Arena Corporation Ltd (in Provisional Liquidation) v Shroeder
| Jurisdiction | England & Wales |
| Judgment Date | 15 May 2003 |
| Neutral Citation | [2003] EWHC 1089 (Ch) |
| Docket Number | Case No: 02003642 |
| Court | Chancery Division |
| Date | 15 May 2003 |
[2003] EWHC 1089 (Ch)
Alan Boyle Qc sitting as a deputy judge of the Chancery Division
Case No: 02003642
IN THE HIGH COURT OF JUSTICE
Royal Courts of Justice
Strand, London, WC2A 2LL
Paul Girolami QC (instructed by Moon Beaver) for the Claimant
A G Bompas QC and Andrew de Mestre (instructed by Berg & Co) for Defendant
ALAN BOYLE QC sitting as a deputy judge of the Chancery Division
Hearing dates: 12, 13, 14 and 17 March 2003
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 Alan Boyle QC:
INTRODUCTION
This is an application to continue freezing orders made against the Defendant without notice by Peter Smith J on 5 December 2002. The orders were continued on notice by Lindsay J on 16 December 2002 until after judgment on the application. The Claimant now applies to continue the orders until judgment at trial or further order in the meantime.
The proceedings arise out of an alleged fraud on Her Majesty's Customs & Excise ("HMCE"). Briefly, it is alleged that the Claimant, The Arena Corporation Limited ("Arena"), under the direction of its de facto director the Defendant ("Mr Schroeder") committed what is known to HMCE as an "excise diversion fraud". In this type of fraud, a company buys dutiable alcoholic drinks "in bond", and purports to sell and transport them on a "duty-suspended" basis to European warehouses, when in fact the goods are sold on the black market in the UK without payment of VAT and Excise Duty. The sale usually takes place at a price somewhere between the duty free price and the price at which they would be sold if VAT and Excise Duty had been paid. The proceeds are pocketed in cash and the public purse suffers a major loss.
It is alleged in this case that Mr Schroeder orchestrated such a fraud through Arena, a company incorporated in the Isle of Man. It is alleged that 18 consignments of alcohol owned by Arena were sent from bonded warehouses in England destined for a bonded warehouse in Belgium known as Transport International Nieuwport ("TIN"), but that those consignments did not reach TIN. It is further alleged that a single consignment was sent to a bonded warehouse in Italy called SERIO Import Export di Gualandris Egenio ("SERIO") but that this consignment did not arrive either. HMCE alleges that Arena bought the drink in the UK and then sold it illegally in the UK for about £800,000 received in cash in Southend. HMCE also alleges that the purported buyers did not exist, and that Mr Schroeder raised false invoices and other documents to "prove" the existence of sales which were not genuine. Finally, it is alleged that he procured false documents to be sent to the warehouse of despatch purporting to prove, contrary to fact, that the goods had arrived at TIN and SERIO. The amount of unpaid excise duty and VAT has been assessed by HMCE at £1.8 million.
Arena is a company incorporated in the Isle of Man. Its directors belong to a corporate services firm in the Isle of Man. Until recently, Mr Schroeder was not a de jure director of Arena. However, HMCE alleges that he was a de facto director and the controlling influence in its affairs. Mr Schroeder is a Canadian national living in Denmark.
Having investigated the facts for several months, HMCE took action without notice to Arena or Mr Schroeder. On 5 December 2002, HMCE presented a winding-up petition in respect of Arena and immediately applied without notice for the appointment of a provisional liquidator over Arena. The application was made to Peter Smith J, supported by an affidavit of Ms Helen Marston, an officer in the Civil Asset Recovery Team of HMCE, sworn on 4 December 2002. The affidavit was a substantial document containing 61 numbered paragraphs and an exhibit of 320 pages. I will have to examine this affidavit in detail later. Peter Smith J made the order sought.
Immediately following her appointment, the provisional liquidator, Ms Louise Brittain, a licensed insolvency practitioner, and a partner in Baker Tilley, by the same team as represented HMCE, caused Arena to apply for a without notice freezing order and other relief against Mr Schroeder. The evidence relied on was the same, i.e. the affidavit of Ms Marston. Peter Smith J made that order also. The main part of the order was a freezing injunction preventing Mr Schroeder from disposing of his assets worldwide save to the extent that they exceeded £1.9 million. Mr Schroeder was also ordered to provide information about his assets worldwide, giving the value, location and details of all such assets, and to deliver to Arena's solicitors all books papers records and other documents of Arena which were within his possession or control. The basis for the claim against Mr Schroeder was that by his actions he had wrongfully procured Arena to be exposed to a liability to HMCE for the duty on the relevant consignments.
In accordance with the directions contained in the freezing order, the proceedings were then served on Mr Schroeder, and the matter came before Lindsay J on notice on 16 December 2002. At that hearing, Mr Schroeder, represented by Mr Bompas QC, contended that the freezing order had been obtained against him on the basis of insufficient and unsubstantiated evidence and that there was material non-disclosure of important facts going to the heart of the applicant's case. He also contended that such evidence as was before the court was substantially misleading or incorrect and did not justify the grant of the injunction. This case was set out in an 8 page skeleton argument submitted to the court before the hearing on 16 December 2002, and a note handed in at the hearing containing a further 18 points.
By the date of the hearing before Lindsay J, Mr Schroeder had not filed evidence in answer to that relied on by the provisional liquidator of Arena. Mr Bompas QC's submission was that the defective nature of the evidence was such as to justify the immediate discharge of the without notice order without evidence from his client. It is clear on the authorities that the court has power in an appropriate case to take that step. For his part, Mr Girolami QC, who appeared for Arena, submitted that the matter should be adjourned for a full inter partes hearing with evidence from Mr Schroeder and evidence in reply to that evidence.
Lindsay J. heard argument and in a short judgment held that without evidence from Mr Schroeder it would not be right to set aside the freezing order. He accordingly adjourned the application for a continuation of the freezing order until trial, gave directions for the filing of evidence and continued the freezing order in the meantime. By the date of the hearing before Lindsey J, paragraphs 9 and 10 of Peter Smith J's order (the disclosure orders) had not been complied with by Mr Schroeder. Lindsey J held that these paragraphs should not be interfered with, and the result was that Mr Schroeder was obliged to comply with them. Accordingly on 20 December 2002, Mr Schroeder swore an affidavit providing the information directed by those paragraphs.
On 16 January 2003, Mr Schroeder filed a 25 page witness statement setting out his detailed answer to the case against him. This was accompanied by 3 exhibits totalling 257 pages. It gave Mr Schroeder's account of the facts relating to the disputed consignments and criticised Ms Marston's affidavit for making untrue and unsubstantiated allegations of criminal conduct against him. That evidence was then answered by Arena in a statement of the provisional liquidator Ms Louise Brittain of 7 February 2003, together with a further 817 pages of exhibits. Arena also relied on a statement of Ms Claire Davies dated 6 February 2003. This evidence was then supplemented by a further statement from Ms Brittain of 7 March 2003. No further evidence from Ms Marston herself was filed at that stage explaining the basis on which she had made the statements contained in her original affidavit. In the result, when the matter came before me on 12 March 2003, the evidence and exhibits filled 6 lever arch files. I was very much assisted in my examination of this large amount of material by the written skeleton arguments of both counsel and by their clear and concise oral argument. I should add that Mr Schroeder filed a further witness statement at 1 pm on 12 March 2003 answering various points in Ms Brittain's witness statement of 7 March 2003.
THE ISSUES ON THE APPLICATION
There are two main issues which I have to decide:
(1) Whether Arena demonstrates, on the totality of the material now before the court, that this is an appropriate case for the continuation of the freezing order until trial. This turns on whether Arena has shown a good arguable case that Mr Schroeder practised the alleged fraud, and whether Arena has shown a risk that in the absence of the order sought Mr Schroeder would dissipate his assets rendering a later money judgment nugatory.
(2) Whether there was a material non-disclosure, or a material misrepresentation, of relevant facts on the without notice application on 5 December 2002 such as to disentitle Arena to relief on this application.
I should say at once that I am satisfied that, in the absence of the complaints about non-disclosure and misrepresentation on the without notice application, this would be an appropriate case for the continuation of the freezing order until trial or further order. I am also satisfied that the terms of Ms Marston's affidavit were such that there was material non-disclosure and misrepresentation of relevant facts on the...
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