UT/2023/000084 - [2024] UKUT 00382 (TCC)

The FTT Decision followed a six day hearing (Footnote: ²). It is detailed and runs to 282 paragraphs. In this section we provide a high-level overview of the Decision in order to put the grounds of appeal into context (paragraph references, unless otherwise stated at to those in the FTT Decision). We will refer to more of the detail of the Decision as appropriate when discussing the relevant ground.

Beigebell carries on business as a supplier of a range of merchandise. It supplied and continues to supply products such as USB sticks, stickers, bags, phablets, power banks, clothing, notebooks and mouse mats. Beigebell’s directors and shareholders are Jack Orton and Marcus Griffiths ([33(2) and (3)]).

Between 1 September 2015 and 8 September 2015, Beigebell made six purchases of memory cards from a single supplier, Online Distribution Limited (“ODL”) and sold these on in five deals to Hi View Trading SL (“HVT”) (located in Spain). Each of those transactions was connected to a fraudulent defaulting trader or contra trader ([33(4)]).

As the FTT said at [28], a Tribunal deciding an appeal against a Kittel denial is required to consider the following four steps, see Blue Sphere Global Ltd v HMRC [2009] EWHC 1150 (Ch) at [29]:

The sole issue for the FTT in this case was the fourth: whether Beigebell knew the transactions were connected to fraud or ought to have known that they were so connected. It was not disputed that Mr Orton’s state of knowledge was attributable to the company for the purposes of the Kittel test ([252]).

The Decision summarised the evidence of HMRC’s two witnesses (the visiting officers responsible for Beigebell and for its supplier) and that of the appellant’s four witnesses, Mr Orton, Mr Griffiths, Mr Patel and a Mr Worthington. The FTT went on to make detailed findings of fact regarding the transactions and the surrounding circumstances, including those relating to the invoices, communications and visits with the freight forwarder; subsequent MTIC assurance visits to Beigebell by HMRC, and Mr Orton’s telephone enquiries as to whether goods were subject to reverse charges.

Beigebell’s case was that Mr Patel had set up a deal for his employer to purchase from ODL and sell to HVT. According to Mr Patel, SanDisk (the brand of the memory cards) had called him to say the contract with his employer only allowed it to supply UK customers, and he could not therefore supply HVT in Spain with the SanDisk products. Mr Patel’s evidence was that ODL could not sell directly to HVT due to “the channel model that exists and channel ethics” and “…they [had] to follow a Channel Model which [prevented] selling to End Users”, see [96] and [115].

Drawing inferences from the lack of any deal documentation and noting various anomalies in Mr Patel’s evidence, the FTT found as a fact that Mr Patel had not set up any deal in advance ([219] to [229]). The FTT also considered the channel model/ethics explanation to be “a fabrication”, as it hinged on SanDisk being in the transaction chain, which it was not ([239]). The FTT’s evaluation of the evidence, which is challenged on certain points in the grounds of appeal discussed below, included an assessment that Mr Orton’s evidence was neither credible nor reliable ([251]) and that Mr Griffith’s evidence while credible, was unreliable in certain respects ([242] to [244]).

The FTT noted (at [261]) the various factors which pointed to transactions being contrived. These included variously: their departure from the appellant’s normal trade practice and pattern, the lack of contracts, anomalies regards HVT’s terms and conditions, the currency of the deals being in Euros (although ODL and Beigebell were UK based), the length of the supply chains, the lack of insurance cover, Beigebell’s higher mark-up not being commercial, the fact HVT was prepared to pay upfront before dispatch of goods even though it had not traded with Beigebell before, issues in relation to inspections and deliveries, the fact that the goods were shipped direct to Poland (and not to Spain), and Mr Orton not asking for evidence of delivery. The FTT also noted (at [264]) Beigebell’s role as broker and the improbability that such orchestrated transactions would involve an unknowing party.

The FTT concluded from its consideration of “the totality of the circumstantial evidence” that there was “sufficient weight from the cumulative effect of the evidence” that Mr Orton and therefore Beigebell had actual knowledge the transactions were connected to fraud ([270]). It went on to conclude that if he did not have actual knowledge, he had “blind-eye” knowledge of the transactions’ connection to fraud ([275]).

On the alternative “should have known” test, the FTT noted the lack of commercial reality, including that Mr Orton ought to have questioned why ODL was not buying from HVT directly ([278]). The FTT considered “the orchestration of the deal chains was at such a level that Mr Orton should have known that the “only reasonable explanation” was that the transactions were connected with fraud ([280]).

We address in turn the grounds Beigebell confirmed it was pursing before us.