[2010] UKFTT 557 (TC)

TC00808

            Appeal number: LON/2008/2402

PROCEDURE – Case management – Exclusion of witness statements

FIRST-TIER TRIBUNAL

TAX

	GLOBALBIS DISTRIBUTION LTD	Appellant
			      
	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (VAT)	Respondents

           TRIBUNAL:  JUDGE THEODORE WALLACE

Sitting in public in London on 24 June 2010 

David Scorey, instructed by Herbert Smith LLP, for the Appellant

Mark Cunningham QC, instructed by Howes Percival LLP, for Customs 					
	
REASONS FOR DIRECTION

1.	I am asked by Customs to provide reasons for Direction 11 of the Directions released on 1 July 2010 following a case management hearing.  This was one of the first cases where the admission by evidence of the type in question has been challenged.

2.	It is not clear that Rule 35(4) relating to written reasons applies to case management directions which do not dispose of an appeal; such directions are not a decision notice within Rule 35(2).  Nevertheless I have agreed to give reasons.

© CROWN COPYRIGHT 2010

3.	Direction 11 provided that the statement of Roderick Guy Stone dated 1 May 2008 be excluded and that leave to adduce the statement dated 29 April 2010 be refused.

4.	The appeal concerns the denial of around £2 million input tax in periods 03/06 and 05/06.  Customs contend that the Appellant knew or should have known that by its purchases it was participating in transactions connected with fraudulent evasion of VAT.  Fraud of this type is known as MTIC fraud.

5.	Mr Stone’s statement of 1 May 2008 comprised 44 pages and 121 paragraphs.  In paragraph 1 he stated that the statement was “to provide an explanation of the nature and features of the fraud and the steps which have been taken by HMRC to combat it”.  The statement is purely generic and apart from the heading giving the Appellant’s name makes no reference to the particular appeal.

6.	It contains a mixture of fact, opinion and law.  The facts relevant to the appeal before the Tribunal are those material to the transactions by Globalis and transactions connected therewith.  The Tribunal is not concerned with the facts in other cases either specifically or in general.  

7.	As to opinion, Mr Stone does not purport to be an expert witness.  Matters of law are for the Tribunal with legal submissions and not for witnesses.

8.	The statement includes considerable material relating to events after the period under appeal including the introduction of the reverse change, statistics relating to sales of mobile phones, the revocation of the licence of FCIB and additional measures under the Finance Act 2006.  It also refers to a Memorandum of Understanding which according to evidence in another appeal was moribund in 2002.  Mr Patchett-Joyce described the statement as “Stone’s Manual on MTIC”.  This was not inapt. 

9.	Although the appeal only involves seven transactions, the Tribunal was informed that 25 witness statements have been served by Customs and that currently the documents occupy 36 lever arched files.  The latest time estimate is 15 days or three weeks.

10.	In cases of this type effective case management is most important and must have regard to the overriding objective under Rule 2.  Rule 15 contains specific powers to give directions as to evidence including power to limit evidence.

11.	In my judgment Mr Stone’s witness statement of 1 May 2008 contains very limited potential evidential value and a considerable amount of material which is potentially prejudicial.  It would clearly be a dereliction of the duty of the Tribunal to adopt the assertions in paragraphs 12 to 22 as statements of fact.  These are matters properly a matter for submission by counsel in opening.  A concise statement covering such matters as Redhill verification procedures and the Nemesis database is useful where relevant if another witness cannot cover this.

12.	The inclusion of such material presents counsel for an Appellant with a dilemma.  Unless the Tribunal indicates that cross-examination on most if not all of the statement is unnecessary, it is necessary to spend time in preparing and carrying out a cross-examination thus driving up costs.

13.	Cases of this type involve an enormous amount of reading by the Tribunal.  The inclusion of unnecessary material carries the danger of diverting the attention of the Tribunal from relevant material, particularly given the very large amount of reading needed when as here there is a direction that statements stand as evidence in chief.

14.	Mr Stone’s second statement dated 29 April 2010 was submitted as a replacement for the original statement.  This contained 258 paragraphs extending to 111 pages.  Again this did not purport to deal with any of the transactions in the appeal but was generic, relating to the nature, mechanics and extent of HMRC fraud generally.  It is a standard form statement to be used in other cases.

15.	Mr Cunningham said that Mr Stone gives evidence of what he says are the generic features of MITC fraud.  He submitted that this is relevant to determining whether there is fraud.  At paragraph 256 Mr Stone identified nine factors as illustrating that transactions connected with MTIC carousel fraud are contrived in nature.  He said that one of the matters to be decided by the Tribunal is whether it is more likely than not that Global’s transactions where connected with fraud.  This updated paragraph 120 of the first statement.  This is however a matter for submissions rather than evidence by a witness.  Mr Cunningham did not identify any part of the statement as having direct relevance to the appeal as opposed to being general background information.

16.	Mr Scorey said that the new statement being generic did not help in deciding whether there were frauds in this case.  Section C contained 82 paragraphs setting out typical features of MTIC fraud, however not all of this was relevant to this case even generically.  Paragraph 256 contained certain “facts” such as that over 34,000 transaction chains had been subjected to extended verification and found to be connected to MTIC fraud.  Assuming this to be relevant he asked how the Appellant was to challenge it.  The new statement was said to be an update but many of the dates and figures were the same.

17.	The observations of the Tribunal in paragraphs 6 to 13 above apply equally to this statement.  Indeed there is considerable additional material which is increasingly after the event.

18.	A further factor is that on 1 December 2009 the Tribunal decided that no further statements be adduced by either party without consent or a direction by the Tribunal.  The directions did allow in other late statements.  This was very late on any view.

19.	I concluded that the first statement contained very little material of any probative value in the appeal and that the greater part of the statement was of no direct relevance at all.  If evidence as to Customs procedures is needed which cannot be given by other officers it should be contained in a statement limited to matters of direct relevance to the appeal.  The above observations are all the more appropriate in relation to the second statement which was of inordinate length.  In my judgment the admission of the statements would have added to the length of the trial quite apart from the substantial reading time for all involved, would have added to the costs and because of the inclusion of irrelevant matter is contrary to the requirement to deal with cases fairly, justly and proportionately.

THEODORE WALLACE
RELEASE DATE: 23 July 2010