TC09659 - [2025] UKFTT 01211 (TC)

Having considered each of these points on their own, as we inevitably had to, we then considered the points into totality. We took into account that these points should not be regarded as a chain where any single link being broken breaks the entire chain. Rather, as indicated in Red 12 the points should be looked at as a whole in which the totality of the points might provide strength to one another.

In looking at the overall picture we framed the question we should consider, based on the judgment in Davis & Dann, aswhether SKM should have known that its transactions with BTL were connected to fraud. In other words the question was not whether or not a reasonable person mindful of all the circumstances ought to have concluded that the transactions with BTL were connected with fraud. What mattered was the perspective of SKM as the person alleged to have constructive knowledge of the fraud.

Although we could see that one way of looking at all the points did suggest that the overall picture ought to have made SKM aware they were engaged in a fraud, we thought that the correct analysis showed the opposite. Standing back from the detail and looking at the overall picture, SKM ought arguably to have identified that they were engaged in a transaction where there was a risk of fraud. The factors point to that are identified above and consisted of the level of knowledge SKM had of the existence and prevalence of fraud in SKM’s trading sector, the significant trade with a relatively new entity, the apparent lax attitude to VAT compliance evidenced by the invoicing errors and the lack of sufficiently timely and well considered due diligence (the oddity of the introduction from Ripley being an example of that).

However, we did not consider that these points were such that we could conclude, on the balance of probabilities, that SKM should have concluded that they were engaged in a fraud. Some points should have aroused suspicion but there were numerous factors that appeared to (and perhaps did) have an innocent explanation (for example, the rapid growth in SKM’s turnover with BTL and third parties may well have been brought about by the attractive terms of trading which SKM was offering). Although SKM's due diligence was inadequate in certain respects, and some factors should have raised suspicion, the overall picture showed reasonable explanations for the transactions. The rapid turnover increase was linked to SKM’s business model, and commercial negotiations were evident.

In terms of the approach set out in Mobilx we concluded that there were reasonable explanations for the transactions between SKM and BTL and SKM did not ignore obvious inferences from the facts and circumstances.

Taking all of the above factors into account, cumulatively, we concluded that SKM should not have known they were engaged in a fraud. Fraud was by no means the only reasonable explanation of the trading with BTL.