Abbey Forwarding Ltd ((in Liquidation)) v Richard John Hone and Others
| Jurisdiction | England & Wales |
| Judge | THE HON MR JUSTICE LEWISON,Mr Justice Lewison |
| Judgment Date | 30 July 2010 |
| Neutral Citation | [2010] EWHC 2029 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC09C00297 |
| Date | 30 July 2010 |
[2010] EWHC 2029 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Before: The Hon Mr Justice Lewison
Case No: HC09C00297
Peter Shaw and Jonathan O'Mahoney (instructed by Moon Beever) for the Claimants
James Pickup QC and David Bedenham (instructed by Bark and Co) for the Defendants
Hearing dates: 6 th– 20 th July 2010
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.
Mr Justice Lewison:
| Introduction | 2 |
| The company | 3 |
| Duty suspension | 3 |
| The legislation | 3 |
| AADs | 7 |
| Diversion fraud | 8 |
| Outward diversion fraud | 9 |
| Borrowed loads | 9 |
| Inward diversion fraud | 10 |
| Other regulatory considerations | 10 |
| WOWGR | 10 |
| Operator's licence | 12 |
| Tractor swaps | 12 |
| The assessments | 12 |
| The claims | 13 |
| Legal framework | 13 |
| The pleaded case | 14 |
| Burden and standard of proof | 15 |
| Burden of proof | 15 |
| Standard of proof | 15 |
| Cases of fraud or dishonesty | 17 |
| Precautions | 18 |
| The allegation of dishonesty | 20 |
| The Company's systems | 21 |
| Personnel | 21 |
| Due diligence | 21 |
| Abbey's movement guarantee | 23 |
| Early warning system | 24 |
| Loading and despatch | 24 |
| Officer Lawler | 26 |
| The customers | 27 |
| Glenn | 27 |
| SAS | 28 |
| W2W | 28 |
| The hauliers | 29 |
| The French bonded warehouses | 29 |
| Wybo | 29 |
| MT Manut | 30 |
| The French cash and carries | 31 |
| Davedas | 31 |
| Calais SARL | 32 |
| Boissons Extra | 33 |
| Changes since 2007 | 33 |
| Conclusions | 33 |
| Interceptions | 34 |
| Movements in 2008 | 45 |
| The Glenpark assessment | 45 |
| The Lauvie assessment | 47 |
| Cash payments to Abbey | 48 |
| The directors’ lifestyles | 49 |
| Did the goods arrive? | 51 |
| The main assessments | 52 |
| The Glenpark assessment | 54 |
| The Lauvie assessment | 54 |
| The allegations of dishonesty | 55 |
| Fraudulent underlying transactions | 55 |
| Use of MH Forwarding | 56 |
| Failure to account for cash | 56 |
| Failure to follow up irregularities | 56 |
| Directors’ lifestyles | 57 |
| Breach of duty of skill and care | 57 |
| Mr Mills | 60 |
| Result | 60 |
Introduction
Abbey Forwarding Ltd (“Abbey”) was ordered to be wound up on 18 March 2009 on the petition of Her Majesty's Revenue & Customs (“HMRC”). The petition debt arose out of assessments that HMRC had made in respect of excise duty and VAT. The assessments were based on HMRC'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 Abbey's bonded warehouse in West Thamesmead, South East London. Abbey 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 Abbey's movement guarantee. It was Abbey's description as consignor and that guarantee that founded its liability.
Ms Louise Brittain was appointed as Abbey's liquidator. Abbey brings this action against its four former directors. All four of them are said to have been negligent in allowing the Abbey to be exposed to the liability to HMRC. In addition, three of them, Mr Hone and Messrs Owen are alleged to have been dishonestly complicit in the alleged excise diversion frauds that underlay the assessments. The amounts in issue exceed £7 million.
Abbey's case was presented by Mr Peter Shaw and Mr Jonathan O'Mahony. The case for the directors was presented by Mr James Pickup QC and Mr David Bedenham.
The order to wind up the company had been preceded by Ms Brittain's appointment as provisional liquidator. Blackburne J heard that application, which was made by HMRC on 4 February 2009. HMRC put their case high. Leading counsel for HMRC told the judge that it was HMRC's case that Abbey was at the heart of the fraudulent activity; that its directors were living beyond their declared means; and that the directors were fraudsters who might move assets and cash and destroy evidence. Although the judge had some misgivings about the draconian effect of appointing a provisional liquidator, he was persuaded to do so.
The company
Abbey was founded by Messrs Owen's father in the early 1970s. It was primarily a freight forwarding and warehousing business. In the early years it dealt in dry goods, such as clothing. But in May 2002 it was granted an excise licence. From that time part of its business consisted in operating a bonded warehouse. It operated from a warehouse of 53,000 square feet and employed 23 staff. It leased the warehouse from a separate company owned by Messrs Owen. As well as the bonded warehouse Abbey also dealt in the import and export of freight; air freight, export packing and a small amount of domestic transport. In an average month there were three hundred movements into the warehouse and three hundred movements out. This equates to seven thousand trailers a year. Abbey did not undertake international haulage itself, but for many of its customers it arranged haulage by a haulier drawn from a pool of hauliers whom it regularly used. Some of its customers (including those with which this case is concerned) chose their own hauliers.
Messrs Owen have worked for Abbey since they left school in the early 1970s. Mr Bill Owen is in the Accounts Division; and Mr Pat Owen oversaw the warehouse. Mr Rick Hone began to work for Abbey in about 2002, having run his own transport, shipping and freight forwarding business for many years. In 2005 the Company secured a movement guarantee which enabled it to arrange transport of goods under bond from one bonded warehouse to another.
Duty suspension
The legislation
Alcoholic liquor produced in (or imported into) the United Kingdom becomes in principle liable to excise duty when it is produced (usually at the moment that it is put into any package or removed from the brewery) or imported. However, liability to pay the duty is delayed and arises only when the alcoholic liquor passes the “duty point”. The “duty point” is usually the point at which the alcoholic liquor is released for consumption. However, the duty point may be postponed and the alcoholic liquor may remain duty suspended if it is removed to other registered premises or to an approved excise warehouse (often referred to as “bonded warehouses”). When any suspended duty movement takes place the persons concerned are required to complete an “accompanying administrative document” (known as an AAD). I will describe this later.
The general arrangements for products sold subject to excise duty and on the holding, movement and monitoring of duty suspended products were laid down by the Council for the European Communities in Council Directive 92/12/EEC (“the Directive”). This remains the primary source of the legislation on excise duties throughout the Community. Article 1 indicates that the object of the Directive is to lay down arrangements for excise duties and other indirect taxes, except VAT, levied in respect of the consumption of products but recognises that specific directives are needed relating to structures and rates of duty on products subject to excise duty. Article 3 provides that the Directive applies at Community level to, amongst others, alcohol and alcoholic beverages. Article 4 contains definitions of “authorised warehousekeeper”, “tax warehouse”, “suspension arrangement”, “registered trader” and “non-registered trader”. The phrase “suspension arrangement” is defined as:
“a tax arrangement applied to the production, processing, holding and movement of products, excise duty being suspended”.
Article 6 provides that
“1. Excise duty shall become chargeable at the time of release for consumption or when shortages are recorded which must be subject to excise duty in accordance with Article 14(3). Release for consumption of products subject to excise duty shall mean:
(a) any departure, including any irregular departure, from a suspension arrangement;
(b) any manufacture, including irregular manufacture, of those products outside a suspension arrangement;
(c) any importation of those products, including irregular importation, where those products have not been placed under a suspension arrangement.
Title II relates to the production, processing and holding of products subject to excise duty. Article 11 lays down the primary rule that production, processing and holding of products subject to excise duty “shall take place in a tax warehouse”. By Article 13 an authorised warehousekeeper, as defined, is required to provide a guarantee
“if necessary, to cover production, processing and holding and a compulsory guarantee to cover movement, subject to Article 15(3), the conditions for which shall be set by the competent authorities of the Member State in which the tax warehouse is authorised;”
Article 14 exempts authorised warehousekeepers, under suspension arrangements, from “losses inherent in the nature of the products during production, and processing, storage and transport”. Such losses are to be established according to the rules of the Member State of destination.
Title III deals with movement of goods. In general movement of products subject to excise duty must take place between tax warehouses. By Article 15(3) and (4)
“(3) The risks inherent in intra-Community movement shall be covered by the guarantee provided by the authorized warehousekeeper of dispatch, as provided for in Article 13, or if need be, by a guarantee jointly and severally binding both the...
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