Wedlake Bell LLP successfully represented Mercy Global Consult Ltd by its Liquidators Jason Ainge and Paul Stanley of Begbies Traynor at trial of a significant payroll fraud.
Mercy Global Consult Ltd provided umbrella payroll services for workers in the health care sector who were proving their service to that sector through recruitment agencies. It used a convoluted billing system which gave rise to a tax investigation which culminated in HMRC raising very substantial assessments for under-declared VAT and a petition for the compulsory winding up of the company. Liquidators were appointed.
The liquidators, in the name of the company, issued proceedings alleging that there had been a lengthy and very substantial fraud perpetrated by Mr Abayomi Adegbuyi-Jackson between July 2015 and 2020. He had been the director of, and sole shareholder in, Mercy, and the unpaid VAT, it was said, had been misappropriated or misapplied by him. Mercy sought equitable compensation in a sum equivalent to the total liability to HMRC: unpaid VAT of over £21m and a penalty assessment of over £2m. Claims in knowing receipt and dishonest assistance were also made against Mrs Adegbuyi-Jackson (Mr Adegbuyi-Jackson’s wife) and against a number of corporate defendants, all of which had some connection to Mr Adegbuyi-Jackson and were said to have had a role in the fraud, for both dishonest assistance and knowing receipt.
The judgment of HHJ Johns KC, sitting as a High Court Judge, in Mercy Global Consult Ltd v Adegbuyi-Jackson & Ors [2023] EWHC 3203 (Ch) deals with the trial of the liquidators’ claims.
None of the defendants participated in the trial. Settlements had been reached with some, the claim against another had been discontinued by consent, and a Tomlin order made between Mercy and yet another. The remaining defendants had been debarred from defending for failure to comply with court orders for disclosure or service of witness statements. HHJ Johns nonetheless noted the obligation on the claimant company to prove its case:
“Notwithstanding the debarring orders, it is still necessary to take care in assessing the extent, if any, to which Mercy has made out its claim. As was said by Mr Edwin Johnson QC, sitting as a Deputy Judge of the High Court, in Times Travel (UK) Limited v Pakistan International Airlines Corp [2019] EWHC 3732 (Ch) at [55], ‘Where a debarring order does have the effect of preventing a defendant from participating in a trial, the position does not then go by default. At the trial the claimant must still demonstrate to the satisfaction of the court that the claimant is entitled to the relief sought in the relevant proceedings.’”
The judge had little difficulty in finding that the company had engaged in a large-scale VAT/labour supply fraud as alleged. Having done so, he went on to consider the personal claims against each of the “live” defendants.
He said he had no doubt that Mr Adegbuyi-Jackson had been responsible for the fraud:
“There is no other candidate for it. There is likewise no doubt that it amounted to a breach of duty by him as a director of Mercy. Most obviously, it involved him failing to ‘act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole…’, contrary to s 172 of the Companies Act 2006. In my judgment, Mercy is entitled by way of equitable compensation to the full amount of its liability to HMRC, subject to appropriate credit being given for recoveries and realisations.”
He went on to deal with the claims against three other director defendants, Mr Boisdur, Mr Osemwegie, and Mrs Enoch: there role was much more limited. However they were said to be liable as a result of having been directors of Mercy for periods during which the fraud was committed. The judge found there had been a breach of duty by each of these other directors. This included taking reasonable steps to prevent and detect fraud: those duties did not permit them to be dominated or bamboozled by one of their number (see Lexi Holdings plc v Luqman). Without any explanation of their conduct from the three directors, the judge inferred that they had failed in those respects:
“Any proper grasp of Mercy’s affairs commensurate with the duties of a director would have revealed that there was a massive under-declaration of VAT and that Mercy’s accounts did not reflect the scale of its business. The company’s documents show it was billing and receiving VAT but not passing it on, and not reflecting its true turnover in its accounts.”
The judge concluded that their failure to act so as to ensure that Mercy filed correct accounts and accounted to HMRC for the VAT it was collecting meant that the liability to HMRC brought about by the fraud in the period of their directorships had been caused by the defendant directors’ breach of duty. It followed, he said, that equitable compensation was due from each of them.
The claim against Mrs Adegbuyi-Jackson was made on two bases. The first was knowing receipt. The judge noted, by reference to BCCI (Overseas) Ltd v Akindele,
“There is no need for Mercy to establish dishonesty on the part of Mrs Adegbuyi-Jackson in order to make out its case against her on this basis. There will be knowing receipt if there is receipt of Mercy’s assets, such receipt arises from Mr Adegbuyi-Jackson’s breach of fiduciary duty, and there is knowledge on the part of Mrs Adegbuyi-Jackson that the assets are traceable to a breach of duty sufficient to make it unconscionable for her to retain the benefit.”
The second basis was dishonest assistance. This did require Mercy to establish dishonesty on her part. It also required Mercy to show that she had assisted in her husband’s breaches of duty. The complaint against her was made on the basis of sums paid through corporate defendants connected to her. The judge found that she had assisted her husband to act in breach of his duties by causing the companies concerned to deal with the proceeds of the fraud. In doing so she had acted dishonestly:
“Given the scale of these payments for which there is no legitimate explanation, which were not accounted for by these companies as their own funds, and that a very significant slice ended up with Mrs Adegbuyi-Jackson (again without any legitimate explanation), the inference I draw is that, as with the payments to her, she knew these were the fruits of Mr Adegbuyi-Jackson’s fraud. […] In addition, therefore, to her liability in knowing receipt, Mrs Adegbuyi-Jackson also has a substantial liability for dishonest assistance.”
Further claims against corporate defendants, largely for knowing receipt/dishonest assistance, succeeded.
The judge turned next to the proprietary claims which related mostly to real property acquired with the traceable proceeds of the fraud, and thus with Mercy’s money. These too largely succeeded.
An interesting passage in the judgment deals with the nature of the evidence given by a member of the forensic accounting team at Begbies Traynor, the liquidators’ firm, who carried out the tracing exercise. The question was whether it was evidence of fact or expert evidence/evidence of opinion and whether it could properly be relied on, given that it had not taken the form of an expert’s report adduced with permission under CPR Part 35.
The judge concluded it could properly be relied on. His analysis began with the distinction between the two kinds of evidence:
“The distinction seems to me important, as it is only opinion evidence which is generally inadmissible; a general rule to which expert evidence under CPR Part 35 provides an exception. The notes to the White Book 2023 at 35.0.1.1 under the heading “Admissibility of Expert Evidence” begin, “Expert evidence constitutes an exception to the general rule that only evidence of fact may be adduced.”
The evidence before the judge in this case was, in his view, evidence of fact, though of facts that were more readily discernible to someone with expertise in forensic accountancy. On that basis he held it to be admissible. He went on to say:
“Even if I am wrong to some extent and it could be said [the witness] strayed into opinion related to those facts, witnesses of fact are not excluded from offering opinions informed by their expertise. In Multiplex Constructions (UK) Limited v Cleveland Bridge UK Limited [2008] EWHC 2220 (TCC), Jackson J stated at [672] that, ‘[…] in construction litigation an engineer who is giving factual evidence may also proffer (a) statements of opinion which are reasonably related to the facts within his knowledge and (b) relevant comments based upon his own experience.’ That approach is not one confined to TCC cases, as was made clear by Beatson LJ in Globe Motors Inc v TRW [2016] EWCA Civ 396 at [92].”
In receiving the tracing evidence, the judge said that he was fortified in his view by the example of two further decisions: Umbrella Care Limited v Nisa [2022] EWHC 86 (Ch) (Umbrella 1) and [2022] EWHC 3139 (Ch) (Umbrella 2). “That,” he noted, “was a not dissimilar case of alleged fraud supported by a witness statement from the liquidator giving the results of a forensic analysis carried out on her instructions. That evidence was received without any apparent controversy by Edwin Johnson J, and accepted; both at the summary judgment stage in Umbrella 1 and at the later trial in Umbrella 2”. Wedlake Bell acted for the successful liquidator on the Umbrella case obtaining judgment of £36million. Wedlake Bell’s contentious insolvency team have and are acting for a number of office holders in major payroll fraud cases involving the wholesale failure to account to HMRC for sums up to £40million and their wrongful diversion. As in the Mercy case they involve complex factual positions with multi-jurisdictional tracing, worldwide freezing and proprietary injunctions, provisional liquidation orders and search orders.