High Court hands down summary judgment in £36m payroll fraud claim
In the case of Umbrella Care Limited (In Liquidation) v Nisa and Others  EWHC 86 (Ch), the High Court handed down summary judgment against several defendants in a claim involving unpaid taxes. The fifteen defendants to the original action were the directors of the Company (as defined below), as well as several other companies connected with those individuals. Claims against seven of the defendants (numbered by the Court as the ninth to the fifteenth defendants) had been settled by way of consent orders. In the summary judgment hearing, the Court found that five of the first eight defendants (as numbered by the Court) (the "Application Defendants") had no real prospect of defending various claims for breach of fiduciary duty, dishonest assistance and knowing receipt. Therefore, the Court made orders for equitable relief in favour of the Company.
Umbrella Care Ltd (the "Company") operated as an umbrella company in the healthcare field, employing and retaining workers who were supplied to recruitment agencies providing medical staff. The Company was responsible for payroll functions including the payment of wages to its employees and PAYE tax and National Insurance Contributions to HMRC. In addition, the Company charged VAT on its services to customers and was liable to account for VAT. In November 2020, the Company went into liquidation and joint liquidators were appointed.
Allegations of fraud
The Company brought the claim against the Application Defendants, alleging serious fraud in which a large percentage of the PAYE, NIC and VAT were never accounted for to HMRC. In its final proof of debt in liquidation, HMRC claimed £36,418,026.45 was owed. In contrast, the Company had made payments of less than £200,000 to HMRC in the three years prior to liquidation. The Company, acting through its joint liquidators, alleged that the missing funds, totalling more than £36 million (the "Funds"), were fraudulently diverted from the Company to the defendants and used to purchase properties in the names of the Application Defendants.
Summary judgment and equitable remedies
The first and second Application Defendants are wife and husband. The Company alleged that they were, at all times, de facto directors of the Company and were in breach of the duties which they owed to the company by causing or permitting the Funds to be paid out by the Company. The claim against the other three Application Defendants (all companies of which the wife and husband were also de facto directors) was that they were in knowing receipt of the Funds which were paid in breach of fiduciary duties owed by the first two Application Defendants to the Company.
The Company, acting by its liquidators, sought damages and/or equitable compensation, and interim payments on account of those damages. The Company also sought various declarations from the Court that properties and portions of the Funds which were held by the Application Defendants were held on constructive trust for the Company, together with orders that those properties be transferred to the Company.
In this application, the Court applied EasyAir Ltd v Opal Telecom, which sets out the principles in which summary judgment may be handed down. The key questions for the Court to consider are (i) whether a party has no real prospect of succeeding with (or successfully defending) a claim at a trial and, if not, (ii) whether there is any compelling reason why the relevant claims should be disposed of a trial, rather than at the application hearing.
In light of the substantial written evidence in support of the application, the Court found that there was no real prospect of the Application Defendants successfully defending the breach of duty and knowing receipt claims. The Court gave summary judgment with damages and/or equitable compensation and ordered interim payments to be made by the Application Defendants. In addition, the Court made declarations that certain properties and portions of the Funds which were held by the Application Defendants were held on constructive trust for the Company and should be transferred back to the Company. Meanwhile, certain claims for interim payments were refused by the Court on the basis that the quantum of damages/equitable compensation should be separately assessed at a consequential hearing.
It is clear that the Company's use of the summary judgment procedure was successful, even though not every element of the application was successful. The court made significant findings in its favour and ordered the return of properties and large portions of the misappropriated Funds to the Company through interim payments.
However, the limitation of summary judgment is seen in the Court declining to decide on several key issues. For example, the Court decided against making orders of certain interim payments on the basis that they should be subject to separate assessment. The Court also declined to make a judgment in relation to the dishonest assistance elements of the Company's claim. This was because, in the Court's view, dishonesty required a "fairly extensive investigation of the state of mind and knowledge of the relevant person" and was not therefore suitable for summary judgment.
The outcome of the application demonstrates the benefits of the summary judgment procedure, but also acts as a reminder us that there are some issues the Court will be reluctant to determine on a summary basis.