Abbey Forwarding Ltd ((in Liquidation)) and Another v Richard John Hone and Others

Hearing dates: 20 th– 23 rd and 26 th– 28 th, 30 th November and 11 th December 2012

HH Judge Pelling QC:

Introduction

These Proceedings

This is an Inquiry concerning a claim by the 1 ^st, 3 ^rd and 4 ^th Defendants (hereafter collectively "the Defendants" and individually respectively "Mr Hone", "Mr P Owen" and "Mr W Owen") to recover sums said to be due pursuant to a cross-undertaking in standard form given on behalf of the 1 ^st Claimant ("Abbey") to the Court ("the cross-undertaking") in respect of a freezing order made against the Defendants by Blackburne J on 4 ^th February 2009, and amended by a consent Order made by Warren J on 18 ^th February 2009 ("the Freezing Order"). The Freezing Order was discharged with effect from 10 ^th September 2010 by Lewison J (as he then was) by an Order made on 30 ^th July 2010, following the dismissal of the claim in support of which the Freezing Order had been made. Lewison J directed this inquiry at the same time. The circumstances that led to these events are explained further below in the section entitled "Background". The Defendants' cross-undertaking claim has been quantified by them in a total of between £1m and £1.9m.

The Role of HM Revenue & Customs in these Proceedings

Although the cross-undertaking was given to the Court by Abbey, HM Revenue & Customs ("HMRC") gave an indemnity in respect of any liability Abbey might incur on the cross-undertaking. Following the commencement of the Inquiry, HMRC applied to be joined as a claimant to these proceedings and an Order to that effect was made by consent by Master Price on 2 ^nd October 2012. By Paragraphs 2 and 3 of that Order HMRC is recorded as having adopted Abbey's Defence and all the evidence filed on behalf of Abbey. Abbey did not appear and was not represented at the hearing before me. In the result the claim by the Defendants has been resisted by HMRC. HMRC deny that Abbey is liable in respect of any of the claims that have been made by the Defendants other than one and contend that the maximum value of the claim (subject to liability being established) is no more than £21,000.

The Strike-Out Application

At the outset of the trial I determined an application made by an Application Notice issued on behalf of HMRC on 15 ^th September 2012 by which an order was sought striking out various sub-paragraphs of the Points of Claim filed by the Defendant. The basis of that application was that (a) certain of the sub-paragraphs related to losses suffered by third parties, not the, or any of the, Defendants and thus were not even arguably recoverable under the cross-undertaking relied on by the Defendants, and (b) the claim by the Defendants for exemplary damages was not arguable as a matter of law. The Application Notice also contained an application to strike out some paragraphs from the report of the expert accountancy witness who was to be called on behalf of the Defendants. I return to that part of the application in Paragraph 9 below.

I struck out the relevant sub-paragraphs of the Points of Claim for detailed reasons that I gave at the time but which in summary were because, in relation to first point, as a matter of construction, the undertaking did not entitle someone other than the Defendants to make a claim or entitle the Defendants to bring a claim in respect of losses suffered by someone other than the Defendants and because the principles identified in Linden Gardens Trust Limited v. Lenesta Sludge Disposals Limited [1994] 1 AC 85 and Alfred McAlpine Construction Limited v. Panatown Limited [2001] 1 AC 518 were of no application to a claim based on a cross-undertaking applying SmithKline Beecham Plc v. Apolex Europe Limited [2006] EWCA Civ 658 [2007] Ch 71. I struck out the claim for exemplary damages following the reasoning of Jack J in Al-Rawas v. Pegasus Energy Limited and others [2008] EWHC 617 (QB) [2009] 1 All ER 346.

Case and Trial Management

There were two other events in the course of the trial that I should note at this stage. First, there was an application made by the Defendants to adduce in evidence some undisclosed material for the purpose of attempting to demonstrate that some answers given by Ms Brittain in the course of her cross examination were untruthful. I refused that application for detailed reasons that I gave at the time but in summary were because the issue to which the questions went was a collateral issue and evidence to contradict answers given in cross examination as to a collateral issue was not admissible.

Secondly, during the early evening of the 23 ^rd November 2012, I was informed by Mr Nathan on behalf of all the parties that they had agreed that the quantum aspects of this case would no longer form part of the hearing before me. I was not forewarned that this was a possibility and would not have acceded to such an application had it been made. By the start of the trial three extensive expert accountant reports had been prepared and cross-served, and a fourth was produced in the course of the hearing. The cost of producing this material will undoubtedly have been substantial. Inevitably the material has been prepared on a number of hypotheses concerning which claims would succeed and on various factual assumptions concerning the basis on which it had been assumed that the claims would succeed. Thus it was likely that resolving expert accounting issues would have taken rather longer at trial than was desirable. This might have led the parties to consider applying at an early stage for the initial hearing to be on all liability issues with the quantum issues being left for determination once the extent of Abbey's liability had been established. If that course had been adopted at an early stage I can see that some costs savings might have been made. However that course was not adopted.

On 26 ^th November, I made clear my views as to what had been proposed but it became apparent that I had been left with no practical choice but to accede to what had been agreed by the parties. I was told that the experts had been released and were no longer available to give evidence within the period reserved for the trial. I was also told that Mr Coppel would be professionally embarrassed if I directed the trial to proceed in the following week. In fact I have been able to arrange for any quantum issues to be tried before me in Manchester starting on the 22 ^nd January 2013.

As noted above, HMRC's strike out application applied not merely to the Points of Claim but also to a number of paragraphs within the expert report prepared by Mr Kevin Harding, the expert forensic accountant relied on by the Defendants. Mr Nathan declined to move that part of his application at the start of the trial because, he submitted, it would be preferable to leave that until the experts gave evidence. I acceded to that submission but in light of what has happened concerning the quantum aspects of this claim, that application was not in the end moved.

The Trial

The trial took place between 20 ^th– 23 ^rd, 26 ^th– 28 ^th and 30 ^th November 2012. I heard evidence from each of the Defendants, and from Mr Wates, Mr Osborn, Mr Welch, Mr Short and Mr Cruise, each of whom gave evidence on behalf of the Defendants, and from Ms Brittain, who was the liquidator of Abbey at all times material to these proceedings although she has since been replaced by court order. Mr Davies' and Mr Tooth's evidence on behalf of HMRC was agreed.

Background

Abbey operated a freight forwarding and goods warehousing business from premises in South East London ("the Warehouse") that it leased informally from Wingpitch Limited, a company owned by Messrs Owen and various members of their families ("Wingpitch"). In May 2002 Abbey was granted an excise licence. Thereafter, it carried on a bonded warehouse business from the Warehouse. In 2005, Abbey entered into a movement guarantee arrangement with HMRC that enabled it to arrange transport of goods under bond from one bonded warehouse to another located either in England and Wales or elsewhere within the EU. Haulage was carried out either by road haulage operators appointed by Abbey's customers or by operators appointed by Abbey.

HMRC alleged that there had been large scale evasions of excise duty on alcohol that had been stored in bond at the Warehouse as a result of such goods being diverted while in the course of transit from the Warehouse to another bonded facility. Abbey had been named in the documentation associated with the relevant movements as the consignor of the goods and/or the relevant movements of goods had been carried out under Abbey's movement guarantee. In consequence, assessments in the sum of approximately £5.965m were raised by HMRC against Abbey ("the Assessments"). This represented excise duty and VAT allegedly lost to the Crown as a result of the alleged diversion of 301 separate consignments of bonded goods in transit from the Warehouse. It was Abbey's role as consignor and/or the movement guarantee that gave rise to the alleged liability on which the Assessments were based.

HMRC presented a Petition seeking a winding up order against Abbey based on non-payment of the sums supposedly due under the Assessments. At a hearing on 4 February 2009 HMRC applied for the appointment...