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L10: Statement of case

Basic cases: no statement of case required

 

“(1) This rule applies to Basic cases.
(2) Rule 25 (respondent's statement of case) does not apply and, subject to paragraph (3) and any direction given by the Tribunal, the case will proceed directly to a hearing.
(3) If the respondent intends to raise grounds for contesting the proceedings at the hearing which have not previously been communicated to the appellant, the respondent must notify the appellant of such  grounds.
(4) If the respondent is required to notify the appellant of any grounds under paragraph (3), the respondent must do so--
(a) as soon as reasonably practicable after becoming aware that such is the case; and
(b) in sufficient detail to enable the appellant to respond to such grounds at the hearing.” (FTT Rules, r.24).

Basic cases: no statement of case required

Time limit: normally 60 days after FTT sends HMRC notice of the appeal

 

“(1) A respondent must send or deliver a statement of case to the Tribunal, the appellant and any other respondent so that it is received--
(a) in a Default Paper case, within 42 days after the Tribunal sent the notice of appeal or a copy of the application notice or notice of  reference;
[…]
(c) in a Standard or Complex case other than an MP expenses case, within 60 days after the Tribunal sent the notice of appeal or a copy of the      application notice or notice of reference.
[…]
(4) If a respondent provides a statement of case to the Tribunal later than the time required by paragraph (1) or by any extension allowed under rule 5(3)(a) (power to extend time), the statement of case must include a request for an extension of time and the reason why the statement of case was not provided in time.” (FTT Rules, r.25(1), (4)).

 

FTT to notify HMRC when it receives notice of appeal or originating application/reference

 

“(5) When the Tribunal receives the notice of appeal it must give notice of the proceedings to the respondent.” (FTT Rules, r.20(5)).

“(4) When the Tribunal receives an application notice or a notice of reference it must send a copy of the notice and any accompanying document to any respondent.” (FTT Rules, r.21(4)).

 

Failure to include request for extension of time in statement of case

 

r.25(4) - HMRC will need to apply to amend their statement of case or ask the FTT to dispense with this requirement.

Time limit: normally 60 days after FTT sends HMRC notice of the appeal

Required to concisely set out HMRC’s position in relation to the case/no ambush 

 

“(2) A statement of case must--
(a) in an appeal, state the legislative provision under which the decision under appeal was made; and
(b) set out the respondent's position in relation to the case.” (FTT Rules, r.25(2)).

 

"The whole purpose of the statements of case and the list of documents, submitted [counsel for the taxpayer] was to enable the company to know the way in which the commissioners put their case. That is undoubtedly right". (GUS Merchandise Corp v. CEC [1992] STC 776 at 780).

 

“These are useful reminders that the purpose of particulars is to elucidate the case to enable the party opposite to prepare for trial; particulars are not a game to be played, or a rigid entitlement.” (E Buyer UK Ltd v. HMRC [2016] UKUT 123 (TCC), §104).

 

“…the appellant, as well as HMRC, should set out its case whether it advances a positive case or is merely putting HMRC to proof.  HMRC is entitled to know which of the issues is in dispute, and the basis on which the relevant issues are disputed.” (CF Booth Ltd v. HMRC [2016] UKFTT 261 (TC), §13).

 

“There is no reference to pleadings in the tribunal’s rules…Rule 25 requires the respondent to deliver a statement of case setting out the legislative provision under which the appeal was made and ‘set[ting] out the respondent’s position in relation to the case”. That is all. Anything else is left to the discretion of the tribunal and the good sense and cooperation of the parties.” (Vale Europe Ltd v. HMRC [2014] UKFTT 1042 (TC), §4, Judge Hellier); 

 

“Litigation by ambush is not fair or just: a party must be given time to properly prepare to meet the case against it. For this reason, the Tribunal’s rules at Rule 25(2)(b) requires the Statement of Case to: ‘set out the respondent’s position in relation to the case’.” (Citibank NA v. HMRC [2014] UKFTT 1063 (TC), §11, Judge Mosedale).

 

“statements of case should be concise and avoid excessive details and particulars. That is so, but they must still be sufficient accurately to identify the issues for the court as well as the parties” (Gamatronic (UK) Ltd [2013] EWHC 3287 (QB), §26, Andrew Smith J)

 

More may be required pursuant to duty to further overriding objective

 

“Brief though that part of the statement of case which is devoted to the remaining appeal is, it does not seem to me to offend that very limited requirement [in r.25]. I do, however, agree with both BPP and Judge Mosedale that in the context of a case such as this rather more is to be expected (not least in the performance of HMRC’s obligation to help the F-tT further the overriding objective, as rule 2(4)(a) requires) even if rule 25 does not demand it in so many words.” (HMRC v. BPP Holdings Ltd [2014] UKUT 496 (TCC), §49).

 

Required to explain how case applies to Appellant's facts rather than just cite authority

"[14] The statement of case cites Wilkinson (and also Gadhavi) but does not explain how those cases apply to Mr Midgley’s appeal.  Both cases are decisions of this Tribunal and therefore are not binding on the Tribunal panel who will determine Mr Midgley’s appeal, although they are of persuasive value.  The Wilkinson decision (which was decided in favour of HMRC) is relevant (hence the previous stay awaiting that decision) but I do not consider it is adequate for HMRC merely to cite the case without further explanation.  This is especially important where (as HMRC fairly recognise in the Application) the appellant is self-represented.  If HMRC intend to follow identical arguments to those which were successful in Wilkinson then it is sufficient to raise those by reference to the relevant parts of the Wilkinson decision, but the (self-represented) appellant is entitled to know the arguments which HMRC intend to deploy in their defence of the appeal.  Where (as here) part of HMRC’s case depends on caselaw determined after the issue of the disputed decision which forms the subject matter of the appeal, then it is particularly important that the appellant appreciates the significance of the caselaw being cited by HMRC." (Midgley v. HMRC [2022] UKFTT 115 (TC), Judge Kempster)

HMRC required to indicate how they intend to challenge the taxpayer’s factual case

 

"[17] Mr Midgely has put forward some contentions which are summarised at [7] and [9] above, and are mentioned in paragraph 8(4) of the Application.  HMRC may feel those contentions have no merit (and I make no comment on that point) but they should still address those in the statement of case." (Midgley v. HMRC [2022] UKFTT 115 (TC), Judge Kempster)

“If, however, the commercial nature of the contracts or the surrounding circumstances under which they were negotiated is relevant to the issue raised (as HMRC assert), the Appellant is in my view entitled to know in the circumstances of its case on what (if any) evidence HMRC intend to rely to support the assertions that they make in their Statement of Case.  If HMRC are intending to rely solely on cross-examination or are merely proposing to invite the Tribunal to draw certain conclusions from the inadequacy of evidence produced by the Appellant or its absence, it seems to me that they lose nothing by making this clear in advance.  On the other hand, if they are intending to produce documentary or witness evidence (beyond what appears in their list of documents) to support their assertions, there seems no reason why they should not reveal their hand at this stage rather than leave the Appellant to formulate its evidence in ignorance of whatever evidence HMRC are intending to produce to support the assessment...  HMRC have made a number of assertions but without any indication as to how they propose to support them if needs be, in particular where they appear to relate to matters that may not be within the Appellant’s knowledge or ability to produce evidence (see paragraph 177 above).  In my view it is appropriate that HMRC should now clarify their approach so that the Appellant can take this into account (as appropriate or necessary) in preparing its witness evidence.  I shall accordingly direct that HMRC should serve the evidence of their witnesses of fact (if any) first.” (Hull City AFC (Tigers Ltd) v. HMRC [2017] UKFTT 629 (TC), §§189...190, Judge Gammie QC).

"Unless the point at issue relates solely to the interpretation of legislation and case law, the statement of case should indicate the extent or nature of the disputed facts or evidence. This may be a general reference, for example to ‘unexplained bank deposits’ rather than identifying each individual disputed entry if they are numerous." (ARTG8395)

Must consider all aspects of the case

"[37] In that regard the starting point is the FTT Rules (Rule 25(2)(b) which simply provide that a statement of case must “…—set out the respondent's position in relation to the case”. In the particular circumstances of this case, I consider HMRC took too narrow a view of its obligation to set out its position. The appeal here was concerned with the question of whether certain supplies were exempt or standard rated. That was not a dispute to be resolved in the abstract but one which needed to be grounded in the facts of the real-world supplies CCIL actually made." (HMRC v. Cheshire Centre for Independent Living [2020] UKUT 275 (TCC), Judge Raghavan)

Disapproval of rambling narratives 

 

“So far from being a concise statement of the primary facts relied upon in support of the claim, it comes across as a rambling narrative of the supposed twists and turns of the defendants’ case about the matters in issue, serving no apparent purpose, and obscuring, rather than clarifying, the claimant’s own case.” (Hague Plant Ltd v. Hague [2014] EWCA Civ 1609, §23, Briggs LJ).

 

Look at the totality of the documents

 

“In the majority of proceedings identification of the documents upon which a party relies, together with copies of that party’s witness statements, will make the detail of the nature of the case the other side has to meet obvious. This reduces the need for particulars in order to avoid being taken by surprise…Pleadings are still required to mark out the parameters of the case…” (McPhilemy v. Times Newspapers Ltd [1999] 3 All ER 775 at 793, Lord Woolf MR).

However

“I reject any suggestion that a pleading is sufficient if the other parties can discern what lies behind it: parties should not have to dig behind what is pleaded to detect what is alleged (particularly where dishonesty or comparable impropriety is alleged); and perhaps more important, its meaning should be plain to the court as well as other parties.” (Gamatronic (UK) Ltd [2013] EWHC 3287 (QB), §26, Andrew Smith J)

Disclosure is not a cure for lack of clarity

"[63]...Disclosure is not a cure for a lack of clarity in HMRC's case." (Smart Price Midlands Limited v. HMRC [2019] EWCA Civ 841, Rose LJ)

Tribunal not blind to pleading difficulties 

 

“I said that ‘On a summary judgment application the court is not blind to claimants’ difficulties in such cases, of producing solid evidence of the role of each defendant in covert activities, particularly before disclosure.’ The same is true of the difficulties in pleading with particularity, but lack of particularity is different from lack of clarity.” (Gamatronic (UK) Ltd [2013] EWHC 3287 (QB), §27, Andrew Smith J, cited in Citibank NA v. HMRC [2014] UKFTT 1063 (TC), §91, Judge Mosedale).
 

Required to concisely set out HMRC’s position in relation to the case/no ambush 

Not enough to simply require Appellant to prove everything

 

[10] "The interpretation of that rule was elaborated on by Judge Mosedale in Allpay Limited v. HMRC [2018] UKFTT 273 (TC). The context was an appeal where the appellant's success in its appeal against various VAT decisions and assessments made in relation to its bill payment services depended on it falling within the VAT exemption for financial services. To fall within the exemption the appellant's services had to: 1) be "payment services" but 2) fall outside the exclusion for "debt collection". The parties' pleadings had focussed on issue 2) "debt collection". The FTT ultimately concluded HMRC were not allowed to dispute issue 1) "payment services", because on proper analysis HMRC had conceded that issue. However, it first considered whether the FTT had to consider whether issue 1) needed to be pleaded in order for HMRC to raise it, and in doing so analysed the requirement for HMRC to "set out [its] position". At [14] it explained
"The Tribunal's rules require HMRC to set out its position in respect of a case; what that means is that HMRC should explain its position in sufficient detail to enable the appellant to properly prepare its case for hearing. Anything less may lead to injustice"
[11] Judge Mosedale went on to reject HMRC's argument in that case that HMRC did not have to plead anything as burden of proof was on the appellant on the basis of the following reasoning (at [18]):
" And there is no logic or justice in HMRC's suggestion in any event. If the person with the burden of proof was required to prove everything, even those matters which the other party had not clearly disputed, then preparation for, and hearings of, appeals would be much longer and a great deal of time and money would be wasted. Moreover, trial by ambush is not justice: each party should be able to prepare to meet the other party's case in advance of the hearing to increase the likelihood that the outcome of the appeal will be in accordance with the true facts of the case. Each party must therefore state in advance in summary terms what is in dispute and why."
[12] She also extracted the following proposition from the Upper Tribunal's decision in Fairford Group plc v HMRC [2014] UKUT 329 (TCC):
"[20] … it is not procedurally fair for the party without the burden of proof to do no more than say the other party must prove every part of their case. Both parties should set out the key parts of their legal and factual case in advance."
[13] We agree with the above propositions, as do the parties. We would add that how those propositions fall to be applied, and the particular level of detail which will be sufficient to enable an appellant to properly prepare, will depend on the circumstances of the particular appeal." (Kingston Maurward College v. HMRC [2023] UKUT 69 (TCC), Judge Raghavan and Judge Brannan)
 

"[18] And there is no logic or justice in HMRC’s suggestion in any event. If the person with the burden of proof was required to prove everything, even those matters which the other party had not clearly disputed, then preparation for, and hearings of, appeals would be much longer and a great deal of time and money would be wasted. Moreover, trial by ambush is not justice: each party should be able to prepare to meet the other party’s case in advance of the hearing to increase the likelihood that the outcome of the appeal will be in accordance with the true facts of the case. Each party must therefore state in advance in summary terms what is in dispute and why.

...

[22] While at first glance this case [Burgess] might appear to support HMRC’s contention that the party without the burden of proof can simply say that they put the other party to strict proof of their case and do no more, I do not think that the Upper Tribunal actually said that. It is only authority for the much narrower point that, where a party expressly (and perhaps impliedly) disputes a matter sought to be proved by the other party, the Tribunal cannot assume, when that issue is not referred to at the hearing, that it has been conceded.

...

[25] For the reasons given above, my conclusion is that it is not enough for HMRC to say that the appellant bears the burden of proof and must prove everything, including those matters which are neither expressly nor impliedly in issue in HMRC’s statement of case. On the contrary, HMRC’s statement of case should outline the issues which are disputed and outline the facts relied on to support their position.

...

[31] Rule 25 requires the Statement of Case to contain HMRC’s position in respect of the case: that position was that the appellant’s bill payment services were not exempt because they were excluded from exemption by being debt collection services. That was the issue that should have been prepared for hearing and that is the issue on which the Tribunal would be required to rule at the substantive hearing." (Allpay Limited v. HMRC [2018] UKFTT 273 (TC), Judge Mosedale)

Not enough to simply require Appellant to prove everything

HMRC not required to plead a case on a point not advanced

"[29] ... As regards HMRC's "case" on why the appellant's case failed, in the event the single business argument was not accepted, (if it is right to describe it as such, given what we come on to say about the lack of the appellant's alternative case), it does not make sense in our view to label HMRC's non-acceptance (of there being no input VAT that was exclusively linked to exempt supplies) as a bare denial. Before a position can be denied, there must first have been a position that was advanced or at least be taken to have been advanced. Thus, in Allpay the appellant's case that it did not fall within the exclusion for "debt collection" would not have served any purpose unless the appellant was also maintaining that the supplies were "payment services" in the first place. It can well be seen why in those circumstances the FTT in that case viewed HMRC's proposed pleading as a bare denial and therefore inadequate. (The inadequacy was all the more clear given, as the FTT then explained (at [39] and [40]), the taxpayer there was left wondering which of at least two possible lines of argument, which HMRC had aired in correspondence, HMRC was relying on in respect of the issue). Similarly, in Fairford (which the FTT in Allpay relied on for its proposition at [12] above) where one party's stance (in that case the taxpayer's) in response to the other's evidence was to put the other to proof, rather than identify what evidence was challenged, it can readily be seen why such bare denial would be viewed as inadequate. Here, beyond the single business argument, there were no other facts or legal arguments advanced by the appellant in relation to which HMRC could meaningfully set out its legal or factual stance in order to mark out the parameters of the dispute.
[30] The appellant argues HMRC's lack of adequate pleading, with the consequence the appellant did not have the proper opportunity to identify and submit evidence relevant to the issues raised because they were not set out when they should have been, or to quantify the effect of the issues raised, results in an injustice. Again, this wrongly depicts the scope of the dispute between the parties and misses the point that it was for the appellant to plead a case in the alternative if it wished. The reason the appellant did not submit such evidence, or raise such issues was because it failed, as it could have done, to put a case in the alternative to its all or nothing single business argument." (Kingston Maurward College v. HMRC [2023] UKUT 69 (TCC), Judge Raghavan and Judge Brannan)
 

HMRC not required to plead a case on a point not advanced

CPR practice is a guide 

 

“while the strict rules of pleading which apply in the courts, and which might prevent the respondents relying on an allegation which was only contained in a witness statement do not apply in Tribunal, nevertheless, the rules in court proceedings on what should be pleaded are a guide to what a statement of case in this Tribunal ought to contain.” (Citibank NA v. HMRC [2014] UKFTT 1063 (TC), §13, Judge Mosedale).
 

CPR practice is a guide 

A party should only make allegations it is prepared to support with evidence  

 

“Insurers making allegations of the kind which I have found proved in this case must do so with care. Their legal advisers have obligation which require them to advance such allegations only on proper grounds. I consider it to be inappropriate for trial bundles to contain the names and personal details of people with the suggestion that they have been guilty of fraud unless there are proper grounds evidentially for that assertion.” (Locke v. Stuart [2011] EWHC 399 (QB), §39); 

 

“There is no prohibition on the making of allegations of fraud. But, in the absence of any evidence from GRCS on this particular point, it was not only unreasonable for this point to be advanced, but was also contrary to the ordinary conventions of civil litigation which require allegations of fraud or criminal conduct on the part of a witness (i) not only to be raised in clear terms, but also (ii) only to be raised and put by a legal representative where there is clear prima facie evidence supporting such an allegation, or evidence which a representative reasonably believes shows, on the face of it, a case of fraud…A suggestion of 'no coincidence' does not even remotely satisfy this test. The higher civil courts have deprecated the insinuation of fraud. We respectfully agree.” (Grange Road Car Sales v. HMRC [2017] UKFTT 193 (TC), §§137…138, Judge McNall)

 

“I consider that HMRC can (if they have proper grounds in the evidence) make an allegation of knowledge against a corporate entity…” (Citibank NA v. HMRC [2014] UKFTT 1063 (TC), §86, Judge Mosedale).
 

A party should only make allegations it is prepared to support with evidence  

Consequence of inadequate statement of case: not fatal if case clear from other sources provided in sufficient time 

 

"...where there has been correspondence between the parties before the appeal, where witness statements and documents have been exchanged, and where there have been discussions between the parties, the statement of case need not be a comprehensive document. The need to understand the case may be met less formally and more flexibly by other means. All that is require is that it is somehow made clear to the Appellant what the case is against him so that he can deal with it.” (Vale Europe Ltd v. HMRC [2014] UKFTT 1042 (TC), §6, Judge Hellier); 

“Again with the object of fairness of justice, a failure by the respondents to fully set out its statement of case is not fatal to the respondent putting that case in the hearing on the appeal if it is nevertheless apparent that the appellant has been given the opportunity to properly prepare for the case. For instance, where an allegation which could have been pleaded had not been but was nevertheless clearly made in a witness statement filed in support of the respondent’s case, the respondent may be able to pursue that allegation at the hearing.” (Citibank NA v. HMRC [2014] UKFTT 1063 (TC), §11, Judge Mosedale).

 

“Fairness to the taxpayer in a case like this requires that [the taxpayer] is given good notice of what case he has to meet. That can be done formally, through a statement of case, or through witness statements or well indexed bundles of documents depending on the circumstances.” (HMRC v. Denny [2013] UKFTT 309 (TC), §230)

 

“[A] statement of case is of necessity a summary of the evidence and sets out the essential propositions upon which HMRC relies to establish its case.…HMRC is entitled to expand on its case by the exchange  of witness statements and opening submissions.” (Libra Tech Ltd v. HMRC [2013] UKFTT 180 (TC), §50).

 

“As we have said, it is important that Partiess knows the case against it in sufficient time to properly prepare for the hearing, but the Tribunal does not have the strict pleading rules of the Courts. So we consider not only what was in HMRC’s Statement of Case but also what was in the decision letter sent to Pars and what was in the witness statements served on them prior to the hearing.” (Pars Technology Ltd v. HMRC [2011] UKFTT 9 (TC), §46, Judge Mosedale).
 

Consequence of inadequate statement of case: not fatal if case clear from other sources provided in sufficient time 

Applications to amend SoC (including late applications)

 

See M16: Amending grounds of appeal and statements of case

Applications to amend SoC (including late applications)

Dishonesty/fraud must be pleaded 

“[63] In cases where the burden of proof lies on HMRC to establish fraud or dishonesty [the requirements to plead the allegation with full particularity] undoubtedly apply in the same way as they would in ordinary civil litigation.” (Ingenious Games LLP v. HMRC [2015] UKUT 105 (TCC), §63, Henderson J – with specific reference to extended time limit assessments and MTIC).

A pleading of fraud must be made plain in the statement of case

“The appellant says, and I did not really understand HMRC to disagree, that a pleading of fraud must be made plain in the statement of case, or else the Tribunal ought to proceed as if dishonesty was not alleged. I agree.” (Citibank NA v. HMRC [2014] UKFTT 1063 (TC), §16, Judge Mosedale).

The meaning of fraud

 

Lack of good faith tantamount to fraud

 
“Despite the contention in paragraph 39 that Infinity did not act in good faith, HMRC contended before the learned Judge and before me that they were not alleging that Infinity were guilty of fraud. This, in my view, is an impossible stance. It is well established that an allegation of lack of good faith is tantamount to an allegation of fraud… Thus in my view it is improper for HMRC on the one hand to allege that Infinity is not fraudulent but on the other hand to allege it is not acting in good faith.” (HMRC v. Infinity Distribution Ltd [2015] UKUT 219 (TCC), §§7…8, Peter Smith J).

 

“In substance, this amounted to an allegation of dishonesty and misconduct on the part of Officer Arnold: namely that she, as a public official, had deliberately made decisions in this appeal, not because of her assessment of the facts, or on her best judgment, but because she was actuated by vindictiveness, bad faith or whim…This is an allegation of fraud against Officer Arnold. It does not matter whether the word 'fraud' is used.” (Grange Road Car Sales v. HMRC [2017] UKFTT 193 (TC), §§134…135, Judge McNall)

 

“Wilful” or “reckless” not sufficient

 

“If the pleader means ‘dishonestly’ or ‘fraudulently’, it may not be enough to say ‘wilfully’ or ‘recklessly’. Such language is equivocal.” (Three Rivers DC v. Bank of England [2001] UKHL 16, §185, Lord Millett)

 

But: 

 

“the established common law definition of fraud draws a distinction between recklessness whether a false representation is true or false (which, if established, amounts to fraud), and mere carelessness (which does not).” (Ingenious Games LLP v. HMRC [2015] UKUT 105 (TCC) §40, Henderson J)

 

Implied dishonesty is still an allegation of dishonesty

 

“When we come to Judge Mosedale’s decision in the FTT, we therefore agree with her at [23] that the SOC alleges that the appellant knew that its transactions were contrived; at [24] that if an appellant is shown to know in advance that its purchase and sale were orchestrated by a third party in order to perpetrate a fraud on HMRC, its decision to proceed would be dishonest; and at [25] that HMRC were seeking to prove that the appellant acted in a dishonest fashion, by seeking to prove that it went ahead with transactions which it knew were orchestrated for the purpose of fraud. We see no error of law in these passages.” (Citibank NA v. HMRC [2016] UKUT 123 (TCC), §94).

 

“Because there is an express allegation in the SOC that the appellant knew its transactions were contrived and, separately, because an allegation of knowledge of connection to fraud necessarily connotes an allegation of knowledge that the transaction facilitated fraud, I find that HMRC’s SOC does imply that the appellant acted dishonestly.” (Citibank NA v. HMRC [2014] UKFTT 1063 (TC), §37, Judge Mosedale).

 

Composite pleading (knew or ought to have known) are not treated as two separate pleadings

 

“That case [Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch [250] is authority for the proposition that an allegation that the defendant "knew or ought to have known" is not a clear and unequivocal allegation of actual knowledge and will not support a finding of fraud. It is not treated as making two alternative allegations, i.e. an allegation (i) that the defendant actually knew with an alternative allegation (ii) that he ought to have known; but rather a single allegation that he ought to have known (and may even have known - though it is not necessary to allege this).” (Armitage v. Nurse [1998] Ch 241 at 257, Millett LJ).

“We acknowledge of course that the Court of Justice in Kittel repeatedly used the composite phrase “knew or should have known”, drawing no distinction between the two limbs, but as illustrated by the facts of Livewire, Megtian and Mobilx, there is a real difference in practice between the two limbs. Since procedure is a matter for the national court, we would have thought it preferable for HMRC, where it is proceeding under both limbs of Kittel, to adhere to the usual principles of pleading and make allegations of knowledge within the first limb separately from allegations in the alternative that the taxpayer should have known within the second limb.” (E Buyer UK Ltd v. HMRC [2016] UKUT 123 (TCC), §91)

Dishonesty/fraud must be pleaded 

Deliberateness may be allegation of dishonesty

 

"[45] [HMRC's Counsel] accepted that the finding in this case that Firm A acted deliberately in causing an inaccurate entry to be made in the 2007/08 tax return could be characterised as a finding of dishonesty. She also accepted that it was not open to the FTT to make a finding of dishonesty where such an allegation had not been pleaded or put to the witness in cross examination." (Danpal v. HMRC [2023] UKUT 86 (TCC), Judge Herrington and Judge Bowler)

Deliberateness may be allegation of dishonesty

Contests over precise terms of pleading discouraged

 

"[24] To these principles there should be added the following general points about particulars:
i) The purpose of giving particulars is to allow the defendant to know the case he has to meet: Three Rivers at [185]-[186]; McPhilemy v Times Newspapers Ltd [1999] 3 All ER 775 at 793B (Lord Woolf MR).

ii) When giving particulars, no more than a concise statement of the facts relied upon is required: McPhilemy at 793B.

iii) Unless there is some obvious purpose to be served by fighting over the precise terms of a pleading, contests over their terms are to be discouraged: McPhilemy at 793D." (Sofer v. Swiss Independent Trustees [2020] EWCA Civ 699, Arnold LJ)

Contests over precise terms of pleading discouraged

Party who does not bear the burden of proof on an issue is not required to plead fraud

"[64] The present case, however, is not of that nature. It is common ground that the burden of proof lies on the Appellants to displace the closure notices issued...

[65] HMRC were not obliged to give advance notice of the lines of questioning which they intended to pursue with the witnesses, and still less were they obliged to plead a positive case of dishonesty in preparation of the Memorandum before putting questions to the witnesses which, depending on how they were answered, might in due course provide a foundation for the FTT to draw such a conclusion. The obligations which lay on HMRC were in my judgment of a different nature. First, as a matter of professional duty, counsel may not put questions to a witness suggesting fraud or dishonesty unless they have clear instructions to do so, and have reasonably credible material to establish an arguable case of fraud. Secondly, as the FTT rightly recognised, it is not open to the tribunal to make a finding of dishonesty in relation to a witness unless (at least) the allegation has been put to him fairly and squarely in cross-examination, together with the evidence supporting the allegation, and the witness has been given a fair opportunity to respond to it. Important though these obligations are, they are quite different from, and do not entail, a prior requirement to plead the fraud or misconduct which is put to the witness. If it were otherwise, a party would be obliged to serve an amended statement of case before attempting to expose a witness as dishonest in cross-examination, and the element of surprise which can be a potent weapon in helping to expose the truth would no longer be available." (Ingenious Games LLP v. HMRC [2015] UKUT 105 (TCC), Henderson J in relation to allegations that the taxpayer did not believe the content of its own contemporaneous document was truthful– however, note direction that HMRC should produce document giving “general nature” of allegations, prior to cross-examination - §79).

 

“Furthermore, as the Upper Tribunal noted at [65], there is no requirement to have pleaded fraud or dishonesty before such matters are put to the taxpayer’s witnesses in cross-examination together with any supporting evidence.  There is, therefore, no necessary requirement for HMRC to amend its statement of case before attempting to expose a witness as dishonest in cross-examination, although (as Henderson J went on to direct in that case) it may be appropriate for HMRC to clarify the general nature of any allegations that they wish to put to a witness in advance of a witness being recalled.” (Hull City AFC (Tigers Ltd) v. HMRC [2017] UKFTT 629 (TC), §113, Judge Gammie QC).

 

“At the hearing, HMRC clarified that at this stage HMRC did not intend to introduce further additional documents making a positive case of dishonesty, but intended to reserve its right to ask questions in cross-examination and to make submissions at the hearing.  The Tribunal is satisfied that further directions in relation to this issue are unnecessary.” (B&K Lavery Property Trading Partnership v. HMRC [2015] UKFTT 470 (TC), §75).

Party who does not bear the burden of proof on an issue is not required to plead fraud

Party who does not bear burden of proof on issue not required to plead sham

 

"[49]...It seems to me, from the UT’s remarks in Ingenious Games, that where the burden of proof lies on the appellant, as it does in this case, HMRC are not obliged to give advance notice of the lines of questioning or plead a positive case of dishonesty. I am not satisfied that there is any basis for the suggestion that that position is different where HMRC have now decided to plead a positive case. Further, the UT’s comment regarding the element of surprise is simply, in my view, a reference to what would be the case if the position were different and does not change HMRC’s obligations where the element of surprise is not an issue. It is my finding, in accordance with the UT decision in Ingenious Games, that HMRC have not breached their pleading obligations in respect of their arguments on sham.

[50] The question of whether the allegations have been put fairly and squarely to Mr Northwood so that he has been given an opportunity to rebut them, is considered at [123] below." (Northwood v. HMRC [2023] UKFTT 351 (TC), Judge Sukul)

But does bear burden of proof if relied on

"[51] The parties agree that Mr Northwood has the burden of proof in respect of his grounds of appeal, HMRC have the burden to prove their case on sham (but they do not have to do so for the appeal to be dismissed) and the standard of proof is the balance of probabilities. Accordingly, the appeal must fail unless Mr Northwood is able to persuade this Tribunal that the deductions claimed are valid. The appeal will also fail if HMRC prove their case on sham." (Northwood v. HMRC [2023] UKFTT 351 (TC), Judge Sukul)

Party who does not bear burden of proof not required to plead sham

Allegations of fraud against non-parties

Allegations of fraud against non-parties

- Witness statement sufficient if alleged against a third party

 

“No doubt it would have been preferable if the allegations against Mr Bridger, and their significance, formed part of Mr Katib’s grounds of appeal and were not just made in witness statement. However, the overriding objective set out in Rule 2 of the FTT Rules enjoins the FTT to avoid unnecessary formality. Mr Katib’s position was fairly set out in his witness statement and HMRC were not arguing that the hearing should be adjourned to enable them to obtain further evidence to meet the arguments he was making. All parties were, therefore, ready and able to proceed with the FTT hearing and the FTT was entirely justified in concluding that a formal application to amend grounds of appeal was unnecessary. We would have made the same decision ourselves.” (HMRC v. Katib [2019] UKUT 189 (TCC), §17, Mann J and Judge Jonathan Richards)

- Witness statement sufficient if alleged against a third party

- HMRC SoC must plead fraud in relation to historic transactions not part of the appeal rather than just include evidence

 

"[121]...we recognised that the authorities to which we had been referred all pertained to an allegation of fraud made against a party to the proceedings, as opposed to an allegation of fraud which was merely detrimental in evidential terms to a party to the proceedings.  However, although there was no authority which dealt specifically with allegations of fraud falling within the latter case, it seemed to us that the same principles ought to apply in such a case given the serious nature of the allegation and the adverse consequences for the Appellant if it were to be established.  We did not think that it was appropriate for the Respondents breezily to introduce evidence to the effect that there had been fraud in the historic supply chains without including in the SOC both a statement identifying the persons who were alleged to have committed the fraud and the primary facts on which reliance would be placed at trial to establish that that was the case.  In that respect, the evidence in relation to fraud in the historic supply chains was no different from the evidence in relation to fraud in the supply chains which were the subject of the proceedings.  In both cases, these were serious allegations with potentially damaging implications for the Appellant and evidence in relation to them could not be introduced without being adequately covered in the SOC.  The Respondents had implicitly recognised this in the way in which they had dealt in the SOC with the allegations of fraud in the supply chains which were the subject of the proceedings.  Those allegations also pertained to third parties and not the Appellant itself and yet the Respondents had taken care to identify the alleged fraudster and the basis for the allegation of fraud in each case.  They ought to have done the same in relation to the allegations of fraud in the historic supply chains;" (Vortex Enterprises Limited v. HMRC [2023] UKFTT 211 (TC), Judge Beare)

- HMRC SoC must plead fraud in relation to historic transactions not part of the appeal rather than just include evidence

Not essential that third party given an opportunity to respond

 

“In our view, however, the High Court in MRH Solicitors was not setting out a general rule that findings of fraud could never be made against non-parties to the litigation without a court first hearing from those parties. Rather, the High Court was simply emphasising the considerations that a court should have in mind before making findings against such persons and the importance of considerations of natural justice…If Mr Bridger or Sovereign Associates were dissatisfied with the findings that the FTT made, in principle they had a remedy since the decision of the FTT would be susceptible to judicial review just as the decision of the county court was in MRH Solicitors. However, the mere fact that Mr Bridger or Sovereign Associates might feel aggrieved at findings that were made in their absence does not allow HMRC to escape the implications of those findings.” (HMRC v. Katib [2019] UKUT 189 (TCC), §§39…40, Mann J and Judge Jonathan Richards)

- Not essential that third party given an opportunity to respond

- Possible distinction between witnesses and non-witnesses 

 

“There is to my mind a difference between a tribunal saying, “we heard Mrs X and found her dishonest”, and a tribunal saying, “although we have not seen Mr Y, on the evidence before us we find that he was likely to have been dishonest”…if [Mrs X] has had [the opportunity to clear her reputation] a finding that she was dishonest is more personal and more serious…” (Vale Europe Ltd v. HMRC [2014] UKFTT 1042 (TC), §13, Judge Hellier – Query how the other party will know in advance whether Mr Y will be called as a witness?)

- Possible distinction between witnesses and non-witnesses 

Dishonesty must be particularised​

"[ 185] It is important to appreciate that there are two principles in play. The first is a matter of pleading. The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him. If the pleader means "dishonestly" or "fraudulently", it may not be enough to say "wilfully" or "recklessly". Such language is equivocal. A similar requirement applies, in my opinion, in a case like the present, but the requirement is satisfied by the present pleadings. It is perfectly clear that the depositors are alleging an intentional tort.

[186] The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient. This is only partly a matter of pleading. It is also a matter of substance. As I have said, the defendant is entitled to know the case he has to meet. But since dishonesty is usually a matter of inference from primary facts, this involves knowing not only that he is alleged to have acted dishonestly, but also the primary facts which will be relied upon at trial to justify the inference. At trial the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in a case of fraud. It is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with honesty. There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved." (Three Rivers DC v. Bank of England [2001] UKHL 16, Lord Millett);

"[23] More important for the purposes of this appeal are the principles governing the pleading of dishonesty. There was little dispute as to these before either the Judge or us. They were summarised, in my judgment accurately, by counsel for the Claimant as follows:

i) Fraud or dishonesty must be specifically alleged and sufficiently particularised, and will not be sufficiently particularised if the facts alleged are consistent with innocence: Three Rivers District Council v Governor and Company of the Bank of England (No.3) [2003] 2 AC 1.

ii) Dishonesty can be inferred from primary facts, provided that those primary facts are themselves pleaded. There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be pleaded: Three Rivers at [186] (Lord Millett).

iii) The claimant does not have to plead primary facts which are only consistent with dishonesty. The correct test is whether or not, on the basis of the primary facts pleaded, an inference of dishonesty is more likely than one of innocence or negligence: JSC Bank of Moscow v Kekhman [2015] EWHC 3073 (Comm) at [20]-[23] (Flaux J, as he then was).

iv) Particulars of dishonesty must be read as a whole and in context: Walker v Stones [2001] QB 902 at 944B (Sir Christopher Slade).

[24] To these principles there should be added the following general points about particulars:

i) The purpose of giving particulars is to allow the defendant to know the case he has to meet: Three Rivers at [185]-[186]; McPhilemy v Times Newspapers Ltd [1999] 3 All ER 775 at 793B (Lord Woolf MR).

ii) When giving particulars, no more than a concise statement of the facts relied upon is required: McPhilemy at 793B.

iii) Unless there is some obvious purpose to be served by fighting over the precise terms of a pleading, contests over their terms are to be discouraged: McPhilemy at 793D." (Sofer v. Swiss Independent Trustees SA [2020] EWCA Civ 699, Arnold LJ)

"[36] It is well established that in ordinary civil litigation involving allegations of fraud, the obligations in respect of pleadings are heightened.  The fraud must be “distinctly alleged” and it must be sufficiently particularised..." (Ulster Metal Refiners Limited v. HMRC [2017] NICA 26)

“the tribunal should insist at the outset that any allegations of dishonesty or other wrongdoing against those acting for the Commissioners should be stated unequivocally; that the allegation and the basis for it should be fully particularised; and that it is responded to in writing by the Commissioners. The tribunal should not in any circumstances allow cross-examination of the Customs officers concerned, until that is done.” (CEC v. Pegasus Birds Ltd [2004] STC 1509 at §38(iii));

 

“Second, an allegation of fraud or dishonesty must not only be distinctly alleged but sufficiently particularised. This is a separate principle. The requirement to plead fraud or dishonesty unequivocally is designed to give the party opposite sufficient notice that this is indeed what is being alleged. The requirement to give sufficient particulars goes further than this…” (E Buyer UK Ltd v. HMRC [2016] UKUT 123 (TCC), §46)

 

“all allegations of impropriety and lack of bona fides should be exhaustively and unequivocally particularised in writing prior to cross-examination: Pegasus Birds v. HMRC [2004] STC 1509, [38] per Carnwath LJ.” (GSM Export  (UK) Ltd v. HMRC [2014] UKUT 0529 (TCC), §182, Proudman J);

 

“It is also well settled that a tribunal is not entitled to find serious allegations established against a party who calls relevant witness unless those allegations are clearly formulated and put in cross-examination.” (Mobilx Ltd v. HMRC [2009 EWHC 133, §16, Floyd J; cited in Pars Technology Ltd v. HMRC [2011] UKFTT 9 (TC), §40, Judge Mosedale).

 

“the appellant is not only entitled to know if fraud is alleged, but it is entitled to know the particulars on which the allegation is based. Millett LJ said a party against whom fraud was alleged was entitled to be told in the pleadings the primary facts on which the allegation was based, and the primary facts pleaded to support the allegation must not be consistent with honesty.” (Citibank NA v. HMRC [2014] UKFTT 1063 (TC), §43, Judge Mosedale).
 

Dishonesty must be particularised​

Extent of particularisation required

 

[74] We again agree with [the taxpayer] that the Statement of Case does not plead or particularise Mrs Langley's alleged dishonesty. Instead, it says only (our italics):

(1)     that Officer Brenton “asserts that it is common practice for those attempting to distance themselves from any evasion to blame an agent or other third party in the supply chain”;

(2)     Mrs Langley's submission that she and her husband had been “open and honest” with the Border Force “could be seen as a further attempt to distance themselves from the evasion”; and

 (3)     the Border Force “is of the understanding on the evidence before it that these goods were intentionally undervalued”.

[75] There is thus no specification of the evidence on which the Border Force are relying, and there is not even any clear identification of Mrs Langley (rather than her husband) as the person responsible for the evasion.

[76] We also agree with [the taxpayer] that it is not possible to plead dishonesty for the first time in a skeleton argument, and that in any event, that provided for the hearing on behalf of the Border Force did not do so. The skeleton only says “Officer Brenton acted reasonably in concluding that this was a conscious attempt to evade import duties of over £2,500”. (Langley v. HMRC [2022] UKFTT 83 (TC), Judge Redston)

“The appellant knows the primary factors relied on by HMRC. It knows some details but (I presume) not all of them. It must wait for the witness statements to put all the flesh on the bones.” (Citibank NA v. HMRC [2014] UKFTT 1063 (TC), §46, Judge Mosedale).

 

“I should add that it is, of course, feature of tax litigation is that the underlying facts are usually better known to the Appellant than to HMRC. Nonetheless, a taxpayer is entitled to a succinct statement of the facts on which HMRC bases their case – the facts are an essential part of HMRC's reasoning process.” (PGPH Ltd v. HMRC [2016] UKFTT 46 (TC), §53).

 

Primary facts means the main facts

 

“That is all very well but what are primary facts?  The citations from Three Rivers, Gamatronic  and Sunico at §§13, 24 and 27 above recognised that in cases of alleged fraud the court or tribunal is normally asked by the claimant to infer dishonesty from facts which are not themselves direct evidence of fraud.  The facts relied on for these inferences are the primary facts and they must be pleaded...The appellant considered that all the facts from which the tribunal will be asked to draw inferences must be pleaded but that has the problem identified of effectively requiring entire witness statements to be pleaded. That would tend to obfuscate rather than clarify the main issues.  It seems to me that the judges in the authorities cited above were using ‘primary’ in the sense of ‘main’ or ‘principle’.  They were not requiring every detail to be pleaded.  Any other conclusion would lead to all the problems outlined in my comments in Citibank cited above at §20.  So the primary facts which the party relies on to prove the alleged dishonesty must be pleaded, but not all the details surrounding those primary facts.” (Ronald Hull Junior Ltd v. HMRC [2016] UKFTT 525 (TC), §§29 – 30).

 

Examples of distinction 

 

“The primary fact relied on is the re-trading of the identical product within a short period; if HMRC is to succeed in making it out they will need to serve evidence showing that the appellant actually did re-trade the identical credits in a short period of time, which will necessarily require them to identify the dates, serial numbers and transactions and so on. But they do not need to plead these details in the statement of case.” (Citibank NA v. HMRC [2014] UKFTT 1063 (TC), §48, Judge Mosedale).

 

“If HMRC do not apply to amend the SOC, then they should not ask the Tribunal to attribute knowledge (actual or constructive) by named or unknown individuals to the appellant. It seems to me that that would prevent HMRC making out its case…”(Citibank NA v. HMRC [2014] UKFTT 1063 (TC), §80, Judge Mosedale – see below on “unknown individuals”).

 

Unnecessary to plead details of individuals unless part of case

 

“It is possible for HMRC to prove its case that a corporate appellant had actual knowledge without identifying a particular individual officer or employee or agent of the appellant who had actual knowledge.  It can do this if HMRC can show that the company acted in such a way that it (acting by its officers and employees) must have known.  If this were not the case, a company could defeat any investigation into it simply by failing to identify which person took which decisions…However, in so far as it is or becomes HMRC’s case that a particular officer/employee/agent of the company had actual knowledge and that that (alleged) knowledge should be attributed to the company, then the allegation that that individual had actual knowledge must be pleaded together with the primary facts relied on to support that allegation.” (Ronald Hull Junior Ltd v. HMRC [2016] UKFTT 525 (TC), §§38 - 39).

 

“I consider that HMRC can (if they have proper grounds in the evidence) make an allegation of knowledge against a corporate entity, such as the appellant, even if they are unable to identify any particular individual whose knowledge should be vicariously attributed to the bank.” …”(Citibank NA v. HMRC [2014] UKFTT 1063 (TC), §86, Judge Mosedale).

May have to confirm whether witness is accused of dishonesty

“if the appellant gives notice that it intends to adduce the evidence of someone at a particular company, HMRC may have to come off the fence and either allege dishonesty on the part of that person or not.” (Vale Europe Ltd v. HMRC [2014] UKFTT 1042 (TC), §32, Judge Hellier);

Or particulars of individuals should be given as soon as feasible

"[30] In that case [Rigby v Decorating Den Systems Ltd] Peter Gibson LJ said:

"It does not seem to me a necessary requirement for a pleading of this nature, where it is quite clear that fraud is being alleged and where the pleading expressly states that the defendants had the relevant knowledge, that particulars of knowledge must be given. That to my mind is sufficient to enable the plea to withstand an application to strike out. It was, of course, open to the defendants to seek further particulars of that pleading of knowledge, and if they had not been provided it may be that the defendants could have proceeded to seek some sanction. But in the present case, it has not been asserted that the defendants were unaware of the plaintiffs' case against them and, as I have said, they have at no time sought to have that knowledge particularised in a way which could lead to the striking out of the action."

...

[32] Whether or not it is technically binding, I see no reason to differ from Peter Gibson LJ's statement of principle. I do not doubt that, where an allegation of dishonesty is made against a body corporate, it is necessary to plead the relevant state of knowledge of that body at the relevant time. I do not accept, however, that a mere failure to identify at the outset the directors, officers or employees who had that knowledge means that such an allegation is liable to be struck out without further ado. Clearly such particulars should be given as soon as is feasible, and there may be situations in which the claimant's unwillingness or inability to give such particulars when requested to do so justifies striking out; but that is another matter." (Sofer v. Swiss Independent Trustees SA [2020] EWCA Civ 699, Arnold LJ)

Unnecessary to plead fraud in relation to multiple payments separately

"[45] ...As I understood it, counsel's submission was that the Particulars of Claim needed to address each payment, or at least each category of payments, separately; and in the case of payments remitted to other beneficiaries, the Claimant needed specifically to set out the facts relied upon as showing that the Defendant had the relevant state of mind in relation to those payments. I do not accept these submissions. At this stage the Particulars of Claim does not need to condescend to that level of detail in order to plead a sustainable case of dishonesty." (Sofer v. Swiss Independent Trustees SA [2020] EWCA Civ 699, Arnold LJ)

Less detail for allegations of fraud against non-parties

 

“Bearing in mind pleadings should clarify and not obfuscate the case against the appellant, it seems to me that where a third party’s alleged fraud is a primary fact alleged against a party to an appeal, it must be pleaded with sufficient details to justify it but it does not itself have to be pleaded in the same degree of detail as it would need to be pleaded if the non-party were a party to the case.  The SOC does not have to contain a full SOC for every non-party alleged to have committed fraud. The details can wait for exchange of evidence.” (Ronald Hull Junior Ltd v. HMRC [2016] UKFTT 525 (TC), §34).
 

Extent of particularisation required

- Sufficient relevant particulars of primary facts to tip the balance in favour of a potential finding of fraud

 

"[36] Pulling the threads together, the court and the defendants to a pleading of dishonest conspiracy are entitled to expect a clear concise statement of relevant facts, where the key allegations of dishonesty and the acts done in furtherance of the conspiracy are clearly set out with sufficient relevant particulars of primary fact to tip the balance in favour of a potential finding of fraud.

[37] Generally, the allegation will be a conclusion that the court will be asked to reach at trial and the particulars of primary fact will be those facts said to justify that conclusion, if proven at trial. If those primary facts are not pleaded or if, taken at face value and in the round, they do not point towards their being a realistic prospect of the stated allegations being made out at trial, then the pleading fails and the interests of justice do not require the claim to proceed any further.

[38] A degree of cautious realism is appropriate when considering the striking out of fraud claims. The court must bear in mind the position of the victim and not allow what might be good claims to be prevented from being determined at trial by applying unrealistic technical requirements to a pleading that will often reflect the claimant's relative ignorance about matters that the defendants will have done their best to keep hidden." (Gerko v. Seal [2023] EWHC 63 (KB), HHJ Parfitt)

"[43] If Mr Patel wishes to plead that an actionable claim in conspiracy, he should plead primary facts from which the court could properly infer that the instigation of those proceedings was such as to constitute unlawful means, or was done with the predominant purpose or intention of causing injury to Mr Patel rather than to further some legitimate interest of MSD's own. Similarly, if Mr Patel wishes to argue that the proceedings were started for an ulterior purpose, he will need to give particulars of what that purpose was, carefully pleading what are the primary facts to give rise to such inferences as Mr Patel wishes to rely on. Only in that way can MSD, and for that matter the other Defendants, understand the case it is that they have to meet." (Patel v. Minerva Services Delaware Inc [2023] EWHC 856 (Ch), Master Pester)

- Sufficient relevant particulars of primary facts to tip the balance in favour of a potential finding of fraud

- Not required to plead evidence, but facts

"When one compares the contents of the crucial paragraphs 16 and 17 of the draft Amended Particulars of Claim (which I have set out above at para. [23]) to these basic requirements (and even taking the pleading as a whole), the amended pleading falls far short. I emphasise that the Trust was not required to plead evidence but rather the “primary facts” (adopting Lord Millett’s language in Three Rivers) under each of the heads I have identified in para. [42] above." (Kasem v. University College London Hospitals NHS Foundation Trust [2021] EWHC 136 (QB), Saini J)

- Not required to plead evidence, but facts

- Primary facts pleaded must justify an inference of fraud/dishonesty

 

"[57] I accept Mr Nixon's submission that each of the allegations of procuring breach of contract, deceit, conspiracy to injure and joint tortfeasorship require the pleading of primary facts from which an inference of the relevant dishonesty or wrongdoing may be made.

[58] The PoC do not plead and positively aver any relevant primary fact which goes further than the bare fact that CFS was not paid the sums the subject of the claim by Livingstone.

[59] To the extent that the matters upon which Mr Ewing sought to rely are currently pleaded they are not primary facts sufficient to satisfy the necessary test in relation to any wrongdoing by D2-3-5 in relation to the sums which are the subject of CFS's claim.

[60] None of the raising of credit notes, D3's movement between employers, the amount of D3's remuneration or his re-negotiation of the charging structure mean dishonesty is a more likely inference than one of innocence or negligence in connection with the sums the subject matter of the claim.

[61] Even if those matters currently not pleaded were pleaded, they would not be primary facts sufficient to pass the necessary hurdle. A company's subsequent insolvency does not mean that a company's directors or employees may be inferred to have been more likely to be dishonest than innocent or negligent in any particular respect." (Complete Facilities Solutions Ltd v. Livingstone Consulting Ltd [2023] EWHC 571 (Ch), Master McQuail)

- Primary facts pleaded must justify an inference of fraud/dishonesty

- Plead the primary facts justifying the state of mind relied on

 


"[41] Based on these decisions, the determination of an application for striking out a plea of fraud must take into account the following considerations:

(1)     It is incumbent on a party alleging fraud to plead sufficient particulars of knowledge that the alleged representation was untrue.
(2)     The particulars may be of direct knowledge, for example a written communication demonstrating that the representor had the requisite guilty knowledge.
(3)     In the absence of particulars of direct knowledge, the party pleading fraud may have to resort to an inference to be drawn from a primary fact or a number of primary facts. All such primary facts upon which an inference of fraud is to be drawn must be pleaded." (Jinxin Inc v. Aser Media PTE Limited [2022] EWHC 2988 (Comm), Peter Eggers KC)

"[22] Further, if allegations of fraud or deceit rest upon drawing inferences about a defendant's state of mind from other facts, then those other facts must be clearly pleaded, and the inference of dishonesty must be more likely than one of innocence or negligence: Cunningham v Ellis at para 42, citing Portland Stone Firms Limited v Barclays Bank [2018] EWHC 2341 (QB) at paras 26, 29; and JSC Bank of Moscow v Kekhman [2015] EWHC 3073 (Comm) at para 20. In applying these principles, however, the court may take a “generous approach to pleadings” given that the defendant may have “tried to shroud his conduct in secrecy”: Cunningham v Ellis at para 43 citing Portland Stone at para 27." (Raja v. McMillan) [2020] EWHC 951 (Ch), Sarah Worthington QC)

"[29] In any event, if a case alleging fraud or deceit (or other intention) rests upon the drawing of inferences about a Defendant's state of mind from other facts, those other facts must be clearly pleaded and must be such as could support the finding for which the Claimant contends. This is clear from numerous authorities: see Three Rivers District Council v The Governor and Company of Barclays of England (No 3) [2003] 2 AC 1 at [55] per Lord Hope and [186] per Lord Millett." (Portland Stone Firms Limited v. Barclays Bank Plc [2018] EWHC 2341 (QB), Stuart-Smith J)

- Plead the primary facts justifying the state of mind relied on

- Plead the primary inference to be drawn from a primary fact

"[44] First, there is no obvious connection for example between the fact that Mr Kasem has been on holiday on a number of occasions (or that he attended a specific music festival at Coachella) with any false representation on his behalf. The pleader clearly has in mind some fact or inference which he will ask the Court to take into account or draw but has not explained what it is." (Kasem v. University College London Hospitals NHS Foundation Trust [2021] EWHC 136 (QB), Saini J)

Inference pleaded that decision not to create a written record was deliberate as it would reveal involvement in unlawful behaviour

"[26] Of course, the alleged inferences may not be sustained.  That is a matter for trial.  Nothing I say in this judgment should be taken to suggest that I in any way pre-judge the outcome. But without more, I consider it is impossible to conclude that the inferences alleged are not reasonably arguable or that they do not carry some degree of conviction. Those inferences are pleaded and, in my judgment, are reasonably arguable with some degree of conviction on the basis of the documents referenced and the chronology.  It is not appropriate to conduct what would be virtually a mini-trial, scrutinising each particular alleged inference against not only the documents relied on but, as Mr. O'Donoghue at some stages urged, other surrounding documents to reach a view as to whether this or that particular inference stood a real chance of success.  Having regard to the overriding objective, it is appropriate on this application to stand back and look at the inferences in the round, asking whether they realistically could be sustained in supporting the plea against DT." (Phones 4U Limited v. EE Limited [2021] EWHC 2816 (Ch), Roth J)

- Plead the primary inference to be drawn from a primary fact

- Must plead what accused is alleged to have known, why and basis upon which fraud inference is to be made with particulars

 

"[102]...In my view each Defendant is entitled to have set out in the POC what they are alleged to have known, why, and the basis upon which a fraud inference is to be made against them with particulars which give a level of detail which can support the serious allegations made. This has not been done and it is a fatal flaw.

....

[105] There are no particulars given of specific parts of the information contained in the PCC which are said to have been deceitful: i.e. that the PCC contains on a particular page an assertion x, but x is false, and was known to be false by a particular defendant because of y. On the contrary, the Claimant's approach is at a much higher level of generality: nobody could have been involved in the PCC without fraudulent intent because the PCC asserts generally that the Property was ready, subject to snagging, but it was not.

[106] This level of generality is unfair to the Defendants who are entitled to know the primary facts to be relied on to support the conclusion that they have been deceitful (assuming the deceit allegation is made generally against all of them) or that such an allegation is made against them specifically and the factual basis for it." (Gerko v. Seal [2023] EWHC 63 (KB), HHJ Parfitt)

"[57] I accept Mr Nixon's submission that each of the allegations of procuring breach of contract, deceit, conspiracy to injure and joint tortfeasorship require the pleading of primary facts from which an inference of the relevant dishonesty or wrongdoing may be made.

[58] The PoC do not plead and positively aver any relevant primary fact which goes further than the bare fact that CFS was not paid the sums the subject of the claim by Livingstone.

[59] To the extent that the matters upon which Mr Ewing sought to rely are currently pleaded they are not primary facts sufficient to satisfy the necessary test in relation to any wrongdoing by D2-3-5 in relation to the sums which are the subject of CFS's claim.

[60] None of the raising of credit notes, D3's movement between employers, the amount of D3's remuneration or his re-negotiation of the charging structure mean dishonesty is a more likely inference than one of innocence or negligence in connection with the sums the subject matter of the claim.

[61] Even if those matters currently not pleaded were pleaded, they would not be primary facts sufficient to pass the necessary hurdle. A company's subsequent insolvency does not mean that a company's directors or employees may be inferred to have been more likely to be dishonest than innocent or negligent in any particular respect." (Complete Facilities Solutions Ltd v. Livingstone Consulting Ltd [2023] EWHC 571 (Ch), Master McQuail)

- Must plead what accused is alleged to have known, why and basis upon which fraud inference is to be made with particulars

- Not sufficient to plead a narrative of primary facts, leaving the court to work out which are said to give rise to inference of dishonesty

 

"[50]     Mr. Venkatesan identified two principles or requirements which, so he submitted, apply to the pleading of dishonesty. These principles or requirements were as follows:

 (1)     Mr. Venkatesan described the first principle or requirement as the sufficiency requirement. While dishonesty can be inferred from primary facts, provided that the primary facts are pleaded, it must be the case, on the basis of the primary facts pleaded, that an inference of dishonesty is more likely than one of innocence or negligence. It is not enough if the primary facts pleaded are equally consistent with an inference of honesty.

 (2)     Mr. Venkatesan described the second principle or requirement as the identification requirement. In pleading dishonesty the primary facts which, if true, support the inference of dishonesty and thus satisfy the sufficiency requirement, must be identified. The claimant cannot simply plead a narrative of various primary facts, leaving it to the defendant and the court to work out which are said to give rise to the inference of dishonesty and which are not. Although identified as a second principle or requirement, the identification requirement was described by Mr. Venkatesan as being anterior, in terms of its application, to the sufficiency requirement.

 [51]     Mr. Venkatesan placed particular emphasis on the identification requirement, the existence of which he said that the Deputy Master had overlooked.

 [52]     I accept Mr. Venkatesan's characterisation of the sufficiency requirement and the identification requirement, as requirements which fall to be observed when pleading fraud or dishonesty. I add two qualifications to Mr. Venkatesan's characterisation of the identification requirement. First, what is required to be pleaded in any particular case, in order to comply with the identification requirement, is a case sensitive exercise. Second, it is important to keep in mind that the basic purpose of a pleading is to enable the opposing party to know what case is being made, in sufficient detail to enable that party properly to prepare to answer it. The application of the identification requirement is not a rigid exercise." (Crypton Digital Assets Ltd v. Blockchain Luxembourg SA [2021] EWHC 3194 (Ch), Edwin Johnson J)

- Not sufficient to plead a narrative of primary facts, leaving the court to work out which are said to give rise to inference of dishonesty

- Not sufficient to set out generalised allegations unsupported by primary facts and rely on witness statement to cure defect

"[42] After adjourning to consider the relevant section of the CSOC, which is set out in full in the Appendix to this decision, we concluded that Mr Watkinson was correct in relation to those of the vehicles which had been sold by the Appellant to each of the specified customers apart from Greasemonkey and Hayes. We reached this conclusion for the following reasons:

 (1)     in our view, in order for the CSOC to have met the standard of particularisation set out in Three Rivers, it needed to set out, in sufficient detail for the Appellant to understand the case which it was required to meet, the primary facts on which the Respondents intended to rely to establish that each relevant customer had perpetrated a VAT fraud in relation to each of the vehicles which the Appellant had sold to that customer and which was the subject of the appeals. It was not sufficient for the CSOC to set out generalised allegations, unsupported by the primary facts on which reliance was to be placed to support those generalised allegations, and then rely on the detail in the witness statements to cure that defect;

(2)     the terms of the CSOC were woefully inadequate in this respect. Instead of setting out the primary facts on which the Respondents intended to rely to show that the vehicles sold by the Appellant had been the subject of VAT fraud by each customer to whom the Appellant had sold vehicles, the CSOC contained a number general statements and assertions which bore no necessary relationship to fraud by the customer in relation to the vehicles in question;
(3)     for example, the preamble to paragraph 56 of the CSOC contained a general statement to the effect that each of the customers “have been found to have been involved in fraudulent transactions or were the subject of deregistration action in the Republic of Ireland”. That statement would have been entirely appropriate as an introduction to a recitation of the primary facts required to be proved in order to justify the statement but, in and of itself, it was not sufficiently particularised to comply with the standard laid down by Lord Millett;
(4)     although the paragraph then purported to describe in further detail the nature of the wrongdoing by each customer, those descriptions were, for the most part, vague and unparticularised and, with the exception of the sub-paragraphs relating to Greasemonkey and Hayes, none of the sub-paragraphs relating to the customers set out the primary facts which, if established, would enable us to conclude that the relevant customer had fraudulently evaded VAT in respect of the vehicle in question;" (Northside Fleet Ltd v. HMRC [2021] UKFTT 287 (TC), Judge Beare)

- Not sufficient to set out generalised allegations unsupported by primary facts and rely on witness statement to cure defect

- Not sufficient to plead particulars by way of "example"

"[47] Fourth, the Trust cannot use the language of “for example” (as it does) when alleging particulars of why a representation is false. That would be to drive a coach and horses through the pleading requirements and allow ambush in the course of trial. That is never permissible as a basis to allege fraud as part of a deceit claim." (Kasem v. University College London Hospitals NHS Foundation Trust [2021] EWHC 136 (QB), Saini J)

- Not sufficient to plead particulars by way of "example"

- Courts recognise potential difficulties of pleading fraud, but does not circumvent requirements

"[41] Based on these decisions, the determination of an application for striking out a plea of fraud must take into account the following considerations:
[...]

(6) Further, the Court should adopt a generous approach to the party alleging fraud in the pleading of fraud and the particulars in support of that plea having regard to the fact that that party may not have access to all of the information and documents which pertain to the allegation. However, such generosity should not circumvent the requirements of pleading fraud and supportive particulars, but should be exercised, for example, where the issue whether the plea of fraud is justified is evenly balanced." (Jinxin Inc v. Aser Media PTE Limited [2022] EWHC 2988 (Comm), Peter Eggers KC)

- Courts recognise potential difficulties of pleading fraud, but does not circumvent requirements

Consequences of failure to plead and particularise dishonesty

Evidence alleging fraud not to be admitted if fraud not pleaded

 

“For as long as HMRC's stance in these proceedings abjured any positive case of that kind against Infinity, it was in my view highly unsatisfactory, and verging on abusive, that their evidence should at the same time do precisely that, and pursue no other legitimate purpose. As the judge said, if a positive case of fraud, dishonesty or bad faith is to be advanced in civil litigation (whether in a court or a tribunal) it must be distinctly advanced and set out with the requisite particularity. If (as here) no such positive case is advanced, then evidence purporting to substantiate such misconduct is inherently objectionable, unless it is shown to serve some other legitimate purpose.” (HMRC v. Infinity Distribution Ltd [2016] EWCA Civ 1014, §16).

No adverse inference, but no assumption of honesty 

“the Tribunal should not assume the bona fides of a person just because no allegations of dishonesty are made. The lack of such allegations and/or the lack of evidence of dishonesty would prevent adverse inferences being drawn but that is not the same as assuming honesty. The question can and ought to be left open, unless the matter is put into issue and evidence adduced.” (Citibank NA v. HMRC [2014] UKFTT 1063 (TC), §122, Judge Mosedale).
 

Consequences of failure to plead and particularise dishonesty

Objection to point not being pleaded must be taken before FTT

 

“The respondents emphasised the importance of proper pleadings in a case in involving the no other reasonable explanation standard. Proper pleadings are indeed needed in a case such as this but there is no doubt that the matters to which I refer in this judgment were before the FTT without objection and therefore must have been sufficiently pleaded.” (Davis & Dann Limited v. HMRC [2016] EWCA Civ 142, §102, Arden LJ)
 

Statement of case going beyond reasons for original decision

Amend grounds of appeal or apply to strike out parts of the SoC that do not reflect the decision

 

“It may be that HMRC’s statement of case in response to proper grounds of appeal provide an explanation to the appellant for the decision which was not apparent to it from the actual decision letter itself:  if that happens the appellant could apply to amend its grounds of appeal and/or to strike out those parts of the statement of case which do not appear to reflect the decision.” (Unicorn Shipping Ltd v. HMRC [2017] UKFTT 464 (TC), §9, Judge Mosedale).

Restrict participation

See M32: Imposing and relieving sanctions

Statement of case going beyond reasons for original decision
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