High Court refuse application for permission to appeal a previous order, by deputy master nurse, who previously refused to set aside £4.3m judgment in default obtained by Manolete Partners Plc in suppressed sales case.
On 8 April 2020, the High Court refused the defendant’s application for
- permission to appeal
- a stay of execution against the previous order of deputy master nurse. The previous order refused to set aside a judgement obtained by Manolete Partners Plc holding that the defendant, the director of a restaurant business on the Edgware Road, had no reasonable prospects of defending the claim.
The facts of the dispute
This has been an ongoing case in which Debenhams Ottaway LLP and Joseph Curl of 9 Stone Buildings act for Manolete Plc against Mr Ismael Siza (the defendant) as sole director of Palms Palace Limited (the company).
The defendant was a director of the company which operated as a restaurant and Shisha bar. The company was investigated in respect of suspected suppression of sales. Its bank accounts record that no cash had been banked for a substantial period. The focus of the case was on five grounds on which HMRC’s assessment was made.
- a very high number of “no sales”
- an increase in voids or corrections which happened when the point about no sales was raised by HMRC
- out of hours trading
- certain sales wrongly zero rated
- large number of negative sales.
HMRC ultimately assessed the company for tax and penalties, being a mixture of corporation tax and VAT in sum of £3,316,318. It also considered that £4,186,848 which it calculated as the suppressed sales should be allocated to the directors’ loan account of the company for the defendant. The company went into creditors voluntary liquidation on 21 December 2017 and Miles Needham of FRP Advisory was appointed liquidator.
With no assets in the estate the liquidator assigned the claim to Manolete. Manolete issued proceedings on 22 May 2019 and obtained judgement in default of an acknowledgement of service on 17 June 2019. The defendant applied to set aside the judgement on 30 July 2019 and his application was heard by deputy master nurse on 18 November 2019.
Deputy master nurse refused the defendant’s application to set aside judgement. Please see the below link to our previous article in relation to this case which sets out the background, deputy master nurse’s decision and analysis.
On appeal, the application was put before the honourable Mr Justice Birss on paper. The defendant issued an application for
- permission to appeal
- a stay of execution of the order of deputy master nurse. Mr Justice Birss refused the application on paper. Please click here to view our previous article in relation to this case which sets out the Mr Justice Birss’ decision and analysis.
The defendant issued an application for oral consideration for the same request, based on the following grounds:
- The deputy master erred in law in concluding that notwithstanding there were factual disputes about the undisclosed sales, the deputy master was wrong to conclude that the draft defence was fanciful and had no real prospect of success. In particular he was said to have erred in wrongly requiring sample evidence to be provided, in wrongly failing to consider what evidence might be available at trial, and in applying a test which would have required a mini trial, which is the wrong approach. This first ground of appeal related to the first three HMRC grounds.
- The second ground related to a point on the third and fourth HMRC grounds (zero rated products and negative sales). The defendant relied on professional advice and the error of the Deputy Master was said to be that he wrongly held he was entitled to conclude, without a full factual investigation, that the defendant could not rely on that advice as a defence to the claim.
- The third ground was that the deputy master accordingly erred in concluding that the draft defence of the defendant had no real prospect of success.
The video hearing took place on 8 April 2020, before the honourable Mr Justice Zacaroli. Mr Justice Zacaroli refused to grant permission to appeal for the following reasons:
- The first ground had no real prospect of success.The explanations for no sale, voids/corrections and out of hours trading had not been given to HMRC at the time of the investigation. Afterwards and when the defendant was sole director the company took no steps to appeal the HMRC assessments. It was wrongly suggested during the hearing that an appeal was made against this, however, the only appeal was in relation to the defendant personally and not on behalf of the company.The HMRC report shows that the company did not appear to bank any cash at all. The explanation given for that was that staff would be paid in cash but no evidence to corroborate that was provided.
Mr Justice Zacaroli agreed that the deputy master lacked material before him to suggest that evidence would be available at trial, noting that the defendant had not produced any sample of evidence from a member of staff or employee. The defendant contended this is an error of law. However, the law does not require the judge to accept such assertions without considering all the circumstances. The sort of evidence missing is precisely what needed to be available now and not at trial.
- The defendant relied on professional advice and the error of the deputy master is said to be that he wrongly held that he was entitled to conclude, without a full factual investigation, that the defendant could not rely on that advice as a defence to the claim. Given the circumstances the deputy master was entitled to conclude that the defendant’s defence was fanciful. The ground had no real prospect of success.
- The third ground was that the deputy master accordingly erred in concluding that the draft defence of the defendant had no real prospect of success. The third ground added nothing to the first two.
Since permission was refused, a stay of execution was also refused.
This case is a reminder of the discretion available to judges. It is again also a useful reminder to applicants in general seeking to set aside judgements that the burden of doing so rests on them to produce evidence to support a defence that it more than merely fanciful. Contrary to the above, it is fanciful to suggest that a judge should accept an applicant’s position without any evidence whatsoever in support of an applicant’s position. This stance has been upheld by all Judges throughout the course of the hearings.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.