Case No:  HC06CO3473

Neutral Citation Number: [2010] EWHC 1691 (Ch) 
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Tuesday 4 May 2010
BEFORE:

MR JUSTICE SALES
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BETWEEN:

	UK COMMUNICATIONS LIMITED	Claimant	
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	NAHIM AND ANOTHER	Defendants	

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Digital Transcript of Wordwave International, a Merrill Communications Company
165 Fleet Street, 8th Floor, London, EC4A 2DY
Tel No: 020 7422 6131  Fax No: 020 7422 6134
Web: www.merrillcorp.com/mls   Email: mlstape@merrillcorp.com
 (Official Shorthand Writers to the Court)
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Ms Clam Johnson (Instructed by Moon Beever) appeared on behalf of the Claimant
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Judgment

MR JUSTICE SALES:

1.	This is the trial of a claim against two defendants in relation to what is said to be involvement in relation to a VAT carousel (or MTIC) fraud.  The proceedings against the other ten defendants have been resolved, either by judgment in default or settlement, leaving just the ninth and tenth defendants with claims outstanding against them to be resolved.

2.	The claim is brought by the liquidator of the claimant company, UK Communications Limited, against the tenth defendant (“Resolutions”) - which was a company which purported to purchase mobile phones from UK Communications - and Mr Mohammed Nahim, the sole director of Resolutions.

3.	The claims arise from a pattern of trading which was established in a period in 2006 which, in summary, involved what purported to be sales of very large values of mobile phones from a company called Okeda to UK Communications, who then purported to sell on the same telephones to Resolutions, who purported to sell on the same telephones to a company called Ultimate Wholesalers, who purported to sell on the same telephones to a company called Blue Star.  The value of the transactions between UK Communications and Resolutions in the relevant short period in issue came to a total of £93,699,309.84, including a VAT element of £13,955,216.  It appears from examination of Resolutions’ bank statements that nothing like figures in this order passed through its bank accounts.

4.	What appears to have happened on the basis of the evidence available to the court is that the director of UK Communications, Mr Meare, arranged for sums due ultimately from Blue Star to be paid away at some point down the chain before they arrived in UK Communications’ bank account.

5.	It appears that the point at which the payments occurred was at the point where the monies for payment of such mobile phones moved from Ultimate Wholesalers and were paid away instead of being paid to Resolutions, as they should have been, and then by Resolutions on to UK Communications.  The monies appear to have been paid away by Ultimate Wholesalers to third parties outside the supply chain, including a company called Alpha Trading.  Such payments away to third parties is a hallmark of a VAT carousel fraud.

6.	The liquidator for UK Communications maintains that Mr Nahim and Resolutions are liable to account to UK Communications as constructive trustees for dishonestly assisting Mr Meare’s breach of fiduciary duty as a director of UK Communications in arranging for payment away of sums which should have come to UK Communications and for equitable compensation for the losses thereby suffered by UK Communications. Further and in the alternative, the liquidator claims damages for conspiracy against Mr Nahim and Resolutions for agreeing to be involved in the same fraudulent scheme at the instance of Mr Meare whereby monies which should have come to UK Communications were diverted away to third parties.

7.	The proceedings were commenced against all the defendants and freezing orders were obtained.  A winding up order in relation to UK Communications was obtained on 14 September 2006.  Judgment in default against Mr Meare and certain others involved in relevant transactions were obtained on 23 October 2006. Thereafter, in relation to all other defendants apart from Mr Nahim and Resolutions, judgments in default or settlements were obtained.

8.	Mr Nahim and Resolutions initially put in a defence to the Particulars of Claim and instructed Messrs Megsons as their solicitors.  It seems that up until about late 2007 Messrs Megsons were still in contact with them.  However, thereafter it appears that Messrs Megsons lost contact with them.  In about July 2009 Megsons indicated that they no longer acted for Mr Nahim and Resolutions and on 3 March 2010 they obtained an order to come off the record.

9.	There was a case management hearing and order in July 2009 which was served on Mr Nahim and Resolutions, at addresses for them, and on Messrs Megsons.  Since late 2009 there has been no involvement by either Mr Nahim or Resolutions in the proceedings.  It lately emerged that Resolutions had in fact been dissolved at some point in 2007.  In November 2009 a person now residing at the address which had previously been given for Mr Nahim returned documents saying that Mr Nahim was no longer known at that address.  Mr Nahim appears to have dropped out of the picture altogether and to have gone to ground.

10.	Neither Mr Nahim nor Resolutions appears at the trial to contest the claim against them.  In those circumstances CPR Part 39.3 applies.  It provides that:  “A court may proceed with a trial in the absence of a party” and that where a defendant does not attend the court may strike out his defence.

11.	The relevant Practice Direction is APD 39.2. At paragraph 2.2 it specifies that the court may proceed with a trial in the absence of a party and that in the absence of the defendant the claimant may prove his claim at trial and obtain judgment on his claim and for costs.

12.	The relevant notes in the White Book at paragraph 39.3.5 indicate that the claimant still has to prove his or her claim, although it will normally only entail referring to the statement of case or the statement of truth or tendering witness statements.  I have been referred to the witness statements in this case and have had one of the witnesses available to give evidence orally should that be required.  I did not consider that it was required.  In my view it is appropriate that I should proceed to give judgment for the claimant on the basis of the materials I have been shown.

13.	In particular, I would highlight from the factual history that on 25 April 2006 there was an HMRC visit to Resolutions at which Mr Nahim denied the company was involved in making third party payments.  That meeting was followed up with a warning letter from HMRC to the company, dated 27 April 2006, explaining that where payments were made to third parties rather than suppliers that was generally an indicator that there was a high risk of an MTIC fraud being carried on.

14.	On 11 May 2006 there was a further HMRC visit to Resolutions.  On this occasion the company secretary, a Mr Hussain, was interviewed.  Contrary to Mr Nahim’s denial previously, Mr Hussain said that the company was involved in arrangements for sums which it should have received and then paid on to UK Communications in respect of supplies of mobile phones to it being paid away on the instructions of Resolutions to third parties.

15.	On 15 May 2006 HMRC sent a further warning letter, again stressing the high risk of involvement in an MTIC fraud where payments away to third parties were a feature of transactions and making recommendations as to due diligence which should be carried out by Resolutions in respect of trades in which it was involved, the maintenance of a contact log with customers and suppliers and so forth.  It does not appear that these recommendations as to due diligence were complied with.

16.	On 7 June 2006 HMRC sent a further letter advising of the risk of involvement in an MTIC fraud where payments were arranged to third parties outside a supply chain and, again, giving advice as to the due diligence steps which Resolutions should be taking in relation to the transactions in which it was involved.  Once again, Resolutions failed to take any of these steps to improve due diligence.

17.	On 26 June 2006 HMRC made a further visit to the company and Mr Hussain again confirmed that the company was continuing to arrange for payments to third parties and indicated that it had not complied with the advice as to due diligence steps.  It was only on 25 July 2006 that Resolutions wrote to say that it would no longer be involved in transactions involving payments away to third parties.

18.	In my judgment, in light of this pattern of events, the claimant has made out her case sufficiently that both Mr Nahim and Resolutions were dishonestly involved in assisting Mr Meare in a scheme to divert funds which should have come ultimately from Blue Star through Ultimate Wholesalers and then have been paid into Resolutions and paid out by Resolutions to UK Communications. They thereby participated in diverting such payments away from UK Communications in breach of the fiduciary duty that Mr Meare owed UK Communications as its director.

19.	So far as dishonesty is concerned, my attention has been drawn to relevant passages in Twinsectra Limited v Yardley [2002] AC 164, in particular paragraphs [36] and [49], in which it is clear that the House of Lords accepted that Nelsonian blindness - that is to say, turning a blind eye to matters which might indicate some unlawful transactions proceeding - may be sufficient to found liability for dishonest assistance in a breach of trust where such deliberate blindness itself amounts to dishonesty according to the relevant standard.

20.	That approach was confirmed by Pumfrey J in Softwarecore Limited v Pathan [2005] EWHC 1845 (Ch), paragraph [49].  In view of the strong warnings given by HMRC in the letters to which I have referred and the failure of the tenth defendant, Resolutions, to act upon those warnings by disengaging itself from involvement in transactions involving payments away to third parties; the fact that Resolutions failed, despite warnings as to the due diligence steps it should be taking, to carry out such due diligence; and the fact that Mr Nahim, as sole director of Resolutions, was, on the face of it, in control of its affairs, in my view a proper case has been made out against both Mr Nahim and Resolutions of dishonest involvement in and assistance in breach of fiduciary duty by Mr Meare in assisting him to arrange for diversion of monies which should have been paid through to UK Communications in respect of supplies of mobile phones by it to  Resolutions.  

21.	That impression is reinforced by the fact that both Mr Nahim and Resolutions have failed to engage in the proceedings and to appear at trial in order to meet what is clearly a strong prima facie case against them.  That in my view supports the inference that they have no good answer to the case of dishonest assistance which has been set out clearly for them to meet.  

22.	The case is also supported by the inference to be drawn from the fact that Mr Nahim appears to have gone to ground and to have taken steps to avoid engaging with the proceedings, including changing his address without leaving any forwarding details or providing any information at all to the claimant.

23.	For these reasons I am satisfied on the basis of the material which has been shown to me that it is appropriate to strike out the defence under CPR Part 39.3  and to give judgment for the claimant on the claim.

24.	The claim is for equitable compensation in the sum of £93,699,309.84, being the value of the sums due from Resolutions to UK Communications in respect of the trading transactions the payments for which have been diverted away to third party recipients.  In my view the claim for that amount is properly made out on the first  basis put forward, and I give judgment for the claimant against Mr Nahim and Resolutions jointly and severally in relation to that amount.

25.	So far as the alternative claim based on unlawful means of conspiracy is concerned, the law in relation to this may be taken from Lonrho plc v Fayed [1992] 1 AC 448.  The basis for a claim in conspiracy is an agreement by defendants to engage in unlawful activity causing damage to the claimant.  

26.	In my judgment, it is to be inferred from the factual background which I have set out above, the Particulars of Claim and the evidence before me that there was indeed an agreement between Mr Nahim and Resolutions on the one side and Mr Meare that sums ultimately due to UK Communications should be paid away in breach of Mr Meare’s duty to UK Communications, so as to disable Resolutions from paying sums which it owed to UK Communications in breach of its payment obligations under the supply transactions in which it was involved with UK Communications so as to cause damage to UK Communications.

27.	In my view, on the basis of the agreement between those parties, a claim in damages for conspiracy is also properly made out and also founds an order that Mr Nahim and Resolutions are jointly and severally liable to the claimant to pay the total sum of £93,699,309.84 to the claimant.