I did feel some sympathy for Nicholas and Charlotte Sandham.
They traded in scrap metals. They engaged an agent, a Mr France, to buy and sell more valuable ‘primary metals’ on their behalf.
There was no formal written contract between the Sandhams and Mr France. What they didn’t know was Mr France’s track record (including deceit, bankruptcy, etc). (Should they not have checked his history?) This was in contrast with the Sandhams own ‘impeccable’ record.
Mr France entered into 56 (that’s fifty six) transactions that he knew were related to fraudulent transactions resulting in VAT losses. HMRC disallowed the input tax on the basis that the Sandhams should have known that the transactions were related to VAT losses.
The Upper Tier considered the ‘attribution’ of knowledge from the agent to the principal. There is a certain inevitability about the argument here.
We do not consider that analysis of context to be based on general considerations of “fairness”. On the contrary, it is based on an analysis of the nature of the legal duty in connection with which the question of attribution arose.
Although Mr France has acted outside of the terms of his agreement with Mr & Mrs Sandham, his conduct was still legally binding upon them.
This short decision follows a very clear logic, doubtless leaving Mr & Mrs Sandham further out of pocket.