HMRC and CSARS v Ben Nevis (Holdings) Ltd and Another  EWHC 1807 (Ch)
13 August 2012
Posted by: SAIT Technical
By SARS Legal & Policy
The High Court of Justice Chancery Division (UK) recently delivered its judgment in the matter between:
HMRC and SARS vs Ben Nevis Holdings Ltd, Metlika Trading Limited and HSBC Trustee (Guernsey) Limited.
The First Defendant ("Ben Nevis") is a company incorporated in accordance with the laws of the British Virgin Islands ("BVI"). Its corporate director is incorporated in accordance with the laws of Guernsey. Its sole registered shareholder is the Third Defendant ("HSBCT"), also a company incorporated in accordance with the laws of Guernsey. HSBCT holds the shares as trustee for the Glencoe Investments Trust ("GIT"), an offshore discretionary trust established in accordance with the laws of Guernsey for a class of beneficiaries that include Mr David King (a UK Citizen but a long time resident in RSA), his wife and children. Although disputed by the Defendants, the Claimants' case is that although Mr King is theoretically merely one of a class of beneficiaries of GIT, in practice he controls the structure to which I have so far referred. The issue has not been argued before me and I make no findings concerning it.
Ben Nevis is liable to SARS for taxes for the 1998, 1999 and 2000 years of assessment in the total sum (inclusive of various penalties and interest) of Rand 2.6 billion (approximately £222 million) following the final determination of a tax appeal in October 2010. On 4th March 2011, judgment was entered against it in proceedings in RSA for these sums.
The Claimants' case is that Mr King learned that SARS was investigating Ben Nevis's tax affairs and that as a result he procured the transfer of Ben Nevis's assets to the Second Defendant., Metlika Trading Limited ("MTL"). MTL is also a company incorporated in accordance with the laws of the BVI, its corporate director is incorporated in accordance with the laws of Guernsey and its sole registered shareholder is HSBCT who holds the shares on trust as trustee of GIT. SARS became aware that as a result of these activities a fund of approximately £7.8 million had been credited to a bank account with a London bank in the name of MTL ("the Bank Deposit").
These proceedings were commenced on 22nd February 2012 and consist of two claims. The first ("the Tax Recovery Claim") is a claim by HMRC against Ben Nevis for the sum that Ben Nevis has been held to owe SARS in taxes penalties and interest and is purportedly brought pursuant to the mutual assistance provisions contained in Article 25A of a Double Tax Convention ("DTC") entered into between the UK and the RSA ("the 2002 Convention"), which became part of English law by the Double Taxation Relief (Taxes on Income) (South Africa) Order 2002, as amended by the Double Taxation Relief and International Tax Enforcement (South Africa) Order 2011 which gave effect to a protocol entered into by the Governments of the RSA and the UK in 2010 by which various amendments to the 2002 Convention were agreed ("the 2010 Protocol").
The second claim ("the IA Claim") is a claim by both Claimants against all the Defendants brought pursuant to, and seeking relief under, Section 423 of the Insolvency Act 1986 ("IA"). The purpose of the IA claim is to enable the Bank Deposit to become available in partial satisfaction of any judgment obtained in the Tax Recovery Claim.
On 22nd February 2012, the Claimants sought and obtained a freezing order against all the Defendants. The purpose of this order was to preserve the Bank Deposit until after resolution of these proceedings. The initial hearing before Mann J, was in private and took place without notice to any of the Defendants. Mann J made the order sought ("the Freezing Order") and fixed a return date hearing to take place on 29th February 2012. That hearing took place before Floyd J who continued the Freezing Order expressly without prejudice to challenges by the Defendants both to jurisdiction and to the grant or continuation of the Freezing Order.
The Defendants maintain that the Tax Recovery Claim is unsustainable and misconceived because on its true construction Article 25A of the 2002 Convention does not apply to the enforcement in the UK of RSA taxes arising in any year of assessment prior to the coming into effect of the 2002 Convention by operation of Article 27 of the 2002 Convention, or if it does, then because the amendment took effect by operation of Section 173 of the Finance Act 2006 ("FA 06") it is ultra vires and void to the extent that it purports to have any effect earlier than the date of commencement of that Act.
If neither of these points is correct, then it is submitted that the effect contended for is incompatible with Ben Nevis's rights under Article 1 of the First Protocol of the European Convention on Human Rights ("A1P1"). It is submitted therefore that there is no serious issue to be tried and that the permission to serve out granted by Mann J should be set aside and the Tax Recovery Claim dismissed. It is common ground that if this is the outcome then the IA Claim cannot be pursued and so must also be dismissed, and in consequence the Freezing Order will cease to have effect.
Even if all that is not correct, the Defendants maintain that in any event:
a. SARS has no locus to bring or continue these proceedings and thus the claim as brought by it should be dismissed; and/or
b. HSBCT is not properly joined as a Defendant because it is merely the registered shareholder of Ben Nevis and MTL and thus neither Claimant has any cause of action against it
c. Leave to serve the IA Claim should not have been granted and/or ought to be set aside on the grounds that:i. There is no sufficient connection with this jurisdiction to justify the making of the Order; and/orii. The forum conveniens for such a claim is Guernsey not England
d. The Freezing Order ought to be discharged on the grounds that:
There is not and never was any real risk of dissipation because the Bank Deposit comes within the scope of the Restraint Order made by the Crown Court; and/or the Order was obtained from Mann J as a result of material non-disclosure both as to (1) the likelihood of the Restraint Order being discharged by the Crown Court and (2) the Defendant's likely defences to the Tax Recovery Claim; and/orthe Claimants ought to have given notice to the Defendants of the making of the application.
The courtset aside permission to serve these proceedings out of the jurisdiction in so far as they have been brought by SARS. Subject to any further submissions that might be made on the hand down of this judgment,the courtconsidered it appropriate to dismiss these proceedings in so far as they have been brought by SARS.
The court further set aside permission to serve these proceedings on HSBCT and again subject to any further submissions to be made on the hand down of this judgment, the courtconsidered it appropriate to dismiss these proceedings as against HSBCT.
Other than to the extent set out in (i) and (ii) in the judgment,the courtdismissed the Jurisdiction and Freezing Order Challenges.The courtwill, however,hear further argument as to the scope of the Freezing Order as against MTL.
Click here to access the judgment.