituted as appellant in this appeal for Global Active Technologies Limited ("Technologies"), which has been dissolved. The parties agreed that the matter be heard in public and for a written decision to be given. Holdings was represented by Miss Elisa Holmes, and Customs by Mr Sarabjit Singh.
2. The issues in the application are whether the assignment of the right for Holdings to continue the appeal in place of Technologies was contrary to public policy as being champertous; and secondly whether there should be a stay pending criminal proceedings against the shareholders and directors of both companies.
3. I had two witness statements by Robert Holland, solicitor, and Peter Pomfrett, director of both companies, which I accept purely for the purpose of this application. I find the following facts:

(1) Technologies entered into a transaction on or about 24 April 2003 to purchase 3,080 Nokia 8910 mobile phones from Primemark Computer Consultants Limited and sold them to a French company, PCC Europe.

(2) On 7 November 2003 Customs informed Technologies that they disallowed the input tax of £94,864 on that transaction and assessed that amount. In its Statement of Case Customs allege that the transaction was part of a carousel fraud. They are likely to seek to amend their case following the decision of the European Court of Justice in Bond House.

(3) By a direction released on 21 January 2005 Technologies was directed to pay to Customs the disputed sum of £94,864. As Technologies could not pay this sum, Holdings lent that amount to Technologies which paid it to Customs.

(4) On 8 April 2005 in consideration of £5,000 Global Active Technologies Limited purported to assign to Holdings its rights "to act in the appeal to HM Customs and Excise regarding the assessment issued to Global Active Technologies Limited in connection with Primemark and also to collect the monies that are due." Also on 8 April 2005 Holdings consented to being substituted for Technologies.

(5) Technologies was dissolved (which I understand means struck-off for not filing annual returns required by the Companies Act) on 12 April 2005. Holdings was the only creditor.

(6) On 19 April 2006 Holdings applied to the Tribunal to be substituted as appellant in the proceedings started by Technologies.

(7) Mr Peter Pomfrett and Mr Mustafa Mehmet are the only shareholders and directors of Technologies and Holdings. Criminal proceedings are pending against both of them (and also Mr Timur Mehmet) for conspiracy to cheat the public revenue in connection with carousel frauds. The proceedings are likely to be concluded during 2007. Those proceedings relate to transactions between 1 April 2002 and 23 July 2002 in computer processing units bought from and sold to different parties.

4. I make the following inferences from these facts:

(1) At the time when it was struck off Technologies had no assets.

(2) Technologies' liability to Holdings was at least £94,864 before the purported assignment and the consideration of £5,000 the purported assignment was used to repay part of the debt and accordingly the debt at the time Technologies was struck off was at least £89,864.

5. At a directions hearing on 12 June 2006 Mr Singh, for Customs, contended that the assignment was champertous and accordingly illegal as being contrary to public policy. Accordingly Holdings should not be substituted as appellant; and that since Technologies no longer existed there was no appellant and the appeal should be struck out. Miss Holmes, for Holdings, did not have notice that Mr Singh was going to raise this point and I adjourned to allow the parties to submit skeleton arguments on the law of champerty. I am grateful for their arguments.
6. Miss Elisa Holmes for the Appellant contends in outline:

(1) Champerty is a type of maintenance. Maintenance is defined as "improperly stirring up litigation and strife by giving aid to one party to bring or defend a claim without just cause or excuse" (Trepca Mines Ltd (No.2) [1963] Ch 199 at per Lord Denning MR). Lord Denning went on to say at p.219 that champerty:

"…occurs when the person maintaining another stipulates for a share of the proceeds. The reason why the common law condemns champerty is because of the abuses to which it may give rise. The common law fears that the champertous maintainer might be tempted, for his own personal gain, the inflame the damages, to suppress evidence, or even to suborn witnesses."

In British Cash and Parcel Conveyors Ltd v Lamson Store Service Co Ltd [1908] 1 KB 1006 at 1014, Fletcher Moulton LJ described maintenance as:

"…directed against wanton and officious intermeddling with the disputes of others in which the defendant has no interest whatever, and where the assistance he renders to the one or the other party is without justification or excuse."

More recently, Lord Mustill in Giles v Thompson [1994] 1 AC 142, 161 said that:

"…I believe that the law on maintenance and champerty can best be kept in forward motion by looking to its origins as a principle of public policy designed to protect the purity of justice and the interests of vulnerable litigants…all the aspects of the transaction should be taken together for the purpose of considering the single question whether…there is wanton and officious intermeddling with the disputes of others where the meddler has no interest whatever, and where the assistance he renders to one or the other party is without justification or excuse."

He said at p.164 that the question to ask is:

"Is there any realistic possibility that the administration of justice may suffer?"

(2) The common law tort and criminal offence of champerty were abolished by the Criminal Law Act 1967 leaving only the rule that a contract involving champerty is contrary to public policy and unenforeceable. As Lord Mustill stated, the question to ask is "is there any realistic possibility that the administration of justice may suffer?" An important question is whether the maintainer has a legitimate interest in the outcome of the action, see Thai Trading Co v Taylor [1998] QB 781, 786 per Millett LJ).

(3) There was no risk of public policy being offended if Holdings is substituted. This is not a case where Holdings is guilty of "wanton and officious intermeddling with the disputes of others." Holdings has a direct and real interest in the outcome of the proceedings since it had lent the entire amount of the tax in dispute.

(4) The stand-over proposed by Customs is unnecessary in view of the fact that the criminal case relates to earlier transactions in different goods with different parties.

7. Mr Sarabjit Singh for the Respondents contends in outline:

(1) Following the assignment and before the dissolution of Technologies the position (if the assignment were valid) was that Holdings was entitled to both the repayment of its loan to Technologies of £94,864 and to collect all moneys due in the appeal.

(2) The effect of the assignment is that Technologies sold its bare right of action to Holdings for £5,000 so that Holdings would become entitled to the whole proceeds of the action. The assignment of a bare right of action was held to constitute champerty in Glegg v Bromley [1912] 3 KB 474, see Parker J at p.489-90, and see Trendtex Trading Corp v Credit Suisse [1982] AC 679 for a useful discussion of the modern application of the law.

(3) Allegations of fraud will be made against both directors in both the Tribunal (assuming that Customs is permitted to amend its Statement of Case) and in the criminal proceedings. In order to prevent the criminal proceedings from being prejudiced the appeal should be stood over for nine months or, if earlier, until after the conclusion of the criminal proceedings

8. Following Lord Mustill's guidance all the aspects of the transaction should be taken together in considering the questions he poses "whether…there is wanton and officious intermeddling with the disputes of others where the meddler has no interest whatever, and where the assistance he renders to one or the other party is without justification or excuse?" and "Is there any realistic possibility that the administration of justice may suffer?". The aspects of the transaction include that Technologies was required to pay the tax in dispute but could not do. It borrowed the whole sum from Holdings, a company with identical shareholders and directors. I consider the position of the parties first on the basis that the appellant (whether Technologies or Holdings) wins its appeal (or would have won if the substitution of Holdings is not permitted). Had Technologies continued in existence, Holdings would be repaid the full amount of its loan of £94,864. If Holdings is permitted to continue the appeal it will receive £94,864 from Customs (plus interest) and it has already received the £5,000 consideration it paid in part repayment of the loan; accordingly it will have made a profit of £5,000 but it will have been out of its money since January 2005 and will have paid the costs of the appeal not all of which it is likely to recover from Customs. If Holdings is not permitted to continue the appeal there will be no appeal and Customs will have made a profit of £94,864.
9. Next, I consider the position on the basis that the appeal is lost by whichever company is appellant (or would be lost if the substitution of Holdings is not permitted). If Technologies had continued in existence, Holdings would lose the repayment of its loan; if the substitution of Holdings is allowed Holdings will have lost the £89,864 balance of the loan but will have £5,000 that it was repaid following the assignment and will have paid the costs of the appeal; and if the substitution is not allowed Holdings will still lose £89,864.
10. Compared to the position if Technologies had continued in existence, if the substitution of Holdings is permitted, Holdings will if it wins the appeal therefore make a profit of £5,000 plus whatever interest Customs is ordered to pay on the input tax repayment, less the irrecoverable costs of the appeal; and if it loses the appeal it will lose £89,864 and the costs of the appeal. I consider that this is a more realistic way of looking at the position that Mr Singh's which is that after the assignment Holdings could have both repayment of its loan and the potential right to repayment from Customs of £94,864, for which it paid £5,000, because this ignores that Technologies was unable to pay Customs the tax in dispute and so must have been unable to repay Holdings' loan.
11. In the light of these considerations I ask "whether…there is wanton and officious intermeddling with the disputes of others where the meddler has no interest whatever, and where the assistance he renders to one or the other party is without justification or excuse" and "is there any realistic possibility that the administration of justice may suffer?" I conclude that Holdings has a real interest in the outcome of the dispute, which is not very different from its interest as lender if Technologies had continued in existence; that any assistance it renders in pursuing the appeal is justified; and that thee is no realistic possibility that the administration of justice will suffer.
12. In relation to the stand-over the indictment relates to the period 1 April 2002 to 23 July 2002, and relates to transactions in computer processing units bought from Lightcare Limited and Vendon UK Limited and not sold to PCC Europe, whereas this appeal is concerned with transactions in April 2003 in mobile phones with different parties. Although there are factual differences it is clear that both relate to alleged carousel frauds. It is possible therefore that for example a finding in this appeal (should such finding be made) that the Appellants knew that they were engaged in carousel frauds could prejudice their criminal trial even though the criminal trial relates to an earlier period. Accordingly I allow Customs' application for a stand-over for nine months or, if earlier, until the conclusion of the criminal proceedings.
13. Accordingly I allow the Applicant's application for substitution as appellant and allow Customs' application for a stand-over with the costs of the applications being costs in the case.

JOHN F. AVERY JONES

CHAIRMAN

RELEASE DATE: 18 August 2006

LON/03/1214