Bilta (UK) Ltd ((in Liquidation)) and Others v Natwest Markets Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Snowden |
| Judgment Date | 10 March 2020 |
| Neutral Citation | [2020] EWHC 546 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: FL-2016-000017 |
| Date | 10 March 2020 |
[2020] EWHC 546 (Ch)
Mr Justice Snowden
Case No: FL-2016-000017
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY DIVISION
FINANCIAL LIST
Rolls Building, 7 Rolls Building
Fetter Lane, London, EC4A 1NL
Christopher Parker Q.C., Orlando Gledhill Q.C. and Oliver Butler (instructed by Rosenblatt Limited) for the Claimants
John Wardell Q.C. and Michael Ryan (instructed by Pinsent Masons LLP) for the First Defendant
Kenneth MacLean Q.C. and Steven Elliott Q.C. (instructed by Slaughter and May) for the Second Defendant
Hearing dates: 14, 18–22, 25–27 June, 2–6, 10–11, 17–20 July 2018
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.
| INDEX TO JUDGMENT | Para |
| A. INTRODUCTION | 1 |
| B. MTIC FRAUD AND THE CARBON EMISSIONS MARKET | 12 |
| C. DRAMATIS PERSONAE | 31 |
| D. THE FACTS IN OUTLINE | 60 |
| E. THE PLEADED CASES IN OUTLINE | 139 |
| F. THE LAW | 158 |
| G. THE TRADERS' STATES OF MIND | 246 |
| H. CONCLUSIONS ON DISHONESTY | 434 |
| I. REMEDIES | 531 |
| J. THE TRANSACTION CHAINS | 538 |
| K. CONCLUSION | 577 |
A. INTRODUCTION
These proceedings concern a claim for dishonest assistance and knowing participation in fraudulent trading. The claim is brought by Bilta (UK) Limited and a number of other companies incorporated in England and Wales which are in insolvent liquidation, together with their respective liquidators (the “Claimant companies” or the “Claimants”).
The First Defendant is NatWest Markets plc, which at the relevant time was called The Royal Bank of Scotland plc, and hence will be referred to in this judgment as “RBS”. The Second Defendant is Mercuria Energy Europe Trading Limited, which at the relevant time was an indirect subsidiary of RBS called RBS Sempra Energy Europe Limited, and hence will be referred to as “RBS SEEL”.
RBS SEEL was the employer of traders who traded European Union (“EU”) carbon credits called EU Allowances (“EUAs”) on behalf of RBS pursuant to a joint venture between RBS and Sempra Energy which operated under the name RBS Sempra. By such trading, RBS and RBS SEEL are alleged to have participated in the commission of missing trader intra-community VAT fraud (“MTIC fraud”) in the summer of 2009.
The MTIC fraud was perpetrated by the directors of the Claimant companies, who caused their companies to participate in chains of transactions for the purchase of EUAs from other EU member states (which did not attract VAT) and the sale of those EUAs to UK counterparties (which did attract VAT). The directors of the Claimant companies then misappropriated or misapplied (or consented to the diversion by their counterparty of) the VAT payable on the EUAs that they had sold, rather than accounting for it to HMRC. The Claimant companies were then left without assets and defaulted on their obligations to HMRC.
It is alleged that these breaches of fiduciary duty by the directors to the Claimant companies were dishonestly assisted by the two traders employed by RBS SEEL, who caused RBS to buy very large quantities of EUAs from an intermediary called CarbonDesk Limited (“CarbonDesk”). It is alleged that, against a background of rumours of VAT fraud in the emissions trading market, the two traders had clear suspicions from 17 June 2009 about the legitimacy of the very significantly increased volume and nature of the very profitable trading which they were doing with CarbonDesk; but that instead of raising their suspicions with the compliance department at RBS Sempra or with CarbonDesk directly (as the traders now contend that they did), in fact the two traders dishonestly turned a blind eye and carried on trading regardless.
It is alleged that this trading continued unchecked until a letter was received by RBS on 30 June 2009 from BlueNext, the leading exchange for trading in spot EUAs, querying the sudden surge in volumes traded by RBS and asking RBS to provide details of the source of the EUAs that it was selling on the exchange. Although receipt of this letter led to the involvement of the compliance and anti-money laundering (“AML”) departments at RBS Sempra and RBS, trading continued for several days whilst the position was investigated.
As well as investigating the trading with CarbonDesk, at the same time concerns were also raised by the AML team at RBS about the account activities of another company which was involved in the MTIC fraud. A decision was then made in the afternoon of Friday 3 July 2009 by RBS management to cease emissions trading with CarbonDesk.
The trading of which complaint is made also includes some trades which were conducted with CarbonDesk on Monday 6 July 2009 after the decision had been made on Friday 3 July 2009 that trading should cease. This occurred because there was concern within RBS that if trading stopped immediately, CarbonDesk might refuse to reissue about €40 million of invoices with a corrected VAT number which were required to enable RBS to reclaim VAT. It is said that, independently of propriety of the earlier trading, the decision of a lawyer at RBS that trading should continue in those circumstances until the reissued VAT invoices were received, was dishonest.
The Claimant companies are now all in insolvent liquidation. The total value of the pleaded claim for dishonest assistance is more than £83 million. This is alleged to be the amount of the Claimant companies' unpaid VAT liabilities to HMRC in respect of 445 transaction chains. These include the trading between RBS and CarbonDesk, together with further trades between RBS and another intermediary called GW Deals.
In the alternative, the liquidators of each of the Claimant companies claim compensation from RBS and RBS SEEL under section 213 of the Insolvency Act 1986 (“Section 213”) on the basis that they knowingly participated in fraudulent trading by the Claimant companies.
As I have indicated, the Claimants' pleaded case included claims in relation to RBS's trading with GW Deals. As the evidence unfolded at trial, however, I had very little visibility of the events in relation to GW Deals – still less as to the traders' knowledge and state of mind in relation to their trading with that company. The allegations of turning a blind eye in relation to GW Deals were not clearly developed or put to the traders. I therefore propose to dismiss the Claimants' case in relation to such trading and I will confine my narrative and analysis of the evidence to the facts in relation to the trading with CarbonDesk.
B. MTIC FRAUD AND THE CARBON EMISSIONS MARKET
MTIC Fraud
At the time of the events in issue in this case, MTIC fraud was an EU-wide criminal activity which exploited the fact that imports of goods from one EU country to another were VAT-free. In its most basic form, an MTIC fraud involved a company in one EU member state importing easily transportable goods VAT-free from another EU member state, and selling them within the first country with VAT added to the sale price. This resulted in the importer running up extensive liabilities to national revenue authorities to account for the VAT which it had received. The dishonest directors of the importer would then cause its VAT receipts to be paid away to third parties and the remainder of the price to be paid to the supplier of the goods, with the result that the importer would be left with no assets and would default on its liabilities to the revenue authorities.
A more detailed description of the classic elements of an MTIC fraud (including so-called “contra-trading”) was given by Christopher Clarke J in Red 12 Trading Limited v HMRC [2010] STC 589,
“2. Trader A imports goods, commonly computer chips and mobile telephones, into the United Kingdom from the European Union (“EU”). Such an importation does not require the importer to pay any VAT on the goods. A then sells the goods to B, charging VAT on the transaction. B pays the VAT to A, for which A is bound to account to HMRC. There are then a series of sales from B to C to D to E (or more). These sales are accounted for in the ordinary way. Thus C will pay B an amount which includes VAT. B will account to HMRC for the VAT it has received from C, but will claim to deduct (as an input tax) the output tax that A has charged to B. The same will happen, mutatis mutandis, as between C and D. The company at the end of the chain – E – will then export the goods to a purchaser in the EU. Exports are zero-rated for tax purposes, so Trader E will receive no VAT. He will have paid input tax but because the goods have been exported he is entitled to claim it back from HMRC. The chains in question may be quite long. The deals giving rise to them may be effected within a single day. Often none of the traders themselves take delivery of the goods which are held by freight forwarders.
3. The way that the fraud works is that A, the importer, goes missing. It does not account to HMRC for the tax paid to it by B. When HMRC tries to obtain the tax from A it can neither find A nor any of A's documents. In an alternative version of the fraud (which can take several forms) the fraudster uses the VAT registration details of a genuine and innocent trader, who never sees the tax on the sale to B, with which the fraudster makes off. The effect of A not accounting for the tax to HMRC means that HMRC does not receive the tax that it should. The effect of the exportation at the end of the chain is that HMRC pays out a sum, which represents the total sum of the VAT payable down the chain, without having received the major...
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