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Abbey Forwarding Ltd (in liq) v Hone

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Abbey Forwarding Ltd (in liq) v Hone

Written by Calum Haswell

Friday, 06 August 2010

COMPANIES - WINDING UP – FRAUDULENT TRADING – REVENUE AND CUSTOMS COMMISSIONERS RAISING ASSESSMENTS AGAINST CLAIMANT COMPANY – CLAIMANT ORDERED TO BE WOUND UP – CLAIMANT COMMENCING PROCEEDINGS AGAINST DEFENDANT DIRECTORS – CLAIMANT ALLEGING DEFENDANTS NEGLIGENT AND THAT DISHONESTLY COMPLICIT IN ALLEGED EXCISE DIVERSION FRAUDS – WHETHER DEFENDANTS LIABLE TO CLAIMANT FOR BREACHES OF OBLIGATIONS AS DIRECTORS

The claimant was a freight forwarding and warehousing business. In May 2002, it was granted an excise licence. From that date, part of its business consisted in operating a bonded warehouse. In 2005, the claimant secured a movement guarantee which enabled it to arrange transportation of goods under bond from one bonded warehouse to another. A duty-suspended movement of excise goods from an authorised warehouse in one member state to an authorised warehouse in another member state had to be documented by an accompanying administrative document (AAD). The AAD identified the consignor, the consignee, the nature of the goods and the transporter. Duty-suspended alcohol could be bought and sold whilst it remained physically within the bonded warehouse. The Revenue and Customs Commissioners (the Revenue) believed that alcohol apparently destined for export was diverted and slaughtered within the United Kingdom. As a result, the Revenue raised two assessments against the claimant in February 2009 (the February 2009 assessment). The assessments related to 301 separate movements of duty-suspended alcohol. Further assessments were raised relating to 307 movements (the further assessments). The assessments were based on the Revenue's belief that there had been large scale evasions of excise duty on duty suspended alcohol that had been stored in, and subsequently removed, from the claimant's bonded warehouse. The claimant had been named in the paperwork as the consignor of the goods; and in almost all cases the relevant movements of goods had been carried out under the claimant's movement guarantee. It was the claimant's description as consignor and that guarantee that founded its liability. B was appointed as the claimant's liquidator. The claimant was ordered to be wound up on 18 March 2009, on the petition of the Revenue in respect of the February 2009 and the further assessments. In due course, the claimant commenced proceedings against its four former directors, the defendants. The claimant contended that the directors were negligent in allowing the claimant to be exposed to the liability to the Revenue. In addition, the first, third and fourth defendants, were alleged to have been dishonestly complicit in the alleged excise diversion frauds that underlaid the assessments.
The question was whether the directors were liable to the claimant for breaches of their obligations as directors. The claimant contended, inter alia, that the 301 consignments covered by the February 2009 assessment had not arrived at their stated destinations but had been delivered to unknown destinations in the UK; and that the first, third and fourth defendants had known that the 301 consignments had not been intended to be delivered to an approved EU bonded warehouse, but were instead intended to be diverted to an unknown destination in the UK. Accordingly, the claimant asserted that there was outward diversion fraud on the part of the first, third and fourth defendants.

The application would be dismissed.

It was common fairness that neither parties to litigation, their counsel, nor judges should make serious imputations or findings in any litigation when the person against whom such imputations or findings were made had not been given a proper opportunity of dealing with the imputations or defending themselves. Therefore, before a finding of dishonesty could be made it had not only to be pleaded but also put in cross-examination. It was a cardinal principle of litigation that if serious allegations, in particular allegations of dishonesty were to be made against a party who was called as a witness they had to be both fairly and squarely pleaded and fairly and squarely put to the witness in cross-examination (see [46], [47] of the judgment).

Insofar as the claimant's case depended upon the actual occurrence of irregularities, it was for the claimant to prove that they had occurred. On the evidence, it had not been shown that the first, third and fourth defendants had been living beyond their means. Therefore, there was no trail of money which would provide a motive for participation in excise duty diversion fraud on a massive scale. The claimant had not established that goods covered by certain movements had not arrived at their intended destination. In all the circumstances, the claimant had failed to discharge the burden of proof. Accordingly, the defendants were not liable to the claimant for breaches of their obligations (see [41], [166], [178], [180], [182] of the judgment).