Secretary of State for Business, Innovation & Skills v Nadhan Singh Potiwal (2012)
The evidence of a company director in disqualification proceedings, asserting his lack of knowledge of his company's involvement in VAT evasion, was struck out as an abuse of process. The VAT tribunal had previously found that the director had knowledge of the VAT evasion, and although there was an absence of privity between government departments in relation to that issue, it would be manifestly unfair and bring the administration of justice into disrepute if the matter was relitigated.
The applicant secretary of state applied to strike out part of the evidence of the respondent (P) in an application for P's disqualification as a director.
P was the sole director of a company (R) whose VAT claims had been disallowed by the HMRC. On R's appeal against that decision, the VAT Tribunal held that P had known that R was participating in the fraudulent evasion of VAT. The secretary of state applied for P's disqualification as a director under the Company Directors Disqualification Act 1986 s.6 on the ground that he was unfit to be concerned in the management of a limited company because he had caused R to participate in transactions connected with the fraudulent evasion of VAT, which P had either known or should have known about, and had caused R wrongfully to claim a VAT refund of more than £2m. P admitted that R had fraudulently evaded VAT, but denied in affidavit evidence that he had known or ought to have known about R's participation in that fraud. The secretary of state sought to strike out that evidence.
The secretary of state contended that that P was estopped per rem judicatam from denying that he had the requisite knowledge in relation to R's participation in VAT evasion because of the tribunal's contrary conclusion. Alternatively, it was submitted that P's denial was an abuse of process because it would be manifestly unfair for the secretary of state to be put to the substantial cost and delay of proving that allegation against P and/or that to permit the issue as to P's knowledge to be re-litigated would bring the administration of justice into disrepute. P argued that there could be no question of res judicata between him and the secretary of state due to the absence of the requisite privity of interest between them and the parties to the proceedings before the tribunal, namely HMRC and R.
(1) There would be no estoppel unless both parties to the second proceedings were either the same as, or in privity with, both parties to the earlier proceedings. The question whether one person was privy on another was highly fact-dependent, Dadourian Group International Inc v Simms (Damages)  EWHC 2973 (Ch) applied. There had to be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other was party, and for privity with a party to the proceedings to take effect, it had to take effect whether that party had won or lost, Gleeson v J Wippell & Co Ltd  1 W.L.R. 510 applied. P and R were clearly privies in the context of the proceedings before the tribunal. The question whether the secretary of state had the requisite privity of interest with the HMRC was more difficult. Both represented government departments charged with the protection and furtherance of the public interest, and both were ultimately funded by the taxpayer. However, despite the substantial overlap in interest between them in relation to the issue as to P's knowledge, it was not quite sufficient to make them privies since they were different arms of government pursuing different aspects of the public interest, and were motivated in particular cases by different policy and funding considerations when doing so. There was, therefore, no estoppel binding P as to his knowledge of the VAT fraud because of the absence of the requisite privity of interest between HMRC and the secretary of state in relation to that issue (see paras 9, 11-13, 17-18, 20-22 of judgment). (2) It did not follow from that conclusion that the relitigation of the issue as to P's knowledge was nonetheless not an abuse. R had gone into creditors' voluntary liquidation after the conclusion of the tribunal proceedings, and the HMRC had been unable to recoup its costs from R, despite the tribunal's order that it should. If P was to be permitted by a simple denial of the requisite knowledge to require the case to be proved against him a second time, hundreds of thousands of pounds of further costs, again funded by the taxpayer, would have to be incurred by the secretary of state, and there was no evidence that, if successful, a costs order would be practically enforceable against P. In those circumstances, it would be manifestly unfair to impose the cost of relitigating that issue on the secretary of state. Moreover, to permit the issue as to P's knowledge to be relitigated would indeed bring the administration of justice into disrepute, in the eyes of right-thinking people. Accordingly, those passages in P's evidence in which he denied that he had knowledge of the VAT fraud in which R had participated, to the extent found against him by the tribunal, were struck out as an abuse of process (paras 23-24, 27-28, 32).