Sandhu v HM Revenue and Customs

Introduction

The Defendant applies for an order either striking out or giving summary judgment on this action, which is an action for damages for misfeasance in public office. In this action, the Claimant alleges that the Defendant’s officers deliberately and wrongfully withheld information which ought to have been disclosed when he was prosecuted for VAT fraud. The prosecution resulted in his conviction on 28 October 2003 of cheating the public revenue. He was subsequently sentenced to 7 years’ imprisonment.

On 2 March 2006 the Court of Appeal quashed the Claimant’s conviction and he was released from prison. The reason for this decision, which is reported at [2006] EWCA Crim 606, was the non-disclosure of certain information. A retrial was ordered and was due to start on 8 May 2007. However, further information was disclosed to the Claimant shortly before that trial and, in the event, on 2 May 2007 the Defendant decided to offer no evidence and the Claimant was acquitted.

The Claimant commenced this action almost 6 years later, on 25 April 2013. On 5 July 2013 the Defendant served a “holding” defence. Then on 3 February 2014 the Defendant issued the present application, which was supported by the second witness statement of Maureen O’Tuminu. The Claimant has not produced a witness statement in response. Moreover, although the Defendant contends that the Claimant’s case is inadequately pleaded, the Claimant has not sought to amend or give any further particulars of the Particulars of Claim.

Meanwhile, on 10 February 2015, the Defendant issued an application for “an order for non-disclosure of secret material by the Defendant on the grounds of Public Interest Immunity”. I heard that application on 16 November 2016. On that date, I also made an order requiring the Defendant to give standard disclosure, which has now been done. Some documents were disclosed as recently as 16 December 2016, but the Claimant did not seek an adjournment of the hearing on this account. Mr. Spooner referred at the hearing to a few of the disclosed documents, but they did not advance matters.

The case against the Claimant at his trial in 2003, and his response thereto, were summarised by the Court of Appeal in paragraphs 2 to 10 of their judgment as follows:

“2 … It was alleged that as the director and company secretary of Bestline Data Limited [“Bestline”] he had:

(a)

been involved in the purchase of mobile telephones from companies situated in another European Union Member State upon which purchases there was no requirement for Bestline to pay import VAT at the point of entry of the goods into the United Kingdom;

(b)

made use of false invoices purportedly issued by MSCoten Limited [“MSCoten”] intending that the amounts shown as input VAT on the face of the invoices be offset against the liability of Bestline to account for amounts charged by Bestline as output VAT on the sale of the mobile phones;

(c)

made false records from false information in order to reduce the liability to that or obtain repayments or to obtain, improperly, repayments.

3 The relevant European Union Member State was Luxembourg and the two Luxembourg companies involved in the fraud were Willcom SA [“Willcom”] and Handycom SA [“Handycom”].

4 There was no dispute by the end of the trial that Willcom, Handycom, MSCoten and the freight forwarders who handled and stored the mobile phones, Hawk Precision Logistics Ltd [“Hawk”] and Paul's Freight Services Limited [“Paul's”], were all involved in the fraud. Counsel for the appellant at the trial, Mr M Wood QC, cross-examined the officer in the case to demonstrate to the jury that this was a classic carousel fraud. It was the appellant's case, unsupported by any oral evidence from him at trial, that he was an “innocent dupe”. All around him were fraudulent, but he was not. He had answered questions in interview and, to that extent, he had advanced a defence. Witnesses were also called on his behalf.

5 On the prosecution's case, Bestline was what is known as a “buffer company”. A buffer company makes a return to what was then HM Customs and Excise [“C&E”] claiming that no, or no significant sum, was due in respect of VAT received on sales because of VAT allegedly paid to the missing trader. MSCoten was the missing trader and the sales were made to Waves International Ltd [“Waves]. During the material period Waves was Bestline's sole customer for mobile phones.

6 The issue in the case was a simple one: did the appellant know that MSCoten was a sham company, albeit a properly formed company with an office. Only if the jury were sure that he did, was he guilty. There was evidence from Henry Watling and Patricia Goodenough the effect of which was that the appellant had nothing to do with the formation of, or running of, MSCoten. …

7 The appellant bought Bestline on 27th February 2001. It was registered for VAT. Transactions in the first VAT quarter did not form any (or any substantial) part of the prosecution's case. The prosecution's case was centred on 27 days between the 20th June and the 16th July 2001 when some 120 million pounds passed through Bestline's account. The VAT form for this period, which was dated 24th July of 2001, showed as due, in respect of VAT on sales, the sum of some 12.6 million pounds. It also showed an offsetting similar amount said to be VAT paid on the purchase of the mobile phones. That reflected, on the documentation which the jury must have found to be false, purchases from MSCoten. C&E further alleged that the total amount of VAT involved was some £16 million. It was further alleged that the VAT form grossly understated the total value of the sales.

8 It was the appellant's case that he had bought the phones from MSCoten and that he was therefore entitled to set off the VAT on these purchases. It was the prosecution's case that he had “bought” the phones from Willcom and Handycom and that MSCoten was a sham, fulfilling the role of the missing trader. We were provided with a small core bundle containing various invoices to illustrate the documentation which was before the jury. In the bundle there is what purports to be an invoice from MSCoten to Bestline for 5000 Nokia 8850 mobile phones at a unit price of £198. That document was taken from the appellant on arrest. The jury must have found that document to be false. At his home address a false purchase order was found addressed to MSCoten for some 7000 of the same phones dated the same day with the unit price of £198. Also found was an invoice for the sale of 7000 of the same phone to Waves for £198.50, a mark up of 50 pence. More often the mark up was about £1. On the prosecution's case, which was not disputed, the total amount of money made by the appellant was some £400,000 reflecting a profit of about £1 per phone.

9 Although, if this was an honest business, one would have expected payments being made to MSCoten, payments were, in fact, made by the appellant to Willcom or Handycom using money advanced by Waves before they had received the phones. Willcom and Handycom received a sum reflecting the purchase price on the false MSCoten invoices plus 17½%. Found in the Luxembourg offices of Willcom was a purchase order for 1500 units of the same phone at a price of £232.50. £232.50 is almost exactly £198 plus 17½% VAT. The appellant's profit came from the additional 50p to £1 made on the “sales” to Waves.

10 The appellant denied that he had ever bought the phones from Willcom and Handycom and it was his case, which he was able to support by forensic evidence, that the Bestline documents found in Luxembourg were created by Emmanuel Hening, who ran the Luxembourg companies. By the close of the evidence in the trial, the prosecution accepted that these documents were forgeries. It was the appellant's case that the documents were an “insurance policy” to be used by Handycom and Willcom in the event of there being an investigation. With the documents they could say: “We do not know anything about MSCoten. We sold directly to Bestline which is pretending that it bought the phones from MSCoten.””

The Court of Appeal observed that the evidence against the Claimant was strong.

However, as I have said, the Court of Appeal also found that in the first trial the Defendant failed to disclose information which ought to have been disclosed. The non-disclosure concerned three matters:

The Court of Appeal said as follows (in paragraph 13 of their judgment) about non-disclosure in relation to Henry Watling and Patricia Goodenough

“… The effect of their evidence, which was read, was that MSCoten had received no purchase orders from Bestline and sent no invoices to Bestline. If true, that effectively determined the case against the appellant. As to the invoices there was some support for this because a number of invoices were found in the possession of the appellant in an envelope with Luxembourg stamps. The appellant said in interview that he had sent purchase orders to MSCoten and that they had never been returned. The evidence of these witnesses contradicted this. It is now accepted by the prosecution that there was, at the time of the trial, material in the possession of the Crown (to use Mr Anderson's words) the effect of which was that neither witness was capable of belief. Mr Anderson and the prosecution team did not know about that evidence. If that had been disclosed, the evidence of the non-receipt of the documents would not have been given. The evidence was not challenged by Mr Wood because, he has told us in a letter, he had no material to question the credibility of the witnesses, one of whom was a chartered accountant. That might be thought sufficient to make the conviction unsafe. There is however a wrinkle. The prosecution never relied on the evidence of non-receipt in its opening or closing speeches. The judge did not mention it in the summing-up although he otherwise summarised the evidence of the witnesses. Why? Mr Anderson, to whom we are particularly grateful for the fair way in which he has conducted the appeal, says that he overlooked the answers in interview about sending the purchase orders to MSCoten. On the other hand the jury was directed to consider all the evidence and an astute juror may well have picked up this point. If this ground stood alone, we would have been reluctant to allow the appeal upon it. But it does not. …”

The Court of Appeal summarised the position as to what was, and what should have been, disclosed in relation to the freight forwarders in a table, the relevant part of which provided as follows:

Again, the Court of Appeal summarised the position in their table, the relevant part of which provided as follows:

The retrial was scheduled to commence on 8 May 2007. The Claimant indicated an intention to apply for a stay of the proceedings on the grounds of abuse of process. His counsel produced a skeleton argument dated 26 September 2006 which addressed what he termed “the history of prolonged and repeated failure to make full and proper disclosure.”

In advance of the retrial, on 30 March 2007 the Defendant provided further disclosure to the Claimant, including an email dated 3 September 2003 (i.e. before the first trial) from Sarah Brennan (a customs officer involved in a related investigation, known as Operation Maypole) to Kevin Gardner, one of the customs officers involved in the investigation which led to the Claimant’s prosecution (known as Operation Expire). In this email, Ms. Brennan had explained her view that Ms. Goodenough could not be treated as a witness of truth. Mr. Gardner copied this email to another Operation Expire officer, Julian Haswell, and the Operation Expire lawyer, Karl Young.

Then on 17 April 2007 the Defendant sent to the Claimant a copy of extracts from Ms. Brennan’s day book. These referred, inter alia, to Ms. Brennan’s telephone conversation with Mr. Gardner on 2 September 2003, when she informed him that Ms. Goodenough was not being accepted as a witness of truth in another investigation and that the Operation Maypole team were unlikely to rely on her as a witness of truth.

These and other documents were relied on in a Supplementary Skeleton Argument dated 27 April 2007 prepared by the Claimant’s counsel in support of the proposed application for a stay. The Defendant’s counsel produced a Skeleton Argument dated 30 April 2007, to which was attached a note of a conference which had taken place on 24 September 2003. The conference was attended by counsel and by Messrs. Gardner, Haswell and Young. It read:

“JA queries whether we can or need to call Patricia Goodenough. Not necessarily convinced we cannot but may be able to deal with all relevant matters through Watling in any event. Do the defence actually want her?”

The Defendant made a public interest immunity application to His Honour Judge Macrae on 1 May 2007. Then on 2 May 2007 the Defendant offered no evidence against the Claimant and he was acquitted.

Paragraphs 1 to 7 of the Particulars of Claim recite the history of the matter. Paragraph 8 of the Particulars of Claim then contains the following allegation:

“Custom officers under the direction and control of the Defendant and in the Purported course of their employment maliciously abuse their power against the defendant by failing to disclose important evidence to his defence team which rendered it impossible for him to receive a fair trial on both the original trial and the re-trial so ordered by the Court of Appeal. This failure to disclose important information was concealed from Mr. Sandhu and his legal team with the intention to build a stronger case against Mr. Sandhu than would otherwise have been justified. Thus the failure to make important and appropriate disclosure was done deliberately so as to deny Mr. Sandhu a fair trial.”

The Claimant does not identify the “custom officers” referred to in this paragraph. One of the grounds for the Defendant’s application is that that is insufficient for the purposes of an allegation of misfeasance in public office. Although he has known since February 2014 that that is the Defendant’s position, the Claimant has not sought to give any further particulars of his case.

At the hearing, I asked Mr. Spooner whether the Claimant made any, and, if so, what allegations of misfeasance against any of Messrs. Gardner, Haswell and Young, i.e. the three individual Operation Expire officers who received Ms. Brennan’s email of 3 September 2003, or a copy thereof. His reply was that the Claimant couldn’t say for certain. In other words, he did not indicate that it was the Claimant’s case that any of these three individuals either had, or did not have, the requisite state of mind.

As to the requisite state of mind, paragraph 8 of the Particulars of Claim reads as an allegation of what is known in the context of the tort of misfeasance in public office as “targeted malice”, i.e. conduct specifically intended to injure a person: see Three Rivers DC v. Bank of England (No. 3) [2003] 2 AC 1, at 191E-F, per Lord Steyn. However, in his submissions Mr. Spooner stated in answer to my question that the Claimant’s case was not one of “targeted malice”, but of “untargeted malice”, i.e. “where a public officer acts knowing that he has no power to do the act complained of and that the act will probably injure the plaintiff.”

Paragraph 9 of the Particulars of Claim gives “Particulars of Malice”. However, it merely lists the three categories of non-disclosure identified by the Court of Appeal.

Paragraph 10 of the Particulars of Claim then alleges that there were “further additional failures by the prosecution to disclose important material leading up to the retrial.” However, the only instance of such an additional failure is that alleged in paragraph 11 of the Particulars of Claim, i.e. the non-disclosure of the extracts from Ms. Brennan’s day book.

Paragraphs 12 and 13 of the Particulars of Claim complain that it was “wholly inappropriate” for the Defendant to pursue a claim for VAT against the Claimant’s company, Bestline Data Limited, after 2 May 2007. For the Defendant, Miss McGahey contended that:

Mr. Spooner did not argue to the contrary, and consequently I need say no more about paragraphs 12 and 13 of the Particulars of Claim.

Paragraph 14 of the Particulars of Claim is a summary and paragraph 15 concerns the Claimant’s alleged loss.

The matters complained of in this action occurred in 2003. As I have said, the action was commenced on 25 April 2013, long after the primary limitation period expired. The Claimant relies on section 32 of the Limitation Act 1980, subsections (1) and (2) of which provide as follows:

“(1)

… , where in the case of any action for which a period of limitation is prescribed by this Act, either—

(a)

… ; or

(b)

any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant; or

(c)

… ;

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

References in this subsection to the defendant include references to the defendant's agent and to any person through whom the defendant claims and his agent.

(2)

For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.”

The Defendant does not dispute that the start of the period of limitation was postponed by operation of section 32(1)(b), i.e. that there was concealment of a fact or facts relevant to the Claimant’s right of action. Instead, the Defendant contends that the limitation period began to run before 25 April 2007, i.e. more than 6 years before the action was commenced. So the question for me to consider is whether the Claimant either discovered, or could with reasonable diligence have discovered, the concealment by 24 April 2007.

Mr. Spooner contended that it was not reasonable to expect the Claimant to commence his action before the outcome of his retrial was known, i.e. before 2 May 2007. That, however, is neither a relevant consideration for the purposes of section 32 nor an accurate characterisation of the Defendant’s case: the Defendant did not contend that the Claimant was obliged to commence his action by 2 May 2007, but that he was obliged to commence his action within 6 years of the commencement of the limitation period.

As to that, as stated by Millett L.J. in Paragon Finance v DB Thakerar & Co. [1999] 1 All ER 400, at 418:

“The question is not whether the Plaintiffs should have discovered the fraud sooner; but whether they could with reasonable diligence have done so. The burden of proof is on them. They must establish that they could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take.”

The meaning of the phrase “any fact relevant to a plaintiff’s right of action” is as set out by Rix LJ in AIC Limited v ITS Testing Services (UK) Limited (The Kriti Palm) [2006] EWCA Civ 1601; [2007] 1 All E.R. (Comm) 667; [2007] 1 Lloyd's Rep. 555, at [323]-[324]:

“323 … it is clear from authority that the statutory words “any fact relevant to a plaintiff's right of action” are to be given a narrow rather than a wide interpretation. Thus in Johnson v. Chief Constable of Surrey (CA, unreported, 19 October 1992), where the claim was in false imprisonment and the police had deliberately concealed facts relevant to the absence of reasonable cause, this court accepted the defendant's submission that “the relevant fact must be a fact without which the cause of action is incomplete”, contrasting a fact relevant to an action and to a right of action (5A, 6C). Thus Rose LJ said “Facts which improve prospects of success are not, it seems to me, facts relevant to his right of action” (at 6E). He accepted that the interpretation was a narrow one (at 6G). Russell LJ agreed, saying (at 7E): “Accordingly, whilst I acknowledge that the new facts might make the plaintiff's case stronger or his right to damages more readily capable of proof they do not in my view bite upon the “right of action” itself.” And Neill LJ emphasised that although absence of reasonable cause was an element in the tort of false imprisonment, the “gist of the action” is in the imprisonment itself, which establishes a prima facie case and puts the burden of proving justification on the defendant. Therefore the statutory words “must mean any fact which the plaintiff has to prove to establish a prima facie case” (at 8E/H).

324 Moreover, in C v. Mirror Group Newspapers [1997] 1 WLR 131 (CA) , where the same words fell to be applied, this time as found in section 32A of the 1980 Act, this court again applied the narrow test determined in Johnson . Neill LJ, with whom Morritt and Pill LJJ agreed, said “The relevant facts are those which the plaintiff has to prove to establish a prima facie case” (at 138H). He again contrasted such facts with evidence which relates “to the proving of the case rather than the existence of the right of action”, citing as further authority (at 138D) a dictum of Sir John Donaldson MR in Frisby v. Theodore Goddard & Co (CA, unreported, 7 March 1984).”

Any facts which were known to the Claimant at the time of the Court of Appeal hearing and judgment were, of course, known to the Claimant more than 6 years before this action was commenced. However, in the Particulars of Claim, the only matters which it is alleged:

In the course of the hearing, I pointed out that there did not appear to be any facts of the kind relevant for the purposes of section 32(1)(b) alleged in the Particulars of Claim which post-dated 24 April 2007. Mr. Spooner did not dispute this proposition.

Mr. Spooner was invited to identify the facts relevant to section 32(1)(b) of the Limitation Act 1980 which post-dated 24 April 2007 and on which the Claimant relies. The only such fact identified by Mr. Spooner was the Defendant’s decision on 2 May 2007 to offer no evidence. However, this decision is not a “fact relevant to the plaintiff's right of action” in the narrow sense in which that expression is used in section 32(1)(b).

It follows that this action is statute-barred and should be struck out.

Although it is unnecessary for me to do so, I add that I would in any event have held that the action should be struck out, or summary judgment given, even if it was not statute-barred.

It is appropriate to have regard to what Judge L.J. said, in the related context of actions for malicious prosecution, in Thacker v. Crown Prosecution Service, The Times, 29 December 1997; Court of Appeal (Civil Division) Transcript No. 2149 of 1997, C.A.:

“Prosecutors or employees of the Crown Prosecution Service are not immune from actions for malicious prosecution. Nevertheless it is essential that before such actions are … allowed to be pursued through the courts, anxious scrutiny should be made of them to ensure that the immunity against actions for negligence … is not circumvented by the pleading device of converting what is in reality no more than allegations of negligence into claims for malicious prosecution”.

The present action is not one which ought to be allowed to be pursued through the Courts, for two reasons.

First, the Claimant has not even identified the individual or individuals whom he alleges had the necessary state of mind. I accept that, in a case where there has been non-disclosure, there are limits on the extent to which the Claimant can be required to give particulars. But the Claimant has known since March 2007 the names of three customs officers who received Ms. Brennan’s email of 3 September 2003, or a copy thereof, and who could therefore be said to have known of the Defendant’s concerns about Ms. Goodenough.

Despite this, the Claimant has not given any details of the case which he seeks to advance, either in relation to these three officers or more generally, as to the state of mind necessary for an allegation of misfeasance in public office. For example:

As May L.J. said in London Borough of Southwark v. Dennett [2007] EWCA Civ 1091, at [21]:

“… In Society of Lloyds v Henderson [2007] WL 2817792 , Buxton LJ emphasised that for misfeasance in public office the public officer must act dishonestly or in bad faith in relation to the legality of his actions. The whole thrust of the Three Rivers case was that knowledge of, or subjective recklessness as to, the lawfulness of the public officer's acts and the consequences of them is necessary to establish the tort. Mere reckless indifference without the addition of subjective recklessness will not do. This element virtually requires the claimant to identify the person or people said to have acted with subjective recklessness and to establish their bad faith. An institution can only be reckless subjectively if one or more individuals acting on its behalf are subjectively reckless, and their subjective state of mind needs to be established. To that end, they need to be identified. As Buxton LJ said at paragraph 49:

“In this analysis I leave aside the further difficulty that if a case of subjectively reckless failure to act were to be made good, it would have to be demonstrated who took the decisions not to act and with what knowledge. Nothing in those terms has been demonstrated, or sought to be demonstrated, even with the assistance of the proposed fresh evidence. That is no doubt why the case falls back on objective recklessness, which could be demonstrated by inference: but such demonstration is not enough for the tort of Misfeasance in Public Office.”

Secondly, the matters alleged in the Particulars of Claim are insufficient to support an allegation of malice. As in London Borough of Southwark v. Dennett [2007] EWCA Civ 1091, at [22]:

“… Subjective reckless indifference is a possibility but not a necessary inference. There are other possibilities of which the strain of overwork or incompetence are two. …”

This is in itself sufficient reason for striking out the action, as in Carter v. Chief Constable of the Cumbria Police [2008] EWHC 1072 QB, at [69]-[73].

For the reasons which I have given, I strike out the Particulars of Claim and dismiss this action.