Property – Charging order – Concealment – Claimant obtaining default judgment against respondent in respect of unpaid tax on income – Claimant identifying property as beneficially owned by respondent – Claimant obtaining interim charging order over property – Claimant seeking final charging order – Whether respondent being beneficial owner of whole interest in property – Claim allowed
The respondent and members of his wider family rented industrial units at 555 Osmaston Road, Derby. The property was a roughly oblong strip of commercial land that accommodated several small commercial units. Two large advertising hoardings were attached to its boundary.
A police investigation was carried out after suspicions were raised concerning offences involving drugs, fraud and money laundering, which resulted in the conviction of a family member for conspiracy to supply drugs. There were no criminal proceedings against the respondent.
The claimant was a statutory agency tasked with a series of crime-related functions which included combating organised and serious crime and mitigating its consequences. Among the operational powers available to it were the powers and privileges of HM Revenue and Customs.
Acting on suspicion that significant income had been generated through criminal conduct, the claimant assumed the taxation functions of HMRC to investigate, pursuant to section 317 of the Proceeds of Crime Act 2002. It determined that the respondent had received rental and other income from industrial units at the property and obtained a default judgment against him for unpaid tax, national insurance contributions and interest thereon in the sum of more than £1.1m.
The title deeds to the property stated that the interested party was the legal owner. However, the claimant identified the property as beneficially owned by the respondent and obtained an interim charging order over the property. The question for the court was whether a final order should be made. The claimant said that, while it was impossible to provide irrefutable proof, there was a strong inference from all the facts and circumstances that the interested party was a device used to conceal the true ownership from scrutiny.
Held: The claim was allowed.
(1) The court would be careful to examine the quality of the evidence when serious allegations were made with possible criminal ramifications for the parties involved. The court would also be careful in cases where it was accepted there was no direct evidence of the matter to be proved, but rather circumstantial evidence and inference from other facts. Nonetheless, the court was entitled to draw inferences of fact where direct evidence was absent and the cumulative effect of several strands could be stronger than any individual part of evidence.
Further, the very nature of the allegation against the respondent that he deliberately concealed his involvement in, and ownership of, the property led to the common-sense deduction that direct evidence might be largely or wholly missing. In such a situation, the court would have to look carefully at the materials to analyse what was plausible and what was inherently implausible, recognising that it was, generally speaking, inherently less likely that a criminal, or otherwise culpable, explanation for events was correct.
(2) The claimant had to prove that, although legal title was in the interested party, in truth, the whole beneficial interest was enjoyed by the respondent. The consequences of such a finding might be serious for the interested party and its director. Nonetheless, it clearly was not impossible for the claimant to seek to build a case from inference, but the evidence to do it had to be cogent.
The claimant acknowledged that the interested party, as a company, was a legal entity with rights and liabilities of its own distinct from its shareholders. Its property did not belong to its shareholders, even where it was owned and controlled by one person. The court accepted the evidential safeguards relied upon by the interested party and had been cautioned to be careful that such conclusions as the court reached were supported by cogent evidence. Accordingly, the court had scrutinised with care the documents and transactions allegedly giving rise to the strong inference that the respondent was the beneficial owner of the property and that the interested party, which was on the title, held it in trust for him. However, the court had come to the clear conclusion that the claimant had proved that it was entitled to a final charging order.
(3) Under the concealment principle, the interposition of a company to conceal the identity of the real actors would not deter the courts from identifying them, assuming that their identity was legally relevant. In those cases, the court was not disregarding the façade, but only looking behind it to discover the facts which the corporate structure was concealing: Prest v Petrodel Resources Ltd [2013] UKSC 34; [2013] 2 AC 415 applied.
When asking whether it had been shown that there was concealment here, the character of the transactions involving the property were central. The purchase of the property, a valuable piece of land, by the respondent and his cousin was not denied. Its transmission through a series of corporate entities without any consideration paid raised a clear question as to what the commercial purpose of these transactions might be and where the respondent’s interest might be represented. The non-appearance of the property on the balance sheet of the entities to which it was passed until eventually resurrected as an asset, but mirrored by an almost exactly equal, unnamed liability, pointed inexorably towards the interposition of the companies so as to conceal the identity of the real owner of the property.
(4) It was irrelevant that the claimant had not pursued civil recovery proceedings against the respondent. The judgment on which the claimant relied was for tax due and owing and constituted a debt. The respondent was in the position of a judgment debtor against whom enforcement action was being taken, and, on the claimant’s case, was concealing behind a corporate structure, property which he owned and which might be utilised to discharge the judgment debt.
The present case fell fair and square within the “concealment” category of cases in which the law would look through the interposition of a corporate structure which was concealing the true actor. The true beneficial owner of the property was the respondent, who had provable direct connections to it.
The matters which the claimant put before the court constituted powerful material and an irresistible inference arose that the respondent was the beneficial owner of the whole interest in the property.
James Fletcher (instructed by National Crime Agency Legal) appeared for the claimant. The respondent did not appear and was not represented. Jonathan Lennon (instructed by Rahman Ravelli Solicitors) appeared for the interested party.
Eileen O’Grady, barrister
Click here to read a transcript of National Crime Agency v Persico
