Abbey Forwarding Ltd ((in Liquidation)) v HM Revenue & Customs
| Jurisdiction | England & Wales |
| Judge | Mr Justice David Richards |
| Judgment Date | 06 February 2015 |
| Neutral Citation | [2015] EWHC 225 (Ch) |
| Docket Number | Case No: 10695/2009 |
| Court | Chancery Division |
[2015] EWHC 225 (Ch)
Mr Justice David Richards
Case No: 10695/2009
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Rolls Building
London, EC4A 1NL
Leigh-Ann Mulcahy QC and Nicholas Broomfield (instructed by Banks Kelly Solicitors Limited) for the Applicant
Stephen Nathan QC, Sarah HarmanandRuth Hughes (instructed by Howes Percival LLP) for the Respondents
Hearing dates: 11, 12 and 13 November 2014
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
Abbey Forwarding Limited (Abbey) applies for an inquiry as to damages on an undertaking given by Her Majesty's Revenue & Customs (HMRC) on the appointment of a provisional liquidator of Abbey in February 2009. HMRC oppose the application.
The undertaking, recited in the order appointing the provisional liquidator, was in the following conventional terms:
"to abide by any Order which the Court may make as to damages in case the Court shall be of the opinion that the Company shall have sustained any by reason of this Order which the Applicant ought to pay."
The principal evidence in support of the application for the appointment of a provisional liquidator was an affidavit of an officer of HMRC who, at paragraph 452, stated:
"I am advised by Howes Percival LLP and believe that, before appointing a provisional liquidator, the Court will require an undertaking in damages. HMRC is, of course, a Government Department, well able to satisfy liability in respect of costs and damages should an Order appointing joint provisional liquidators be made, and subsequently transpire to be unjustified. Counsel will offer such an undertaking in damages to the Court as the Court may require. I confirm that HMRC both understand and accept that, the company has apparently been a trading company and that such an undertaking in damages is potentially without limit, albeit that HMRC contends that none of that trading was "legitimate"."
At any time after the presentation of a winding-up petition and before the making of a winding-up order, the court has jurisdiction under section 135 of the Insolvency Act 1986 to appoint a provisional liquidator, who will carry out such functions as the court may confer on him. The grounds on which the court may appoint a provisional liquidator are not specified, but in the present case, as in most cases, a principal ground was that the assets of the company are in jeopardy and require to be secured.
It is well recognised by the courts that the appointment of a provisional liquidator will frequently inflict terminal damage on the company. In some cases the provisional liquidator will close the business, while in others the very fact of the appointment will destroy or undermine the willingness of others to do business with the company. As will later appear, the judge making the appointment in this case was very conscious of the likelihood that this would occur in the present case, as indeed it did.
For this reason, an undertaking in damages is particularly important. In HMRC v Rochdale Drinks Distributors Ltd [2011] EWCA Civ 1116; [2013] BCC 419, a case to which I will later refer in greater detail, Lewison LJ at [109] referred to the extent to which the prejudice to the company may be compensated by an award of damages or enforcement of the undertaking, as one of the matters which the court will take into account when deciding whether to appoint a provisional liquidator, Even then, as he observed at [110]:
"If a business is shut down wrongly, the cross-undertaking is unlikely to provide adequate compensation to the company concerned, let alone to the employees who will have lost their jobs and to whom no cross-undertaking will usually have been offered."
Summary of the facts
A very brief summary of the essential facts, to which I will return in more detail, is as follows:
1) Abbey started business as a freight forwarding and warehousing business in 1971 and from 2002 operated an authorised warehouse under an excise licence granted by HMRC. This became a substantial business and in 2005 Abbey was authorised to arrange the transport of goods under bond from its warehouse.
2) As a result of investigations conducted in 2008 and early 2009, HMRC formed the view that Abbey was actively involved in the fraudulent evasion of excise duty on alcoholic goods on a very significant scale.
3) On 2 February 2009, HMRC raised, but did not serve, assessments to excise duty totalling £5,965,704. The service of these assessments would by statute create a debt, subject to appeal.
4) On 4 February 2009, HMRC presented a petition to wind up Abbey and on the same day applied, without notice to Abbey, for the appointment of a provisional liquidator. A lengthy affidavit was sworn by an officer of HMRC in support of this application and it set out in detail the allegations by HMRC that Abbey was involved in excise duty evasion. The allegedly fraudulent conduct of Abbey's business was the principal ground for the appointment of the provisional liquidator.
5) Immediately following the appointment of the provisional liquidator, counsel for the provisional liquidator applied to the same judge for a worldwide freezing order against three out of the four directors, who were also the shareholders of Abbey (the directors), in aid of misfeasance proceedings which the provisional liquidator undertook to issue. The misfeasance proceedings were based entirely on the case made by HMRC and the HMRC officer's affidavit was sworn both in the winding-up petition and in the misfeasance proceedings. Abbey, acting by its provisional liquidator, gave an undertaking in damages. HMRC provided an indemnity in respect of both the undertaking in damages and any adverse order for costs in the proceedings.
6) The business of Abbey was closed down shortly after the appointment of the provisional liquidator, as the judge making the appointment had predicted.
7) All these actions had a significant impact on the directors and one of them suffered a mental breakdown.
8) No application was made to discharge the appointment of the provisional liquidator and the winding-up petition was not opposed when it was heard on 18 March 2009 and accordingly a winding-up order was made. The provisional liquidator became the liquidator.
9) The provisional liquidator pursued the misfeasance proceedings which came on for trial before Lewison J in July 2010. After a 13 day trial, the proceedings were dismissed. The judge found that there had been no evasion of duty in respect of any of the consignments to which the assessments raised in February 2009 referred.
10) Notwithstanding the judgment of Lewison J, HMRC made clear that it would not withdraw the assessments and the liquidator, despite the efforts of the directors, refused to seek to appeal the assessments. In November 2010, the directors were given permission by the court to lodge and conduct appeals on behalf of Abbey.
11) In January 2011, pursuant to that order, the directors lodged an appeal to the First-tier Tribunal on behalf of Abbey. HMRC's response in large part repeated the evidence already presented to the court on the application for the appointment of the provisional liquidator and at the trial of the misfeasance proceedings. Abbey applied to the Tribunal for the appeal to be allowed on the basis of Lewison J's findings. HMRC stated their intention to oppose this application on the grounds that Abbey could not rely on findings made in proceedings to which HMRC were not a party.
12) A hearing of the application was fixed for August 2011 but two working days before the hearing HMRC withdrew the assessments and the appeal was allowed. HMRC were ordered to pay the costs of the appeal and ordered to make an immediate interim payment of £215,000.
13) The directors sought to remove the liquidator and appoint a new liquidator, first at a meeting of creditors in December 2011 and secondly by an application to the court in 2012. HMRC opposed the replacement of the liquidator and had sufficient votes to defeat the resolution at the meeting of creditors. The application the following year was initially opposed by the liquidator but, once certain terms had been agreed, she agreed to an order removing her in August 2012.
14) In January 2013 the new liquidator purported to assign Abbey's rights under the undertaking given by HMRC on the appointment of the provisional liquidator to the directors, but, while HMRC objected that the assignment was ineffective, they agreed to the suggestion of a mediation. The mediation took place in July 2013 but unfortunately was not successful. The present application was issued on 1 November 2013.
15) At the conclusion of the trial of the misfeasance proceedings, Lewison J directed an inquiry on the undertaking in damages given by the liquidator on behalf of Abbey. The defence of the inquiry was conducted by HMRC, in view of the indemnity which it had provided. The inquiry was heard by HH Judge Pelling QC in December 2012 and January 2013. The directors made a modest recovery but were held liable to pay the bulk of Abbey's costs. On appeal, the Court of Appeal increased the damages payable to the directors and set aside the order for costs against the directors.
16) In January 2012, the directors established a new company to carry on business as a bonded warehouse at the same site as Abbey and with many of the same staff. Pursuant to the relevant regulations, HMRC granted the necessary licenses. For that purpose, HMRC had to be satisfied that all the key persons were fit and proper to...
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